Total Shipping Co., Ltd

Capesize freight rates bound to retreat from 2011 highs on the back of tonnage oversupply says BIMCO
By total
Published: 2011.10.12

With the BDI (Baltic Dry Index) breaking yet another 2011 high yesterday and ending the session at 2,106 points, up by 3.64% on the day, dry bulk ship owners couldn’t be happier. But, as BIMCO’s senior analyst Peter Sand notes, this recent positive development

is not rooted in an improved fundamental balance between supply and demand. Thus, it’s likely to see an easing of rates from current levels. “Despite the traditionally strong fourth quarter we estimate that the Capesize Time Charter Average will travel southbound from current highs towards the USD 15,000-20,000 per day as the tonnage oversupply is bound to rule again. Amongst the smaller ship sizes, Panamax and Supramax rates are likely to stay firm in the USD 14,000-18,000 per day. Handysize rates are expected in the USD 10,000-14,000 per day interval” said BIMCO.
The organization forecasts a total delivery of more than 90 million DWT of newbuild dry bulk vessels in 2011. “This will result in a fleet growth of over 14%. Deliveries are biased towards the larger segments, but so is scrapping of over-aged tonnage. It is also worth noticing that conversion of single-hull VLCCs into Very Large Ore Carriers for the last year this time around is expected to push up fleet growth by 3 million DWT.

China is on course to deliver iron ore demand growth of 10%, being more or less the single positive iron ore story in 2011. Regardless of the recent Bull Run in Capesize freight rates, second hand values have continuously leaked. This is supporting the argument of a temporary event. But as spot rates have picked up, so have short-term time charters. Six month time charter rates have doubled since the beginning of August while 1 year charter rates have jumped by 50%. The long end of the forward curve remains unaffected” said BIMCO in its analysis.
Demand-wise BIMCO’s Peter Sand said that “The positive development in Capesize freight rates seen since 22 August, when the USD 16,000 per day lid was blown off, also took the BIMCO Capesize time charter earnings forecast by surprise while the remaining segment earnings forecast were spot on. The Capesize segment has sprinted away from the rest of the field into a break-away that is still rolling. Freight rates for Capesize vessels started to rise on the back of stronger Chinese demand for coal and iron ore. As India is still a reluctant exporter of iron ore, stronger demand resulted in more tonnes-miles as Brazil and Australia pitched in as the swing-providers of this vital steel-ingredient to Chinese steel mills. This boosted Capesize demand at the expense of Supramax demand, which normally lifts Indian iron ore to China. Overall development on the dry bulk markets, as expressed by the BDI, has gained 413 index points since 22 August – equal to 27%.
Over the same period of time, Capesize earnings have gained 74% and this compares to moderate earning gains in the smaller segments. Last year, seaborne iron ore demand grew by 10.6% driven by resumed demand from Europe and Japan following the fall-out in 2009. In 2011, iron ore demand growth is seen only in China but as long as it maintains an insatiable iron ore hunger, Capesize vessels are hanging on. However, at a growth rate of just 6% expected in 2011, demand will be the poorest in the past 10 years. Total coal demand is set to grow by just 2% this year as compared to 15.9% in 2010. This does not bode well for overall Capesize demand as the fleet grew by 23% last year and is on course for 13.4% growth this year (depending on level of recycling, scrap steel demand and freight rate development). The current spike in freight rates, suggested to be due to strong Chinese demand for coal and iron ore in a combination with available tonnage imbalance between the basins, seems fundamentally difficult to maintain as overall available tonnage remains abundant” said BIMCO.
As far as supply goes “the active fleet has grown by 10.1% so far in 2011, caused by delivery of 64.2 million DWT, offset by 18.1 million DWT being demolished. According to BIMCO estimates, the fleet is about to grow by 14.5%, unless planned deliveries are postponed beyond what is already assumed.
“Demolition of older tonnage is estimated at 20 million DWT, but could go as high as 25 million if year-to-date demolition swiftness continues. However, the recent jump in Capesize earnings could prove “sufficient” to cool down the rush to the breakers. 55% of all demolished tonnage has originated from Capesize vessels and that has positively reduced the net fleet growth by 4.4% so far. The Capesize fleet would have grown by 20% in 2011 without any demolition activity at all, but holds now the potential of growth by just 13.4%. The Handysize segment, which saw 6.7% of the fleet during 2009 and another 3.0% during 2010 being removed due to strong demolition, is once again enjoying a noteworthy amount of 2.5 million DWT scrapped so far in 2011 with a clear potential for more to come. While Handysize are currently scrapped at an average age of 33 years, Capesize vessels are broken up at an average age of 27 years. New orders continue to be placed at slower pace than new ships are delivered, bringing the orderbook down from 241 million DWT two months ago to 236.6 million DWT. The orderbook-to-fleet ratio remains very high at 40.5% as the active fleet has reached 583.8 million DWT. Put into perspective of the amount of new built tonnage delivered in previous years, 2011 represents Mount Everest and 2010-2013 deliveries the Himalaya mountain range” concluded the analysis.

from: Hellenic Shipping News Worldwide

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Commodity Shipping Jumps to 2011 High as Price Rout Spurs Demand
By total
Published: 2011.10.11

The cost of hauling coal, iron ore and grains by sea rose to its highest this year as a five-month rout in raw-material prices spurred demand from consumers seeking to build stockpiles.The Baltic Dry Index, a measure of charter costs for four classes of vessel, gained 1.6 percent to 2,032 points today, according to the London-based Baltic Exchange, which publishes rates for more than 50 maritime routes. The gauge advanced to the highest since December. Daily returns on capesizes, the biggest component of the index, jumped 2.2 percent to $28,483, a sixfold increase from the end of February.

The Standard & Poor’s GSCI gauge of 24 commodities tipped into a bear market last month after dropping more than 20 percent, on mounting concern that slowing growth will erode the chances of shortages. The price of iron ore, the biggest commodity carried by ships in the Baltic Dry Index, fell 13 percent since February, based on prices in China, the largest consumer of the raw-material used to make steel.

“Gloom and doom makes key commodity prices go down which means the buying of those commodities is more attractive,” said Georgi Slavov, head of freight and basic resources research at ICAP Shipping International Ltd. in London. “The market was artificially depressed in the first half” as flooding shut mines from Australia to Brazil, he said.

Chinese imports of iron ore have increased for two consecutive months and to the highest since January, customs data show. The Asian nation, which accounts for about two in every five metric tons of global steel production, will expand 9.3 percent this year and 8.7 percent in 2012, according to the median of 10 economists’ estimates compiled by Bloomberg. China buys about 62 percent of all seaborne iron ore supply.

Freight Agreements

Quarterly forward freight agreements, traded by brokers and used to bet on future transport costs, jumped to the highest since February. The fourth-quarter contract is trading at $20,875, the highest since February, according to Clarkson Securities Ltd., a unit of the world’s largest shipbroker.

