This autumn turned out to be much better than expected by most people involved in dry bulk shipping. Despite absorbing a record amount of new tonnage, the freight market improved substantially for all sizes of bulk carriers.

Towards the end of November, the Baltic Dry Index reached a level that was 78% higher than at the market slump in the beginning of May. Since the end of March, when the previous market report in this publication was made, the Capesize spot rate level has increased from USD 33,800 per day to USD 65,200, Panamax is up from USD 17,800 to USD 33,400, and Supramax is up from USD 17,700 to USD 27,900.
The strongest reason for this increase is that the global steel market has improved by much more than already strong previous forecasts. In October 2005, the International Iron and Steel Institute predicted a growth in world steel demand of 4–4.5% in 2006, this was lifted to 7.3% in April and as much as 8.9% in October of last year. In comparison, the International Energy Agency now expects the world oil demand to increase by just 1.1% in 2006.
During the first ten months of 2006, China’s pig iron production was up about 21% compared to the same period in 2005, to around 335 million tonnes, whereas the rest of the world saw an increase of 3% to 386 million tonnes. China’s role has increased dramatically over the past few years. China’s share of world pig iron output rose from about 36% in 2004 to 43% in 2005, and reached 48% in October 2006.
China has for several years been among the largest steel importing countries in the world. However, in late 2004 this country suddenly became a net exporter and is now by far the largest steel exporting country in the world. In 3Q 2006, China exported some 14.6 million tonnes of steel products and semi-finished products, mostly to nearby countries, compared to export volumes of about 8.9 mt from Japan and 8.6 mt from Russia. Generally, it is better for the dry bulk market when China imports more steel because of the trade it generates in both iron ore and coking coal imports to countries making that steel, as well as the shipments of steel products, compared to making more steel in China.
China has also become a giant in the aluminium market. Over the first ten months of 2006, China’s primary aluminium production rose by more than 18% compared to the corresponding period in 2005, against an increase of just below 2% for the rest of the world. This brought world production up almost 6%. China’s share of world primary aluminium production rose from about 25% in the first ten months of 2005 to 28% in the corresponding period in 2006.
During the first ten months of 2006, new bulk carrier orders totalled 17.1 million dwt, whereas demolition sales reached 2.1 mdwt. Deliveries of new vessels amounted to 21.5 mdwt and deletions were at just 2.1 mdwt. The bulk carrier fleet rose from 344.0 mdwt to 365.4 mdwt, whereas the order book decreased from 65.0 mdwt to 60.7 mdwt at the beginning of November. This corresponded to 16.7% of the existing fleet. In comparison, the order books for oil tankers stood at 36% of the existing fleet, for container vessels at 53%, and for LNG vessels at as much as 83%.
A closer look at the bulk carrier order book in early November shows huge variations for different size groups. The order book for vessels of 10–50,000 dwt was still modest at only about 6% compared to the existing fleet, and this size group will diminish somewhat over the next couple of years. The Supramax order book stood at 38%, Panamax at only 9%, and Capesize above 80,000 dwt at 27%. Within the Capesize range, there was a strong concentration around Kamsarm ax, with an order book of 62%, and vessels over 200,000 dwt,with 89%, whereas the order book for standard Capesize vessels of 120–200,000 dwt was only 13% of the existing fleet.
The continued rather modest order book for bulk carriers should allow for a well balanced and rather firm dry bulk market over the next couple of years. According to the latest forecasts from Fearnresearch, the bulk carrier fleet will increase by 7.4% in 2006, 3.8% in 2007, and just 3.3% in 2008, after an increase of 7.1% in 2005. Fleet growth rates have been adjusted somewhat upwards due to very limited scrapping because of the good freight rates. In comparison, dry bulk tonne-mile estimates have been revised upwards to a growth of 6.3% in 2005, with foreseen growth rates of 6.8% in 2006 and 5.2% in 2007.
The dry bulk window opened earlier and by more than the optimists believed and it may seem as if it is not closed yet, as the market could turn out to remain more than healthy for another couple of years.

Date: 05 February 2008