Supply glut is a bigger risk than carriers

PUBLISHED : Tuesday, 04 October, 2011, 12:00am
UPDATED : Tuesday, 04 October, 2011, 12:00am


Worries among mainland shipowners that a raft of giant iron ore carriers entering service over the next three years would hurt the dry bulk shipping market are not as great as the threat of overcapacity, shipowners said.

They said the 400,000 deadweight tonne (dwt) bulk carriers ordered by Brazilian iron ore giant Vale would create opportunities for smaller dry cargo ships shuttling iron ore from Malaysia to other ports in Asia.

They said Vale and other industrial shipowners, such as Rio Tinto, could sell and leaseback their shipping fleets to traditional shipowners as they realise shipping is not their main business. 'People are very worried about the large vessels, but I don't think they are too big a threat,' said Dale Ploughman, chief executive of Seanergy Maritime Holdings, which controls Hong Kong shipping firm Maritime Capital Shipping.

Vale was planning to establish an iron ore distribution hub in Malaysia that would be served by some of the nineteen 400,000 dwt ore carriers ordered by Vale from China Rongsheng Heavy Industries and Daewoo Shipbuilding and Marine Engineering, Ploughman said.

Vale would eventually sell its ships which cost about US$1.6 billion, he said. 'Not now, because there is too much money on the table,' Ploughman said. Vale has also chartered 16 vessels from international shipowners, including four 388,000 dwt large ore carriers from Berge Bulk, the dry bulk offshoot of the BW Group.

Berge Bulk took delivery of the first vessel, called Berge Everest, from Bohai Shipbuilding Heavy Industry last month.

The China Shipowners Association warned earlier this year that Vale and other mining firms intended to monopolise or control most of the China-bound iron ore shipments by owning their own ships. 'If those mining giants monopolised China-bound iron ore transportation, it would severely hurt the Chinese shipping community,' said Zhang Shouguo, the Association's executive vice-president and secretary general.

When all 19 of the Vale ships enter service, they could haul a total of 30 million tonnes of iron ore per year. In comparison, China imported 130.9 million tonnes of iron ore from Brazil last year.

If the Malaysian hub was created, smaller Capesize ships of 115,000 dwt to 180,000 dwt would be needed to transport iron ore from Malaysia to other Asian markets because the ultra large ships were too big to enter many ports, Ploughman said.

John Su, managing director at Keen Maritime Services, agreed. 'There will be a lot of trans-shipments,' Su said. Overcapacity - too many ships chasing insufficient cargoes - was a larger issue facing shipowners. Ploughman said. 'What worries me is that owners still haven't learned their lesson.' He noted that while dry bulk ships totalling around 17.8 million dwt have been sold for scrap so far this year, shipowners had ordered an equal volume of tonnage as of September.

Despite a recent rally in Capesize charter rates, which hit US$43,477 per day last week for a voyage from Brazil to China, shipowners said cargo demand would not keep pace with the entry of new Capesize tonnage into the global fleet. Clarkson, the British ship broker, estimated 524 Capesize ships totalling 103.2 million dwt - equivalent to 44.9 per cent of the existing fleet - would be delivered up to 2015.

James Marshall, chief executive of Berge Bulk, said: 'I'm very worried about oversupply. The next couple of years will be a tough market.'

However, shipowners - including Ploughman and Ong Choo Kiat, president of Taiwan's U-Ming Marine Transport - said port congestion and a drop in iron ore prices could bolster charter rates as shipping demand increase and the supply of vessels tighten.

Ong said between 120 and 140 Capesize vessels could be needed as China hikes the volume of foreign iron ore imports as new mining capacity comes on stream from 2014.

In Western Australia alone, miners are forecast to produce 685 million tonnes of iron ore by 2015, although actual capacity will top 870 million tonnes. But, ore prices could halve to US$80 per tonne by 2015, from US$180 per tonne now.