Growth prospects in the U.S., the world’s largest economy, may also be rebounding. Data this week may show U.S. retail sales increased in September at the fastest pace in six months, helping to ease concern the recovery is faltering.
Shipping rates advanced for all four vessel types that the Baltic Dry Index tracks. Panamaxes, the largest to navigate the Panama Canal, gained 1.5 percent to $15,561 a day. Smaller supramaxes rose 0.8 percent to $16,150 and handysizes added 1.5 percent to $11,435.

“Lower commodity prices are increasing global movement and seaborne demand for coal and iron-ore cargo,” Richard Lee, an iron-ore and freight trader at Barclays Capital in London, wrote in an e-mail. More cargoes means a decline in the supply of ships competing for business in the Atlantic Ocean, he said.

Source: Michelle Weise Bockmann, Alaric Nightingale, Bloomberg

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This Week’s News: A snapshot on the economic and shipping
By total
Published: 2011.10.10

The world economy signals uncertainties and threats for the rest of the year with the developed economies being in a downward spiral of GDP growth, high inflationary pressures and loss of consumer growth. Goldman Sachs Group has cut its global growth forecast for this year and the next, predicting recessions in Germany and France, due to slow eurozone economic growth, and a significant risk of U.S. double dip recession. It predicts a 3.8% world growth for this year and 3.5% in 2012, compared with earlier predictions of 3.9% for 2011 and 4.2% for 2012.

