Evercore ISI analyst Jon Chappell has cut his already low rate projections for the dry bulk sector even further because of “hideous” market conditions.
Chappell had noted in February that rates were below operating costs, creating an “unsustainable” situation. “Well, 10 weeks later, not only are rates still sub-operating costs, but some rates are even lower today, mainly in the Capesize trades,” said Chappell in his latest sector outlook.
He blamed the “unprecedented market weakness” on lingering over-capacity from the pre-financial crisis bull market, “exacerbated by increasingly negative economic signs emerging from China, particularly for the commodities that dominate dry bulk trade”.
Chappell pointed out that Chinese iron ore imports were up only 2% in 1Q15 versus 1Q14, while coal imports “are down an unbelievable 42%”.
He now expects Capesize spot rates to average just USD8,000/day for full-year 2015. That is down 33% from his February forecast and down 39% from average rates last year.
He has kept his 2015 Panamax forecast unchanged at USD6,000/day, but lowered his Supramax forecast to USD7,000/day (down 13% from his February forecast), and his Handymax estimate to USD6,200/day (down 11% from February).
In 2016, Chappell believes Capesizes will average USD12,000/day, Panamaxes USD7,000/day, Supramaxes USD8,000/day, and Handymaxes USD7,000/day.