Has the bulk carrier market emerged from its difficulties?
2016-06-15 09:00
The dry bulk shipping market, which has been struggling since the beginning of the year, seems to have turned a corner. The Baltic Dry Index (BDI) has recently remained above 600 points and even broke through 700 points, reaching its highest level in the past six months. This seems to indicate a recovery trend in the shipping market. However, analysts and shipbrokers remain realistic about the current market situation, stating that the actual situation is more fragile than expected and could easily reverse at any moment.
Middle East Bulk Commodity Trade Boosts Shipping Industry
Recent bulk commodity trade from the Middle East, especially Iran, amounting to 150 million tons, has injected some life into the sluggish global dry bulk shipping industry.
These trade activities include grains, iron ore, and fertilizers. Numerically, this region's trade is far less than that of China and Australia. However, with nearly 150 million tons of goods, the majority (60-70%) consists of bulk commodities including grains, coal, and iron ore. This, along with Oman's exports of lime, gypsum, and cement, makes the Gulf region a significant part of the global shipping market.
The Gulf market's shipping trade mainly demands ultramax and supramax bulk carriers, with less demand for Panamax and larger vessels. Grain imports in this region primarily utilize ultramax and supramax bulk carriers, while other sectors require larger vessels.
Meanwhile, Saudi Arabia's grain imports reach approximately 50 million tons, accounting for one-third of the market, while Iran accounts for 20%. To conserve water, domestic grain production in Saudi Arabia was completely banned by 2015.
The Saudi Arabian Bahri shipping company has already entered the dry bulk shipping industry, owning 5 bulk carriers exceeding 80,000 DWT. Sources say Saudi Arabia is currently investing $1.5 billion in bulk carriers. Bahri's decision to expand its bulk carrier fleet while the market is at its bottom is a rare opportunity to expand its influence in the global shipping market beyond Saudi Arabia.
Over the past five years, Iran's iron ore exports have exceeded 15 million tons. In 2014, Saudi Arabia and Qatar's fertilizer exports exceeded 8 million tons, totaling more than two-thirds of the region's 22.9 million tons. Annual shipping trade across the Gulf region is expected to be around 10 million tons. Qatar Primary Materials Company (QPMC) has secured a supply of 20 million tons of high-quality aggregates (gabbro and limestone) over the next three years.
Recently, there has been increased interest in the Gulf market from ship owners, including Eastern Bulk (Norway), Thoresen (Thailand), NMC Logistics International (Taiwan), Oldendorff (Germany), Ultra Bulk (Denmark), and Lauritzen Bulkers (Denmark), which have opened operations in Dubai.
Of course, the 150 million tons of cargo has a limited impact on the Capesize and larger bulk carrier markets, but it is significant for the smaller bulk carrier market. The regional trade market still provides some value to the dry bulk shipping industry.
Market Rebound Remains Highly Unstable
A recent report from Intermodal, a shipbroking agency, shows that frenzied trading activity in the commodity market has driven iron ore prices to their highest point in 15 months, reaching $70 per ton—the highest price for commodity shipping since 2016. The boost from the Chinese market since the beginning of the year has in turn stimulated iron ore futures contracts, thereby boosting seaborne trade. However, despite the seemingly positive market performance, warning bells are ringing. The rebound in the shipping market is based on a very unstable foundation, due to the large supply of cheap resources from major iron ore producers this year. With iron ore prices recently reaching new highs, this could lead to a decrease in iron ore imports in China, temporarily halting seaborne imports. Furthermore, considering the need for continued stable development in the market, it is too early to discuss the long-term market situation.
Analysts add that despite all the issues that need to be addressed, the current BDI index performance is still quite positive. From a shipping perspective, the recent price rebound reflects a more significant role of market transportation demand and improved market demand. If this price level is maintained, market risks will decrease. At the same time, the supply of low-cost raw materials may further stimulate demand and ensure the competitive advantage of iron ore imports from Brazil and Australia. Therefore, domestic consumption in China has become a key focus for the shipping market. If Chinese market demand continues, the shipping market will truly recover.
Analysts conclude that due to the recent increase in seasonal storage trade, market demand has seen a moderate increase, while future destocking may lead to a decline in shipping market demand. Therefore, considering the significant efforts made by ship owners in reducing capacity, market recovery is expected to come sooner. The most important thing for the recovery of the shipping market is to maintain the current shipping freight rates, be prepared for market changes, and respond promptly.
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