Global dry bulk market not seen recovering in 2016 as China slowdown weighs

PUBLISHED : Friday, 09 October, 2015, 12:32pm
UPDATED : Wednesday, 11 May, 2016, 11:30am

The global dry bulk shipping market is unlikely to see a recovery next year because of a burdensome glut in ships and the impact of China’s economic slowdown on coal and iron ore imports, according to industry experts.

“There is no hope for rates in the short term, we could see a 2 to 3 per cent contraction in demand [for dry bulk shipping] this year and next year,” said Sverre Svenning, director of maritime research at Fearnley Consultants.

In the first eight months of this year, China’s coal imports by volume were down 31 per cent on year, while iron ore imports have been largely flat, according to China Customs Statistics.

A further contraction next year in coal shipments to China can’t be ruled out. Goldman Sachs forecasts Chinese imports of thermal coal to decline a further 30 per cent to 55 million tonnes for 2016, given overcapacity and declining demand from heavy industry under pressure from Beijing to switch to cleaner burning fuels.

“China’s industrial production and consumption have driven the market for past 12 years, but 2015 is a turning point, we don’t see momentum for growth any more,” said Svenning.

The average for the year to date of Baltic Dry Index, that tracks dry commodities shipping rates, fell to its lowest level in 10 years. It now costs US$7.89 to ship one tonne of coal from Newcastle (Australia) to Qingdao, compared to US$12 a year ago.

New bulk carriers ordered during the height of China’s economic growth cycle further aggravate the glut.

Global dry bulk fleet capacity has grown at double the rate of demand for the past five years, according to Fearnley Consultants' data.

The difficult conditions are beginning to take their toll on some operators. Last week, Japanese bulk carrier Daiichi Chuo Kisen Kaisha filed for bankruptcy protection after reporting its four straight annual losses. Danish shipping company TORM last month said it would fully exit from the dry bulk shipping market after selling two dry bulk vessels.  Still, there are some signs that some companies are able to adapt by improving their operations.

Pacific Basin, a Hong Kong-based dry bulk shipping company, posted its third quarter Handysize and Handymax average daily earnings of US$8,350 and US$9,630, outperforming spot market rates by 39 per cent and 15 per cent respectively, attributing the result to cost cutting and optimization of the fleet and cargo combinations.

Despite the strong performance, Kitty Mok, Company Secretary at Pacific Basin, maintains the negative outlook.

“This weakness will continue to affect shipping businesses, and could result in more companies experiencing financial distress like Daiichi Chuo Kisen Kaisha,” Mok said in a statement.