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Tuesday, April 21, 2009

Ships orders to stay weak in 2009

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Tuesday, 21 April 2009
Encouraging signs are emerging in the world's dry bulk shipping industry, a senior industry official said, but warned the economic downturn and credit crunch were set to dog shipbuilders for the rest of the year. "We have seen a very significant number of ships which are being withdrawn from service and scrapped which is encouraging," said Rob Lomas, secretary general of Intercargo, an industry group representing ship owners hauling dry commodities.
"We are seeing delays in the numbers of ships that are being delivered which again is relieving a little bit of pressure on the demand and supply balance," he told Reuters in an interview on Thursday.
But order cancellations and delays for new dry bulk cargo ships will remain a dominant feature in 2009 as weak demand and the squeeze on credit availability continue to bite, he warned.
The Baltic Dry Index, which gauges the cost of shipping resources including iron ore, cement, grain, coal and fertiliser, collapsed to a record low in December and has remained volatile since then.
The index, an indicator of economic vitality, has been pressured by slowing economic growth, particularly in China, compounded by a glut of vessels and weak consumer demand.
Demand for new ships reached a peak in the middle of 2008 with appetite for iron ore and coal in India and China helping to drive the Baltic index to a record high in May of 11,793.
But global turmoil and recession drove the index to as low as 663 in December and it has remained erratic ever since.
The downturn in freight volumes has hit shipping companies hard. Dry bulk shipper Golden Ocean said earlier this month it had delayed or cancelled some orders for new ships in a bid to fix its finances.
Intercargo estimates showed 2,736 dry bulk vessel orders were projected in 2008 to have been placed for the coming years with over 1,000 of the vessels expected by 2011.
But the industry group said given the high level of volatility and uncertainty in the market it was not possible to say how many would be delivered.
Last year 308 bulk vessels were built, broadly in line with previous years, with the potential for 300 ships to be delivered this year, although that was subject to conditions, Intercargo figures showed.
The world's dry bulk fleet numbers about 6,565 vessels. China, South Korea and Japan build the majority of carriers.
"Anecdotally, a lot of evidence suggests that some of the Chinese new buildings (ship orders) have disappeared -- they simply will not then take place," Lomas said.
The credit crunch has impacted on the ability of potential ship builders to access financing, triggering a shakeout in the industry.
"Anecdotally, a number of the yards which have no particular track record in building ships who seemed like a viable alternative when the market was at frothiest and its top end have disappeared," Lomas said.
Analysts at Barclays Capital said the number of ships expected to be delivered was still beyond current demand.
"Even with the expected cancellations of new ship orders, the freight market is set to remain depressed for the next few years, in our view," Barclays Capital said in a research note.
Intercargo's Lomas said separately there was a growing safety issue at certain ports, notably in Brazil, at the way at which ships were being loaded with iron ore, which is a high density material.
Demand for iron ore has tumbled as the world economy slows. Lomas described loading rates of 18,000 tonnes an hour as too fast, adding the rate was "not on" in current market conditions.
"The speed at which the terminals are putting the iron ore into the ships is such that we are beginning to have very big concerns that this is not good for the safety of the vessels' structure," he said.
Lomas added that it would present proposals to deal with the issue at a meeting with the United Nation's International Maritime Organization next month.

Source: Reuters