Taal selectie

Shipping

Out of the doldrums

The Baltic Dry Index (BDI), the reference for single voyage freight rates in the dry bulk shipping market, stabilised in February at 658 (vs. 668 at the beginning of the month) – a level not seen since the first half of 2016, when the sector was in very deep crisis. The broader shipping index (covering all vessel types) was also stable, closing the month up a slight 0.5%.

Graph 1 : Shipping stocks since end of October

bulkersEqualWeightedDSX, SBLK, SALT and GOGL equally weighted. Source : Bloomberg

Dry bulk shipping stocks lost a further 6% in February, mainly due to the very low Capesize spot market rates spilling over to one-year time charter rates (down 25% to ca. USD 12’700 per day) and weighing on second hand ship values (down 10% in February). Last November’s dam burst in Brazil, which forced Vale to shut down a number of its iron ore mines (reducing its 2019 estimated production by up to 50 million tonnes), broke the market because it took away cargo for ca. 35-40 Capesize vessels, or about 2.5% of the entire fleet. Part of these vessels will be deployed on the Australia to China iron ore route, with Australia increasing its production, but this will not entirely resolve the issue. Additional Chinese demand is required and or else the scrapping of older Capesize vessels must resume (which is indeed the case but not yet at a fast enough pace).

Chinese steel production rose more than 5% last year, but iron ore import volumes fell 1.5% because of a 25-30 million tonnes drawdown on inventories (to below 140 million tonnes). This was mainly attributable to trade war uncertainty, as well as to the higher iron ore prices that resulted from reduced Brazilian production. Some Chinese restocking effort can reasonably be expected if an agreement is found with the US on import tariffs – and certainly if Brazilian production ramps up (rumours have it that 30 million tonnes of production are to come back on line).

In the meantime we hope that ship owners continue to send their oldest Capes to the breakers and that China will go back to business as usual, now that the New Year holidays are over.

Freight rates should improve going forward (as is already the case in the Panamax segment) and with them also the extremely low stock prices of listed shipping companies. These continue for the time being to buy back their own shares, at a discount to book value of over 50%.

evolution capesize graphs09.18(Source : BanqueThaler; Bloomberg)

Update : 03/2019

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