The eurozone debt crisis has influenced severely the global markets this week. Global equities from Hong Kong to New York fell sharply on the news that Franco Belgian lender, which has EUR 20.9bn ($27,6BN) in sovereign debt issued by troubled eurozone countries, held talks to consider quarantining troubled assets in a “bad bank”. The S&P closed on the start up of the week 2.9% lower at 1,099.23, the lowest since September 2010.
In Greece, the government concluded discussions with the EC-IMF-ECB officials so the country could achieve the next tranche of EUR 110bn loan. The Greek Cabinet approved a draft budget for 2012 submitted to the parliament that includes the immediate dismissal of thousand workers under the pressure from the international creditors. According to press, the Ministry of Finance agreed with the EC-IMF-ECB officials the disposal of 30,000 public sector jobs by the end of the year. The additional measures that have been announced for 2011 and 2012 amount to EUR6.6bn and these should enable Greece to run a primary surplus of EUR3.2bn next year. However, the vital tranche is not yet secured as Greece reluctance to comply with EU-IMF deadlines over the past year demands personal commitments from the Greek government to eurozone for the implementation of new reforms. Eurozone ministers have indicated that Greece will not get the next tranche earlier than the end of this month, once the international debt inspectors complete their review on Greece’s reforms.
In the meantime, Moody’s has also downgraded Italy’s government bond rating by three notches to A2 from Aa2, after Standard and Poor’s decision on September, holding a negative outlook due to high debt, weak global economy and political uncertainties. A brief statement by Premier Silvio Berlusconi's office said that Moody’s decision was expected and the government's actions to balance the budget have been "positively received and approved by the European Commission." The Italian parliament has approved austerity measures to cut more than EUR 54 billion ($70 million) off of Italy's deficit over the next three years.
In Germany, annual inflation jumped to 2.8 per cent in September, up from 2.5 per cent in August, the highest since September 2008, as the country’s statistical office reported. As a result, eurozone inflation could hit 2.7 per cent this month, while the ECB aims to keep inflation “below but close” to 2% over the medium term. However, European Central Bank announced that it would hold interest rates steady, despite a rapidly deteriorating economic outlook in Europe. The European Central Bank has already raised interest rates twice this year to ease inflationary threats. Furthermore, it announced a further extension of its policy for providing unlimited liquidity to eurozone banks, saying it would include 12-month loans this month and 13-month loans from December that will bridge two crucial year-end periods for banks to show strong financial figures. It also unveiled a €40bn program to buy so-called covered bonds – ultra safe investments issued by banks
In the U.S., some optimism has been emerged as revisions to data on growth and jobs advise that the country is away from a slide back into recession despite worldwide fears. Gross domestic product growth in the second quarter was revised upwards from 1 per cent to 1.3 per cent, led by a pickup in consumer and construction spending, according to government data. The GDP revision is encouraging for more positive growth till the end of the year, but the U.S. economy is still very vulnerable with the European debt crisis faltering the world economic expansion. The Federal Reserve said that there are “significant downside risks” to the U.S. economic outlook, including strains in global financial markets. Economists are forecasting a 2.0% growth rate for the third quarter and a 2.1% rate in the fourth quarter, whereas there is still debate on whether the economy will slip into a double-dip recession.
In Japan, the persistent strength of the yen and the worldwide economic slowdown pose threat on the economic growth of the world’s third largest economy with Japanese manufactures being serious affected by the rising currency. Japan is high sensitive to the U.S. and eurozone debt crisis since the country remains highly dependent on exports for growth, which have been hit by the yen’s strength. In a quarterly survey released by Bank of Japan, the sentiment among large manufacturers turned positive in September for the first time since the disaster, but managers expect small improvement in business conditions over the next three months. “The economy is recovering, but with the yen continuing to trade so strongly, at 70-80 to the dollar, the recovery is tenuous,” said Yasumi Kudo, president of Nippon Yusen, Japan’s largest shipping company. However, Japan’s manufacturing sector has rebounded far more quickly than expected from the effects of the tsunami with the government preparing its third supplementary budget of the year, expected to worth around Y12,000bn ($156bn) to inject further economic growth. Cameron Umetsu, economist at UBS in Tokyo, says the extra spending should add two percentage points to gross domestic product growth in 2012, meaning Japan might well grow faster than any other G7 economy.
SHIPPING MARKET
Major shipping players have started to face financial difficulties under the current eurozone debt crisis and the gloomy shipping outlook from the oversupplied dry, wet and container sectors. Japanese shipowing groups seem to have been the first hit by the spiraling eurozone sovereign risk with the rising currency yen distressing their financial position. Japan’s shipping player MOL has told in Fairplay that it expects losses this year of ¥17Bn ($221M), reversing its previous prediction of ¥1Bn in profits, as the freight market environment is not at all favorable under the threat of the constant appreciating yen that increases their operational costs. An official of Mitsui OSK Lines explained: “Mainline long-haul box freight rates have reached year-to-date lows, with the last week’s Asia/Europe rate averaging $754 per teu, Asia/US West Coast $1,589/feu and Asia/US East Coast $3,124/feu. VLCC rates to Asia are hovering at Worldscale 40-41.5, translating into earnings of only about $1,000 per day – which is insufficient to cover crewing costs and loan repayments.”
Furthermore, Japan’s third largest shipping company, K LINE, warned that it expects losses to be 15 times worse than earlier predicted for the financial year ending 31 March 2012. It estimates ¥30Bn ($389.7M) in losses for the current financial year, from ¥2Bn yen in losses projected on 29 July, due to continued deterioration in the tanker and box sectors and slowing economic growth worldwide. K Line in its latest newsletter said that it is difficult to be optimistic about the future business environment under the current global recession adding that it is reviewing investment strategies to cut more costs and improve its short-term earnings.
Overall, the financial position of many shipping players, is very distressed with the leading law firm Norton Rose stating in Reuters that they anticipate their firm to be involved in lot of new restructurings, particular of US listed companies expecting at least four U.S. listed shipping companies to declare bankruptcy over the next 12 months.
In the dry market, the BDI reached this week the high base of 2000 points mark for the first time this year with capesize earnings floating at levels above $27,000/day and positive gains in the panamax market. The rise seen in panamax earnings during the last week, due to a large number of vessels being chartered to import Indonesian thermal coal to China, has kept the market sentiment positive. The ongoing maintenance in China’s coal dedicated Daqin Railway, the low coal Chinese port stockpiles and the robust demand from Chinese to import more thermal coal have aided panamax vessel operators and the overall performance of the dry index.
In terms of iron ore imports, it is worth emphasizing the strong Japanese import demand in August followed by also record Chinese import activity that could justify the significant rally seen in vessel earnings and the performance of the BDI at levels not seen before since the start up of the year. According to iron ore imports statistics announced by the Japanese Ministry of Finance on September 21, iron ore imports into Japan reached in August 12.248 million tonnes hitting a high level for the first time since October 2008, when iron ore imports had been recorded at 13.328 million tonnes. The firm levels of Japanese import activity may also continue for the rest of the year as the country tries to replenish its losses from the massive earthquake and tsunami. However, there are still doubts for a firmer Chinese iron ore demand as iron port stockpiles at Chinese ports remain at near record levels, around 93 mil tons, and Chinese steel production has begun to decline under an ongoing stagnation in steel prices.
According to Rio Tinto, Vale and BHP Billiton, who controls more than 70% of the world Iron ore production, the demand for the commodity from China is expected to reach 1 billion by 2015 which is 60% more than 2010. The iron ore price in the international market is likely to remain above $150 a ton till 2020 as the demand from the world’s largest consumer, China, remains firm. Jose Carlos Martins, executive director of Vale’s marketing, said that global iron ore supply will be tight for the next few years due to strong steel demand in emerging economies. Martins stressed that his firm, the world’s largest iron ore producer, had not received any requests from clients in China or Europe to delay iron ore shipments and Vale was on course to produce at full capacity in 2012, a reassuring sign for dry bulk owners.
On the other hand, negative factor is China’s strategy to be more self-sufficient in iron ore and break the monopoly of the three major global miners, Vale, Rio Tinto and BHP Billiton. Zhang Changfu, China‘s Iron & Steel Association (CISA) vice chairman, has stressed that the central government policy is to ensure that the nation will achieve a self sufficiency ratio of domestic ore of over 50% by 2015, as well as seeking from suppliers other than Australia, Brazil, India and Africa. Imports from other suppliers account for 18.4% of total imports and are up more than 5% from last year, he said. "Those countries that have never exported iron ore to China are now listed among the exporting countries, such as Iran and Indonesia," he said. Finally, CISA announced it will publish its first China Iron Ore Price Index (CIOPI) on 10 October in a further bid to outmuscle the big three miners.
The index closed today at 2,000 points, up by 5.3% from last week’s closing and up by 58,2% from the end of July, while is down by 32.5 % from a similar week closing in 2010 when it was 2,696 points. The highest rate increase has been in the panamax segment, BCI up 2.6% w-o-w, BPI up 10.8% w-o-w, BSI up 2.2% w-o-w, BHSI up 4.5% w-o-w.
Capesizes are currently earning $27,876/day, an increase of $1,275/day from a week ago, while panamaxes are earning $15,326/day, an increase of $1,513/day. At similar week in 2010, capesizes were earning $40,798/day, while panamaxes were earning $19,332/day. Supramaxes are still trading at lower levels than capesizes by earning $16,028/day, up by $350/day from last week’s closing, but are still 4.5% higher than panamax earnings. At similar week in 2010, supramaxes were getting $19,805/day, hovering at discounted levels from capesize earnings and 2.4% above panamax earnings. Handysizes are trading at $ 11,270/day; up by $279/day from last week, when at similar week in 2010 were earning $15,100/day.
In the wet market, the distressed environment has pushed owners considering the slow steaming policy as a response to the persistent oversupply, especially in the very large crude carrier segment. There is a market belief that rates could not fall at even lower levels as they have already reached their bottom lows, with hopes for an upturn if shipowners move to drastic measures for the cooling of oversupply of supertankers. Even there has been an increase in the Middle East OPEC production during the past nine months; spot rates continue to stay below operating expenses as the number of available vessels is far more than the Middle East cargo loadings. BW Maritime, a Singapore-based owner of 15 supertankers, has temporarily idled two of the vessels and is planning a third for a longer duration as earnings plunge to the lowest since at least 1997.
Positive factor for the tanker operators seems to be the recent revision downwards of oil prices and the lower cost of bunker supplies. The end of civil unrest in Libya seems that has brought calmness in the oil market amid lower oil demand from U.S. and European economies. Brent crude has fallen some $15 since the start of August following the release of strategic consumer reserves and extra supplies from Gulf OPEC producers in June. The prospect of Libyan oil returning to the market is also beginning to weigh on prices. Libya is believed to restore full output in 12-15 months. According to an official from Gulf OPEC member, the price has come down, but it is till above $100/barrel, which is still high. Morgan Stanley has cut its Brent crude estimation for 2012 to $100 a barrel from $130 a barrel on the basis of returning supply from Libya, Canada, North Sea and weaker global demand.
In the container market, the weak freight market on a normally peak season has triggered a pessimistic outlook for the rest of the year and the forthcoming 2012. The SCFI closed last week at 973 points, down 1.8% week-on-week, the fifth consecutive decline, with rates for European bound cargo rates down 2.7% and USWC and USEC container rates down 2.1% and 2.2% respectively. The sharpest decline has been witnessed again on the European route. The utilization rate on Asia-Europe route is said to be 75% below the previously reported of 85% with larger liners seeing higher utilization at the expense of smaller liners.
The poor growth data of U.S. and European economies have a dreadful influence on the spot freight market, which is already under the pain of oversupply in major busiest container routes. According to data showed in Journal of Commerce, U.S. containersized imports fell last month 1.5% from a year earlier, due to lower shipments of home goods, clothing and toys. August data represented the third consecutive monthly drop in year-on-year volume, followed by 5% decline in July. According to Journal of Economist Mari o O. Moreno, the troubles of the U.S. housing market and the high unemployment rate have influenced the U.S. imports.
What is noteworthy under the threat of a late rebound in U.S. and European consumer sentiment is the scheduled deliveries of very large container vessels in the forthcoming years. According to Alphaliner, 48% of the containership orderbook is consisted by container vessels of 10,000 TEUs and 21% by vessels of 7,500-9,999 TEUs. Very large and ultra large containerships of above 7,500 TEUs will dominate containership deliveries over the next decade as carriers seek to achieve greater economies of scale and reduce the slot cost per TEU. The average size of new containerships in 2000 was only 2,900 TEUs compared with 6,100 TEUs this year, while the largest delivery reached 8,200 TEUs. By the end of next year, the size of the biggest vessel will double to 16,000 TEUs and increase to 18,000 TEUs by 2013.
In the shipbuilding industry, China Rongsheng Heavy Industries secured a loan of RMB35bn ($5.5bn) from China Development, which includes a basket of financing services including syndicated loans, liquidity loans, trade finance and financial leases. Hong Kong-listed China Rongsheng said the credit facility would replenish the group's working capital under the current economic conditions and fortify its operations. The slowdown of dry bulk ordering activity seen this year seems to have a detrimental influence on Chinese shipbuilding business, especially for Chinese Greenfield shipbuilders that are seeking to win business due to lack of expertise in building more sophisticated ships as their Korean shipbuilding rivals. According to a Citigroup report, some Chinese shipbuilders are accepting loss-making orders just to secure cash flow with average sale prices being below breakeven levels. However, Korea, which is the home to the world’s three biggest shipbuilders Hyundai Heavy Industries, Daewoo Shipbuilding and Marine Engineering, Samsung Heavy Industries, faces serious challenges of adding new more business in its yards for larger size dry and wet units (capesizes, VLCCs) as the slumping freight rates, especially in the crude tanker market, do not support new newbuilding plans for vessel sizes that appear now to be inflexible types of investments.
In the shipping finance, the European bank lending has become very tight as sovereign debt crisis creates serious difficulties for future cash lending to shipping players. According to the IMF, the risk of exposure in European banks has increased by EUR 300mil ($407 billion) under the current economic turmoil, which narrows the window opportunities in the traditional bank lending and syndicated loan market. According to Rodricks Wong, a financial analyst at Marine Money Asia, shipowners in Asia are looking at perpetual bonds, convertible preference shares, dim sum (RMB denominated) bonds and leasing as alternatives to finance their capex needs.
Under the current tight ship financial difficulties, NYSE listed Scorpio Tankers has secured a new $92 mil credit facility from Credit Agricole and Skandinaviska Enskilda Banken to fill a financing gap of its newbuilding product tanker program in Hyundai Mipo Dockyard. The facility covers four of its five 52,000 dwt product tankers on order with the $92 mil loan breaking in four tranches of $23 mil each unit, representing 61% of the purchase price. Loan facility will be made available once Scorpio Tankers pays the first 39% of the purchase price of each newbuilding units.

