Dry Bulk Could Become "Even Worse" Next Year, Says JP Morgan

J.P. Morgan says overcapacity in tonnage will be exacerbated in 2016 by an increased rate in newbuild deliveries and a decreased in scrapping.

Credit managers Friday were once again left guessing when conditions in the dry bulk market will improve following a new report by JPMorgan Chase & Co. (J.P. Morgan) that predicts next year will be even worse for the sector than 2015, Shipping Watch reports.

"We expect that 2016 could become an even worse year than the historically low 2015," stated J.P. Morgan in its report International Dry Bulk Shipping - Initiating Coverage of the Dry Bulk Shipping Industry.

The predicted continued slowed growth of the dry bulk sector has been attributed by J.P. Morgan to China's transition from an "investment-heavy" economy to a "consumer-driven" one where there is reduced coal and iron ore consumption, as well as less steel production.

The bank forecasts that overcapacity in the dry bulk sector will be exacerbated in 2016 thanks to an increase in tonnage and a decrease in scrapping, something that will not flatten out until the 2017-2019 period.

Meanwhile, as China's coal production drops, J.P. Morgan predicts that India will become the world's biggest importer of coal by the end of 2015.

However, the bank also notes that India plans to double its domestic coal production to one billion tonnes annually by 2020, ultimately driving down coal imports in the medium-long term.

JP Morgan's prediction comes in contrast to others in the industry who believe 2016 may provide at least a slight improvement for the sector.

Last month, Deutsche Bank offered a surprisingly upbeat outlook for dry bulk, saying it expects a spot rate spike in November and December to pave the way for the sector to enjoy a strong 2016.