The dry bulk boom experienced since last autumn has had a big impact on all dry bulk commodity markets.

In certain trades for commodities of relatively low value, the seaborne transportation costs actually doubled or even tripled the value of the cargo itself when the freight market peaked earlier this year. Although freight rates for all sizes of vessels have seen substantial downward corrections lately, present rates are still more than healthy seen from the shipowners’ point of view, at least when considering the capital servicing of a new vessel.
The dry bulk market fell back further through April and May. Since the peak level in early February, the Baltic Dry Index for bulkcarriers had fallen by 42% by the end of May, whereas the setbacks for the various size groups differed somewhat from their individual peaks experienced in mid-January for Capesize, in early February for Panamax, and in mid-March for Handymax size. At the end of May, Capesize was down 49%, Panamax was down 45%, and Handymax was down 34%.
The steel industry now accounts for about 50% of the total demand for dry bulk tonnage when adding iron ore, coking coal, coke, iron and steel scrap, manganese, ferroalloys, etc. China’s rapidly growing steel industry has played a key role in pushing rates upwards. During the first four months this year, world crude steel output was up 8.4% compared with same period last year. China’s output rose by 24.5% to 81.8 million tonnes, whereas the rest of the world saw an increase of 4.4% to 249.6 mt. Pig iron production, which requires iron ore and coking coal, is more interesting from a shipping point of view, since about one third of the world steel output comes from recirculated scrap. Global pig iron production rose by 8.9% during Jan/April, with China up 23.2% to 75.9 mt and the rest of the world up 2.9% to 148.4 mt. During 1Q04, China’s 50.7 mt iron ore imports were 48% higher than in 1Q03, whereas Japan’s iron ore imports over 4 months were up 4.7% to 45.6 mt. Coal trade volumes have shown a fairly strong development in the first part of 2004, whereas the grain trade has been rather slow.
In late April, the Chinese authorities announced that there was a need to take “very forceful measures” to curb the economy. New guidelines were issued requiring companies to cut back on the use of debt to fund projects in the areas of steel, aluminium, cement and property. The effects remain to be seen after this orchestrated move to reduce congestion, demurrage, freight rates and raw material prices. Stockpiles are reported to have shrunk considerably and more balanced growth could provide a better momentum for further economic growth in China, albeit at lower rates than seen recently.
In the newbuilding market, new orders for bulk carriers over 10,000 dwt in 2003 totalled 391 vessels of 29.4 million dwt, of which 66 vessels of 5.6 million dwt were ordered in the 4Q. In 1Q04, new bulk carrier orders totalled 49 vessels of 4.1 million dwt and preliminary figures for April/May show 36 vessels of 3.0 million dwt. Looking at country of build, it appears that out of the 391 new orders in 2003, as many as 258 went to Japan and 106 to China, leaving only 27 for other countries (including Taiwan 12, the Phillippines 7, and S. Korea only 5 vessels - which is remarkably low for the world’s largest shipbuilding country). New orders during the first five months of 2004 were distributed as follows: Japan 56, China 18, India 6, S. Korea 4 and the Philippines 1.
Bulk-carrier scrap sales have, as could be expected, been minimal during this boom in the dry bulk freight market. In the whole of 2003, 89 vessels over 10,000 dwt totalling 3.3 million dwt were sold for scrap, of which the 4Q accounted for 18 vessels of 0.6 mdwt. In 1Q04, bulk carrier scrap sales amounted to only 9 vessels of 0.3 mdwt, followed by 3 vessels of less than 0.1 mdwt in April/May.
At the end of May, the world fleet of bulk carriers stood at 5,701 vessels of 309.4 million dwt, up 3.5% from one year before measured in dwt. The order book amounted to 606 vessels of 46.7 mdwt, corresponding to 15.1% of the existing fleet. After deliveries of 7.3 mdwt during the first five months of this year, scheduled deliveries for the remainder of 2004 stood at 12.5 mdwt, followed by 17.4 mdwt in 2005 and, so far, 12.4 mdwt in 2006 and 4.4 mdwt in 2007.

Jarle Hammer

Date: 12 February 2008