Dry bulk downturn forecasts could turn out too pessimistic

The dry bulk shipping market, where Greek shipowners have a considerable presence, will see a decline in 2005, predicted a recent Bloomberg survey. One of the main reasons will be an increase of dry bulk ships competing for the same or an even smaller amount of cargoes. Many analysts estimate, therefore, that chartering rates will fall by as much as 25 percent. For instance, the daily rate for chartering a capesize ship, usually carrying up to 175,000 tons, could fall to $52,500 in 2005 as the global capesize fleet will rise by 8 percent, according to the Clarksons agency, due to new ship deliveries expected. This could affect the supply and demand balance. Dry bulkers prices swelled to unprecedented levels in 2004, mainly because of imports by China, which is becoming a major factor for shipping interests. The Far East country showed great needs in iron ore, coal and other raw materials, to keep up its robust growth rate, currently running above 9 percent. Nevertheless, a number of analysts express their reservations about whether such strong Chinese demand will continue. The global iron ore volume shipped in 2004 rose by 8 percent to 603 million tons. China alone boosted its iron ore imports by 33 percent. Coal shipping for electricity production and the steel industry rose by 5 percent when the capesize fleet increased by just 1 percent. Record rates This imbalance between ship supply and demand pushed chartering prices very high, reaching $105,519 per day in the first week of December, to drop to $95,000 since. Operating costs of those ships range from $17,000 to $26,000 per day, offering great profit margins to their owners even if prices go down. A similar decline is not impossible in the (smaller) Panamax ships, with capacity around 70,000 tons (usually carrying coal and wheat). In early December their daily chartering rate stood at the record levels of $51,802, dropping to around $38,000 today. Many estimate that in 2005 the average chartering price can go down to $27,500 per day as the Panamax fleet is expected to increase by 5.6 percent. Most analysts believe falling demand is the main reason for the market’s decline. As Deutsche Bank experts note, daily rates will go down as Asian demand for raw materials (to become industrial products for exporting) ebbs, and as the consumer confidence index falls in the US, the main market for Asian products. Similarly, China is trying to contain growth at 8 percent this year, from 9.1 percent in the third quarter of 2004. Still, there are those who suggest that forecasts are too pessimistic. Speaking to Lloyd’s List, Harry Banga, vice president of the Noble Group that trades raw materials and is based in Hong Kong, said that Chinese demand for iron ore may increase more than the global fleet in 2005. In addition, China’s biggest shipowner, the China Ocean Shipping Group, stressed that iron ore imports may rise by 10 percent in 2005, and those of coal by 13 percent.