- Dry bulk newbuilding contracting has dropped 70% below the yearly average over the past three months, influenced by low freight rates, uncertain demand, and high newbuilding costs.
- Weakened Chinese import demand and increased Panama Canal transits have pressured freight rates, with the Baltic Dry Index (BDI) down 15% in October and 16% year-over-year in November.
- Future demand growth in the sector faces challenges from peaking coal shipments and growing recycled steel production, reducing iron ore shipment needs
Dry bulk newbuilding contracting has significantly slowed, driven by declining freight rates, market uncertainties, and elevated new-build prices. Second-hand ships have become comparatively more attractive, and regulatory concerns over alternative fuels add complexity to investment decisions. However, climate regulations may spur a rebound in the sector by encouraging older ship recycling, reports Marine Link.
Market Dynamics
Dry bulk contracting has fallen 70% below the yearly average, reflecting lower freight rates, a cloudy demand outlook, and high new building prices.
The Baltic Dry Index (BDI) declined by 15% in October and 16% compared to last year, primarily due to softer Chinese import demand and a recovery in Panama Canal transits.
Asset Pricing Trends
While prices for five-year-old ships fell 7% since August 2024, new building prices remained stable.
This price disparity makes second-hand vessels more attractive, with five-year-old bulk carriers averaging 90% of the cost of a new build.
Regulatory and Market Challenges
Uncertainty over future dry bulk demand growth stems from factors like peaking coal shipments and increased recycled steel production.
Furthermore, shipowners face challenges choosing viable alternative fuels due to limited infrastructure and regional disparities.
Segment Performance
Despite low overall contracting, capesize vessels experienced a 42% increase in contracted capacity for 2024 compared to 2023.
While declining, the Panamax and Supramax segments remained the most contracted in terms of both capacity and ship numbers.
Future Outlook
With the dry bulk orderbook accounting for 10.4% of the fleet, fleet renewal appears stable.
However, stricter climate regulations in the coming years could drive contracting rebounds by incentivizing the recycling of older ships.
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Source: BIMCO
