Due to on-going contraction in vessel supply and a healthy demand growth, the dry bulk shipping market is expected to recover during 2017 onwards, according to global shipping consultancy Drewry. Their most recent forecast, published last week, notes a better than expected outlook for dry bulk demand coupled with record levels of scrapping and a small order book of new-builds (as a percentage of the existing world fleet capacity).
This happy combination of shipping demand and supply factors is predicted to ensure a sustained recovery in the dry bulk market. As such, earnings in the dry bulk market are expected to improve significantly during 2017 with a healthy supply-demand gap. Demand is projected to grow at a healthy pace of 3% while supply is expected to grow by about 1% from 2017, making the dry bulk segment a now interesting market to invest in. Indeed, many Greek buyers have already done so, taking advantage of rock bottom S&P prices for good quality tonnage.
The demand growth has resulted from a steep and unexpected rise in iron ore and thermal coal prices during the past 6 months. Coal demand is expected to rise mainly from developing Asian countries including Vietnam, South Korea, Taiwan and China. The rise in Chinese domestic steel consumption, much of it no doubt due to China’s ‘One Belt, One Road’ initiative and associated infrastructure development, will provide much needed employment to VLOCs and Capesize vessels carrying iron ore.
Needless to say, Australian miners BHP Billiton and Rio Tinto and Brazilian miners, Vale, are delighted. And so are their shareholders. Indeed, Vale’s new project ‘S11D’ has become the world’s most cost effective iron ore mining project. This will increase the iron ore supply from Brazil along with total tonne miles on the long haul to China. Much of it will be carried aboard Valemax 400,000 dwt ships, owned by COSCO and with more ordered.
The ship supply side is projected to grow by just 1% from 2017 because of high scrapping and a thin order book. The scrapping has been accelerated by the IMO’s Ballast Water Management Convention that will become effective in September 2017. Additionally, the IMO’s recently adopted air pollution regulations require use of very low Sulphur fuel oil by an early 2020 date. Shipowners will therefore prefer to scrap old tonnage rather than incur additional expense on retrofitting high cost Exhaust Scrubber Systems and Ballast Water Treatment Systems (BWTS). On top of this, diminished new build orders due to limited financing availability are also keeping a strong check on future deliveries. So strong in fact that the world order book, as a percentage of the dry bulk world fleet and a clear indicator of future deliveries, currently stands at a decade low level. All good news in terms of increased bulk shipping freight rates. Or to paraphrase that old adage, ‘A rising tide lifts all [bulk carrier] boats’.
Drewry have nicely summarised their dry bulk market forecast as follows:
“The outlook for the dry bulk shipping market continues to be positive as the supply and demand gap continues to narrow. Charter rates are expected to improve for most of the dry bulk segments in 2017 with the steepest recovery expected in Capesize segment. Average charter rates are expected to rise from $8,000 per day in 2016 to $12,800 per day level in 2017 and will further improve from 2018,” commented Rahul Sharan, Drewry’s lead analyst for dry bulk shipping.
The evidence is that the dry bulk market is experiencing a revival at the same time as the container market reorganizes into powerful marketing and cost reducing global alliances and tankers continue to generate acceptable returns. In short, the indicators are that the long downturn shipping cycle is now on the upturn. The key is now to avoid what Alan Greenspan, a former head of the US Federal Reserve, once described as ‘irrational exuberance’ and a quick return to overcapacity. The temptations are there in the form of ultra-low new build prices from yards that are starved for work, export development bank guarantees and new shipping investment fund corporations that are building quickly to replace the shipping banks that have decided to sell off their loan books.
All of these fascinating and critically important developments will be presented and discussed during the SeaProf/BI Norwegian Business School’s ‘Key Elements of Shipping Course’ scheduled for 21-23 March 2017 at the Amara Hotel in Singapore. Our guest shipping market speakers will be Harry Jamieson
and Wilson Foo from the Singapore office of internationally respected Norwegian shipbroking firm Fearnleys. Harry and Wilson are both lively and informative young brokers who provide an insight into the daily work of a shipbroker in the world of both S&P (Sale & Purchase) and chartering. They will also present Fearnleys’ latest and highly renowned shipping market report on trends and forecasts for 2017 and beyond.
Please check out the full details in the KES course brochure , as well as the generous MCF training grants and PIC cash rebates that are available to eligible participants. For an easy to understand summary, see our Net Fees Calculation. Don’t miss the KES boat and an opportunity to see the future of shipping.