The bulk shipping sector cannot catch a break especially since 2016 is expected to be another challenging year for the coal sector in China, Fitch Ratings says.
China is a key player in global trade, accounting for 20% of world coal imports, with iron ore and coal representing well over half of the seaborne dry bulk demand. With pessimistic predictions for demand from China, dry bulkers need yet again to brace for another tough year.
The country’s coal sector is faced with a number of problems, including oversupply and weak coal prices and Fitch expects the over-supply conditions to prevail for some time, and financial woes to deepen in 2016.
Based on the 2015-full year results, out of the twenty eight of 33 coal companies listed on China’s Shanghai and Shenzhen Stock Exchanges, 20 reported a net loss after excluding any one-off gains.
China’s central government has endeavored to address the oversupply by encouraging the phase-out of high-cost and old mines, although implementation at the various government levels entails various other issues.
According to Fitch, price recovery is highly unlikely in 2016 as consolidation of the excessive mining capacity will take longer – and require more effort – than the central government expected, together with a weaker demand outlook.
However, there might be some light at the end of the tunnel, as owners hope the Baltic Dry Index has bottomed up and will resume its upward trend. Namely, after hitting rock bottom on February 10 at 290 points, the BDI stood at 313 points on February 18.