Source: Maria Bertzeletou – Golden Destiny S.A Research Department

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Medium-range product tankers plagued with high volatility
By total
Published: 2011.10.08

It’s been a rollercoaster year for owners of medium-range (MR) product tankers this year. As London-based shipbroker Gibson noted in a recent report, back in spring of 2011, the transatlantic MR market returned to the glorious days of 2008, with the earnings for UK Continent – US Atlantic Coast (TC2) rising close to $23,000/day in late April/early May. Back then the strength in this market was underpinned by wide arbitrage opportunities, tightening US gasoline stocks, strong US distillate exports and firmer MR markets elsewhere in the West. However, TC2 rates fell back dramatically in the summer as chartering enquiry weakened boosting tonnage availability. MR earnings dropped below $2,000/day in early September, the lowest level for the year. Yet again, over the past two weeks we have witnessed the resurgence in the transatlantic MRs, with freight rates jumping by around 45% between 14th and 28th of September.

Gibson went on to mention that “at first glance the demand side fundamentals do not appear to support these positive developments. Gasoline demand has weakened again, with preliminary estimates for the past four weeks showing a decline of 0.22 million b/d compared to the same period last year. Imports are also weak, averaging just 0.62 million b/d since late August, down by 0.24 million b/d year-on-year. At the same time, gasoline stocks are comfortably above the five year seasonal average, thus putting downwards pressure on imports. However, deeper analysis shows that not everything is so gloomy, with continuing gains in product exports.
Gasoline exports from the US rose sharply over the past year, up from 0.23 million b/d in September 2010 to 0.34-0.4 million b/d this month. Distillate exports remain strong, at 0.81 million b/d over the past four weeks. Overall, these trade flows continue to create additional employment, enabling owners to enhance their earnings through back-haul trade, triangulation or simply greater utilisation due to shorter ballasting” said the shipbroker.
It went on to mention that «it does appear that this latest pick up in the market will not be sustained for long, as for the most part temporary factors played a significant role here (with rates somewhat softening again yesterday). Overall, the latest spike has been supported by tighter tonnage availability caused by the recent displacement of tonnage with some owners opting to remain in the US/Caribbean market or in West Africa instead of ballasting back to North West Europe where earnings were extremely low not so long ago. The supply conditions were also clouded by a degree of uncertainty about the availability of MRs which were lucky enough to secure back haul cargoes to Europe. This coupled with some operational delays lowered tonnage availability, prompting higher competition for existing units. However, unless the market elsewhere in the Atlantic Basin tightens and/or we will see additional enquiry, spot supply/demand conditions for the transatlantic MR market will gradually become more “loose”, creating downwards pressure on freight rates. But for now, MR owners in the region are still in the top earners’ league” concluded Gibson.
Meanwhile, during this week, Gibson said that “it was a repeat of poor performance for VLCCs in the Middle East Gulf, but this week the salt has been firmly rubbed into Owners' wounds as the Atlantic took a turn for the better, posting rates far and away higher than those available here. If the Atlantic maintains the gain, then some will go bounty hunting, and that may lead to some re-balancing in the medium term. Rates, for now, remain in the very low WS 40’s East and down to WS 32.5 for the West. Suezmaxes started slowly, but picked up some pace by the weeks end, and rates to the East pushed towards 130,000 by WS 85, though West levels remained at around WS 50 with plenty of keen players remaining for that direction. Same as, same as, for aframaxes with only slack interest keeping rates pegged at 80,000 by WS 95 for Singapore, and little early change anticipated.
West Africa suezmax drums started to beat in earnest, as Owners initially took heart from better news in the Mediterranean, and then wallowed in a glut of concentrated enquiry that allowed for rates to spike above 130,000 by WS 90 for all options, with WS 100 threatened for European destinations. VLCCs on those positions then enjoyed more co-load attention, and tight availability allowed the market to rise to 260,000 by WS 65 for US Gulf, with over WS 50 now called for Eastern movements. Eventually, ballasters from the soggy Middle East will dilute the scene, but for now things should hold” Gibson concluded.

source: Hellenic Shipping News Worldwide

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Dry bulk market falls mid-week, further drop expected next week on China holidays
By total
Published: 2011.09.29

The dry bulk market, as reflected by the Baltic Dry Index (BDI) retreated by 0.36% yesterday reaching 1,920 points, with the Capesize segment suffering the main losses. The Baltic Capesize Index (BPI) was down by 1.51% yesterday, ending the session at 3,268 points. By contrast, the Panamax segment fared much better, rising by 1.02% to reach 1,681 points.

