- 1 -
ICMA
–
Freight Market Report
(3 July 2015)
Fleet Supply Slowdown
Freight Market Overview
Capesize and Panamax markets have both reached year-to-date highs in recent weeks. As a result in late June the Baltic Exchange Dry Index (BDI) climbed above 800 points for the first time in 2015. By the standards of recent years, this remains a low average; last year’s annual average was 1,105 points.
The upturn has been most pronounced in the Capesize sector, where the average earnings for 172,000 dwt vessels were languishing around $4,250/day at the beginning of June, but subsequently advanced to $9,467/day by 25 June. The average was pulled higher by eye-catching upward movement in the Atlantic, where round voyage rates jumped to $10,250/day on 25 June from $3,275/day on the opening day of the month. Rapid gains in the Atlantic basin were accompanied by improvements in the Pacific. The Pacific round voyage rate for example almost reached $9,000/day towards the end of the month, having stood near $5,000/day as June began. The resulting positive effect on Pacific coal freight rates has seen the Richards Bay-Qingdao rate appreciate to $10.80/t, marking a leap of $3.80/t in the past two weeks alone. Consequently, the period market has also received a boost, with the one-year rate for Capesizes rising to $11,500/day.
At over $7,000/day, the current Panamax 4 TC average (basis 74,000 dwt) is not only the highest of the year, but is also almost $3,000/day above the level seen at the start of June. Rate gains in this sector have been Atlantic-led, but the ballast option presented to operators in the Pacific has pushed the round voyage rate up from $4,212/day to more than $6,100/day over the same period. The Newcastle-Qingdao spot freight rate is now $8.80/t, but did rise above $9/t in the second half of June for the first time this year.
Rates in the geared sectors have seen a more gradual improvement over the past month. Having been the strongest performing bulker sector for much of this year, the timecharter average for Baltic Exchange-type Supramaxes (of 52,545 dwt) has now been overtaken by Capesizes. Nonetheless, the TC average climbed above $7,500/day in late June compared with $6,814/day at the beginning of the month. The S8 rate from Indonesia to East Coast India has mirrored this development, increasing by roughly $850/day to above $7,000/day in late June. Handysize average earnings (28,000 dwt) meanwhile experienced a more gradual gain of around $500/day to $5,313/day by time of writing.
- 2 -
Chinese dry bulk imports are estimated to have recorded a fourth successive quarter of annual decline in the 2q15, primarily due to further steep drops in coal imports coupled with iron ore import growth turning negative in May.
Although May’s global crude steel production total of 138.9 Mt was the highest in 12 months, it still marked a 2.1% year-on-year fall. This was the fourth consecutive month of annual output decline in both China and in the rest of the world.
East Coast South America was the focal point of increased Panamax chartering activity in June, with Brazil’s soyabean exports establishing an all -time high of 9.8 Mt last month. The International Grains Council expects that Chinese soyabean imports will rise by 4.5 Mt to 78.0 Mt in 2015/16 (Oct-Sep), while US soya exports are predicted to reach a near-record 59.0 Mt (-1.8 Mt from the estimate for 2014/15. Despite this relatively positive outlook for grains, the weakness in coal trade volumes is playing a key role in limiting world seaborne dry bulk trade growth this year.
Fleet Supply Developments
A Capesize newbuilding delivery total of 44 since the beginning of the year coupled with 65 vessels removed from the fleet by scrapping means that in dwt capacity terms the Cape fleet has shrunk by 0.7% in the year to date.
Since the turn of the year 73 Panamax newbuilding deliveries have outnumbered the 50 vessels scrapped over the same period. For comparison, the highest year for Panamax demolition, 2012, saw 69 vessels removed from the fleet through scrapping.
Of the 129 newbuildings entering the 40,000-64,999 dwt “Handymax” fleet this year, 96 have been Ultramax designs of 60,000-64,999 dwt. This has propelled Handymax net fleet expansion to 3.3% in the year to date, and, in turn, has pressured Panamax vessel earnings, where net growth is a less rapid 1.2%.
In the Handysize segment, newbuilding deliveries (89) have been outnumbered by vessels removed from service for scrap (103). Due to the larger size of newbuildings, this has led to a slight gain in dwt capacity (of 0.1%).
Market Outlook – Freight Futures
- 3 -
the 4q15 close to $8,000/day and the 2016 calendar year FFA contract trading a fraction under $7,000/day.
SSY Consultancy & Research
3 July 2015
Whilst care has been taken to ensure that the information contained in this report is accurate, it is supplied without guarantee. SSY Consultancy & Research Ltd can accept no responsibility for any errors or omissions or any consequences arising therefrom. The views expressed are those of SSY Consultancy & Research Ltd and do not necessarily reflect the views of any other associated company.
