After the very strong finish to last year, the dry bulk market has continued to demonstrate strong vitality in the first part of 2005, with rates fluctuating at high levels for all sizes of bulk carriers.

Towards mid-March, the Baltic Dry Index was approximately 3% higher than at the start of the year, with the Capesize Index at the same level, Panamax rates up 12%, and Handymax rates down 3%. Timecharter rates have fallen slightly, while newbuilding and second-hand prices have risen, especially for newer vintages.
The newbuilding price for Capesize vessels increased moderately from USD 61 million to USD 62 million during the first two months of the year, while the value of
a five-year old Capesize rose from USD 65 million to USD 72 million. A 2002-built Capesize was recently sold for as much as USD 85 million, or 37% more than the going newbuilding price. This illustrates very clearly how hot the present dry bulk market really is.
The world dry bulk trade volume is estimated to have increased by 6.3% to 2 487 million tonnes in 2004, with coal up from 619 mt in 2003 to 650 mt, iron ore up from 524 mt to 590 mt, and grain up from 240 mt to 250 mt. Future trade volumes will be extremely sensitive to developments in the Chinese steel industry, where forecasts now tend to vary widely. Last year, iron ore imports to China increased by as much as 60 mt to 208 mt. This increase accounted for over 40% of the total growth in the volume of dry bulk trade. Iron ore imports to China from Australia increased from 58 mt to 72 mt, with India up from 32 mt to 50 mt, Brazil from 38 mt to 46 mt, S. Africa from 10 mt to 11 mt, and other countries up from 10 mt to 23 mt, showing a shopping spree last year from a multitude of sources.
China’s steel production continues to grow at almost unbelievable rates, with January’s crude steel output up over 24% and pig-iron production up almost 29% compared to one year ago. The rest of the world produced 2.1% more pig iron than during the same period?? last year and global output was 10.5% higher than in January of last year. Fearnleys estimates that the steel industry accounts for roughly 50% of the total world demand for dry bulk tonnage, taking into account iron ore, coking coal, coke, scrap and other input materials, as well as the trade in steel products.
China has for some years been the world’s largest steel-importing country. In the last quarter of 2004, however, it suddenly became a net exporter of steel products and actually also the largest steel-exporting country. Future developments in this field will have a very strong bearing on the dry bulk market. Otherwise, high oil prices continue to support the fast growing trade in thermal coal and most market segments are enjoying rather favourable conditions. Fearnleys’ tonne-mile estimates for dry bulk show the following growth rates: 6.7% in 2005, 5.6% in 2005, and 5.1% in 2006.
Orders for new bulk carriers decreased from 2.6 mdwt in January to 1.2 mdwt in February and remained at a very low level in the first part of March. Demolition sales have, not surprisingly, been almost non-existent in the first part of 2005, with only 0.3 mdwt reported by mid-March. In early March, the world bulk carrier fleet over 10 000 dwt stood at 5 885 vessels of 325.5 mdwt, whereas the order books contained 709 vessels of 57.2 mdwt, corresponding to 17.6% of the dwt capacity of the existing fleet. Scheduled deliveries in 2005, including 4.1 mdwt delivered in the first two months, amount to 19.9 mdwt. The volume for 2006 is 21.4 mdwt and, so far, 12.6 mdwt in 2007, 4.9 mdwt in 2008, and 2.7 mdwt in 2009.
Looking at size groups, the Capesize order book at 29.1 mdwt corresponded to 26.7% of the existing fleet and the Panamax order book at 11.9 mdwt corresponded to 14.4% of the existing fleet. For the still rather modest, but very rapidly growing, super-Handymax segment of 50-60,000 dwt, the order book at 12.3 mdwt corresponded to as much as 64.6% of the existing fleet. This was in very sharp contrast to the situation for the 10-50 000-dwt size group, where a tiny order book of 3.9 mdwt corresponded to only 3.4% of the existing fleet.
Fearnleys’ bulk carrier fleet forecast in mid-March predicts a growth of 5.7% this year, after a 5.9% growth last year, to be followed by 4.8% in 2006 and just 1.7% in 2007. The low fleet growth in 2007 could well create a new window of opportunity for owners of bulk carriers, as so much focus has recently been put on orders for container vessels, oil tankers, and LNG vessels, leaving rather limited room for additional orders for any vessel type with delivery before 2008.
Freight futures are generally pointing downwards over the next three years, albeit to levels which must still be considered healthy and well above the required average rates to service tonnage investments at present prices. As an illustration, the Capesize spot market stood at about USD 69 000 per day towards mid-March, whereas the Imarex quotation for 2005 was about USD 63 000, for 2006 about USD 42 000, and for 2007 about USD 32 000 per day. It is interesting to observe that freight futures are just as volatile as spot rates. It is also worth noting that, over the past 9 months, the 2007 figure has improved steadily through the spot market variations. Fearnresearch takes a more positive view of the future and in its latest Quarterly Dry Bulk Market report, the 12-month timecharter rate forecasts for Capesize stand at USD 55 000 for the end of 2005 and USD 42 500 for the end of 2006, compared with the present level of USD 67 000.
Jarle Hammer.
Oslo, spring 2005.

Date: 08 February 2008