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Dry Bulk Fleet Utilization Down By 3.7% During First Quarter of 2019

The negative impact of the lack of cargoes in the dry bulk market since the start of the year took its toll in the level of the global fleet’s utilization rate, which declined by 3.7% over the course of the first three months of 2019. According to a recent analysis by dry bulk ship owner, Golden Ocean, “global dry bulk fleet utilization (calculated as total demand in tonne miles transported divided by total available fleet capacity) dropped by 3.7% in the first quarter of 2019, reflecting the trend observed in the rate environment. According to Maritime Analytics, global fleet utilization was 82.1% in the first quarter of 2019, down from 85.8% in the fourth quarter of 2018 and 85.1% in the first quarter of 2018. According to the same source, total seaborne transportation of dry bulk goods was 1,148 mt in the first quarter of 2019, compared to 1,142 mt in the fourth quarter of 2018 and 1,144 mt in the first quarter of 2018”.

Golden Ocean said that “while the volume of cargo transported was unchanged from the first quarter of 2018, market disruptions resulted in shorter trade routes, less congestion and newbuilding deliveries added additional capacity in the first quarter of 2019. Global steel production grew by 4.2% in the first quarter of 2019, driven by strong growth from China. Chinese growth offset a 1.4% decline in steel production growth in the rest of the world. Outside of China, negative growth was observed for three consecutive months before reversing in March, led by the U.S. and India. The strong steel production observed in China coincides with relatively low stock-piles, an indication that steel produced is being consumed. The stimuli that the Chinese government put in place in the second half of 2018 are now starting to positively impact the economy, and hence consumption of steel is keeping up and supporting the strong growth in steel production. High iron ore prices following the disruption of Brazilian exports have led to draw-downs of stocks in ports and likely also at steel mills, a trend that we observed late last year. This prolonged period of stock drawdowns should eventually reverse as volumes from Brazil normalize, which in its turn should push iron ore prices downwards and bode well for increased imports”, the shipowner noted.

According to Golden Ocean, “seaborne transportation of coal increased by almost 5% in the first quarter of 2019 compared to the previous quarter. This was a partly reversal of the drop in the fourth quarter of 2018 related to the cap on coal imports put in place by China towards the end of 2018 as some cargoes that were delayed and not cleared for imports at the end of 2018 were imported in 2019. Chinese electricity production continued to grow in the first quarter of 2019, increasing by 7% compared to the first quarter of 2018, and thermal electricity production grew by approximately the same amount. While Chinese domestic coal production increased at the start of this year, it has not kept pace with the growth in electricity production from thermal coal”.

In terms of tonnage supply, “the global fleet of dry bulk vessels amounted to 837 million dwt at the end of the first quarter of 2019. Deliveries in the first quarter of 2019 totalled 8.6 million dwt, up from 5.3 million dwt delivered during the fourth quarter of 2018 and on par with deliveries in the first quarter of 2018. The first quarter is normally the period with highest deliveries in the year, but in 2019 the order book skews higher towards the later part of the year. The total order book is now at 92.7 million dwt, of which 41.0 million dwt is still scheduled for delivery in 2019. This includes several orders placed in 2015 or earlier totalling more than 13.0 million dwt, a similar number to the volume that has not even started construction, but due for delivery within year end. Owners will also be more reluctant to take prompt delivery of vessels in the current market, lending may be more difficult to obtain, and vessels commissioned by Asian financing companies may not find ready buyers”.

Meanwhile, “scrapping increased considerably in the first quarter of 2019, driven by a weaker Capesize market and upcoming environmental regulations. Twelve Capesize vessels were reported sold for scrap in the first quarter, and as of the date of this report, 22 Capesize vessels have reportedly been scrapped or sold for scrap, compared to 18 vessels taken out of the market for the full year of 2018. The Capesize fleet has therefore had negative fleet growth so far this year. Given the current weak market and the implementation of ballast water regulations starting in September 2019 followed by the low sulphur fuel regulations in 2020, we expect this trend of recycling to continue”.

Finally, “following the drop in rates there has been limited activity in the sale and purchase market, in particular for Capesize vessels, where there have been no transactions reported over the last five months for modern tonnage. This clearly speaks to owners’ expectations for a rebound in earnings and a lack of willingness to sell at lower prices. For the smaller sized vessels, most of the activity has been on five to fifteen years old vessels. Newbuilding prices have remained consistent and have not adjusted down with the market rates, although the pace of orders has slowed down. Shipyards are active in other segments and therefore there is no need for the yards to adjust prices lower to encourage ordering”, Golden Ocean concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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