Friday, January 09, 2009
Report warns on dry bulk spot rates
Michelle Wiese Bockmann - Thursday 8 January 2009
“ANAEMIC” demand will see dry bulk spot rates only rise slightly above break-even levels in the first half of 2009, according to US investment bank Oppenheimer & Co which has downgraded forecasts for the troubled sector.
New York-based Oppenheimer said capesize rates would average $24,000 per day in 2009 in its newly released ‘Shipping Outlook 2009’. Rates would only rise slightly to average $29,000 per day in 2010.
Cash break-even costs for a capesize were in the range of $11,000-$13,000 per day, the report said.
A surge in newbuilding deliveries, and the possibility of renegotiated rates for longer-term charters, would constrain any rate upside, said report author Scott Burk.
The current capesize average time charter rate is just over $11,000 per day, according to the Baltic Exchange.
“We believe that 2009 could be a bottoming year for the shipping sector,” said Mr Burk, with the bulk carrier outlook linked to the “wild card” Chinese economy.
Chinese demand for coal and iron ore dramatically boosted rates to all-time highs in 2008, before a dramatic collapse in late 2008 ended a five-year shipping boom and one of the strongest shipping cycles ever seen.
“China may come back in 2009 to save the day with better than expected demand growth but our supply demand model indicates that even shipping demand growth in excess of 10% in 2010 would not be enough to offset the huge flood of orders currenting scheduled,” the report said.
“To match annual demand growth of approximately 7%-8% per year, the dry bulk fleet orderbook needs to be cut in half to around 35%.”
Mr Burk’s report forecasts that the number of bulk carriers in the global fleet will increase by 25% if all the bulk carriers ordered were built and entered trades as expected.
Mr Burk also said bankruptcy risks were greater in the dry bulk sector with the potential for listed dry bulk companies to face charter renegotiations and the “violation of collateral coverage loan agreements”.
“Management teams on the dry bulk side may begin considering the potential implications of one or two years of day rates at cash break-even levels,” he said, urging them to cancel or delay newbuilding orders and repay debt if possible.
He cited anecdotal evidence that between 100-200 larger bulk carriers were currently anchored without employment, and a further 500 smaller ships also idle and awaiting better charter rates.
“The longer day rates stay this low, the more likely that the 27% of the current fleet older than 20 years will be pushed to the scrap yard, even with scrap prices in the $200-$300 per ldt range,” said Mr Burk.
Previous cycles showed it would take six to 18 months before significant scrapping began, he added.
Oppenheimer study downgrades forecasts for sector as it says glut of new tonnage will ‘constrain rates upside’
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