Tuesday, October 14, 2008
By Sandra Tsui , 14 October 2008 Source : Lloyd's List
BROKERS in the Far East see no hope for improvement in the freefalling Pacific panamax market after what they described as a “horrible week”, writes Sandra Tsui in Hong Kong.
The Baltic Panamax Index lost 21%, last week closing at 1,805 on Friday, and falling even further to 1,584 yesterday.
It was a horrible week. Rates for a round Pacific voyage dropped by $5,000 to $6,000 a day on Wednesday. It took just two hours for the rates to fall from $18,000 a day to $19,000,” said a Shanghai-based shipbroker.
There were just too many vessels in the market and people have redelivered vessels early to owners worsening the situation. No one was expecting such a drop last week,” he added.
There was very little cargo flow in the region, with any business mainly seen on the Indonesian to South Korea route. Charterers took advantage at the situation, pressing shipowners for lower rates.
This echoed with how London-based Galbraith’s has depicted the dry bulk market in its weekly report issued on Friday: “Tonnage is just incapable of holding its perceived value for more than a few hours before it all comes crashing down again. This is truly a spot market, allowing the few charterers that are out there to enjoy the veritable pick of the litter, creating an opportunity to fix as late as possible with fare confidence that the rates can only move down.”
Recent time charter trip fixtures include the 77,679 dwt, 1998-built Energy Trade, which was taken at $11,000 per day to sail from Japan’s Fukuyamo, via the east coast of Australia with coal, to Singapore and Japan. STX Pan Ocean was reported to have chartered the 75,574 dwt, 1999-built Kavo Sapphire at $21,000 per day, for a trip from Kashima, via north Pacific with grain, to Singapore and Japan. A charterer has also chartered the 69,149 dwt, 1994-built Okialos at $16,000 per day to carry coal from Indonesia to South Korea.
Rates in the Indian market were also low. The 74,061 dwt, 2000-built Yong Tai was taken at $8,000 per day to carry iron ore from the west coast of India to China.
Brokers believed rates could fall further with the market continuously haunted by bad news. Four major steel mills in China have cut production by 20% in October and the Indian government has imposed tight controls plus a 15% export tax on iron ore exports.
“I would not be surprised if it falls to $10,000 per day. But I guess it won’t fall below $5,000,” said one broker
In the period charter market, little activity was observed and rates have fallen to an extremely low level. Short period rates have fallen in less than one week from high-$20,000s per day to high-$10,000s.
The 73,829 dwt, 1998-built Catriena was taken at $17,000 per day for four to six months. The vessel will be delivered in Hamburg on October 23 to October 25. Commenting on the deal, a Hong Kong-based shipbroker said the rate was not bad as no one is willing to take short period at the moment.
Owners hold back on orders as ship finance becomes scarce
WITH charter rates falling, ship finance drying up and shipyards unwilling to drop prices, at least for the moment, the newbuilding sector has come to a virtual standstill.
Owners are getting so many mixed messages about various aspects of the market that they are sitting on the fence and doing nothing,” said one Hong Kong based broker, who preferred to remain anonymous.
Dongkuk Steel Mill, South Korea’s third-largest steelmaker, last week said it had raised steel plate prices by up to 12% to around Won1.41m ($1,136) starting from September 29, but China’s Baosteel planned to slash prices.
Traders said Baosteel would cut its November steel plate prices to Yuan6,000 ($882) per tonne, down by Yuan500 per tonne.
A rival Hong Kong shipbroker said: “Yards have a significant orderbook for 2010 and 2011 and so they feel reluctant to drop prices. They will not feel the pinch for another 12-18 months assuming they have a payment schedule in place from owners. Chinese yards should be all right if they have counter refund guarantees in place.”
A Shanghai-based broker said: “Given the chaos we have seen around the world in the last two weeks or so, it is understandable that confidence has evaporated and the newbuilding sector is paralysed. The situation is not helped by the hiatus in the dry cargo market, where rates have plunged on the dearth of fixtures, or that ship finance banks have told owners ‘Don’t call us until January 1’.
These difficulties have again raised the issue of failed and cancelled newbuildings with Macquarie Securities pointing out that dry bulk vessels totalling 45m dwt, equivalent to 15% of the total backlog, have been ordered in the last six months.
Macquarie Securities head of regional shipping research, Jon Windham, said these orders are “at significant risk of being cancelled given the falling level of freight rates. We think more cancellations are likely with bank financing getting increasingly difficult. Orders placed in the last six months are mostly delivered after 2010, so the cancellations will have a bigger impact after 2009.”
He said order failures and cancellations could spell trouble for some South Korean and Chinese yards, especially those that are not yet in operation, where order cancellations “are a significant issue”.
But while the spectre of cancelled orders looms over the shipbuilding industry, one of the Hong Kong brokers said that the torrid state of the sector also opportunities for owners brave enough to exploit them.
He said the value of the South Korea won has nearly halved against the greenback and that would help owners negotiate a price cut in newbuilding prices as a large proportion of the components and equipment was sourced in Korea rather than imported.