Shipping’s simple, especially dry bulk – one good year, two years bad. That was the advice I was given as a cub reporter at the start of the century. The pattern held true enough through to 2003 at which point it went seriously off piste and has yet to correct itself. First came the supercycle, then Lehman Brothers imploded sending shipping into a recession on a scale not seen for a generation. However, the stars are rapidly aligning in my humble opinion for a return to this seasoned trading model, at least through to the end of this decade.
China, the driver of most shipping markets, especially dry bulk, has changed its demands of late, driven largely by Beijing’s crackdown on polluting heavy industries. Iron ore and coal dug out of the ground in China cannot compare in content to what overseas miners have on offer. China’s raw iron ore, for instance, is mostly low grade, with iron content of around 30% or less, compared with more than 60% for iron ore produced by international miners such as Brazil’s Vale. Mines are being shut across the People’s Republic in a massive way with a subsequent need for greater volumes of imported raw materials. Just this week it was announced another 1,000 iron ore mines will close. China will post another record amount of imported iron ore this year, potentially as much as 1.2bn tonnes.
The supply/demand ratio for the dry bulk fleet will finally narrow in the coming months whereby I anticipate rates for capes to hit $30,000 before the end of the year and to remain solid throughout 2018. Hats off to the canny famous names in shipping – the likes of the Blystads, Butterys and Sohmen-Paos – who have picked up cheap hulls in the past two years in anticipation of an uptick. With operators having cut cape operating costs to the absolute bare minimum – $6,691, according to a survey by UK accountants Moore Stephens – those in dry bulk are set to make tidy profits in the coming 15 months. They’d be well advised however to keep this cash on hand for the inevitable rainy day that will follow.
Just as dusk follows dawn, this cycle promises to be short and weak. As ever there’s only one type of person to blame for this, the shipowner and his/her habitual weakness for a bargain. Newbuild prices are finally in the ascendant and many are rushing to buy cheap tonnage before Asian drydocks fill up.
The amount of huge newbuilding orders we have been reporting on in the past few weeks in the dry bulk segment is a ticking timebomb for this brittle business, set to explode in 2019.