Dry Bulk Shipping Companies Back In Black

09/10/17

A long slump for dry-bulk shipping companies, which transport the raw materials of global trade, may be coming to an end.

After two years of below break-even freight rates that pushed the world’s biggest ship operators deep into losses and smaller ones out of business, strong growth in the global economy has shipowners rejoicing.

The Baltic Dry Index, one of the world’s leading trade indicators which measures the cost of moving commodities such as coal and iron ore, is hovering at 1355 points, the highest in 34 months after falling to its lowest level at 292 in February last year. At its peak, prior to the 2008 financial crisis, the index hit 11,000 points.

Shipping brokers say the rise will likely continue in the short term, with 1700 points being the initial resistance level.

“Things are looking better all around,” said Robert Bugbee, president of Scorpio Bulkers, one of the world’s biggest carriers. “There is strong growth in the world economy and this translates to more shipments of everything from cement and grains to aluminium, coal and iron ore.”

Scorpio, which has 48 ships, sold about 20 of its biggest vessels at a sharp discount in late 2015 to maintain financial viability after charter rates tanked to less than half of break-even levels.

The International Monetary Fund expects the world economy to grow by 3.5 per cent this year and 3.6 per cent in 2018, up from 3.2 per cent in 2016.

The current market surge is mainly driven by China’s move to limit this year’s production of coal and iron ore in 10 provinces by about 25 per cent and 20 per cent compared to last year, ¬according to data by Athens-based Allied Shipbroking.

The move aims to cut pollution in major urban centres, but comes amid an increase in infrastructure investment from Beijing, which means greater reliance on seaborne imports.

“China’s economy is turning around with a resurgence in infrastructure spending, at a time when its steel inventories are low,” said Basil Karatzas, chief executive of New York-based Karatzas Marine Advisors & Co. “The dollar (in which commodities are priced) is also at an 18-month low which makes it a good time to buy.”

Brokers in Singapore and London said they had seen increased demand for commodities such as grains, lumber, cement, coal and copper. One broker, who arranges charters for big operators in Asia and Europe, said rates were improving across the board.

Dry-bulk shippers were hurt over the past few years after China, the world’s biggest commodities importer, began shifting away from heavy industry as the main growth driver. Like Scorpio, other big players shrank fleets in the face of losses while some smaller operators went bankrupt. Banks turned off access to ship-¬financing in the face of rising non-performing loans.

Source: Wall Street Journal