Dry Cargo

Dry bulk revival set to be cut short by newbuild splurge

Shipowners have taken the plunge and set about the start of what looks like another killer dry bulk ordering binge. Having managed to hold off for so long, the temptingly low prices on offer – especially at Chinese yards starved of orders – is now seeing owners make plenty of enquiries, bringing into question just when the supply – demand equilibrium in the sector, which has been out of kilter since the global financial crisis of 2008, will return.

Fearnley’s in its latest weekly report is reporting European owners are negotiating four firm capes at Cosco Shipyard Group, with a price of around $40m each. Furthermore an unidentified Greek owner has placed two firm plus two options for 82,000 dwt kamsarmaxes at Yangzijiang Shipyard, paying $22.8m per vessel.

“I am acutely depressed. I met a shipyard this week who said they were flooded with bulker enquiries. Looks like we are killing the goose before the egg has hatched. Stop the madness,” Tim Huxley, CEO of Hong Kong-based shipowner Mandarin Shipping urged his fellow owners in conversation with Splash today.

“There are limited yard enquiries at the moment but expect to see newbuild orders in two to three months as we are running out of reasonably priced good quality secondhand ships,” Michael Nagler, the head of Singapore-based Noble Chartering told Splash today.

The Baltic Dry Index finds itself firmly back in four-digit territory while secondhand tonnage prices have rocketed over the past 12 months and yet many experts are questioning whether this is a revival or a blip.

Alphabulk, in its most recent weekly report, suggests that the dry bulk market is very illiquid at the moment, using the data below to back up its argument.

“The dry bulk shipping market is starting to look like a big ballroom full of people happily dancing – until, that is, they discover that the access door is very narrow when somebody screams ‘fire’,” the report claimed.

Martin Rowe, a Hong-based broker with Clarkson Platou, said his company, the world’s largest shipbroker, no longer believes dry bulk is saddled with overcapacity.

“We don’t necessarily subscribe to the overcapacity mantra any more – whilst there are significant dry bulk deliveries in Q1 & Q2 this year it moderates after that,” Rowe told Splash. Clarkson Platou forecasts 3.1% fleet growth versus 3.8% seaborne trade growth in 2017.

According to Allied Shipbroking’s head of market research and asset valuations, George Lazaridis, the orderbook to fleet ratio for the dry bulk segment as a whole has now dropped to 7.72%, the lowest figure in more than two decades.

Rowe from Clarkson Platou suggested other factors in play as dry bulk vessel utilisation pushes up then so does volatility.

“There’s the possibility of pockets of really quite firm spot rates on occasion are there – when that happens charterers run to fix period cover and so the virtuous cycle begins,” Rowe said.

“We are seeing more seaborne demand which is what is driving it, owners are becoming more confident and charterers less confident and so paying higher rates,” commented Noble Chartering’s Nagler.

Secondhand tonnage prices have rocketed over the past 13 months, normally the sign of a firming market.

William Bennett, senior analyst at VesselsValue noted bulker values hit rock bottom in February 2016 and he maintained are now looking to show “considerable promise”. Five-year-old handysize values are up by over 25%, 15-year-old panamax and supramaxes values are nearly up 60% and 55% respectively, according to VesselsValue.

Khalid Hashim, the veteran managing director of Thai dry bulk owner Precious Shipping, is adamant that the supply-demand equilibrium is far nearer than many had believed, so long as owners can hold off ordering en masse.

He noted how last year the dry bulk fleet grew by 18.51m dwt. In the first two months of this year the dry bulk fleet has grown by 8.93m dwt.

“Still the BDI has continued to go up. This can only mean that trade flows have increased more than the supply side or that balance between supply and demand is not that far off,” Hashim said.

Further, he reckoned the ballast water management convention and the new sulphur ruling should combined put a “massive dent” in the supply side between the years 2018 and 2020.

Nevertheless, the spectre of owners returning to the yards where capes are going for as little as $40m has many spooked.

Concluding, finance veteran and Splash Opinion writer Dagfinn Lunde said: “Dry bulk can only last good when demand from China continues, scrapping is kept up and no contracting of newbuildings happens. However, that combination is unlikely to persist for long. With this market, I expect scrapping to dovetail and newbuildings will be considered.”


Sam Chambers

Starting out with the Informa Group in 2000 in Hong Kong, Sam Chambers became editor of Maritime Asia magazine as well as East Asia Editor for the world’s oldest newspaper, Lloyd’s List. In 2005 he pursued a freelance career and wrote for a variety of titles including taking on the role of Asia Editor at Seatrade magazine and China correspondent for Supply Chain Asia. His work has also appeared in The Economist, The New York Times, The Sunday Times and The International Herald Tribune.
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