Dry bulk shipping rates to remain subdued

PETALING JAYA: Dry bulk shipping rates for capesize and panamax vessels are expected to remain subdued for the next few years due to looming overcapacity.
While there will be excess capacity in both types of fleet, DnB NOR Markets expects the rates for capesizes to be more affected than those for panamaxes.
“Not only is the expected overcapacity higher in the capesize market, additional supply of panamaxes can be absorbed by other cargoes such as grains and steel products.

“Although a large orderbook is also present in the panamax market, it has a larger potential for scrapping as well as a potential for other cargoes to absorb parts of the new tonnage.
“While we believe that panamax rates will remain subdued, we believe that they will do better than those for capesizes,” it said in its latest drybulk outlook report.
DnB NOR Markets is Norway’s largest investment bank.
Capesize and panamax bulkers are two major vessel types that are usually used for the dry-bulk shipping market.
Capesize vessels have capacities of more than 100,000 dwt (deadweight tonnes) while panamax vessels have capacities of between 60,000 dwt and 100,000 dwt.
Traditionally, about 75% to 80% of capesize vessels transport iron ore, while 20% to 25% transport coal.
In contrast, Panamax vessels are used to transport a variety of commodities, with grains taking up a substantial part of the fleet capacity.
DnB NOR Markets estimated that currently 50% to 55% of the panamax fleet is transporting coal, while about 5% is transporting iron ore.
However, as overcapacity starts to materialise in the market, it expected to see a higher degree of scrapping, and possibly an increasing number of cancellations of new vessels.
“If enough additional capacity enters the market, we may see vessels being scrapped before they reach the average scrapping ages (which have been 26.7 years for capesizes and 28.3 years for panamaxes),” it said.
The Baltic Dry Index, the barometer for freight rates in dry-bulk shipping, has been slowly rising, from 1,700 points on July 15, its lowest point this year, to 2,835 points on Sept 2.
The index peaked at 4,209 points on May 25 where it averaged around 2,906 points year to-date.
According to a recent Bloomberg report quoting Clarkson Research, while global shipments of iron ore and coal would advance to a record this year, fleet expansion would be even faster.
Data from Clarkson showed that current fleet carrying capacity rose 14% to 500 million dwt since August 2009.
Echoing a similar stance, DnB NOR Markets said that although volumes were expected to rise, fleet expansion for dry bulk carriers was expected to continue as order books remained at historically high levels.
“Taking slippage and cancellations into consideration, we still believe that fleet growth will keep rates at subdued levels for the next few years,” it said.
Iron ore exports, which saw subdued volumes last year due to the global economic downturn, are expected to increase substantially in the next five years, DnB NOR Markets said.
“Australia will remain the largest iron ore exporter in the world, followed by Brazil. From 2009 to 2015, we believe iron ore port capacity will increase by 86.3%, or an annual average growth of 10.9%.
“During the same period, we believe that iron ore exports will increase by 81.1%, representing an annual average growth of 10.4%,” it said.
Besides Australia, the report stated that China, Brazil, India and the CIS (Commonwealth of Independent States) were also large iron ore producers.
“But due to China using virtually all of its iron ore for domestic steel production, Australia and Brazil are by far the largest iron ore exporters. China does not only use its entire domestic supply, but is also the world’s largest importer of iron ore.China iron ore imports in 2008 equals approximately 49% of worldwide iron ore exports,” it said.
DnB NOR Markets also said Australia would remain as the top exporting country for coal, followed by Indonesia.
“We expect to see large capacity increases in the ports of Newcastle, Hay Point, Abbot Point and Gladstone. From 2009 to 2015, the capacity of coal terminals is expected to grow by 35.5%, or an average annual growth of 5.2%.
“In the same period, we believe that actual coal exports will grow by 59.5%, representing an annual average growth of 8.1%,” it said.

Back to archive