Dry Bulk Shipping Report 2015-16

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There is no doubt that the industry is at or near the bottom of a cycle, but commentators views on the short term progress of the cycle vary, although all agree that
there is a lot of room for improvement: Starting 2015 at 771, the BDI dropped to 509 on 18 February 2015, rose to 1,066 in August and as of 20 November 2015 it
had slumped back to 498, the first time it has ever dipped below 500.
due to contracting demand for iron
ore and coal, and any recovery is not
expected until 2017. Falling demand
and over-supply has severely impacted
commodity values, with iron ore and coal
prices in virtual free fall.
The Dry Bulk shipping sector has been
a casualty of these developments with
resultant impacts on vessel earnings.
However, there is some optimism for
small vessel employment, as the onset of
El Nino weather conditions will increase
demand in the long-haul grain trade.”50
The Chief Executive of international Dry
Bulk shipping company, Golden Ocean,
cited over-supply could be a quicker
process than some expect (but still up
to 18 months). His reasoning was that
over 50% of the current orderbook for
new vessels is at Chinese yards and
that the precarious financial status of
such yards suggests a high proportion
of these orders will simply not be
delivered. 51
It is certainly true that Chinese
shipyards in particular have seen a
number of newbuilding cancellations.
Recently after its yard allegedly failed to
meet deadlines and deliver vessels, Dry
cargo ship-owner Precious Shipping,
cancelled two shipbuilding contracts
for 64,000 dwt Dry bulk carriers due
from Nanjing based shipbuilders, Sainty
Marine52 . In addition, in November
2015, a European buyer cancelled the
construction of one 82,000 dwt bulk
carrier due to be built at the Cosco
shipyard in Dalian, China. The vessel
was originally scheduled for delivery in
the third quarter of 2016. Other Chinese
shipyards are in serious financial
trouble, with Rongsheng, once China’s
largest shipbuilder, on the verge of
bankruptcy after orders dried up, with
debts of 20.4 billion yuan in combined
debt owed to 14 banks, three trusts and
three leasing firms and allegations of
exaggerated order books designed to
make the company look stronger.53
Deutsche Bank is also optimistic
about the short term for the Dry Bulk
shipping sector – so much so, that in its
September 2015 Industry Update on
Dry Bulk shipping, it re-rated its stock
recommendation on listed shipping
companies such as Diana Shipping from
Hold to Buy54. This was on the back of a
trip to Asia, where, “Nearly everybody
we spoke with was cautiously optimistic
on the prospects for Dry Bulk rates,
asset values and equities - the result
of recalibrated demand expectations
and scrappage-driven supply control.
In particular expectations were for a
“Slow and steady improvement in 2016,
translating to 15-20% year on year
increase in spot rates after excluding the
first quarter of 2015’s weak levels”.
However, Platts Dry Bulk Market Survey
of August 2015 revealed a slightly longer
projected period of recovery, citing 50%
of industry respondents feeling the
recovery of the Dry Bulk freight market
was three to five years away. Presumably,
the major European financial institution
which provided Scorpio Bulkers with a
commitment for a loan facility of up to
$12.5 million in late November 2015, with a
final maturity of five years from the date of
signing55, shares the view that there will be
money to be made in the sector by then.
“Since 2013, there have been billions of dollars in equity flowing into the industry, and the scary
thing is that the reported number is not all of it. A lot of private placements don’t show up on
anyone’s league table”2 Chris Weyers, Head of Maritime Investment Bank ng at Stifel Financial
Source: Baltic Exchange14
BALTIC DRY INDEX (BDI) (1985-2015)
12,000
10,000
8,000
6,000
4,000
2,000
Jan 85Aug 85Oct 86Dec 87Feb 88Apr 90Apr 91Apr 92Oct 93Dec 94Feb 96 Jan 92 Jan 99 Jan 06Aug 06 Jul 88 Jul 95 Jul 02 Jul 09 Jan 13
Mar 86 Mar 93 Mar 00 Mar 07Oct 07Dec 08Feb 10Apr 11Jun 12Aug 13Oct 14 Sep 89 Sep 96Apr 97Jun 98Aug 99Oct 00Dec 01Feb 03Apr 04Jun 05
Sep 03 Sep 10 Mar 14 May 87 May 94 May 01 May 08 Nov 90 Nov 97 Nov 04 Nov 11 May 15Dec 15
0