Dry Bulk Shipping Market Hit by Oversupply and Slower World Trade
The dry bulk shipping market is being hit by an oversupply of vessels and slower world trade. Friday, 26.Aug.2011, 03:12 (GMT+3)
The dry bulk shipping market is being hit by an oversupply of vessels and slower world trade.
The deteriorating market has hurt operations at companies such as China COSCOâ€‹, which has had vessels seized for non-payment.
There are just too many ships and the oversupply will worsen, with
new vessels on order amounting to 45 per cent of the current fleet.
This is a stark contrast to the 6 to 7 per cent trade growth some analysts forecast.
The expected result is more companies going under, and new-order cancellations.
Divay Goel, general manager of Siva Ships International, said: â€śIf
the global economic slowdown spreads to India and China, then
definitely we would see a reduction in demand for raw materialsâ€¦then we
might see a further depression of rates â€“ continued depression of rates â€“
so I think any recovery we were expecting say in 18 months or so might
get extended up to 24 months or later.â€ť
Already, international shipping prices of dry bulk cargo are down by 85 per cent since the highs in 2008.
China COSCO is said to be feeling the heat, though it has sought to reassure investors that its business remains strong.
According to wire reports, China COSCO said that negotiations with
shipowners over unpaid bills would be resolved and its business remained
It has reportedly had several vessels arrested over the past two
months due to unpaid charter payments on long-term contracts inked in
mid-2008, worth millions of dollars.
Greek shipowner George Economou is reported to be the key party, with
some 18-20 vessels on charter to COSCO, valued at over US$500 million.
However, despite a stormy outlook for the shipping sector, analysts
said that shipping trusts still offer potential for investors looking to
dip into the sector.
Ng Kian Teck, an analyst at SIAS Research, said:
â€śShipping trusts are yielding about 10 over per cent right now, and
even from a PE perspective, some of the shipbuilders are very cheap
right now. But the market is very cautious on the outlook itself and the
hugeâ€¦shipping order books are going to weigh on the whole industry.
â€śSo what investors can do is to price in a higher risk premium on
to their valuations, and that will give them a comfortable range before
they enter these stocks, and if you have given enough risk premium, you
can get a good deal.â€ť
Shares of China COSCO in Hong Kong have plunged 50 per cent this year.