Dry-bulk market was reeling Wednesday in response to a sharp decline in rates for capesize bulkers trading in the spot market. According to analysts at Global Hunter Securities capes were commanding roughly $19,100 per day on average, which represents a daily decline of nearly 14%.
One industry observer attributed the decline in day rates to lack of activity in the Atlantic Basin. Some believe this trend will continue in the coming days but others are confident that the tides will turn for capes in the near-term.
“Sentiment has been weak this year but a lot of people often forget that Chinese iron ore imports have increased by 110 million tons year-on-year, which represents a 16.5% jump,” a prominent analyst added when asked about capes.
Market sentiment is “far too bearish” and pointed out that the performance of capes has been relatively impressive overall even though rates haven't hit the highs seen last year.
“China keeps showing that it has very robust demand for imported iron ore cargoes,” the forecaster added. “Capesize rates will rebound from current levels. We just need more Atlantic basin cargoes to come again, and they will.”
Lender sees dark clouds forming on the horizon for dry
In the coming year one leading leading lender, Danish Ship Finance (DSF), is convinced that the dry-bulk sector will continue to be plagued by turbulence.
Danish Ship Finance (DSF)'s team of market researchers believes supply will exceed demand in many subsectors of the space despite the recent slowdown in global fleet expansion.
In the latest edition of ‘Shipping Market Review’ it noted only 11.5 million dwt worth of capacity disappeared by way of demolitions in the first three quarters of 2014, which is approximately 38% lower than levels seen in the same stretch of 2013.
Contracting has slowed and the time it takes to complete a newbuilding has increased to 26 months but DSF pointed out that the orderbook stands at 51 million dwt, which is only 16% less than the total tallied 12 months ago.
In terms of asset prices, on the secondhand front the lender acknowledged that values have plummeted from the highs achieved at the start of 2014 but said they have improved year-on-year despite lacklustre freight rates.
“Ships continue to trade at high premiums to the earnings they are generating,” it explained. “Between 2001 to 2008, a five-year-old capesiraded at an average price/earnings ratio of 5. This means paying $5.00 for a $1.00 dollar cash flow.
“Since 2009, this ratio has risen to 11. Such an increase emphasizes that the market maintains high expectations for future earnings but that a price reduction could occur if these expectations are not realized."
Going forward DSF said it expects to see asset values fall "sooner rather than later" and argured that China’s ongoing transition towards a consumption-driven economy has cast a dark cloud the dry-bulk market.
"When we look more closely at the actual amount of tonnage entering the fleet and the share of the fleet below the age of five (57%), the fleet growth becomes overwhelming and we find it hard to see an end to the oversupply,” it added.
“It is hard to envisage an improvement in the market in the short to medium-term and we believe premature scrapping will have to play a big part in the recovery process of the dry bulk market.”