Extreamly volatile is how one can describe the dry bulk market of the present and the past few years. It started with a record year in 2004 when new building prices, sale and purchase prices, charter rates hit all time highs. After moderating a bit in 2005 they again rose strongly in 2006 and 2007. The most important driver behind this phenomenal rise has been the staggering import demand for commodities from China. Chinese dry bulk import volume nearly doubled from 2001 to 2004 accounting for roughly 94% growth in demand for dry bulk trade [Stopford, Martin, Dec. 7, 2005: “China in Transition: Its impact on shipping in the last decade and the next.” Clarkson Research Services Ltd.].
This demand was further supported by the lack of Chinese logistical infrastructure which lead to port congestion and long delays at Chinese ports, putting upward pressure on charter rates. The rates rose from $7/ton in the 1990's to $30/ton in 2004 and by mid 2007 Brazil/China route vessels were reported fixed for $60/ton [http://www.fearnleys.com].
The average earnings of a Handymax vessel in 2007 were over usd 48000/day while the historical earnings have been at around usd 15000/day over the last decade [http://www.worldmaritimeconsultants.com]. The Panamaxes in 2007 averaged around usd 55,000/day, while the Capesize's hit the bullseye commanding an average of over usd 1,00,000/day with a lot of vessel fixed over usd 150,000/day for a 1 yr T/C.
The year 2008, started with the scare of US recession and that has put a damper for the moment on the prospects of the future Chinese commodity demand and this fear has been reflected in the charter rates which have fallen by almost 20% across the board. The market is stabilizing a bit, however it can't seem to decide whether this is temporary or based on physical support. The market hasn't really absorbed the effects of the actions of the Fed, the impact of the global financial crunch and how the long term iron-ore contracts will turn up?
The dry bulk market has become more balanced in the last year owing to the new buildings being delivered that were ordered in 2004/05 and minimal scrapping. The existing order book now stands at almost 64 mn dwt, about 18% of the existing fleet [end 2006]. The balance is expected to weaken in the near term, although strong demand growth is expected to continue for 2008.
In the medium term fleet growth will be limited owing to more scrapping of the older vessels in 2008/09. The dark clouds of a US recession might scare away any future investment by the ship owners both for new buildings and conversions. Therefore, I feel in the medium term as demand continues to grow albeit at a slower pace, the balance will become tighter helped by constrained supply.
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