According to the latest weekly report from shipbroker Fearnley’s, “a psychological barrier seems to kick in every time spot levels for the capesize segment climb close to usd 30k. A robust strengthening on high volume is turning into a soft slide as activity cools down and nervousness spread. Despite last few days´ developments, average daily earnings are still up 12% w-o-w at usd 28k, and fundamental parametres still appear robust for transatlantic and pacific trades. Period activity has been fair on the back of paper support - most recently exemplified by 2 x 206kdwt newcastlemax NBs delivering Feb+April 2012 for about 4 years to major energy producers at usd 18k, 175kdwt/built 2010 delivering Japan early Oct done for 4-6 months at usd 19k and also 176kdwt/built 2010 delivering N.China early Oct for 4-6 months at usd 18k” said Fearnley’s.

In a separate report, commenting on the Capesize market, Piraeus-based shipbroker Shiptrade Services said that “the Atlantic market was relatively active, especially for prompt positions. Rates increased significantly, and at week’s closing fixtures reported at USD 33.000 per day Transatlantic round, while on the Front haul trade, fixtures reported at USD 50.000 per day. On the Tubarao/Qingdao trade, levels followed the same trend, and eventually concluded at USD 27.00pmt. Activity in the Pacific basin was even stronger than in the Atlantic. Cargo volume increased as new cargoes emerged from S.Africa, and India, but rates for pacific round voyage remained at same levels, i.e USD 24.000 per day. On the Australia/China trade, the iron ore majors covered about 15 vessels at levels close to USD 11.50pmt” said Shiptrade.

Meanwhile, according to Fearnley’s “the Panamax market started this week on a quiet note with only USG fronthaul giving some fuel to the levels. In the Atlantic the market is firming up, tighter with tonnage and some fresh minerals and grains requirements entering the market. TA rounds are now fetching ard usd 14,500 while some claim to have seen usd 16k for the shorter Baltic rounds. The fronthauls closer to mid 20´s with additional premium for shorter trips via Aden. In the Pacific activity is slowing down in all areas. Some analysts warn that China ´s emergency coal reserve provision is too small, and they might pick up the pase they had earlier on Indonesian coal. Mid week the Pac rounds are being fixed at ard usd 11k while the backhauls are getting ard usd 4,500. The period market has shown some activity with a few short period fixtures in the mid 12k range. With the coming holidays in China activity and levels could suffer next week” mentioned the shipbroker.

Shiptrade’s comment on the Panamax market was that there were not many fresh enquiries, combined with prompt tonnage building up, and rates sliding. “In the Atlantic basin we saw plenty of fixtures but rates didn’t manage to increase, as there were not so many fresh enquiries, especially for Transatlantic round. At week’s closing, rates for Transatlantic round concluded at USD 14.000 per day, while on the Front haul trade rates declined at USD 24.000 per day, with the majority of cargoes coming from USG. Pacific remained a bit quiet with not many enquiries in the market, and many prompt vessels looking for suitable cargoes. Rates declined, and at week’s closing, rates for Pacific round concluded around USD 11.000 – 11.500per day basis N.China delivery, or close to USD 13.000per day basis S.China – S.E.Asia delivery. Rates for trips Ex NOPAC concluded at levels around USD 10.500 – 11.500per day basis N.china/Japan range for BPI type vessel (M/V Eleftheria 76.134/01 ), concluded Shiptrade.

Yesterday, Commodore Research & Consultancy issued an update on the state of coal stockpiles at the port of Qinhuangdao, China’s largest coal port, which have come under a large amount of pressure as we have anticipated. “At present, stockpiles stand at approximately 5.1 million tons, 2.2mt (-30%) less than at the start of the month. The stockpiles have come under a large amount of pressure as maintenance to China’s coal dedicated Daqin Railway (which stretches from coal-rich western China to Qinhuangdao) has coincided with robust demand for thermal coal and electricity On Tuesday September 20th, coal stockpiles at Qinhuangdao stood about 7.1mt. Maintenance to the Daqin Railway, which began on Wednesday September 21st, has resulted in the line being down for approximately 3 hours each day. The 12-day period of maintenance is scheduled to end on Monday October 3rd. Going forward, we expect that the Daqin Railway will transport 30-33mt of coal in September, which would be moderately lower than the 36.94mt of coal that was transported in August. We anticipate Qinhuangdao coal stockpiles will remain below 7mt during at least the next two weeks, which is likely to lead to a continued increase in Chinese thermal coal fixtures (Chinese thermal coal fixtures have already begun to increase this week). Regional thermal coal import prices also remain very attractive compared with Chinese domestic thermal coal prices” concluded Commodore.

from： Hellenic Shipping News Worldwide

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Newbuilding ordering enquiries remain at low levels
By total
Published: 2011.09.28

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Shipowners’ appetite for newbuilding seems to have abated during the past few months, with the trend now pretty much established, especially since the beginning of the summer. According to the latest weekly report from Clarksons, “whilst this week has seen some further reports of new business being concluded, it has for the most, continued in a similar vein to that of the past few weeks, with levels of new enquiry in the newbuilding market continuing to remain low.
This continued period of relative quiet, comes against the backdrop of an uncertain Global Economy. During the week and against concerns over the worsening European debt crisis and threat of a U.S. recession, the equity markets have continued to fall and since May this year have now shed approx 20% of their value, according to the MSCI World Index. With this in mind and even though pricing from China continues to remain relatively attractive it is perhaps unsurprising that owners have been tentative about making further moves into newbuildings.
To counter this, we continue to see the yards work hard on developing newer more efficient designs in all of the sectors, as they look to encourage further ordering. With the installation of energy saving devices, new engines and continued research into hull forms, the yards have continued to improve on their designs and with bunker costs continuing to remain high, these will no doubt appeal to potential new buyers. It will be interesting to see therefore how owners balance the general concerns of the market against the opportunity to order these new efficient ships at what can be considered, from China at least, to be relatively attractive market levels” said the world’s leading shipbroker and researcher.
Meanwhile, according to a separate report from shipbroker Golden Destiny, the previous week ended with fairly active business for newbuiding units with LNG, offshore and container segments being still the most potential sectors for more new contracting activity due to the oversupplied dry and wet sector. Japanese owners are still not favoring their domestic shipbuilding industry due to strong yen appreciation seeking orders in Chinese yards due to cheaper cost.
“Overall, the week closed with 50 fresh orders reported worldwide at a total deadweight of 1,994,026 tons, posting a 284% week-onweek increase. This week’s total newbuilding business is up by 47% from similar week’s closing in 2010, when 34 fresh orders had been reported with bulk carriers and tankers being the protagonists by grasping 61.7% and 35.2% share respectively of the total ordering activity. In terms of invested capital, the LNG and container segment appear the most overweight of this week with containers holding the lion share of this week’s ordering activity, 30% of the total volume of orders reported.
In the bulk carrier segment, the supramax size seems the most popular newbuilding investment under the current market fundamental as it appears to be the size with the less freight market volatility since the beginning of the year in contrast with the oversupplied capesize and panamax segment. Notable order has been the 4 supramax units deal of 58,000dwt placed by Japanese owners, Mitsubishi Corp, Kumiai Sepaku, in Nantong Cosco Chinese yard instead of supporting their fragile domestic shipbuilding industry. Furthermore, Japanese shipowner Daiichi Chuo Kisen Kaisha is said to have ordered a trio of 97,000dwt units, in new design by IHI Marine United of Japan for delivery in June 2013 and January 2014. The vessels are being built to transport coal for Tokyo Electric Power Co.
In the tanker segment, the MR/chemical segment appears to be the most tempting for contracting activity. The ordering business in the crude segment remains subdued since the beginning of the year with limited hopes for a firmer rebound as we move towards the end of the year. In the small tanker segment, under 10,000dwt, 4 fresh orders revealed this week placed in Chinese yards as the only sign of tanker newbuilding business.
In the gas tanker segment, South Korea’s Hyundai Heavy Industries is said to have won a $400 mil deal to build two LNG carriers for BW Maritime Pte Ltd, part of Singapore’s BW Group for delivery one of the two vessels in the second half of 2014 and the other in the first half of 2015, with an option for two additional units. Furthermore, Swedish shipowner Stena Bulk is discussing a possible four LNG order with two South Korean yards. Industry sources indicate that the Swedish owner is aiming two LNG units of 174,000 cbm with Daewoo Shipbuilding and Marine Engineering and two units of 160,000 cbm with Samsung Heavy Industries with deliveries from 2014 onward.
In the container market, Pacific International of Spore has placed an order for two large panamax units of 6,600 teu in Dalian New Shipyard of China for delivery in 2013. The contracting activity for large panamax and post panamax units persists irrelevant with
liner operators being aware of the overcapacity issues on the Asia – Europe route and the sovereign risk in the European and USA economies. Containership owner Seaspan is said to be in discussions with South Korean shipyards about 18,000 TEU units. Company’s chief executive officer Gerry Wang has revealed that they will be soon in a position to place orders for a new generation of super sized boxships on behalf of long term charterers. The designs will be simpler than those Maersk is building at a price around $180 mil. Orders will be placed in South Korea as Seaspan is not confident that Chinese yards are ready to build this class of ships. Furthemore, Greek owner Technomar extended its newbuilding order of July for two 6,700 TEU units in Hyundai Samho of South Korea with two more similar units at an undisclosed contract price for delivery in March and April 2013.
In the sub-panamax segment, STX Group announced that its STX Dalian Shipbuilding has secured an order to build 2,000 TEU containerships for Sea Consortium (Seacon) at a total cost of $240 mil with first delivery in April 2013. In the small feeder sector, South Korean shipyard Daesun Shipbuilding has announced that it has won a new order from a compatriot leasing company for a 1,000 TEU capacity vessel at a price of $19,8 mil to be long term chartered to Korea Marine Transport Co.” concluded Golden Destiny
from: Hellenic Shipping News Worldwide

