Spot freight rates for dry bulk carriers have risen from all-time lows, but the market outlook remains fragile, shipping analysts say.
Capesize rates have rebounded in the past few days from the record low of USD 4,000/day and are currently quoted at USD 7,300/day by the Baltic Exchange, said Kurt Waldeland and Erik Nikolai Stavseth, shipping analysts at Arctic in Oslo.
“While dry bulk earnings still are well below cash break-even levels, any increase in freight rates is reducing owners’ large cash burn. We have previously pointed to the prospective restocking of Chinese iron ore stockpiles as a possible near-term catalyst for dry bulk earnings,” they said in a market report.
It was still too early to say if the current strengthening in freight rates was a consequence of restocking, or simply a rebound from what could be viewed as unsustainable levels, they said.
“However, we argue that a restocking in China is inevitable and we expect this to support freight rates into the seasonal stronger second half of the year – which should offer a buying opportunity given where stocks are trading,” the analysts added.
The weakness has resulted from excessive ordering of newbuildings and weaker-than-anticipated development of demand. However, certain temporary bright spots seem to be emerging, according to Peter Sand, chief shipping analyst at BIMCO in Denmark.
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“More Brazilian iron ore and grains – wheat and coarse – moving into the market as the soya season abates should on an overall level prohibit the market to go into reverse – if volumes contract,” he said in a report on the dry bulk shipping sector on 16 June.
However, the momentous imbalance between supply and demand continues to worsen in spite of a noteworthy 10-year low supply growth rate. “The 160 million dwt of new orders placed in 2013/14 can only do harm when demolition activity fails to slash any records by a never-seen-before margin,” he said.
In the big picture, as the demand growth for dry bulk seaborne transportation seems to weaken too, potentially even on a permanent basis as China changes gear, the industry must adapt to become profitable again. “Wait-and-see strategies may turn out to take too long,” Sand said.
“If we are to believe that current utilisation levels are just around 70%, new orders should not just cool down for a while, they must be sensitively counter-balanced with demolition for a number of years, not just a few quarters,” he said.