The lingering tonnage glut that is troubling the global dry bulk shipping market may soon see a considerable deflation to match demand, in view of increasing trade flows coupled with upcoming IMO regulations that would accelerate scrapping of older ships, according to Precious Shipping.
Khalid Hashim, managing director of Precious Shipping, noted that while the global dry bulk fleet has continued to grow in 2016 and over the first quarter of 2017, the Baltic Dry Index (BDI) has also risen.
“This can only mean that trade flows have increased more than the supply side or, conversely, that balance between supply and demand is not that far off,” Hashim commented.
Last year the dry bulk fleet grew by 18.51m dwt. In the first quarter of 2017 the fleet grew by 12.29m dwt.
“Further, the Ballast Water Management (BWM) convention and the ‘clean’ oil convention should combine to put a massive dent in the supply side between the years 2018 and 2020 inclusive,” Hashim observed.
The IMO BWM Convention is set to enter into force in September this year while the ‘clean’ oil convention is the global 0.5% cap on fuel sulphur content that will be enforced in 2020.
The regulatory pressures from the BWM convention is expected to increase scrapping significantly in 2018 to around 35-40m dwt. “If we were to apply a slippage factor of 50% and scrapping of 37.5m dwt then we would get a negative fleet growth of minus 2.23% and a year ending fleet of 784.76m dwt in 2018,” he said.
On the 2020 sulphur cap regulation, Hashim believed that the median vessel in 2020 is a vessel without scrubber. “This implies a significant cost saving for vessels equipped with scrubbers, but also a 10-15% speed reduction for the median vessel using expensive (clean) fuel which will reduce overall transportation supply,” he said.
However if scrapping is not strong enough in 2018/2019 despite the IMO regulations, then the market would be dependent solely on the demand side, Hashim said.
China will continue to be a major market for dry bulk shipping but there are uncertainties due to reduced consumption of coal and higher domestic steel output, while at the same time domestic coal output and inventory are low and demand for steel continues to be needed for ongoing infrastructure development.
Meanwhile, dry bulk shipowner Precious Shipping has significantly narrowed its first quarter loss to $1.7m compared to the deficit of $34.04m in the same period of 2016.
The reduced loss was partly due to Precious Shipping generating a 79% year-on-year jump in average earnings per day per ship at $8,588 during the first quarter.
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Source: Precious Shipping
