There seems little possibility of a sustained recovery in rates for the dry bulk market, with any reasonable periods inevitably followed by more dips in form
Capesize spot rates had crashed during the Christmas holiday season, and barely recovered as the new year began. The key West Australia to China rate dropped to US$5.30/tonne at the end of 2017, moved toward US$7.00/tonne in the first couple of weeks and then eased back to the upper US$6.00s/tonne. Timecharter rates hovered in the mid-US$20,000/day with delivery east coast India. In the Atlantic Basin rates fared better: the Puerto Bolivar/Rotterdam route registered a US$1 gain in 24 hours, hitting the mid US$11.00/tonne. A 175,800 dwt 2011-built Capesize that was open in northwest Europe was fixed on this run at US$25,000/day, while Vale covered a 16-25 January cargo from Ponta Da Madeira to Taranto on voyage basis, suggesting a timecharter equivalent of over US$30,000/day.
The Chinese New Year in February drew another close on business, and any cautious optimism was eroded by the succession of holidays. In the Atlantic Basin standard Capesize were fixed by operators for around US$20,000/day, while spot rates were US$6.95 for cargo from Brazil to China. In the Pacific Basin, spot rates struggled to surpass US$6.2/tonne. An Australian round trip to China reached US$10,000/day.
The second quarter of 2018 startled the market with a perfect storm for the big ships: with holidays, force majeure in two ore exporting ports and bad weather undermining the market. A lack of significant activity from Brazil left the market one-sided, with owners/operators reluctant to ballast from the East and instead chasing the shorter rounds. The knock-on effect was that rates tumbled on the West Australia/China run, coming very close to dipping below US$5.00/day. Some owners and operators refused to put their ships into such a weak market. Capesize heading back to Brazil saw rates fall sharply, with the Tubarao to China rate barely in the mid US$12.00/tonne.
By the middle of the year, rates in the Atlantic Basin were better. It was reported that NYK’s 176,000 dwt 2005-built Lowlands Orchid had been fixed to load at Tubarao in July at US$19.75/tonne to deliver a cargo of iron ore, while the 174,000 dwt 2005-built Ocean Confidence was due to load 15 to 24 July at US$19.80/tonne.
Lowlands Orchid fixed to load at Tubarao in July at US$19.75/tonne to deliver a cargo of iron ore
In the Pacific Basin, mid-year iron ore movements from West Australia were being fixed at around US$7.20/tonne level, before dipping to US$6.75/tonne as June progresses mid-week. Oldendorff was reported to have Ming Wah tonnage at US$6.95/tonne for mid-July loading and the sentiment was suggesting US$7.00/tonne might be breached again.
The year began slowly, with a portion of the market on extended holidays. In the Atlantic, rates improved for the fronthaul business, especially from the US Gulf, due to increased grain demand, with a 2010-built 82,000 dwt vessel fixed from the Continent via the US Gulf and the Cape of Good Hope to the east with grains at US$19,000/day. The Pacific had a far more sluggish beginning, the limited concluded trades showed weaker rates and early tonnage under pressure.
Post Chinese New Year business was slow in the Atlantic, with one Kamsarmax fixed at US$15,000/day, while spot rates for cargo from China to Brazil were reported at US$31.75/tonne. The activity in the Pacific Basin amounted to a steady flow of cargoes out of Indonesia. Two modern Kamsarmaxes achieved low-mid US$13,000/day for Australian rounds, but similar units still discounted for positional trips to India, which fixed at under US$11,000/day in preparation for the second quarter east coast South American market.
The Easter Holidays disrupted the flow of business and Panamax dry bulk carriers available to load were staking up the Atlantic Basin. Some owners fixed anyway, chasing rates downhill. In the Pacific Basin, owners struggled with a lack of mineral cargoes blamed for falling rates, with the prevailing uncertainty deterring some owners from ballasting. It was reported a modern Kamsarmax fixture failed at US$14,000/day for a North Pacific round voyage only to be re-fixed a few days later at US$12,000/day on the same route.
The mid-year Panamax market seemed to consolidate. The Atlantic Basin saw more enquiry in the North for both front haul and trans-Atlantic trades, which led to a clear out of tonnage, with rates stabilising and in some cases showing improvement. EC America was again very active and consumed a lot of vessel moving in ballast back to the area. However, a weak Ultramax market has seen them take a few smaller stems, with an end-July cargo from Paranagua to China fixed at US$35.25/tonne.
