No major upturn in dry freight before 2013 -broker

Monday, 13 June 2011 00:00 -     - {{hitsCtrl.values.hits}}

  • Record ship deliveries seen in 2011
  • Ship glut to outpace commodity demand

LONDON (Reuters) - A major upturn in dry bulk shipping rates is not expected before the end of 2013 as the freight market will continue to struggle with mounting fleet growth, leading ship broker Fearnleys said last week.

Sverre Svenning, director with Fearnley Consultants, which is part of broker Fearnleys, said net fleet growth was forecast to reach 13 percent this year, despite a pick up in scrapping in May, versus over 16 percent in 2010 and nearly 10 percent in 2009.

“During the course of three years, the entire dry bulk fleet will have expanded by more than 40 percent and there is no chance that demand growth can match that,” he told a Navigate shipping conference in London.

“The freight market is expected to remain subdued for the next 18 to 24 months. We do not foresee any significant upturn before the end of 2013.”

Ship owners went on a ship ordering spree before economic turmoil in 2008 hit the sector. It normally takes three years for a ship to hit the water from when it is ordered.

“We think this year will become a record delivery year both for capesizes and for bulk carriers in general,” Svenning said. “The dry bulk market has tanked, there is no doubt about it.”

Fearnleys estimated net fleet growth would reach 11 percent next year before coming off substantially in 2013 to 4 percent.

“(There will be) strong fleet growth through to 2012 before we see a more benign development in 2013,” he said.

Svenning said there had been expectation that rates would stay soft when they hit a record low in late 2008.

“Then the Chinese came back in the spring of 2009 and saved everybody by increasing imports of iron ore and coal,” he said. “After two relatively good years we see now that capesizes especially and to a certain degree panamaxes are really, really low in earnings.”

Average capesize earnings have fallen to below $5,000 a day this year, below operating costs estimated at $7,500 to $8,000 a day, compared with over $200,000 a day before the financial crisis in 2008. They reached $10,937 a day on Tuesday, Baltic Exchange data showed.

“Everyone is anticipating the freight market is going to be disappointingly low for probably 12 to 24 months,” James Leake, managing director of ICAP Shipping Research, told the conference.

Iron ore and coal account for about two thirds of total seaborne trade of dry bulk volumes.

Svenning said coal imports, excluding India, were down about 2 percent year-on-year in the first quarter of this year and dropped about 7 percent from the fourth quarter of 2010, which “indicates a weaker momentum in the market”.

“We see that coal imports are increasing still, but the effect on total demand is relatively small.”

He said iron ore imports continued to increase and had risen 12 percent year-on-year in the first quarter of this year, rising 6 percent from the fourth quarter of 2010.

“The problem is the steel industry in Japan, South Korea and Taiwan -- they are all producing at very closely to capacity. So they don’t need any more iron ore, so again we have to look to China.”

Simon Young, chief executive of COSCO UK, a unit of China’s top shipping conglomerate (601919.SS), told the conference indications were growing that throughput at China’s ports was slowing down and iron ore imports could weaken.

He said the dry freight market had experienced a “super cycle” boom period encouraging players to expect China to have annual growth of iron ore and coal trade of over 20 percent.

“The booming period was so long that this made everybody believe that China would never stop,” he said. “Nobody could guarantee for every year for the next 10 years to have a 20 or 30 percent increase.”