Fares for bulk cargo ships are expected to maintain steady growth in 2017, but the ongoing capacity glut in the industry could weigh on prices.
Bulk carrier freight and charter rate declines have accelerated since autumn 2015 due to the increase in the number of newly built vessels and the fall in the number of deliveries to China.
The benchmark Baltic Dry Index hit a record low of 290 in February 2016 compared to the baseline of 1,000 starting in 1985, significantly undermining profits at marine shipping companies.
The situation, however, turned around in autumn last year. Increased import demand from China for iron ore and coal caused freight and charter rates to soar, mainly for large vessels.
The benchmark average charter rate for capesize vessels, the largest dry cargo ships that have a capacity of around 170,000 tons, has now tripled from a year earlier to in excess of $11,000 per day.
The view is spreading in the market that the industry is on a recovery path and demand for sea transport will continue growing steadily in 2017 on the back of increased infrastructure investment in emerging nations.
According to Japanese shipping giant Nippon Yusen, shipments of coking coal, one of the main goods shipped, are estimated to grow 2% to 271 million tons this year. The rise is attributed to increased demand in India, where crude steel production is expected to grow.
Shipments of iron ore are expected to remain at almost the same level as in 2016, at more than 1.4 billion tons.
But Australia and Brazil “make higher quality iron ore than China, which contributes to greater efficiency in the production of crude steel, so Chinese import demand will increase,” said an official at Kawasaki Kisen Kaisha, a major Japanese transport company.
An official at Mitsui O.S.K. Lines, another Japanese shipping company, believes that U.S. President-elect Donald Trump will be the driving factor behind growth in imports. “If he implements infrastructure development projects, the import of steel materials and cement is expected to rise,” the official said.
However, the industry as a whole is not overly optimistic, with the main reason being that total carrying capacity remains at a high level.
According to Nippon Yusen, the total capacity of bulk carriers at the end of 2017 is estimated to climb by 0.4% to 792 million tons compared with 2016.
Although that growth would be lower than the increase in 2016 of 1.5%, it is still double the rate seen at the end of 2007, before the global financial crisis began.
“We are in a situation where we should not be in a rush to build ships and must keep cash in hand,” said an official at an overseas shipping business in western Japan.
In fact, new investment in bulk carriers has been postponed in many cases.
Meanwhile, oversupply of small vessels is projected to continue, so supply excess will linger “in the market as a whole,” said an official at a financial company.
Others in the market believe the average annual charter rates for capesize vessels are likely to soar to $10,000-$15,000, but skyrocketing profits may not follow.
Source: NikkeiPrevious Next
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