Dry bulk freight rates as measured by the Baltic Dry Index have been on a consistent downward trend since August 2015, hitting a record low in the third week of January, according to a Macquarie Research note, as supply continues to grow (albeit at moderating rates), while demand has suffered a significant decline.
According to BIMCO, there was 30 million DWT sent for scrap in 2015 – a relatively low level given the excessive supply on the market. “This illustrates that the pool of ready-to-break ships is not vast,” said Peter Sand, Chief Shipping Analyst at BIMCO. “Even a modest improvement in the freight rates causes demolition to halt.”
Net fleet growth will rise again this year, noted Macquarie, with scrapping rates continuing to be challenged by the youth of the fleet by shipping standards. BIMCO forecasts 40 million DWT will be sold for demotion in 2016, making it the busiest year on record for shipbreaking – but still not enough to bring down supply, which will grow by 50 million DWT.
On the demand side, combined volumes for iron ore, thermal coal and metallurgical coal – which make up 60% of the bulk trade – fell by 1% and Macquarie expects them to continue to the downward trend over the next five years.
“Structurally, there is no positive story in these markets from a seaborne demand angle,” said Macquarie. “In iron ore and metallurgical coal, we see global pig iron as having peaked due to no steel demand growth and an increase in scrap usage in China. In thermal coal, we think consumption has more or less peaked, while seaborne trade has been additionally cut substantially by Chinese protectionism and India being able to supply more of the coal needs domestically.”
BIMCO is similarly pessimistic: “A new record of shipbreaking volumes in 2016 could limit fleet growth to just 10 million DWT so in fact ‘all we need’ is an increase in transported volumes to around 60 million t to balance out the inflow,” concluded Sand. “As little as this may seem, growing from a base of 4700 million t – It can prove to be a high bar to jump before we start eating into the significant oversupply of ships.”
Written by Jonathan Rowland.
Read the article online at: https://www.worldcoal.com/handling/26012016/weak-dry-bulk-market-to-continue-through-2016-116/