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An Evolving Mixture of Capesize Fixtures
By total
Published: 2011.09.27

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Capesize owners breathed a sigh of relief in August after average earnings improved, although some routes benefited more than others. A historical look at Capesize spot fixtures over the last decade reveals how the proportion of fixtures concluded on each of the main trade lanes has changed, and whether this has had any impact on earnings.
Divergent Paths
Between 2008 and 2009, the number of reported spot fixtures grew by 41%, as greater uncertainty in the freight markets led to a preference for short-term commitments. Meanwhile, as shown in the Graph of the Month, the proportion of spot fixtures made on each of the four main trade lanes since 2002 has changed significantly. Whilst the market share of Pacific round voyage (RV) fixtures has almost tripled to reach 59%, Atlantic RV fixtures have fallen from a 40% share to a 13% share.
The falling proportions of reported Atlantic RV and backhaul fixtures (which in the year to date held less than a 1% share) are likely to be related to weakening European demand for resources. Growing Asian demand has also no doubt increased the number of Asia-bound spot fixtures, although this seems to only be part of the story.
Pacific Heights
While the proportion of fronthaul fixtures has been relatively steady since 2002, the share of Pacific RV fixtures has increased. Since Asian imports from Australia have grown at the same rate as those from Brazil, the greater increase in the Pacific RV share could be down to a shift in the way Australian miners sell iron ore. After the 2008 breakdown of the annual contract pricing system, increasingly some volumes were sold on the iron ore spot market, boosting the need to fix spot vessels and amplifying Pacific RV fixtures. Meanwhile, Brazilian miner Vale’s move towards large scale fleet ownership has had the opposite effect on the spot market in the Atlantic.
Earning Prospects
However, despite the differing growth rates of spot fixture demand between routes, Capesize earnings have not responded in tandem. Earnings on the Western Australia/China route have fallen by 92% since 2008, while those on the Brazil/China route have fallen by 84%. Despite greater spot demand for Pacific RVs, earnings on these routes fell at a similar rate to fronthaul routes. Severe oversupply is to blame, and has depressed earnings on all routes. Additional vessels travelling to Asia have also led to more open ships appearing in the Pacific, limiting rates and possibly contributing to the greater percentage decrease there relative to fronthaul.
Over full-year 2011, the Capesize fleet is forecast to grow by 15%, and iron ore trade by 5%. So far, the sheer extent of oversupply has overwhelmed the effect greater spot cargo demand could have had on earnings, even in the Pacific where demand growth has exceeded that in the Atlantic. The recent rally in rates has offered some hope to owners, although given the rapid fleet growth, their sustainability remains unclear.
Source: Clarksons

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Scrapping of older vessels the key for easing oversupply of dry bulk vessels says Seanergy Maritime
By total
Published: 2011.09.26

The record levels of scrapping activity seen this year are going to be a catalyst for alleviating the industry’s oversupply problems by balancing supply and demand says Christina Anagnostara, Chief Financial Officer with New York-listed shipowner Seanergy Maritime Holdings. In an interview with Hellenic Shipping News Worldwide, Anagnostara said that “recently an international broker estimated that if all vessels built before 1985 were scrapped before the end of 2013 it would bring net annual fleet growth to 6.3%, compared to gross growth of roughly 12% and an estimated annual rise in demand for dry bulk transportation of about 5.2%. If this materializes, we should see a gradual stabilization of the demand and supply dynamics going forward” she said.

Could you provide us with the latest figures regarding Seanergy’s performance during the first half of the year?

We reported our 2011 six months earnings with an increase in revenues and net income compared to the same period last year. Net Revenues were $53 million, up 30% from last year’s $40.8 million. EBITDA for the first half of the year was $26.5 million as opposed to $20.9 million in the same period of 2010.
For the second quarter of 2011 Net Revenues were $27.8 million as compared to $22.6 million in 2010. EBITDA was $13 million and Net Profit was $650 thousand, as compared to a net loss of $290 thousand in the same period of 2010.
For the first six months of 2011, we owned and operated 20 vessels, achieving fleet utilization of 94.4%. This compares to an average of 13 vessels and a fleet utilization of 95.2%. TCE was equal to $14,991, as compared to $17,729 in the same period in 2010.
In May 2011, we announced the reorganization of our Hong Kong office, as it offers advantages for further growth in the Far East, a region of critical significance for dry bulk shipping.
As of June 30^th, 2011 our cash reserves, inclusive restricted cash, were $45 million and our total assets amounted to $660 million.

