The Hong Kong-listed dry bulk specialist Pacific Basin Limited expects the market in the second quarter of 2015 to remain weak as sluggish demand fails to fully absorb the oversupply of ships built up in 2010-2012, but also sees some potential signs of improvement.
The main indicator which could maybe help improve the dry bulk rates in the second quarter is China drawing down its bauxite, nickel and iron ore stockpiles, with the government still targeting an economic growth rate of about 7%. Any potential Chinese economic stimulus to support this target could benefit the dry bulk sector, according to Pacific Basin.
The company also expects the demand for many of the minor bulk commodities – in particular agricultural products – to remain robust in the long term.
Another positive development for the sector is the US economic growth which is stimulating demand for construction material.
On the vessel supply side, scrapping in the year to date has significantly increased to an annualised 5% of the existing dry bulk fleet (from 2% in 2014), which is expected in such a weak freight market.
Many ship owners are negotiating with shipyards to delay, cancel and convert their dry bulk newbuilding orders. Consequently, there has been no net growth in the global dry bulk fleet since the end of January. Annualised dry bulk new ship ordering in the first two months of the year fell to the lowest on record at about 0.4% of existing capacity.
Newbuilding deliveries across all ship types in 2014 are reported by Clarksons to have reduced to 5% of global capacity – the lowest rate in 15 years – and the company also sees encouraging signs in a 43% decline in a number of dry bulk ships delivered by Chinese shipyards between 2012 and 2014. The number of Chinese yards delivering Handysize ships reduced by 61% in the same period.
Benchmark five-year-old 32,000 dwt Handysize bulk carriers are currently valued by Clarksons at USD 13.5 million, representing a 36% decrease since March 2014. The drop in secondhand values marks a significantly wider gap between secondhand and newbuilding ship values, which discourages new ship ordering and favours buying secondhand ships.
There are early signs that secondhand values are bottoming out with several shipowners withdrawing their for-sale ships from the market, Pacific says.