After a rather long period of extremely good rates, March saw a softening in most trades, mainly for the largest vessels.

The Baltic Dry Index softened 8% over the month to about the same level as at the start of the year. The Capesize index fell by 14% in March and has fallen by 30% since the peak in mid-January. The Panamax index decreased by 6% in March to a level 11% below that in early February. The Handymax index slipped only 3% to a level 4% below that in late February.
World crude steel production in February is reported to have been 12.1% higher than in the same month last year, and China’s production was up by as much as 31.5%. The trade volumes in iron ore and coking coal for the steel industry have shown remarkable increases. We have for some time experienced considerable port congestion, which has boosted dry bulk freight rates. It should come as no big surprise if logistical bottlenecks contribute to a significant dampening of the extreme growth.
The trade in thermal coal benefits from high oil prices. In addition, the tonne-miles in the coal trade could be lifted by announced cuts in Chinese coal exports due to domestic requirements. Neighbouring countries will thus have to increase imports from more distant sources. The trade in grain is also boosting tonnage demand, and in particular the rapidly growing trade in soybeans and soybean meal, which is now larger than the trades in wheat and coarse grains separately. The seasonal fluctuations are very substantial and, as volume cargoes, grains and beans are requiring significantly more dwt per tonne of cargo than ore and coal. In addition comes a much longer time in port.
The bulk carrier fleet (including open hatch vessels) increased by 1.4% during 1Q 2004 to 307.0 million dwt. Because of the strong rates, demolition sales were almost non-existent at 0.3 million dwt. On the other hand, the ordering volume was remarkably modest, with only 3.6 million dwt registered during the quarter, as opposed to 12.5 million dwt new orders for oil tankers. Bulk carrier deliveries amounted to 4.5 million dwt and deletions reached less than 0.3 million dwt. The total bulk carrier order book at the beginning of 2Q 2004 corresponded to 15.3% of the existing fleet, with significant differences for the individual size groups. Thus, for the whole Capesize range over 80,000 dwt, the order book compared to the existing fleet was about 20%, but this figure was much higher for vessels over 200,000 dwt and the tiny group of 80–120,000 dwt. For Panamax of 60–80,000 dwt, the order book share was 16%, for super Handymaxes of 50–60,000 dwt it was as high as 63%, and for the whole range – 10–50,000 dwt – it was only 4%.
Newbuilding prices increased considerably during the first quarter 2004, but not nearly as much as for resales with prompt or short-term delivery. The importance of being ready to skim the present market was clearly reflected in still stronger price increases for existing tonnage and especially for vintage tonnage. As an illustration, the newbuilding price of a Panamax vessel increased by 24% in 1Q 2004, with a prompt delivery from yard valued still 45% higher and a 10-year-old vessel obtaining the same price as for newbuilding orders. On the second-hand front, the following price increases were seen over the quarter, 39% for 5-year-old, 55% for 10-year-old, and 62% for 15-year-old vessels. The very oldest vessels received significant price support from record-high scrap prices.
In general, this year’s economic prospects seem better than last year’s. However, increased terrorism and political tension in some areas have added considerably to the uncertainty. An estimated bulk carrier fleet growth of around 5% in 2004 and 4% in 2005 could be hard to balance trade wise. The congestion issue is a considerable wildcard in the assessment of rate developments and could work both ways. Some softening in rates appears likely, but a comparatively strong freight market for bulk carriers is foreseen for the next couple of years, with a likely window of opportunity in 2006, when newbuilding deliveries will be comparatively modest.

Jarle Hammer, 2 April 2004

Date: 12 February 2008