Baltic Dry Index Edges Up Again, as Players Agree Scrapping is the Only Way to Get Real Recovery

Tuesday February 23, 2016

The Baltic Dry Index (BDI) Monday continued its slow upward climb, gaining one point to 316, as industry players once again voiced opinion that scrapping - rather than layups or slashing newbuild orders - is the dry bulk market's only hope for meaningful recovery.

Average TC spot rates Monday in the Supramax segment were up $116 dollars to reach daily earnings of $3,111, while both Capesize and Panamax segments declined, falling $64 and $34 to average daily earnings of $2,578 per day and $2810 per day, respectively.

The sector's key benchmark has now risen 16 points since its current all time low of 290 set on February 10 and 11, and while the rise has been welcome news to owners - it has been the BDI's first positive movements in 2016 - Noah Parquette of JPMorgan Chase & Co. (JP Morgan) said that "while it's encouraging to find a bottom, we stress that earnings can still be considered depressed by any measure."

With shipowners facing the reality that there could be as many as 1,430 too many vessels than needed, speakers as last week's Capital Link Greek Shipping Forum said that scrapping, rather than layups or other temporary measures, was the only long term solution to balance the markets.

"We must scrap," Louis DreyfusSeb Landerretche was quoted as saying, adding that the economics of laying up vessels made little sense.

John Michael Radziwill, CEO of C Transport Maritime, agreed, saying that "discipline" was the key: "Owners need to help themselves. We know what we have to do. 

"We are faced with mass lay ups or scrapping of aged ships. Lay-ups is not the answer, it's a short term solution, the answer is scrapping."

And despite bunker prices having fallen to their lowest level in several years, Radziwill said dry bulk still should slow steam.

Meanwhile Deutsche Bank AG analyst Amit Mehrotra in a note this week also supported the view that scrapping was the best course of action, and recent newbuild order cancellations would do little to improve the sector: "We continue to believe the supply-side has much more leverage to scrapping than any (plausible) restructuring of the order book. That ship has sailed, so-to-speak."

Still, some owners of newer tonnage are understandably reluctant to scrap their vessels, but as Ship & Bunker reported last week, were instead considering idling vessels as young as 3 years old.