Ship prices especially for modern Panamax/Supramax vessels have been on the rise since the beginning of the year, despite a subdued dry bulk market, as a result of a heavy delivery programme. According to a recent report from shipbroker Intermodal, "smaller sizes have outperformed their bigger rivals and are expected to do so for the remainder of the year. Capes have been disappointing at their current abysmal levels, not even covering daily OPEX, and whilst FFAs have been pointing to a 2nd half recovery, we do not think we will see too much excitement and China is mainly to “blame”.
According to Mr. George Bassakos, sale and purchase broker with Intermodal, "the long awaited return of Chinese buyers in the iron ore trade is yet to be seen, despite softening prices for the commodity which have now tumbled below US$ 120 per tonne, having peaked at US$ 160 late last year. Restocking is definitely not the story of the year so far, and frankly speaking we do not foresee any dramatic change in China's appetite for the commodity just yet. The previous normal of around 90-100 mill tons stocks pilling up at Chinese ports seems to be an old story and China seems to have adjusted in line with its lower growth projections for the next decade".
He noted that "current iron ore stock piles of below 70 mill tons, seem to be reflecting a more cautious view from traders as to the needs required to cover their current production demand, plus a safety margin. Same story in the coal trade, since current record-low stocks at Chinese ports only allow for short term market rushes caused by urgency for replenishment and as such momentarily lifting even Panamax rates. The grain season, whilst initially had shown a lot of promise for Supramax/Panamax owners, has failed to provide enough support and seems to have ended early this year", Bassakos said.
Despite this adverse market environment, ship values have gone up and this, according to Bassakos, is the result of a lack of new sale candidates from the Japanese market, with a quite impressive last done: "a 2006-japanese built Panamax being committed for US$ 20.25m, when the same buyers spent around US$ 20m for a 2009 Japanese built Kamsarmax with surveys due back in February. It seems the appetite, especially of Greek buyers, for modern dry tonnage is insatiable, with many of them willing to pay more than the last done! Greeks have historically been quite successful in the timing of their purchases - does this mean we reached the bottom and that the only way from here on is up?", Bassakos wondered.
According to him, "current FFA figures, do not support such a stance, since all sizes but capes are quoted at below USD 10,000. To further support the FFAs curves, a recently acquired 2005 Japanese built Panamax was sold for US$ 17.75m and was immediately fixed upon delivery for 3 years at US$ 9,500/day - a clear sign of no faith in the upcoming market", he concluded.
Meanwhile, in its outlook on the dry bulk market this week, ship owner Frontline, noted that "the dry bulk market showed few signs of recovery during the first quarter of 2013. The smaller sizes performed better than the Capesize segment also in absolute terms for most of the quarter. A Capesize earned on average $6,015 per day according to the Baltic Dry Index, which did not cover operating expenses for many owners. The Capesize segment has underperformed mainly due to that iron ore exports out of Brazil have been low. There is a strong correlation between the Brazilian iron ore export and the Cape size spot market due to the long sailing distances. In addition, Fortescue delayed their ramp up of production in Australia from March until May 2013 and Colombian coal exports were almost 70 million metric ton lower on an annualized basis, partly due to strikes during first quarter of 2013.
The dry bulk market is increasingly dependent on the development of the Chinese economy. During 2012 the Chinese iron ore and coal imports in combination increased more than 12 percent, while preliminary data show an increase of about six percent for the first quarter of 2013. Historically the first quarter is the slowest quarter of the year, which is mainly due to adverse weather in the Southern Hemisphere.
Development in international coal and iron ore prices will have a great impact on the dry bulk market going forward. Presently there is a positive arbitrage both for steel producers and utilities compared to domestic Chinese iron ore and coal. With new iron ore capacity from Australia, Brazil and West Africa coming on stream the next three years and poorer quality of Chinese domestic iron ore, it is expected that imports of iron ore to China will increase.
According to Fearnley's the Capesize fleet (150-200'dwt) totaled 1,028 vessels at the end of the first quarter of 2013, an increase of 6 vessels from the previous quarter. The order book counted 98 vessels at the end of the first quarter, compared with 94 vessels the previous quarter, representing 9.5 percent of the Capesize fleet" the company concluded.