BIMCO: 40m of Dry Bulk Tonnage to Be Scrapped in 2016

Image Courtesy: NGO Shipbreaking Platform

Dry bulk shipping capacity of 40 million DWT will be sold for demolition during 2016, making this year the busiest year on record for shipbreaking, according to BIMCO’s forecasts.

The prediction comes on the heels of a yet another miserable year start for the industry sector with eroding freight rates ranging from USD 3,361 per day for a panamax ship to USD 4,416 per day for a supramax since January 11, 2016.

Despite devastating market conditions in 2015, “only” 30 million DWT were demolished, BIMCO said, adding that even a modest improvement in the freight rates caused demolition to halt.

Limiting the inflow of new capacity into the market going forward also requires a low level of new orders to be placed. In that sense, 1.4 million DWT of new capacity ordered during Q4-2015 is just what is needed.

30 million DWT were demolished in 2015

For 2015 as a whole, 17.7 million DWT was ordered, the lowest amount since 2001. Hopefully, 2016 will see even lower dry bulk tonnage being ordered, BIMCO added.

For 2016, BIMCO expects new deliveries of 50 million DWT despite extensive postponements, delays and rescheduling.

On record for scheduled deliveries, Clarksons reported 92 million DWT for 2016. BIMCO assess that 40% of the scheduled deliveries will be delayed by one year. Moreover, the majority of the capacity will be delivered in first half of the year.

The distribution of new capacity is likely to remain unchanged from 2015. In round numbers that means: 40% of the new capacity will be delivered into the capesize segment, 20% into panamax, 30 % into handymax and 10% into the handysize segment.

40m of Dry Bulk Tonnage to Be Scrapped in 20161With respect to the market outlook, BIMCO predicts that coal imports into both India and China will go down in 2016, following the trend of 2015.

2016 is also likely to see a return of India to the iron ore export market – something that will be a positive for seaborne demand if market share is taken from Australian exporters, but a negative if it limits Brazilian Asia-bound exports.

For the coming months: January-April, BIMCO expects transported volumes to diminish as they traditionally do from the fourth quarter to the first. This increases a fundamental imbalance as the delivery of new ships in recent years has followed the opposite pattern.

Namely, more new ships are being delivered early in a new year rather than late in the year just about to end, achieving the newest “year of built” for the record. The downward pressure should ease somewhat in the second quarter of the year.

BIMCO said that it remains worried about the sustainability of freight rates in 2016.

“The demand side seems unable to buoy profits as both Chinese and Indian growth cool off and the rest of the world is still importing smaller volumes than before the financial crisis of 2008.

“A new record of shipbreaking volumes in 2016 could limit fleet growth to just 10 million DWT, so in fact “all we need” is an increase in transported volumes to around 60 million tons to balance out the inflow. As little as this may seem, growing from a base of 4,700 million tons – it can prove to be a high bar to jump before we start eating into the significant oversupply of ships,” BIMCO concluded.

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