Saturday, November 29, 2008
Dry Bulk In Iron Chains
Friday, 28 November 2008
It's hard to fathom how far rates for dry-bulk shipping have plunged in the past few months but easy to see how bleak the future has become. Until the world economy picks up enough to generate interest in shipping iron ore for use in steel, the industry will remain becalmed. On Thursday, the Baltic Dry Index, which measures dry bulk shipping rates on 40 routes across the world, sank 3.9% to 733 points, its seventh straight daily decline and its lowest level since January 1987. The index has plummeted 94.0% from its high in late May, according to TradeTheNews.com.
With day rates on Capesize ships, the largest vessels, tumbling 14.1%, to $2,773 on Wednesday, down from $3,229 on Tuesday, it’s difficult to remain optimistic. One year ago, the day rate was $172,078.
“Too many ships, too few cargoes,” is how Mike Reardon, vice president of research and marketing at Imarex, a shipping-related derivatives exchange, characterizes the dry-bulk market. “Though the increased ore movements from India to China have offered subdued hope, the bigger picture remains bleak.”
Last week, reports circulated that China hired 13 vessels to carry iron ore from India, following a decision by New Delhi to slash export taxes. Jeffrey Landsberg, a freight options broker at Imarex, said there could be several reasons for the increased shipments, none necessarily indicative of rising demand: “China could be showing they have more iron ore and steel demand than most currently believe. Or, they could just be building up stocks to ensure 2009 contract prices are secured at a hefty discount.”
A key part of the reason for the dire outlook for the dry-bulk industry is a slowdown expected in China’s economic growth for 2009. The World Bank this week slashed its estimate to 7.5% from an earlier 9.2%. This year, China is expected to expand at a 9.4% rate, down from 11.9% in 2007.
Major steel producers have been cutting output forecasts as a result. “Given the worldwide steel output contraction, and indications of even less production in the months ahead, the dry bulk market appears unlikely to experience a major positive catalyst until next year, when contracted iron ore is likely to be priced at a substantial discount to 2008 prices,” said Dahlman Rose analyst Omar Nokta.
Oppenheimer analyst Scott Burk said that it appears that DryShips, Eagle Bulk Shipping, Excel Maritime Carriers, and Genco Shipping & Trading have technically breached loan covenants as a result of falling profits and declining ship values. Several companies have slashed their dividends and others have warned they may have to in order to preserve cash.
1 comments:
I hope that banks will not instantly pull the trigger and start foreclosures. Valuations of vessels are very imprecise, very far from scientific.
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