How would you evaluate the company’s performance so far in the year and which are your expectations for the remainder of 2011?

Considering the current weak market environment, we were able to improve our revenues due to the increase in the size of our wholly owned fleet. In addition, as per our fleet employment strategy, we are maintaining a portfolio of fixed and floating rate contracts as well as profit sharing agreements that provide us with cash flow stability and protection against the volatile freight rate environment which has hampered the industry in 2011.
We anticipate that the following months will continue to be characterized by volatility, as there are a multitude of factors that can affect the market, which are hard to predict. At the same time, our increased exposure to the less volatile Handysize segment along with our balanced chartering strategy is likely to go a long way towards moderating the negative effects of increased volatility in the shipping market. It is worth noting that all of our vessels are fixed with what we believe to be highly reputable charterers. We would therefore expect the Company’s performance to remain largely in line with what we experienced during the first half of the year.

During the past couple of weeks, the dry bulk market experienced a rally for the first time in months. What developments triggered this rise and do you expect this trend to continue as reports are indicating that scrapping levels of ageing bulkers are increasing?

The rally in the shipping market has mainly taken place in the capesize segment, which took the hardest hit over the first months of 2011. The most important driver of this was high demand for Brazilian iron ore imports into China and increased coal imports into Japan. It is worth noting that over the first months of 2011, iron ore inventories in China were quite high, which had also contributed to lower activity and lower rates paid for capesize tonnage. Furthermore, the fact that many new ships have been delivered in the Pacific since the beginning of the year has caused a relative shortage of tonnage in the Atlantic, which led to higher rates.
Most industry sources point to the fact that fundamentally, supply and demand dynamics have not changed that much and so the spike in rates is likely to be transitory. As a result we expect freight environment to remain soft for the next 18 months.
Going forward, the record levels of scrapping activity seen this year are going to be a catalyst for alleviating the industry’s oversupply problems by balancing supply and demand. Recently an international broker estimated that if all vessels built before 1985 were scrapped before the end of 2013 it would bring net annual fleet growth to 6.3%, compared to gross growth of roughly 12% and an estimated annual rise in demand for dry bulk transportation of about 5.2%. If this materializes, we should see a gradual stabilization of the demand and supply dynamics going forward.

How well positioned is Seanergy Maritime Holdings in order to benefit from a longer term recovery of the dry bulk market to more sustainable levels?

Since 2009 we have managed to increase our fleet from 6 to 20 vessels proving our ability to deal with unfavorable market fundamentals. We have managed to increase our revenues and we are poised to benefit from any future recovery in the dry bulk shipping and continue to grow.
At the same time, the Company’s increased exposure to the Handysize vessel segment means that it has the capacity to withstand a weak market environment, as spot rates for smaller vessels are not expected to come under the same pressure as the larger ones given the market fundamentals.
Furthermore, as asset values decline we will continue to review business opportunities as they become available.
Having secured period employment of 93% for 2011 and 64% for 2012 all with what we believe to be credible and reliable counterparties puts us in a position where we enjoy cash flow visibility for the coming months, while we are able to take advantage of short term spikes in freight rates in order to increase profitability.

How do you see the market behaving until the end of the year?

As already mentioned, the market is likely to remain at low levels for the rest of 2011, yet seasonal factors in worldwide commodities trading and any sudden growth in demand attributable to such factors has the capacity to affect rates positively, as seen in the last weeks. We therefore expect the market to remain volatile, albeit at relatively low levels.

Which are your estimates about freight rates going forward to 2012?

We expect the freight rate environment in 2012 to remain at the same levels as in 2011. The pace of new deliveries, scrapping and slippage will play a key role as increased vessel supply is going to lead to lower rates.

When do you expect oversupply issues to start alleviating?

As things currently stand, the bulk of new vessel deliveries is going to take place in 2011 and 2012, while from 2013 the pace of expected deliveries is likely to subside considerably. Even as we expect some deliveries to be pushed back in time due to financing and other difficulties, it is unlikely that after 2013 the industry is going to be facing the problem of oversupply as intensely as it does so today.
An important assumption to be made here is that orders for new dry bulk vessels are not going to increase significantly, to the extent that they did in the years leading up to 2009 as that may prove detrimental for market fundamentals in the future.

Are you still on the market for more vessel purchases?

We would engage in acquisitions as long as they are expected to be accretive to earnings and in line with our investment criteria. The broad based reduction in asset prices caused by weak market fundamentals makes it likely that investment opportunities with high expected returns may arise.

Do you favor second-hand vessels or newbuilding orders at this stage?

Despite the fact that prices for new-building vessels have generally fallen, high prices for raw materials such as steel makes further decline unlikely. On the other hand, due to adverse and deteriorating market conditions high-quality second-hand vessels and new-building vessels on resale may become attractive investments.
In general, vessel acquisitions are reviewed on a case by case basis.

Which dry bulk sector will prove the more resilient in the long term?

Long term fundamentals seem to be more favorable for Handysize vessels, for two reasons. Firstly and most importantly, demand and supply dynamics are a lot more promising compared to larger vessel segments. The outstanding orderbook for Handysize vessels stands at approximately 27%, with the total fleet having grown at an estimated rate of about 5% year on year according to industry sources. By comparison, for Capesize and Panamax vessels the outstanding orderbook is closer to 50% of the current fleet, while fleet growth year on year is expected to surpass 10%. Furthermore, Handysize vessels represent on average the oldest fleet, as approximately 45% of the world Handysize fleet is over 20 years. This should translate in more intense scrapping activity that can further tilt the supply and demand balance in favor of ship owners.
Secondly, Handysize vessels enjoy unparalleled operational versatility, in terms of the types of cargo that they can carry and the ports they can access. In this respect, it should be noted that demand for transportation of minor bulks, including steel products and fertilizer raw materials is generally more diversified as there is no need to rely on demand for a single type of cargo. Furthermore, areas of increasing importance for dry bulk shipping, such as most countries in the African continent, Indonesia and even India generally lack the infrastructure to accommodate large vessels.
We therefore believe that in the long term Handysize vessels are likely to enjoy the most resilient market fundamentals, leading to reduced volatility in freight rates as compared to larger vessel types.

from: Hellenic Shipping News Worldwide

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Record recycling activity stirs optimism in dry bulk says BIMCO’s analysis
By total
Published: 2011.09.23

