Dry Bulk Market Shows Solid Improvement

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Published Dec 6, 2016 8:26 PM by The Maritime Executive

Bulker operators are seeing solid improvements after the record low day rates reached earlier this year: the Baltic Dry Index stood at nearly 1,200 on Tuesday, a fourfold increase over the levels reached in February 2016. 

The Panamax segment has recovered especially well, reaching an average spot rate of nearly $12,500 on Tuesday. The rate was approximately the same for a much larger Capesize. 

Insiders say that the improvements are driven by recovering Chinese demand for commodities, falling newbuilding activity and increased scrapping. 

“The market is fundamentally improving and barring a severe disruption to the world economy, it should be plain sailing from the second quarter [of 2017] onwards," said Scorpio Bulkers president Robert Bugbee, speaking to the Wall Street Journal.

Even as rates have recovered, operating costs have declined, say analysts with Drewry – at least for now. 

For 2016, operating costs went down by an average of 4.4 percent across all vessel categories – in addition to a reduction of 1.5 percent in 2015. 

However, Drewry editor Nikhil Jain predicts that costs will rise again next year. “The scope for further significant cost reductions is limited. We are still of the opinion that costs will rise in 2017 and beyond, but perhaps at lower levels than previously anticipated,” he said. International wage agreements and limited availability of certain officer ranks will likely raise manning costs, and new requirements like the fitting of ballast water management systems are expected to raise repair and maintenance expenditures.

Improving dry bulk business means an active resale market

According to data from Clarksons, the sales volume for used bulk vessels has reached a seven year high. In the year through November, brokers handled the sale of 560 vessels worth over $4 billion, more than in any year since 2009. 

VesselsValue.com noted in a market report this week that Panamax, Supramax and Handy vessel prices showed signs of improvement, a sentiment shared by at least one leading shipbroker.

"Buyers have re-surfaced with quite a ferocious appetite, while it now seems that there is considerable upward pressure in terms of pricing ready to emerge," said Allied Shipbroking in a weekly report. "The overall sentiment has improved thanks to the considerable improvements being made in the freight market." 

Scrapping activity has also been high, helping to address the mismatch between the fleet size and market demand. Clarksons estimates that 385 bulkers were sent to the breakers over the year to date, more than any other vessel type. In addition, analysts say that in the future, the advent of new ballast water management requirements could see many more aging hulls sold for scrap, rather than undergoing the multi-million dollar systems upgrade.