Monday, November 03, 2008
Dry bulk trade enters crucial week... once again
Monday, 03 November 2008
Resistance is crumbling down among dry bulk shipping stakeholders who are witnessing one of the worst scenarios unfolding in the sector from the beginning of September until today. The industry’s main freight indicator, the Baltic Dry Index (BDI) ended the week at new lows, at 855 points, down 22.78 percent from the week before, when it had reached 1,102 points. The halt in dry bulk trade is more than evident, as a result of the multiple consequences that the banking and financial crisis has sought upon the global economy. Mining activities and the global steel sector are suffering, as demand is dropping. Dahlman Rose’s latest daily report said that Vale announced cutbacks to output of multiple products, including iron ore, manganese, nickel, ferroalloys and aluminum. On top of planned maintenance to facilities accounting for approximately 20% of its ore production, the miner will shut-in the equivalent of 30 million annual tons of ore production. The actions are a response to rapid drop-off in iron ore demand as steel prices have fallen and steel and mills respond with production cutbacks of their own. Last week, Chinese steel prices were steady near 17-month lows, fluctuating between $525/ton and $540/ton.
“Vale's production curtailment reflects developments that have already been evident in the dry bulk market, with activity at a near stand-still throughout the week. Rates continue to soften in all regions, and demand for iron ore has dropped off sharply as steel mills continue scale back output” Dahlman said.
As a result, many analysts are scaling down their predictions for the level of freight rates in the coming months. Already the drop in rates between the third and the fourth quarter is dramatic, reaching 78 percent in the capesize type of vessels, according to data from Jefferies. For instance, a capesize loaded with iron ore for the route between Brazil and Rotterdam was earning $184,769 during the second quarter, $41,256 on September the 26th, $36,989 on October the 3rd, only to fall at $15,974 on October the 10th. As a result, a lot of ship owners are facing acute financial problems, mainly those who have serious outstanding loans, which were used to purchase vessels when the market was at its peak, as well as the values. The problem is that they also can’t use refinancing as an option, since terms remain worse than the past. Therefore, only large shipping companies with strong cash flows and cash reserves will be able to survive.
Dahlman Rose revised downwards its estimates for 2008 capesize average freights to $106,250 from $116,150, while they have downgraded their estimates for 2009 to an average of $45,000 from $60,000 it stood before. Panamaxes’ rates for 2009 are estimated to average $25,000 from $30,000, while for Handymaxes to $20,000, from $24,000. Finally, for handysizes rates will not reach more than $17,000 on average, against $20,400 that was the initial estimate.
Morgan Stanley puts the fourth quarter capesize average spot rate to $29,963, while the average daily time charter will range between $32,000 and $42,000. For 2009, average capesize rates will stand at $30,000 and at $38,000 for 2010. According to Imarex figures, capesize average rate for the fourth quarter will stand at $27,593, for panamaxes at $16,996 and for handies at $13,948. For 2009, average capesize rates are estimated at $28,316 and for 2010 at $25,875, panamaxes at $17,400 for 2009 and $16,050 for 2010, while for handies rates are predicted at $13,063 for 2009 and $12,250 for 2010.
Adapted from
Nikos Roussanoglou, Hellenic Shipping News
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