Dry Bulk Recovery: Newbuild Orders "Almost Non-Existent"

GOG says that low ordering activity is "very important" if the market is to see sustained rate recovery.

Golden Ocean Group Ltd. (GOGL) had noted that dry bulk newbuild ordering activity is now "almost non-existant," with a total of 11.9 million DWT ordered so far this year - 10.8 million DWT of which can be attributed to orders for several Valemax vessels.

"The current market environment, the lack of financing available and the financial state of many owners are keeping new orders to a minimum. This low ordering activity is very important in order to enable the market rates to recover and stay at more healthy levels," GOGL commented in the market outlook of its second quarter results.

GOGL says total deliveries for the year could amount to about 45 million DWT, down from the 85 million DWT that was suggested from the official orderbook at the beginning of 2016.

Delays and renegotiations - said to be happening at most yards - are likely to significantly impact the rest of the year's deliveries, says GOGL, adding that the second quarter saw 10.9 million DWT in deliveries, down from the first quarter's 18.1 million DWT.

Meanwhile, scrapping is said to have fallen from 12.9 million DWT in the first quarter of 2016 to 10.5 million DWT during the second quarter.

GOGL notes that a number of analysts have predicted that net fleet growth for the year will fall within the range of 1-2 percent.

However, large differences in growth are expected between different segments, with the Panamax/Kamsarmax segment predicted to grow by 2 percent, the Supramax segment by as much as 8 percent, and the Capesize fleet predicted to remain the same size.

It all adds up to positive news for a sector that Scorpio Bulkers described market conditions as being like a "50 to 200 car pile-up" - and that was when the Baltic Dry Index (BDI) stood at 560.

Having subsequently slumped to a historic low of 290 in February, the BDI broke the 800 mark last Friday, gaining 12 points to reach 804 - the highest it has been since October 13, 2015.

"Should market rates continue at current levels, the supply side will slowly correct itself and the focus will be on the development in demand," said GOGL.

"In particular, it will be important how actual steel demand develops in China and whether the current stimulus packages will continue or fall off towards the end of the year. Steel prices in China will, therefore, be an important indicator to monitor."

In February, industry players voiced opinion that scrapping - rather than layups or slashing newbuild orders - is the dry bulk market's only hope for meaningful recovery.