Market insight: The Dry Bulk Index show signs of weakness

by Panos Makrinos

SnP Broker

Almost through the half of the year, the overall shipping market and more specifically the Dry Bulk Index show signs of weakness, creating to both existing shipowners and potential investors a lot of insecurity for what is in place for the second half of 2014, as well as further disbelief to those voices that inspired by the last quarter of 2013, were calling for a stable market during 2014.

 

Looking back to the beginning of the year we can say that from the month of February until the time of this writing, with the exception of a small rally, the market has struggled for the greater part, with the BDI returning to below 1,000 points. More specifically, in December last year and while the Index stood above 2,000 points, the overall sentiment was calling for an equally strong market in 2014, which never came.

 

The market has in fact followed a persistent downward trend until mid-February when we started seeing the first signs of improvement. The latter lasted for about a month, with the BDI peaking for the year within this period but still remaining below 2,000 points, and soon after that the downward trend resumed, bringing us to today.

 

Seeing the low levels the freight market has been fairing, most would normally expect that secondhand prices would have followed course, but it seems that it took a while before we started seeing the first discounts off last done sales and even the levels at which most vessels come in the market today still don’t reflect the current freight environment. There are in fact cases of modern Handymax to Panamax tonnage where inspection interest remains high allowing owners to hold firm on their asking price, while at the same time there are currently a lot more sales candidates from the Far East.

 

On the other hand, there are those who are more conservative and therefore unwilling to accept Seller’s ideas. Besides the fact that the current price levels make no sense to them, as long as these subdued freight rates persist, they are also very sceptic when it comes to the number of deliveries set to enter service within the next couple of years, predicting that a renewed overcapacity problem will most probably surface possibly creating another market bottom. Should they be proven right, we will certainly witness another round of softening asset values, both in the secondhand and the newbuilding market, especially if scrapping activity remains at the low levels we have been witnessing during the past months and despite those sky high demo prices around.

 

It is always both risky and difficult to make predictions and nobody could say with certainty what the next 6 months of 2014 hold for the market. And despite the fact that things have been far from rosy so far this year, let’s not forget that the first half of 2013 wasn’t a whole lot different with most predicting further price reductions, which nonetheless never materialized.

 

In terms of the overcapacity being created, let’s hope that the upcoming lower emissions rules, the Dry Docking for most of the 80’s built ships that will be due soon, as well as scrap subsidies similar to the ones offered in China, could well be some of the reasons that will restrict overcapacity. Will they nonetheless be enough to protect the market from the number of vessels soon to be delivered? It’s anyone’s guess at this point.

 

Chartering (Wet: Stable-  / Dry: Softer- )

The Dry Bulk market moved south last week, with Capers erasing the gains of the week prior, while Panamaxes were the only sector that seems to currently show some resistance. The BDI closed today (13/05/2014) at 982 points, down by 5 points compared to yesterday’s levels (12/05/2014) and a decrease of 40 points compared to previous Tuesday’s closing (06/05/2014). The crude carriers market is still weighed down by uninspiring activity across all segments. The BDTI Monday (12/05/2014) was at 661 points, an increase of 13 points and the BCTI at 528, a decrease of 2 points compared to previous Tuesday (06/05/2014).

 

Sale & Purchase (Wet: Stable+  / Dry: Stable -)

Activity on the SnP front was slightly firmer this past week, while as far as the Dry Bulk sector is concerned, the downward trend in secondhand prices is now more evident. With the exception of Capes, May average prices for the rest of the dry bulk segments are down compared to last month. On the tanker side, we had the sale of the “CHARLES EDDIE” (305,178dwt-blt 02, S. Korea), which was picked up by Greek owner Navios for a price of $ 41.5m. On the dry bulker side, we had the sale of the “MOKPO STAR” (82,852dwt-blt 12, S. Korea) which was also picked up by Greek buyers, for a price of US$ 31.0m.

 

Newbuilding (Wet: Stable+  / Dry: Stable+)

This was a slightly better week in terms of newbuilding activity, but the downward trend in the number of orders coming through appears persisting, at least when it comes to tankers and dry bulkers. The over ordering of the past year together with prices that are currently way off the lows touched in 2012, appear to keep owners on the sidelines for now, especially since the freight rate market remains under pressure. There are exceptions to this nonetheless. The Gas sector for example has witnessed an overall steady freight market combined with newbuilding prices that noted a very modest increase compared to that of the more popular sectors. So as bulkers and tankers have been taking less and less space in the newbuilding orders list, the gap has been lately filled by Gas orders of all types and sizes. In terms of new orders, Chinese owner Shandong Shipping has returned to Daewoo in S. Korea to exercise a pair of options for two LPG vessels (84,000cbm), for a price of US $ 80.0m each and delivery set in 2016.

 

Demolition (Wet: Stable+  / Dry: Stable+ )

The demolition market remains the only place where fun still exists. Despite the fact that breakers in both Bangladesh and Pakistan appeared a bit sceptic ahead of the budget announcements and monsoon season, India has kept sentiment in the Sub-Continent strong. All fresh deals reported this past week, were done at very impressive levels, especially for dry units, while Indian breakers appear to have snapped the majority of what was available in the demo market for yet another week. The firm performance in the Indian demolition scene is mainly based on the strong performance of the Indian Rupee. The currency, which yesterday touched a 10-month high against the US Dollar, has been gaining a lot of momentum due to general optimism that in the upcoming elections in India will most probably result in a clear win by the investor’s favorite Bharatiya Janata Party. At the same time, China is still on the sidelines, appearing unwilling to close the gap between domestic demo prices and those in the Indian sub-Continent any time soon. Average prices this week for wet tonnage were at around 325-505$/ldt and dry units received about 310-495$/ldt.

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