Miral Shipping Dry Bulk Market Report

Tough times ahead?

In his latest Shipping Dry Bulk Market Report, Wall Street Greek Shipping Columnist Alex Miral discusses the current state of the Dry Bulk Market, and navigates a murky shipping outlook for us.

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Miral Shipping Dry Bulk Market Report

Since early October, the dry bulk freight market has been mixed. There has been strength in the Capesize Sector, though it has fallen sharply during the past week. The other vessel classes have been generally flat through most of October, but have also fallen considerably since one week ago.

Some trades have been hit harder than others. For example, since last week, time charter trips for handymax and supramax ships from the Atlantic to the Far East have fallen by US $7 – 8,000 per day, a drop of 20 per cent. As of November 4, the BDI stood at 2510, slightly higher than it was on October 1st. As of November 4, 2010, the Capesize Index is still up about 20% from one month ago. However, the Panamax Sector is down 5%, while the Supramax Sector is down 10%.

What has caused such sudden drops in freight rates?

For the capesizes, rising coal prices in South Africa have driven Chinese buyers to pull back from South African stems; and a lack of transatlantic business for Europe has depleted November cargoes. Open vessels are competing for what cargoes are left, mostly out of Australia and Brazil, which I understand are not much at the moment.

The picture for panamaxes is slightly better near-term, but the market is generally flat or declining slightly. There are still grain cargoes from the US to the Far East; coal from India and Australia to China; and possibly some benefit this week from the rate differential from Capesizes, generating a few more coal and ore cargoes for panamaxes. This rate differential has been closing rapidly though.

The supramax market has weakened considerably in the last ten days after maintaining some strength prior to that. The problems for this sector have been greatly reduced iron ore shipments from India to China and less coal stems from Indonesia to China.

The handysize market has been slow and in decline for most of the past month. There has been very little grain business from the US Gulf, causing a build up of tonnage there. More cargoes are expected in December, but from now it looks like there will not be enough to turn things around.

Sentiment for all vessel classes is bearish near-term.

What should we expect in the upcoming weeks? Let's look at the some of the factors that will drive the market in the near to medium term. It is hard to find much positive news at the moment. There are still predictions from several highly respected institutions for the global movements of iron ore and coal increasing steadily, at a rate of about 4 – 5 per cent over the next several years. This is positive for freight, and one would think that this would underpin a freight market at healthy rates. However, the risks are becoming pronounced and manifesting themselves sooner than I previously thought. The amount of deliveries of new ships is set to at least keep up with this demand for two years at minimum. Furthermore, I have read alarming reports in the last month of new cities being built in China that are sitting virtually empty. I recall my visit to Thailand in the early 1990's, where huge buildings were being built in Bangkok without tenants. A year later, there was a crisis there. This news is negative, at least to the point where demand catches up and these empty cities are populated.

There were some major developments this week here in the United States. Midterm elections on November 2nd resulted in Republicans taking control of the House of Representatives by a wide margin, plus gains in the Senate, marking a major shift in political power. This could be the beginning of policy changes that could affect trade and consequently, shipping. Possible future belt tightening in the U.S., in addition to that of Europe, and China trying to control a potentially overheating economy, are all bearish signs for dry bulk freight. However, the U.S. Federal Reserve announced QE2, essentially the printing of money, which is devaluing the U.S. dollar and may create large capital flows to emerging markets and commodities; this is usually positive for dry bulk freight.

The freight charts are deteriorating though. The peaks of the capesize market are lower since July of '08, and the handys through panamaxes are close to major resistance levels. All these factors create a confusing picture of what the future might hold. It all bears close watching, but the signs are becoming ominous for 2011.



Editor's Note: This article should interest investors in Teekay Corp. (NYSE: TK), Navios Maritime Holdings (NYSE: NM), Navios Maritime Acquisition (NYSE: NNA), Navios Maritime Partners L.P. (NYSE: NMM), Tsakos Energy Navigation Ltd. (NYSE: TNP), Overseas Shipholding Group (NYSE: OSG), International Shipholding (NYSE: ISH), Excel Maritime Carriers (NYSE: EXM), Safe Bulkers (NYSE: SB), Claymore/Delta Global Shipping ETF (NYSE: SEA), Genco Shipping & Trading (NYSE: GNK), Diana Shipping (NYSE: DSX), Danaos (NYSE: DAC), Tsakos Energy Navigation (NYSE: TNP), Ship Finance Int'l (NYSE: SFL), Nordic American Tanker (NYSE: NAT), Seaspan (NYSE: SSW), General Maritime (NYSE: GMR), DHT Maritime (NYSE: DHT), Brunswick (NYSE: BC), Marine Products Corp. (NYSE: MPX), DryShips (Nasdaq: DRYS), Top Ships (Nasdaq: TOPS), Eagle Bulk Shipping (Nasdaq: EGLE), Sino-Global Shipping (Nasdaq: SINO), Paragon Shipping (Nasdaq: PRGN), K-SEA Transportation Partners (NYSE: KSP), Euroseas (Nasdaq: ESEA), Star Bulk Carriers (Nasdaq: SBLK), Omega Navigation (Nasdaq: ONAV), Knightsbridge Tankers Ltd. (Nasdaq: VLCCF), TBS Int'l (Nasdaq: TBSI), Golar LNG (Nasdaq: GLNG), Claymore/Delta Global Shipping (Nasdaq: XSEAX), American Commercial Lines (Nasdaq: ACLI), National Bank of Greece (NYSE: NBG), Hellenic Telecommunications (NYSE: OTE), Coca-Cola HBC (NYSE: CCH).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.