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Market Analysis-Dry Bulk
40
May 2013
Rather I focus on the elements that
should bring around better earning in
dry bulk industry: keep slow steaming
around also when rates start to pick
up, ax commercially unviable tonnage
as soon as possible and seek to expand
capacity in second hand market if pos-
sible to avoid more new tonnage coming
into the market. In short, focus on the
elements where you (as an owner) can
affect the market situation (ie the supply
side).
In particular, it is vital to keep apply-
ing slow steaming to your business as a
return to full throttle means supply will
easily outstrip most demand improve-
ments.
During the first quarter of the year,
we’ve seen a substantial increase
of newbuilding investments in the
dry bulk carrier segment, compared
to the same period of last year?
Why was that? Is it a sign that ship
owners are more confident in the
market’s rebound, or was it simply a
matter of attractive pricing?
The return of higher contracting activ-
ity is not welcomed for the overall mar-
ket as such – but for some owners it can
make perfectly good sense to go out and
order a newbuilding. Prices are low in
a historic perspective – but it’s more
important what kind of future earnings
potential you put into your business case.
The run for more fuel efficient tonnage
is certainly a driver behind some of the
newly placed orders. BIMCO does not
expect a massive rebound in short time
but for a ship to trade from 2015 until
2035 current sentiment may mean little
to the investment decision if the money
to spend is there (or made available to
you).
Do you think that ships’ values in
the second hand market, where
things are also rather active this
year, are close to bottoming-out, or
is there still room for lower prices?
The second hand prices have taken
some serious beating in recent years.
Last year the quoted price for a 5-year
old Panamax dropped from USD 26.5
mill to USD 18 mill, a slide in value of
32%. And the year before that the price
dropped from USD 36 mill (-26%). It
seems as if we are about to establish
some kind of market trough and slowly
moving up from there.
Newbuilding prices already seem as
if they have bottomed out, now time
appears to have come to the S/H market.
Is there still room for lower prices in
dry bulk S/H market? Well, for older ton-
nage indeed, but also for some Capesize
tonnage, as supply is significantly abun-
dant in that segment, but the availability
and higher activity as such in the market
for newer tonnage prices is seen slightly
up for near term future.
Our eyes in the medium-term future
mostly focus on the asset-price develop-
ment of the Panamax segment which is
seen to receive the lion’s share of new
dry bulk tonnage in 2013.
Which dry bulk ship types do you
believe offer the best potential in today’s
market?
I believe the flexible geared
Handymax/Supramax holds the best
potential for being deployed across the
globe.
They cater for many trades and many
ports and at a time when demand is
widespread and where the main import-
ers slowing a bit down the smaller trades
and small importing nations give the
upside to the flexible tonnage.
How has the demolition activity been
progressing so far this year both in
the tanker and dry bulk segments?
As regards Bulker demolitions,
BIMCO forecast 30 million DWT to
leave the fleet in 2013 – this is a tad
down from the 33.7 m DWT that was
recycled last year. So far we have seen
8.7 million DWT which is in line with
our expectations. Either way you look at
it, the dry bulk fleet holds a significant
potential for scrapping of older vessels
in primarily the smaller segments, but
the likelihood of unleashing that is little.
Older doesn’t equal unviable. A lot of
elderly vessels are debt-free and repre-
sent an important part of many owners
fleet-mix. Costumer for tonnage like that
is around in many places – leaving own-
ers with no individual reason to sell the
tonnage for demolition.
But for the overall fleet as such, be
it dry bulk, crude oil or product tankers
higher demolition activity is improving
the supply side of the fundamental mar-
ket balance and thus improving for the
market condition.
As regards demolitions, BIMCO fore-
cast 10 million DWT to leave the crude
oil tanker fleet in 2013 – and 2.2 million
to leave the product tanker fleet.
With the improved supply situation in
product tankers, BIMCO focus mostly
on the demolitions of crude oil tanker,
primarily VLCCs this year.
As you know we have analysed the
demolition potential in VLCC segment
from several points of view during the
past quarters in our search for trigger to
kick-off extensive tonnage that will level
off the oversupply.
Will the fact that asset values equal
that of demolition value kick it off –
“no” seems to be the answer to that.
Will the fact that 60 VLCC must go
through a costly special survey/interme-
diate survey spur some owner to sell for
demolition rather than invest in on-going
trading of the vessel? – “the jury is still
out on this”.
But what we can see right now is that
outright demolition is only happening to
a very limited extent (2 so far in 2013).
However we have seen that the current
offshore oil exploration boom has cre-
ated a need VLCC conversion into FPSO
in addition to some VLCC’s sold to be
used as FSU by some bunker traders.
Do you believe that the latest trend
of the so-called “Eco Carriers”,
i.e. ships which promise lower fuel
consumption will become dominant
in the future, despite the premium
prices they command?
BIMCO believes that fuel efficiency is
a vital part of the future.
We see the vessels becoming more
and more fuel efficient over time, but the
most recent ECO-design seems to prom-
ise a leapfrog giving owners an edge.
Lower fuel consumption is something
we all seek – so call it what you like, if
it provides you will a smaller bunker bill
then the business case is straight forward
if the purchase price is right.
In today’s market ECO-tonnage is not
standard; this mean a premium can be
available as compared to the earnings
that are achievable by “standard” ton-
nage. As more and more tonnage become
“ECO” that premium will diminish and a
new normal is to be developed. That is a
normal where ECO-tonnage is the norm
and “standard” tonnage will trade and
earn at a discount to the norm.
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