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Dry bulk market poised for healthy levels during 2010, says Mr. John Pachoulis.

Monday, 09 November 2009 | 16:09

Confident that the increase in world trade of commodities during the next couple of years will be enough to offset the large numbers of dry bulk new building deliveries appears Mr. John Pachoulis, President of the Hellenic Shipbrokers Association. In

an interview with Hellenic Shipping News, he comments that the latest rise of the dry bulk freight rates is the result of the increase of Chinese iron ore imports, which is still a major driving force for the market. Still, as we head on to 2010, the market is expected to continue showing these fluctuations, with Mr. Pachoulis estimating that the BDI will keep its trend of ranging from 1,500 to 3,500 points also next year.

During the previous weeks, we've been witnessing yet another rise of the dry bulk market. Which are the driving factors behind this rise?

The present rise of the dry bulk market is the result of the Chinese increased import of iron ore. It is worth stating that according to the Australian Bureau of Agricultural and Resource Economics (ABARE) the forecasted China's imports of iron ore will be increased for 2009 by 28 per cent on annual basis to reach 568 million tons.
They have been very active recently in Cape size fixing leading the market close to 3300 point of BDI. Considering last week's reports it is obvious that the engine of this rise is the iron ore imports covered by Capers. Last week (28th October), the BDI was at 2986 points, with the Capers' index at 4,665 points when on 4th November the general index was at 3,295 point with the Capes at 5,440 point having an increase of nearly 17 % within a week. The rest of the indexes were, for Panamaxes less than 10% increase, Supramax and Handy indexes were at same levels.

The question that everybody is asking is whether this latest trend in freight rates is sustainable, because from the beginning of the year, the market is making two steps forward and one step back.
Personally I believe that we would be happy with the present market condition, as the year started with the market at 773 points and after that we have been experiencing an elevator type of fluctuations.

Do you think that as the world economy regains its pace, the dry bulk market won't be able to capitalize on that, as a result of the huge orderbook?
Although there will be new deliveries from the shipyards within 2010, we hope that having an increased trade not only from the Chinese part, but also from Indian coal imports and an active regained international trade the newbuilding deliveries will be absorbed keeping the market at acceptable levels in general.
The mentioned huge orderbook will beΒ  actually delivered within the next three years , when everyone expects to see a greater increase in worlds' trade after the economic climate will recover from today's crisis.

Do you think that the rate of new building cancellations and scrapping activity, together with an increase of world trade for commodities throughout the year (2010), will be enough to sustain the market at healthy levels?
Well, I don't want to base my opinion to cancellations as same proved to be less than what is rumored.
Scrapping will be definitely a vital factor, as most shipowners will have to scrap their oldest tonnage in order to avoid internal competition, as they will not be able to profitably run their younger or newbuilding fleet against their older remaining vessels.
So the shipowners have to take advantage of todays' prices of recycling.

How do you see the market behaving in 2010? Is it possible for the BDI to remain at today's levels of above 3,000 points?
It is definitely possible to have similar levels for next year. The market will most probably react at the same manner as today's elevator market, with ups and downs. Fluctuations between 1500 and 3500 points are expected, so I feel that if we will not face any unpleasant external factors, this healthy market environment will be prevailing next year.

From the beginning of the year, we've seen Chinese ship owners leading the way in purchases of second hand dry bulk carriers, leaving Hellenic ship owners in second place. Which are the main reasons for this development?
Although Chinese are leading in number of vessels, the Greeks are leading in total deadweight and investments in second hand vessels. The major difference is that the Chinese buyers have invested purely in dry cargo vessels, when the Greeks diversifiedΒ  their purchase interest in tankers as well. On the other hand we always have to take into consideration that the Chinese shipowners are mainly financed by governmental bodies, serving a general plan ofΒ  extended shipping investments, which will serve their ever growing import and export trade, while the Greek owners are based in individual or personal financing and efforts, which makes the difference.

So far, Hellenic shipping companies managed to weather the storm of the shipping crisis. Do you think that the worst is over, or is there still a danger of bankruptcies?
Well, the Hellenic shipping companies under prudent management proved once more that such situations can be tackled, as shipping is not only knowledge, but also tradition and experience. We sincerely hope that the worst is over and the banking system will provide such financial facilities which will allow the recovery of international trade and shipping. There are also some extraneous factors which cannot beΒ  predicted, like the U.S. Dollar strength, on which the international monetary system and thus the trade is based. Dangers of bankruptcies will always exist, but we do hope that will be diminished if not rare.

Do you think that prices for second hand vessels have completed their correction, or will we see more devaluation in the future?
It will still depend on the freight market. If same continues at similar levels then the prices should remain unaltered, if the market give signs of improvement then the prices will be increased. There are some analysts alleging that the freight market and vessels' prices will be further falling during 2010, since it is scheduled for approximately 1500 newbuilding dry cargo vessels to be delivered. It is definitely an issue of tonnage oversupply, but in the meantime we have to consider the demolition factor, which will assist together with the expected Chinese and Indian trade growth which will most probably absorb the delivered tonnage.

Has the mood in ship financing by banks changed, or are lenders still hesitant of supporting the industry?
The financing institutions have gradually changed their attitude towards shipping financing, but it is still not the perfect environment for a loan.
The Banks are not as negative as they were in the past, leaving room for negotiations especially for non overaged tonnage.

Do you think that in the future, the country's shipping industry will retreat in numbers but increase its quality of services, as a result of a more modern fleet?
I don't think that Hellenic shipping industry will retreat in numbers. Considering the number of the newbuildings ordered for next years, the ones already delivered and of course the ones to be purchased as resales at bargain prices from shipyards, then the number of vessels and the deadweight in total, will maintain Greece in the top of the shipping countries worldwide. Quality of services and management are the factors where the Greeks have been always on the highest ranks. The renewal of the fleet which has now an average of 12.5 years of age, allows them to give the best of performance, together with the experience gained over the centuries and their shipping mentality which is directly linked with their life.

What's your opinion of the recent abolition of the former Ministry of Mercantile Marine and its inclusion in the new Ministry of Economy?

In my opinion, we should maintain a strong and independent ministry of Merchant Marine, not only for historical reasons but mainly in recognition of the country's largest industry which is shipping "“ the world's numberΒ  one "“ and of course a major economical pilar, having gained a reputation and worldwide acceptance.
It should also be connected with proper and strong representation of Hellenic Shipping in the International forums and European Union, in order to take proper care of the needs and interests of our first globalized industry, avoiding decisions taken for us, but without us.

Nikos Roussanoglou, Hellenic Shipping News Worldwideο»Ώ

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