BDI: 500 Points On! Nevertheless Bulker Numbers In Excess!!!



Last Week, the Baltic Dry Index reached the 500 mark one more time which is the highest for this year.  It is visible that the rates are yet to make a profitable impact.  In other words, they are just over a fraction of the levels that appeared in 2008, at a time the BDI reached 12,000 points.  Whereas Wednesday’s index value bettered the record low of 290 points in February by a 70 percent increase.

The two daunting factors that paralyzed the Dry bulk were weak demand and momentous overcapacity.  The decrease in demand is equally proportionate to decline in Chinese and Indian industrial commodity imports.

The overall bulker tonnage across the world has been shying away from scrapping due to the decreasing scrap prices and fewer incentives.  Scrap steel hit a low in the range of $250 per LDT in February – less than half of the value in the first quarter of 2014.  There was a sigh of relief with increase in prices in the recent weeks but the prices reached the range of $300 per LDT in early this April.  According to Seasure, the shipbreaking rates have outpaced 2015 for the first quarter of the year except the smallest bulkers.  The demolition frequency includes 100 panamaxes and capsizes since January.

One of the reasons cited as a reason for the improvement in scrapping industry is India’s import levy on Chinese steel products.  Besides, China is taking adequate steps to revive the demand for its steel products through restructuring.  Consequently, Allied Shipbroking feels that these hasty growths in scrapping are short-lived.  Rahul Sharan lead analyst for dry bulk shipping at Drewry, feels that a consistent scrapping activity is the need of the hour to restore balance in the market.  The most sought out solution for the shipowners are to remove the older capsize vessels from the fleet till the market makes progress.  If not this would put industry in troubled waters making the shipowners face many more years of losses.  He expects the stabilisation of the market to strike a balance between the supply and demand which in turn would solve the inevitable insolvencies.

Details of Orderbook – A Glance

  •  On the order book side, tonnage awaiting delivery remains excessive.
  • It represents about 15 percent of the present fleet – but it is not growing, at least for standard vessel classes.
  • Only two contracts for capesize or smaller bulk carriers were signed in the first quarter, down from 78 in the same period last year.
  • Even these two small additions to the books appear to have been negated by the many orders recently delayed or terminated, such as the five handymax contracts eliminated by Pioneer Marine in March and the Kamsarmax newbuild canceled by Scorpio on Monday.
  • Fully half of the 200 bulker orders scheduled for the prior month were delayed or canceled, and predicted that a substantial fraction of the delayed contracts would never see completion – suggesting that the orderbook volume may be much smaller in reality than on paper.

Private shipowners limiting themselves in ordering and in taking delivery might not be enough to stop the future of oversupply.  At present there has been an increase in state-owned purchases.  In the previous month, COSCO Group, China Merchants and ICBC Financial jointly ordered 30 Valemax bulkers – equivalent to 60 capesizes, totaling 12 million dwt.  The purpose was to carry iron ore from Vale’s mines in Brazil to the Chinese market.  Once the assignment is over the new Valemaxes alone would add back 60 percent of the dry bulk capacity.

Source: Economic Calendar


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