Dry Bulk: Optimists in the Minority

By MarEx 2015-08-20 20:00:24

The currently crippled global dry bulk freight market is expected to take at least a year to hit the road to recovery, a Platts survey of shipping market participants showed.

The survey conducted in July involved more than 100 dry bulk market participants, with respondents including shipowners, ship-operators, charterers, shipbrokers and analysts. Those polled represented all dry bulk segments across the Capesize, Panamax, Supramax and Handysize markets.

As it turned out, optimists find themselves in a minority as the bulk of respondents, 89 percent, felt the dry bulk freight market will need a minimum of one year to find its way to the thorny path of recovery. The majority (54 percent) of industry players questioned are not expecting any positive changes for at least three more years.

Among participants occupying various roles, shipowners were more pessimistic than charterers. While 73 percent of shipowners said the market would need 3-5 years to recover, 41 percent of charterers felt the turnaround would happen in less than two years. However, both camps were unanimous that freight rates will not be shooting up within the next 12 months.

Respondents in the Capesize segment had the gloomiest outlook of them all. Some 66 percent of all respondents who focus on Capesize business pegged the recovery to take longer than three years, while 53 percent of Panamax, 54 percent of Supramax and 45 percent of Handy market respondents saw recovery occurring in two years.

THE MORE THE MERRIER?

According to the survey’s results, shipping professionals are still naming tonnage oversupply as the main reason for the current state of the dry bulk freight market. Despite reasonable growth in demand across the key commodities, it remains outstripped by the availability of dry bulk vessels around the globe.

This is a message from the shipowner that is saying, “There are enough ships now. Don’t order new ones,” said a ship-operator respondent. In the meantime charterers seem to argue that the currently depressed dry bulk market can provide the right people with great investment opportunities if recovery does happen in the next two years. According to sources among charterers, shipowners with the cash may be smart to take advantage of historically low asset prices by placing new vessel orders now and having them delivered by the time freight rates rebound.

This opinion however is not shared by some analysts, who believe that a new wave of newbuilding activity may only further increase the supply of tonnage and keep the lid on any potential upswings.

NOTHING LIKE A BLOWTORCH

With the oversupply of tonnage being identified as the main factor behind the bearish dry bulk market, it comes as little surprise that tonnage recycling is seen by respondents as the primary driver for its recovery. As many as 39 percent of respondents place their hopes on scrapping.

However, looking at the dry bulk tonnage profile, many could argue that even if tonnage scrapping is to be the solution for the troubled market, it is unlikely to take effect within the next twelve months.

The inflow of newly built vessels is easily outpacing the scrapping so far this year. According to Braemar ACM Shipbroking, 302 dry bulk vessels of various sizes, totaling 21.8 million dwt have been scrapped so far in 2015. At the same time, total deliveries to date have reached

30.7 million dwt. So, the global dry bulk fleet already grew by a net 8.9 million dwt in 2015. A further 36.3 million dwt of dry bulk vessel capacity is expected to hit the water by the end of 2015. Scrapping forecasts are unclear, but the volume of tonnage recycled is unlikely to be greater than potential deliveries.

A total of 118 Capesizes are expected to be delivered in 2015 compared with 74 in 2014, while 139 Panamaxes (147 vessels last year), 300 Supramaxes (155 ships last year) and 217 Handys (137 vessels last year) are expected to enter the market by the end of 2015. As some shipping sources indicated, the volume of scrapping might gradually improve due to the heavily regulated environment in which shipowners have to operate.

Additional incentive may come from long periods of unemployment, as some shipowners may find that selling their older vessels for scrap may grant them similar income to the scattered earnings they make in the freight market. According to a shipping analyst, eventually the pressure of both tougher regulations and lack of cash flow from chartering operations will push some companies to part with their ships sooner rather than later.

KEEP CALM AND STAND ALONE

Except for the blowtorch factor, industry participants had little faith in other potential drivers for market recovery. For example, while China and Europe are determined to steer their economies towards the happy age of green energy, which certainly would not help coal demand, most respondents are not expecting to feel the effect of that in the near future.

Similarly, shipowners do not seem to believe that strength may come in numbers as none of them saw consolidation as an effective measure to increase their clout in freight negotiations. If there is a chance for consolidation to be effective, it is likely to happen on the Atlantic side of the dry bulk market as it is much less fragmented than its Pacific counterpart and is limited to fewer players, sources said.

According to the vast majority of respondents, the imbalance between supply and demand is the ultimate weight on the shoulders of the troubled dry bulk market. At this point the only factors that could tip the scales in the other direction would be those that would substantially cut the supply of tonnage or drastically improve the volume of cargoes.

Details

Indonesia Focuses on Renewables

By MarEx 2015-08-20 19:24:29

The Indonesian government has promised tax cuts to investors involved in developing the country’s untapped renewable energy potential.

The announcement was made on Wednesday by Energy and Mineral Resources Minister Sudirman Said, reports The Jakarta Post.

“We need regulations that give more opportunities for investment, such as the elimination of import taxes for capital goods used for developing new and renewable energy,” said Sudirman.

The new power is expected to come from geothermal power plants, solar photovoltaic, wind energy, biomass, mini or micro-hydro plants and ocean energy.

In June, the minister announced that he would specifically encourage the use of energy generated from the sea, a program that suited the government’s marine centered development policy. Some trial projects have already been undertaken, for example, a 10 kilowatt system in East Nusa Tenggara. A current power trial is anticipated later this year.

In its long-term energy strategy, the Indonesian government projects that renewable energy will account for at least 23 percent of the nation’s total energy consumption by 2025.

Details