BMI examines the outlook for the beleaguered dry bulk shipping sector, which has been blighted by sinking rates due to crippling overcapacity for the past year. We maintain our view that the continued glut of vessel availability will cap rate gains. While rates experienced an uptick beginning in August 2011, they remain a long way off pre-downturn highs. While scrapping is on the up, this alone is not enough to regain the supply-demand equilibrium. We need to see less ordering of new builds, and more idling. For the time being lines remain reluctant to employ these strategies, exposing themselves to the danger of more bankruptcies. As such, our outlook for the sector remains bleak.
In Chinese Slowdown Threat Presents Double Downside Risk To Dry Bulk Shipping we investigate the possibility of a slowdown in Chinese growth, and analyse the potential effects of this worrying scenario for dry bulk shipping lines. BMI examines the demand-side risks to the sector posed by both a the possibility of a slowdown in China’s construction sector, and a double dip recession in the US. We have already seen a crippling oversupply of vessels putting sustained downside pressure on rates, despite strong demand. If we also begin to see pressure on rates from the demand side, rates could plumb new lows
In Vale May Find Solace In Relations With South Korea
As Chinese Troubles Continue we look at the risk mitigation strategy of one dry bulk shipper that is already looking to diversify its demand base; Brazilian iron ore giant Vale. The mining company is taking care not to place all its hopes on China, and is instead developing relations with South Korea, another major iron ore importer.
BMI believes that more dry bulk exporters will be following Vale’s lead as the possibility of a slowdown in Chinese demand becomes increasingly likely.
In Lines Need To Up Usage Of Capacity Reduction Strategies To Ease Oversupply BMI examines the strategies lines should be using to reduce capcity and see which companies are doing their bit to ease oversupply. In 2011 we saw rates fall to a low of US$1043 (4/2/11), only to tick up again, reaching US$2136 at the time of writing (18/10/11), still down 81% on the pre-downturn high of US$11709 (18/5/09). This massive drop in rates is due to the current over-availability of tonnage due to the rush to order vessels when rates were at their peak. However, we need to see these tactics employed to much greater effect if lines are to effectively combat the overcapacity that is driving rates down.
In Dry Bulk Lines In Choppy Waters, Possibility Of More Bankruptcies we examine the potential for more bankrupcies in the sector if capacity reduction strategies are not implemented. Sinking rates and disappointing financial results have raised the spectre of more bankruptcies in the sector. BMI looks at the strategy of Diana Shipping, one company which has managed to keep its head above the water thanks to its use of long-term charters.