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Friday, April 13, 2001

Dry Bulk Rate Recovery Short-Lived?

14 April 2016

Dry Bulk Rate Recovery Short-Lived?
Image Courtesy: Marine Vessel Traffic

Shipping rates for vessels transporting commodities such as coal, iron ore and grains racked up impressive gains in the first quarter of 2016 after hitting record lows, but the rally could flatten out into the second half as the macroeconomic outlook remains uncertain, the latest forecasts show from IHS Inc.

The forecast comes as the Baltic Dry Index (BDI) surges to 555 points, with Cape, Panamax and Supramax indexes all posting increases.

Freight rates for large Capesize vessels carrying iron ore along Australia-Far East routes reached USD 2.99 per tonne in Q1, 2016 and are expected to hover at USD 3.30 per tonne for the rest of Q2, 2016 after an increase of over 11 percent quarter-on-quarter, while average rates for the Transatlantic Brazil-Far East routes reached USD 5.8 per tonne in Q1, 2016 and will continue thier current upward trend averaging at USD 8.5 in Q2, 2016 as higher earnings are expected in April and going into May and June, data from IHS shows.

 Panamax vessels along the Australia-India route for coal deliveries saw their average spot rates hit USD 6,100 per day in Q1, 2016 and they are expected to rise to a forecasted USD 8,000 in Q2 2016, an approximate 30 percent increase.

In contrast, however, Panamax routes loading coal from Indonesia will see a 5 percent decrease in Q2, 2016 as compared to the first quarter, counterbalancing the overall average earnings for an increase of 15 percent or USD 6,900 per day in Q2, 2016.

  “Short-lived rebounds will bring occasional relief to the market,” said Luciana Salles, principal trade analyst at IHS Maritime & Trade, adding that many questions remain on whether this can be sustained.

The dry bulk market is expected to face a transitional year in 2017, IHS predicts, as demand will finally outpace supply on the back of calmer financial markets that could reinforce a more stable outlook for global growth.

At present, US economic growth is expected to accelerate a little moving through 2016, led by consumer spending and homebuilding, while growth in the Eurozone growth will improve slightly aided by further monetary stimulus.

“Freight rates could start to feel the effects of a more balance market from 2018 onwards if the growth outlook for the world economy is sustained,” Salles said. “Meanwhile, we can expect episodic volatility – much like the one we are in now – as supply and demand variables get worked out by the natural order of the markets.” 

Dry Bulk Rate Recovery Short-Lived?
Image Courtesy: Port of Atnwerp

Looking at supply, IHS estimates that the vessel orderbook for the rest of 2016 stands at about 60 million dwt which represents 8 percent of the total dry bulk fleet size. Total deliveries for this year are expected to be around 50 million dwt. China remains a risk where imbalances in credit, housing and industrial markets could lead to a further slowdown while it re-engineers itself from an export, investment-led economy towards a service-led one. Riskier still are the upcoming European referendum, stagnation in the emerging markets, and conflicts in the Middle East and Africa, any one of which can profoundly impact dry bulk demand should the worst happen, IHS said.

In Q1, 2016, IHS observed that almost 15 million dwt was removed from the dry bulk fleets, half of all demolitions that took place last year when the market was also struggling. More than 80 percent of removed capacity this year is constituted of Capesize and Panamax sectors.

 “What is interesting for larger vessel types is that number of demolitions actually cancelled fleet growth through deliveries so far,” said Dalibor Gogic, principal analyst on fleet capacity at IHS Maritime & Trade.

“The Capesize sector has seen neutral to insignificant growth so far this year, while the Panamax sector fleet actually shrank by about 1 million dwt. Although encouraging, this is less than 1 percent of the total Panamax active fleet capacity and, in the wake of more vessel deliveries and shrinking trade, this will probably not bring substantial upward push for freight rates.”

Source: worldmaritimenews.com

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