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Dry bulk market all set to reach 3,500 points in the coming days

Tuesday, 07 September 2010 | 17:49

The dry bulk market is looking well after the crash it experienced during the whole of June and up until the middle of July. According to John Pachoulis, the President of the Hellenic Shipbrokers Association, the so called "œChina factor" was the main

mobilizing force of the market. In an interview with Hellenic Shipping News Worldwide, Mr. Pachoulis estimates that the market could very well reach 3,500 points during the following weeks, with the possibility of reaching 4,000 points by the end of the year, should Chinese steel mills keep their buying spree.

During the past few sessions of the BDI, we've been witnessing yet another rise of the dry bulk market. Which are the driving factors behind this rise?

Once again, it was China that mobilized the market. So far, the segment which has yielded the most profits from this has been the capesize market, with vessels which are mostly used by China. The latter has returned to the market for iron ore, not so much because they don't have enough stockpiles, but mostly because it appears that the country's needs are now higher. As a result, the market has regained some of its lost momentum, with the final days of August proving to be a boon for ship owners.
The most impressive gain was the previous Thursday's jump of the capesize market by more than 7 percent on a daily basis. In my view the market will continue on the same pace, both in September and in October, thus confirming our estimates about the dry bulk market's standings of approximately 3,000 points this year. This is not just a satisfactory level, but a more than pleasing one.

What factors are causing this turbulence of dry bulk rates, we've been seeing since the start of 2009?

The mobilizing force for this trend continues to be the Far East market, which is the main driver, as opposed to the European market, which is underperforming nowadays, as a result of the 2008 crisis. As far as the US economy is concerned, it is exhibiting a mixed performance, although in terms of exports, things are looking good. Also, rates' volatility is impacted by the fact that the larger capesize vessels are almost exclusively employed in Asian trade, which provides them with the best earnings at the moment.

What's to expect until the end of the year in terms of freight rates. Will the market endΒ  the year on a higher note?

Well, in my opinion, the dry bulk market will keep rebounding during the following days and weeks, possibly reaching 3500 points, with the whole of autumn proving to be overall positive. Until the end of the year, it could very well reach up to 4,000 points, but in any case it will keep its low-base above 2,500 points, with smaller vessel sizes also benefiting from the positive market behavior.

Do you think that the looming oversupply of vessels will weigh down on the market, or is there any room for that to change, through an increase of cargo demand, or even newbuilding cancellations?

Well, first of all, it's worth noting that the market is rising in a period when many ships have been already delivered, while many more are also expected to fall into the water. It is estimated that about 35 "“ 37 million tons of dry bulk vessels' deadweight capacity have been delivered during the first six months of 2010, with the figures of newbuilding deliveries expected to be similar during the second half of the year. Should all those new buildings hadn't been delivered the dry bulk market would have skyrocketed, as the shipping industry is maybe the only one following so strictly the norm of supply and demand.
So far some traders are also booking older tonnage, which helps absorb those vessels as well. In any case, it is certain that there will be some negative impact from the high number of newbuilding deliveries, but so far, the market hasn't found significant difficulties to cover the additional tonnage supply. Another positive development is the fact that large charterers are willing to employ ships for longer periods of time (long-term charters), which is an indication of their belief to the sector's dynamic and its potential profits.
As far as cancellations are concerned, they aren't as many, despite what's been said from time to time. In any case, even if an order is cancelled, shipyards easily find buyers of these contracts, especially is a ship's construction has begun. Still, some shipyards, especially Chinese, are delaying some deliveries by some months as a result of high workload. But, these cases aren't more than a couple of dozens, not enough to affect the market.

How would you characterize the current market for second hand vessels, both in terms of demand and prices?

Demand is definitely out there, especially for quality vessels built from well respected shipyards and owned by reputable companies. Potential buyers are looking for attractive prices for vessels up to 15-17 years old, but unfortunately for them, prices have firmed up, with many deals not being concluded as a result of that. For instance, recently a ship of 26 years old was sold for $6.5 million, a quite high price for today's market. As for newbuildings with delivery in 2012, prices for 82,000-dwt vessels are set at around $35 million, while the cost rises to $39 million for earlier delivery in 2011.

Nikos Roussanoglou, Hellenic Shipping News Worldwide

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