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As expected at the start of the year, dry bulk ship owners were expected to flock scrapyards around the world, in order to take advantage of attractive scrap prices and help alleviate tonnage oversupply pressures, already in place since the last months of 2010.With 2011 also looking to be another record-breaking year in terms of new building deliveries, scrapping of older vessels was crucial to the industry’s recovery. Well, after nine months, it seems that these efforts have paid off, with the dry bulk market staging a superb comeback since late summer.
According to BIMCO’s latest analysis, in absolute numbers, 2011 is expected to become the new no1 in terms of dry bulk tonnage leaving the fleet to be recycled. “On On course for more than 20 million DWT to be demolished, with the potential of reaching 25 million if owners continue to be attracted by the relatively high demolition rates and freight rates fail to improve significantly through the remainder of the year.
Chief Shipping analyst at BIMCO, Peter Sand says: “The huge amount of tonnage leaving the fleet for recycling is very positive news for the dry bulk market. As 2011 is going to provide the largest inflow of new ships ever, this counterbalancing effort by ship owners is softening the current imbalance between supply and demand as fleet growth will be tempered”.
The previous demolition record was set in 1986 when 12.9 million DWT was demo-lished. At that time the dry bulk fleet was comprised of just 197.2 million DWT, bringing the annual demolition rate to 6.5%. Should 2011 bring around the same annual demolition rate relatively, 35 million DWT would have to be recycled.
The primary driver behind this development is the fact that earnings have been close to OPEX-levels for most of the year. Combined with a strong inflow of new tonnage this has led to a strong surge in demolitions of older tonnage” said Mr. Sand.
BIMCO’s analysis continues: “The fleet growth rate in the Capesize segment has so far been tempered by 4.4% due to demolition, with the potential of reaching as much as 6.6% for the full year. This offsets the fleet growth to a large extent, since the absence of any demolition activity during 2011 would have resulted in the Capesize fleet growing by astonishing 20%. Massive as this figure may sound, the Capesize fleet grew by 23% last year and 18.5% in 2009. If the full potential of demolition of the Capesize fleet in 2011 should materialize, that would equal another 4.6 million DWT to be demolished. In order words it would require the 28 remaining Capesize vessels that are built in 1985 or before to exit the fleet.
The demolition activity has primarily involved Capesize vessels. 55% of the recycled DWT in 2011 represented Capesize vessels. This compares to the previous 10 years average at just 27% of total dry bulk demolition. As the Capesize segment has already seen inflow of new tonnage in excess of 27 million DWT (153 vessels), the decision to take a vessel out of the commercial service is helping to cushion the impact from significant oversupply which has already left deep scars in terms of very poor earnings. Average spot earnings for a 10 years old Capesize vessel in 2011 have been just USD 8,296 per day. This is the poorest result on record. Last year such a vessel earned USD 30,587 per day on average.
This means that, if you have so far traded your Capesize vessel exclusively in the spot market during 2011, earnings would have covered only daily running costs, regardless of the composition of your Capesize fleet (new/old, debt-free/indebted). This may be one of the most important factors behind the booming demolition activity as massive inflow of new tonnage doesn’t encourage higher demolition activity alone.
Daily running cost on a Capesize vessel today is around USD 8,000 per day excluding capital costs and depreciations. If you include the above mentioned costs in the earnings-equation the picture looks quite different and it really spells out the chal-lenges facing owners. If your new built and externally financed Capesize is bought at top dollar at the peak of the market (USD 95 million) using 80% debt at 5% p.a. you will need just above USD 30,000 per day to break-even with the vessel on a stand-alone basis. At the other end of the scale the same calculation equals a break-even rate at USD 19,000 per day if you invest in a 5 year old second hand vessel today at USD 39 million.
Owners of “V Europe” have just sold the vessel for USD 10 million to be demolished at a Bangladeshi facility. The vessel that was beached on August 30 is amongst the latest in a very steady stream of dry bulkers to be withdrawn from service. The 1982-built, 139,496 DWT vessel is the 58th in the line of Capesize bulk carriers, under-scoring the strong flow of vessels satisfying a very solid demand for scrap metal in the demolition country.
The healthy demand for scrap steel is visible from the high ldt-prices offered. “V Europe” went to the breakers for USD 525 per ldt (Light Displacement Tonnage), building further on the continual rise in prices offered by cash buyers.
There are four major ship recycling markets, namely India, Bangladesh, China and Pakistan. In all terms India is by far the largest ship breaking nation and Alang the leading facility. So far this year, 283 vessels with a cargo capacity of 8.9 million DWT have been scrapped by Indian breakers. Bangladesh comes in second in terms of DWT - 7.4 million and China in terms of numbers – 107 vessels of various kinds. The typical demolished Capesize vessel is 27 years old on average with a cargo capacity of 160,125 DWT and built in Japan (51%) between 1977 and 1991” concluded BIMCO.
“At the current demolition pace, 4.7% of the dry bulk fleet will be demolished during 2011. But as the order book still holds 235 million DWT in prospect for future delivery equal to 40% of current active fleet, – recycling of over-aged tonnage must remain at high volume to bring optimism back and steer this dry bulk segment towards more sustainable freight levels and thus better earnings“, adds Peter Sand.
source：Hellenic Shipping News Worldwide

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Ore-Ship Rents May Fail to Sustain Jump Amid Glut, Clarkson Says
By total
Published: 2011.09.22

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Rents for capesize ships that haul iron ore and coal may fail to sustain a rally because of a glut of vessels, according to Clarkson Research Services Ltd. Average hire costs tripled in seven weeks and last week reached the highest level since Dec. 6,data from the Baltic Exchange in London show. The dry-bulk fleet will expand this year as the equivalent of 1,039 new panamax-sized vessels enter service, 643 more than needed, calculations show in Clarkson’s Dry Bulk Trade Outlook, published yesterday.
“Given the expected continued rapid expansion of the fleet, the sustainability of the current improved rates is therefore questionable,” said Clarkson, a unit of the world’s biggest shipbroker.
Daily capesize hire costs gained 5.4 percent to $24,276 today, increasing for the first session in four and helping to lift the Baltic Dry Index, a broader measure of commodity- shipping rates. Still, the capesize rally is over, said Erik Stavseth, an analyst with Oslo-based investment bank Arctic Securities ASA.
“We see rates declining further and would not be surprised to see capes hit the $15,000-a-day mark,” he said in an e- mailed report. That implies a 38 percent drop from today’s rate, which is already down 16 percent from last week’s high.
Colombia, Brazil
Record iron-ore cargoes shipped from Australia’s Port Hedland led the surge in capesize hire costs, SSY Consultancy & Research Ltd. said in a monthly report e-mailed yesterday. Extra coal cargoes from Colombia and ore from Brazil also contributed, it said.
The index gained 1.8 percent to 1,795, held back by lower rents for panamax vessels, exchange data show. Panamaxes are the largest ships that can navigate the Panama Canal and typically carry about 70,000 metric tons of cargo, about 40 percent as much as a capesize.
Gains in capesize hire costs were led by rents for vessels immediately available to load cargoes from Atlantic Ocean region ports, which climbed 9.4 percent to $26,364.
Daily panamax rents fell 1.7 percent to $13,673, according to the exchange. Hire costs averaged $12,458 last month, this year’s lowest level, while the average capesize rate of $13,142 was the highest in 2011, its data show.
Disrupted shipments of coking coal, used in steelmaking, from Australia and slowing grain exports combined with a ship surplus to cap panamax rates, according to Clarkson.
Rents for supramax ships, about 25 percent smaller than panamaxes, gained 0.4 percent to $15,230 a day. Handysizes, the smallest vessels tracked by the index, advanced 0.1 percent to $10,093.

Source: Michell Wiese Bockmann, Alaric Nightingale, Bloomberg

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