In Hellenic Shipping News 04/02/2016
“All of the above represent general trends the exact effect of which is difficult to calculate at the moment, let alone the timing this will kick in. Yet, combined with a possible increase in the supply of cargoes, they might positively affect the overall market sentiment even as soon as during the 2nd half of 2016. Fingers crossed”, Intermodal’s analyst said.
Even bulkers built just 10 years ago in the height of the market are fast approaching “no man’s land” and could face demolition in a few months’ time, if the dire situation of the dry bulk market doesn’t improve soon. That’s the current state of despair which has set in the market, as owners are fighting for “scraps” in today’s tonnage riddled market. According to shipbroker Intermodal’s latest report, the dry bulk market continues to be under pressure, with the BDI (Baltic Dry Index) remaining in search of even the slightest support, which seems to be delaying more and more, while marking consecutive all-time lows throughout the course of the past few days.
According to Intermodal’s SnP broker, Mr. Konstantinos Kontomichis, “freight rates in the sector are currently so low that fail to cover the vessels’ net OPEX (i.e. without taking into account possible financing). The unprecedented low earnings have been weighing down on prices and it goes without saying that are expected to keep doing so. Yards focusing on building bulkers currently stand idle, with activity being almost non-existent. In the second hand market the number of vessels available for sale is notably high with plenty of candidates across all ages and potential Sellers considering and accepting in some cases, levels that a few months back they wouldn’t even discuss. This is without a doubt an adverse reality, but there are nonetheless factors that could help improve the state of the dry bulk market in the medium run”.
Demolition
According to Kontomichis, “until last October, dry bulk vessels built before 1995 could not easily find Buyers. Today these vessels, now over 15 years old, have completely ceased to attract any interest. If the market remains depressed, Buyers will even stop looking at vessels above 10yrs old, as differences in price margins between these and even younger vessels is currently very small. Hence, for those owners who are willing or forced to sell, demolition remains their only option. Despite the fact that prices offered in the Indian subcontinent are currently the lowest in almost 8 years, the number of vessels that are heading for scrap keeps increasing rapidly”.
Newbuilding
At the same time, “demand for newbuildings in the Dry Bulk sector is totally absent. As the amount of deadweight to be delivered starting 2017 onwards becomes meaningless, this will also help the market, but this is obviously an effect that will not be enjoyed until then. Yet, the volume of cancelations, combined with slots that are converted to tankers should at some point help the market reach a healthier supply-demand relationship”, Kontomichis noted.
Lay-ups
He went on to note that “all of the above are more or less known to all of us and they don’t need any further analysis as a number of voices have referred to them repeatedly over the past years. Another factor that could accelerate the market’s rebound and has only recently re-appeared in the equation, are lay-ups. The latter monopolizes discussions as it is perceived as the last resort, bringing back memories from the 80’s crisis. We are currently approaching, if not already there, the point where daily losses will be higher than lay-up costs. Many nonetheless believe that even if we reach a meaningful number of lay-ups during the first months of the year, a possible market rebound, even a small one, during the last two quarters of 2016 will be overshadowed by the number of vessels exiting the lay-up condition amidst an improved market condition. But for an owner to have the incentive to pay all the necessary expenditures (repairs, surveys etc.) to make a vessel operational again, this means that earnings must have returned to levels well above OPEX, which in itself sort of secures a softer negative impact on rates once previously laid-up tonnage re-enters the market, noted Kontomichis”.
Nikos Roussanoglou, Hellenic Shipping News Worldwide
