DRY BULK MARKET REVIEW 2012
leading international shipping consulting group
After a fairly poor 2011, things were even worse for the dry bulk market in 2012. Spot earnings fell by an average of 40% during the year, dropping to levels last seen in 2002. Once again, the Cape sector underperformed relative to the smaller ships, with rates averaging less than $8,000 per day for the year.
Panamax and Handysize rates also averaged just below $8,000 per day, while Supramax rates held up a bit better, averaging $9,500 per day. Volatility was also lower in 2012 than in 2011, and for the most part was limited to a modest Cape rally in the fourth quarter, which petered out by mid-December.
Asset values also fell back to their lowest levels in about a decade, with secondhand prices losing about 20-25% of their value over the course of 2012. Panamax prices suffered the largest decline, while Handysize values fell by only 10%.
As was the case in 2011, it is fair to say that excessive fleet growth was the driving force behind the market decline in 2012.
After expanding at a 5% annual pace from 1990 to 2010, the dry bulk fleet grew by 15% in 2011 and by a further 13% in 2012, as deliveries soared to a record-high volume, totaling more than 100 million dwt in each year. Although scrapping also reached a record-high total over the past two years, it was only enough to offset about one-third of the new tonnage entering the fleet.
Meanwhile, trade demand was mixed in 2012. Considering the somewhat precarious state of the global economy, dry bulk trade volumes held up relatively well, growing by an estimated 6%, which is well above the 4% annual average growth recorded from 1990 to 2010.
China and india
China remained the primary locomotive behind dry bulk trade demand in 2012, accounting for more than 40% of global tonne-mile demand. Although the Chinese economy was a bit sluggish in 2012, the country’s dry bulk imports still grew by 7%. While Chinese iron ore imports remain by far the most important driver of dry bulk trade, Chinese coal imports and grain imports were also up significantly in 2012.
Elsewhere, India has begun to emerge as a significant factor in the dry bulk market, as the country’s coal imports rose from 126 million tonnes in 2011 to an estimated 146 million tonnes in 2012.
Meanwhile, Japanese dry bulk imports rose by an estimated 4% in 2012, mainly due to stronger coal demand in the aftermath of 2011’s devastating earthquake and tsunami. In contrast, European imports fell by an estimated 2% in 2012, as many countries in the region slipped back into recession during 2012.
Looking ahead to 2013, the prospects for the dry bulk market appear mixed. The good news for shipowners is that deliveries are likely to fall significantly in the coming year, leading to a sharp deceleration in fleet growth. The first signs of this slowdown were actually seen in the final months of 2012, and all signs point to the trend continuing in 2013, with the fleet projected to expand by less than 7% over the coming year.
This should set the stage for the dry bulk market to improve, but the extent of any recovery will most likely depend on an improving global economy. While prospects for the global economy remain highly uncertain, most economists expect some improvement to take place over the course of the year. Accordingly, trade demand should also gain momentum as the year progresses.
As a result of these developments, the dry bulk market would most likely tread water in the first half of 2013, with rates remaining weak and asset values drifting slightly lower. But in the second half of the year, a gradually improving supply/demand balance should lead to a slow increase in rates and prices.
Marsoft is a leading international shipping consulting group providing advisory services in the areas of cycle and risk management. The company works with major shipowners, charterers, financial institutions and investors worldwide from offices in Oslo, London, Singapore and Boston.