Shows there?s been no improvement in health of shipping companies
The dry bulk index (BDI) ? which tracks rates for ships carrying dry commodities like iron ore, coal and cement ? has fallen 58% this calendar year to September 19, signalling that there has been no improvement in the health of shipping companies in an already beleaguered sector. Weakening demand in China, the second largest economy, for iron-ore and coal and an oversupply of vessels have primarily affected the dry bulk market.
From a high of 11,709 units in May 2008, the BDI closed at 722 units on September 19, down 93%. The index touched its lowest in February this year when it was trading at 647 units.
Chinese imports of coal and iron ore are likely to have fallen for the third month in a row in August, say analysts. Added to the weak China demand, a supply glut, led by fleet expansion, has been a major cause for concern. Supply of dry bulk vessels were around 95 million dead weight tonnes (dwt) in 2011 and is projected to be around 90 million dwt during 2012. This compares to an average annual supply of vessels of only 25 million dwt in the pre-crisis period of 2006-2008.
?Supply overhang is higher in bulkers as compared to the tanker market; hence, the recovery of bulker market could be slower than the tanker market,? says K Ravichandran, senior vice-president & co-head, corporate ratings, Icra, adding that vessel supply glut will have an over-riding impact on charter rates.
India’s largest public sector shipping company, Shipping Corporation of India (SCI), had been on a ship ordering spree until now, having taken delivery of eight ships this year alone. But, now, the company is going slow. ?We will not be able to aggressively order more ships because we do not have the financial capability,? S Hajara, CMD, said last month. The company has a debt of R7,000 crore as of June 31, 2012.Shipping experts say that the dry bulk sector will take a longer time to emerge out of the tough times as compared to the tanker industry as the dry bulk trade is not as strong as the crude carried by tankers.
India’s Meractor?s managing director Atul Agarwal said dry bulk rates are depressed and are not likely to pick up for the next four-five quarters. ? It is very challenging. Now with China growing at its slowest in three years, they are importing less iron-ore. On the other hand, the tanker sector may see a turnaround in the second half of the next year.?
DryShips, one of the biggest shipping companies listed in the US, posted a quarterly loss, mainly due to lower earnings from the dry bulk carrier segment, while its tanker business did relatively well. SCI shares have lost 36% of their value in the last one year, while Mercator gained 2%, thanks to its coal business on the Bombay Stock Exchange. Nasdaq-listed DryShips has shed about 19% of its value. SCI closed down 1% at R54.10 on the BSE on Thursday, while Mercator closed down 1.15% at R21.50 a share on the BSE.
However, dry bulkers may be seeing a silver lining soon. Some reports cite that Chinese steel mills will accelerate imports because of a 1 trillion-yuan ($158 billion) building programme, which may be a lifeline to dry bulk shippers.
SCI said it expects 2012 to be the last year of major deliveries. If this happens, then the shipping industry could be poised for some strength. ?Although the recent fiscal measures in the US and euro area could be positive to the commodity prices, to what extent it will incentivise real demand growth is uncertain,? said Ravichandran.