During the past couple of months the dry bulk market has experienced a breakdown, as a result of China's limited imports and an oversupply of dry bulk carriers, especially in the capesize and panamax front. As a result, the industry's benchmark, the
Baltic Dry Index (BDI) was plunging for 35 straight sessions, the longest in almost 15 years, surpassing even the dreadful days of late 2008. During this fall, the capesize market lost 70 percent of its value, before rebounding. Lately though, the market found some support and ended last week at 1,826, up by 6.16% on a weekly basis.
According to Alexis Angelopoulos, head of ACA Shipping, who spoke to Hellenic Shipping News Worldwide, the market will remain near those levels at least the end of summer. After that, any further direction will once again be dependent on China's powerhouse. Still, he maintains that the bottom base for the BDI is at 1,200 points. "The index can't go any further, no matter what the circumstances in the market" said Mr. Angelopoulos.
In its latest weekly report, N.Cotzias Shipping commented on the number of new building deliveries in the capesize sector. According to figures from the Piraeus-based shipbroker, theΒ capesize fleet rose by 58 units so far in July, numbering 1,581 ships in total, with an aggregate carrying capacity of 282 million tons. By contrast, on June the 28th, the capesize fleet stood at 1,523 ships with a capacity of 270 million tons. Active capes today number 991 ships of 173.4 million tons, while in June they were 944 ships of 165 million tons. Still, during the month of July there were 12 orders of capesizes, versus 28 newbuilding deliveries which were incorporated in the global fleet.
The dry bulk market was sinking for 35 straight sessions, before recovering, but even so, the rate of this rebound is quite slow. Which were the main factors triggering this downfall?
The primary reason was the fact that China halted its imports of raw materials, like iron ore and coal, because authorities feared a new overheating of the economy. As a result, the order was for a limiting of imports.
The second factor was the oversupply of dry bulk tonnage. During the first six months, we saw the number of new building deliveries entering the global fleet going up, at almost five times the pace of the relative period of the previous year. It is estimated that almost 250 ships entered the fleet, versus just 50 newbuildings during the first six months of 2009. So this was another reason that weighed down on freight rates. This was mostly evident in the capesize and panamax segments of the market.
How do you expect that the dry bulk market will fare until the end of summer and later this year?
In my view, we won't experience many more turbulences in the coming weeks. I expect the market to stay close to 2,000 points, not falling anymore, but also not rising any further. Still, a lot of market players and analysts are optimistic about September. I believe that any future market direction will derive from China. If the Asian powerhouse doesn't open its import market, it's very easy for the market to face a double-dip scenario, before finding its support at 1,200 points, which is the lowest support point in my opinion. On the contrary, if China reactivates its iron ore imports, the dry bulk market can easily head towards 2,500 "“ 3,000 points. As I already mentioned, the main issue is the large number of vessels entering the world's fleet, a trend not to be halted until at least the beginning of 2011, given the current rate of deliveries.
Do you expect any further correction in second hand vessel prices, or have we seen the bottom and the only way is up?
We're already witnessing a correction in prices of second hand vessels. But any big fall should be seen during September, if the market hasn't improved by then. Should freight rates not post a substantial rebound, we might see a fall of up to 20 percent in second hand vessel prices. I think the same will occur even if the market stays at the level it is today. Of course, in theory, this could be a green light for ship owners to further invest in vessels.
In which type of vessel would you invest today?
ACA Shipping, is focused in ships between the 15,000 "“ 20,000 tons. But, the latest "fashion" item is the Kamsarmax vessel. This isn't by accident of course, as this type of vessel has similar expenses as a Handysize, but can command daily rates similar to those of a larger Panamax ships. As a result, Kamsarmaxes are considered quite good value for money. Still, I believe that capesizes with discounted price tags than those found in the market today are the best option for a ship owner. That's because, with the first upward trend of the dry bulk market, the capesize sector is the first to profit from it. So, they help their owners to make a faster return of investment.
Do you think that those owners who preferred to invest in new building orders have made the right choice?
That depends on the background each company has. If they're well established in the market and have a number of debt-free vessels, placing orders for new buildings during the past six months, when prices were lowered from their earlier highs, isn't regarded as a high-risk choice. But, there are outstanding loans bearing down on the company's finances, the option of entering the newbuilding market is quite risky, because the long-term prospects of the market are still quite cloudy, there isn't a clear picture of the future trends.
How has the Mediteranan market for smaller vessels fared so far this year?
Freight levels were satisfactory up until May, but the months of June and July were below average and August seems to be heading towards the same directions. As a result, current rates are barely enough to allow us to break-even. So, we've been witnessing some vessel layoffs, but not as you would imagine. What I mean is that layoffs are occurring with the crews on board. This has been happening in Piraeus, Elefsina and Perama, as well as neighboring Turkey. It's a type of "hot" layoff, where owners are performing ship maintenance works and surveys, but at a slow pace. For instance, instead of 10 days of works, we extend that to 20-25 days, until we can receive a positive note from the market. That's what ACA Shipping has been doing with two of our five vessels.
Nikos Roussanoglou, Hellenic Shipping News Worldwide