Shipping rates maintain upward momentum, positive for shares
By Xun Yao Chen - Disclosure • Sep 25, 2013 1:23 pm •
Shipping rates haven’t lost momentum
Shipping indexes (rates) haven’t lost momentum despite analysts’ cautions. The Baltic Dry Index for Capesize vessels stands at 4,329, for Panamax at 1,745, and for Supramax at 1,012 as of September 25, 2013. As the below chart shows, rates for Panamax vessels have been rallying alongside Capesize vessels since August, while Supramax vessels appear to be gaining some momentum.
Baltic Shipping Index by Ship Class 2013-09-25Enlarge Graph
Why follow shipping indexes and rates?
The Baltic Exchange’s Shipping Indexes are widely followed by analysts, money managers, shipping companies, and investors because they provide benchmark rates for transporting dry bulk commodities such as iron ore, coal, and grain across water. Higher shipping rates are generally positive for shipping companies’ revenues, which will positively affect earnings, cash flows, and share prices.
Higher iron ore shipment driving rates higher
Dry bulk companies have been rallying recently on the back of higher iron ore shipments from Australia and Brazil, part of a larger shift in the global supply of iron ore. Major companies like Rio Tinto, BHP Billiton, and Vale are expected to add significant capacity and output throughout the rest of 2013 and in 2014. Analysts expect additional mining capacity to drive iron ore prices lower based on downward slopping forward contracts for iron ore, and to support rates for Capesize vessels (which shipping companies use primarily to haul iron ore and coal from countries in the Southern Hemisphere).
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Most analysts have predicted that 2014 will be the year of the dry bulk market's recovery? Are we already witnessing this recovery, or do we still have some way to go and the market will keep on its rollercoaster ride for a while?
They have been wrong, at least where the capesize market is concerned. As we correctly predicted back in 2011, capesize rates have been set to rebound during the second half of 2013 and this is now occurring. The recovery in the capesize market is well underway. Supramax and handysize rates remain firm but yes will recover more in 2014. 2014 is also when panamax fleet growth will finally decrease by a large amount, but it will still take a fair amount of time before one can say the panamax market is recovering. Need to work through oversupply of panamax vessels next year.
Are you seeing a tonnage oversupply in the future as well, on the back of heightened newbuilding ordering activity this year?
Newbuilding ordering activity has been very high this year, which is a concern for the second half of 2015 and definitely 2016. We need to see how activity continues to play out, but yes, if ordering remains robust this year, then the dry bulk market could again to be poised to come under another period of renewed vessel supply related-pressure within a few years.
Back in 2011, we predicted that this would occur beginning in the second half of 2013 and our clients are pleased and have profited as our prediction has come true.
How important has been China's role in this rise of the BDI?
China’s role has been very important. Most recently, nine of the last ten weeks have 20 or more vessels chartered to export iron ore cargoes to China (the vast majority of the vessels have been capesize vessels). Approximately 74 million tons of iron ore is now stockpiled at Chinese ports, 22.5 million tons (-23%) less than was stockpiled a year ago. Low iron ore stockpiles and robust steel production in China have caused demand for capesize vessels to be very strong.
Is it just the China-effect which is propelling the market to higher ground, or are there also some other market fundamentals which are having a positive impact?
The reason why capesize rates are increasing is two-fold: 1) Capesize fleet growth has stayed low for many months, which was cause spot availability of capesize vessels to now become very tight. 2) Chinese demand for imported iron ore cargoes has also been very strong.
How do you see the market going forward and up until the end of the year? Is this level of freight rates sustainable in the long-run?
Capesize rates will peak this year well above the current level.
More importantly, where do you think that the market should be for most ship owners to post healthy profits, above break-even points?
Panamax rates in the near term will find more support, as more coal and grain cargoes are poised to surface in the market. FSU and US wheat cargoes are set to increase, and China and India will be importing more thermal coal cargoes as power plant coal stockpiles in both of these countries have recently been falling. The panamax market is still seeing heavy fleet growth this year, however, and panamax rates could again come under pressure later this year.
Monday, 16 September 2013
Capesize rates will keep on rising well above today's levels until the end of the year says shipping analyst
This latest surge of the dry bulk market, which has brought it to two-year highs, has been led by the Capesize segment, as a result of low tonnage availability and high cargo demand from China says Jeffrey Landsberg, managing director of US-based Commodore Research & Consultancy, in an exclusive interview with Hellenic Shipping News Worldwide.
According to Mr. Landsberg, Capesizes will keep on rising well above today's peak levels until the end of the year. The shipping analyst had accurately predicted back in 2011that the next upward cycle of the dry bulk market, would occur by the second half of 2013. According to Commodore, the Capesize's large amount of the orderbook was expected to be absorbed by today, a prediction which proved to be dead on.
Which factors led to this latest resurgence of the dry bulk market?
Month after month of low fleet growth in the capesize market have allowed capesize rates to finally become sensitive to changes in cargo volume again. This is a stark contrast with much of 2012. During most of the first three quarters of 2012 in particular, capesize rates were unable to escape the $3,000 and $8,000 cycle, with fluctuations largely driven by owners idling available capesize vessels when rates approached roughly the $3,000/day level and returning vessels when rates approached about $8,000/day. During this time, capesize rates were not as much fluctuating due to changes in cargo volume. as they were due to owners changing the spot availability of capesize vessels. Today, however, spot availability of capesize vessels has become very tight as capesize fleet growth has slowed dramatically.
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