Dry bulk shipping market could bottom in 1Q

Monday, 7 January 2013 00:00 - - {{hitsCtrl.values.hits}}

OSLO (Reuters): The dry bulk shipping crisis, which has already bankrupted several major players, could bottom out in the first quarter, earlier than some players expect, Herman Billung, the head of dry bulk shipper Golden Ocean said last week.

The market could hit its bottom following the Lunar New Year in February, then improve slowly but gradually before marked improvement toward the end of the year, said Billung, who runs shipping tycoon John Fredriksen's dry bulk arm.

"The short term will be quite challenging but a little further out it looks better as the delivery of newbuilds slows ... and if charter rates stay where they are, we'll see a lot of scrapping," Billung told Reuters.

"We are beginning to see the light at the end of the tunnel, but no real trend change before the end of this year," he said.

His comments echo faint optimism for an otherwise depressed market facing one of its worst crises on record.

Charter rates have fallen below breakeven levels as a slew of new vessels, ordered during the boom years, are hitting the waters.

Shipping broker RS. Platou estimates that the average daily hire rates for four vessel types -- Capesize, Panamax, Supramax and Handy -- fell to $9,400 in 2012 from $15,200 in 2011 and a record $67,200 in 2008, when many of the new ships now entering the market were ordered.

And brokerage Morgan Stanley sees vessel utilisation rates falling to 75 percent this year from 77 percent in 2012 and 95 percent in 2007.

The crisis has already claimed several big names, including Deiulemar Shipping, a major Italian dry freight group, which declared bankruptcy last year, and Stephenson Clarke Shipping Ltd., Britain's oldest dry bulk firm, which was liquidated last year.

But Billung pointed to signs of demand, particularly for iron ore and coal to be healthy, in line with the 6-7 percent growth recorded in 2012.

Indeed, iron ore prices jumped to their highest level in eight months this week after posting their biggest monthly gain on record in December.

And very low asset values could also help by more quickly purging the market of old vessels.

A 10-year old Capesize vessel is estimated by analysts to be worth $20 million, a fifth of what a such vessel would have fetched in 2007.