Surging orders give shipbuilders hope

Mainland builders see pick-up in dry bulk demand, boosting chances of a brighter 2014

PUBLISHED : Saturday, 11 January, 2014, 1:21am
UPDATED : Saturday, 11 January, 2014, 1:21am

Embattled mainland shipbuilders see some cheer this year as new orders on dry bulk vessels jumped in the fourth quarter, spurred in part by a rebound in freight rates and the prospect of economic expansion this year.

New orders of dry bulk vessels over the last quarter of 2013 posted spectacular growth.

In October, it climbed 10 times year on year to 1.53 million compensated gross tonnage (CGT), followed by a 16 times year on year rise in November to 1.42 million CGT, data from shipping consultant Clarksons showed.

New orders in December rose nearly 700 per cent year on year to 1.65 million CGT, the largest monthly order since January 2011, according to Clarksons. CGT is a measure of how much work a shipyard has carried out to finish the vessel.

Dry bulk vessels are used to ferry non-liquid cargoes.

The recovery in new builds for dry bulk shipping in 2013 was reflected partly in the Baltic Dry Index (BDI), a measure of the average charter rates on dry bulk vessels, which rebounded from as low as 735 points to shoot over 2,300 last year. The BDI was down 2.6 per cent to 1,826 points on January 8.

The increase in iron ore and coal shipments to China helped stoke the BDI's surge last year.

Despite the fall of the BDI, which reflects current activity, the shipowners bought the dry bulk vessels in anticipation of increased imports of cargo into the mainland given the stronger pace of economic recovery.

Shipments of commodities like cement and lumber for the construction sector, and massive orders of grains such as wheat and soya beans for the poultry and livestock sector are seen increasing in 2014.

Sinotrans Shipping, one of the mainland's largest operators of dry bulk ships, bought four 64,000 deadweight tonnes (DWT) vessels this week for HK$805 million, their second purchase in the space of four months. It acquired four 93,203 DWT vessels in October 2013 for HK$540 million.

"It is forecast that the dry bulk market will further improve in 2014," said Sinotrans Shipping chairman Li Zhen.

Analysts forecast strong demand for dry bulk vessels will continue this year owing to better returns on newly built ships.

A shipowner can secure charter rates at the current level of about US$13,000 per day while building costs run to US$9,000 per day.

Cargo vessels in the dry bulk industry range from Handysize ships with a capacity of less than 40,000 DWT, Handymax with a capacity of 40,000 to 50,000 DWT and Supramax ships with a capacity of 50,000 to 60,000 DWT.

The price of dry bulk vessels was down on average after the boom in 2010, with Handymax vessels having fallen 17 per cent year on year, said Lawrence Li, analyst at UOB Kay Hian Securities in Shanghai.

Some dry bulk operators who pre-empted the market to order a lot of vessels over the past year may not need to order this year.

Pacific Basin, the largest Handymax operator in the world, said it had already ordered 32 vessels from September 2012 up to the end of the third quarter last year.