Moderating vessel supply growth over the next few years together with a mild improvement in the outlook for seaborne trade will enable a reduction on chronic overcapacity and so mark a recovery in the dry bulk shipping market, according to the shipping consultancy Drewry.
Specifically, Drewry forecasts that Capesize one-year time charter rates will double over the next five years from the lows of 2016. The reasons for a sharp contraction in the supply and demand gap are improving demand outlook coupled with a slowdown in vessel supply due to high scrapping and continued low deliveries along with scarce new-orders.
The impending additional cost of installing Ballast Water Treatment Systems (BWTS) will force owners to keep sending younger tonnages to scrapyards. Owners have hardly been able to cover their operating costs and the additional cost will mean increasing losses.
The continued scarcity of private equity has controlled new orders this year and investors are expected to keep shying away from the dry bulk market, thinning the orderbook even further over the next two years. This will ensure that deliveries remain low which in turn will limit supply growth.
By contrast, demand for dry bulk shipping is expected to grow strongly, as Brazil’s increasing share of Chinese iron ore imports drives higher tonne mile demand. Even if the Chinese iron ore trade does not rise as anticipated, a shift of sourcing towards Brazil will mean that the demand for ships will increase many fold.
Asian countries, including Vietnam, Korea and Taiwan are expected to ramp up coal imports as they open more coal-powered generating plants to support their growing demand for energy. Drewry is expecting coal demand to keep increasing over the next five years.
“Dry bulk shipping has bottomed out and a market recovery is underway, albeit a slow one. Rising demand for ships to cater for increasing raw material consumption, together with the effect of shifting trade routes will help increase tonne miles. With investment remaining out of reach from dry bulk owners, even a modest growth in demand will help support market recovery. Meanwhile, the increasing cost of running an old ship will mean more vessels go to scrapyards, tightening supply over the next five years,” commented Rahul Sharan, Drewry’s lead analyst for dry bulk shipping.
Source & Image credit: Drewry