After the Christmas holidays it was a slow start, with activity slowly increasing without specific direction. The Atlantic Basin was generally quiet with rates from the US Gulf remaining flat and little fresh enquiry from east coast South America, with owners struggling to fix at last done. Over the festive period a 58,000-dwt was reported fixed basis delivery Gibraltar via US Gulf to China at US$14,000/day.
In the Pacific Basin, there was little reported on the period front, although a 58,000 dwt unit was fixed basis delivery north China prompt for three to five months trading, redelivery worldwide at US$9,500/day.
As March approached a 58,700 dwt Supramax was reported to have been fixed from the US Gulf on the basis of delivery to Houston for a trip to the Mediterranean, with a cargo of petcoke at US$19,000/day. This was seen at the time as representing a static rate, not increasing or falling. In the Far East more activity was reported, an example being a 56,000 dwt Supramax fixed on the basis of delivery to Kaohsiung 5 to 10 March for a trip via Philippines, with redelivery China with a cargo of nickel ore at $13,000/day.
Supramax business was weak in the second quarter. In the Atlantic, rates agreed were lower, but an East Coast South America to China voyage was fixed in the upper US$15,000s/day plus a US$575,000 ballast bonus. In the Pacific, a 56,000-dwt Supramax was reported fixed delivery from Prai via Indonesia with redelivery South East Asia, at a weaker US$12,250/day.
Mid-year was gloomy for the Supramax fleet. In the Atlantic, pressure remained on rates, especially from the Eastern Mediterranean, with a ready supply of tonnage. An Ultramax was reported to have been fixed at under US$16,000/day from the Eastern Mediterranean to the Far East. A 53,000 dwt unit was reported to have been fixed for delivery Antwerp for a trip East Mediterranean at US$11,900/day. In the Pacific Basin, the market also lacked impetus. A 58,000 dwt vessel was rumoured fixed basis delivery Dalian for a North Pacific round trip with redelivery to Cebu at $11,350/day. Further south, a 56,000 dwt vessel was fixed on the basis of delivery to Singapore on a trip via Indonesia, with redelivery to China at US$12,100/day.
It was a difficult start to 2018 in the Handy sector, with negative sentiment across most routes. A 33,000 dwt open east Mediterranean was fixed for two to three laden legs with various Atlantic redelivery ranges, but no further details were known. The Asian markets saw a little more activity; a 28,800 dwt Imabari-built vessel was reported fixed basis delivery Singapore for a trip via west Australia redelivery Singapore-Japan at an easier $7,000/day.
March rates for Handysize from the US Gulf stayed positive, while the east coast South America market slipped. The Pacific market showed strong improvement and rates moved sharply higher for both larger and smaller handy vessels delivery in the Far East as well as Southeast Asia.
The second quarter of 2018 opened weaker with rates from the US Gulf easing, while some larger handy vessels were reportedly competing with Supramax stems in east coast South America. On the period front, a 45,000-dwt open Vietnam was booked for five to seven months at US$11,500/day redelivery worldwide. In the Atlantic Basin, a 35,000 dwt unit was fixed to ARA-Ghent range at US$10,400/day, with delivery in the Black Sea. A 28,000 dwt vessel was booked on the same delivery basis for moving sulphur to Morocco at US$10,000/day.
Mid-year in the Handysize market was not particularly exciting. Most of the routes slipped in both the Atlantic and Pacific basins. On the period front, a 2018-built Handysize was fixed in early July for the balance of period for about five to seven months at a rate in the US$11,000s/day. In the Mediterranean and the Black Sea area, a 31,000 dwt Handysize that was open at Canakkale was failed to fix for a trip via the Black Sea to the US Gulf at US$7,500/day for the first 40 days and US$8,500/day thereafter. The same vessel then later failed to fix again for a similar run at US$7,750/day and US$8,850/day, respectively. The failure to fix at the higher rates suggest the owner was expecting rates to increase later in 2018.
Note: dry bulk market rates and activity as reported in the Baltic Briefings
Sale and purchase activity in the dry bulk sector
The first half of 2018 has been relatively benign for the dry bulk sector and new legislation from China may compound the situation further
The Capesize fleet currently stands at 1,774 vessels with a combined capacity of 364M dwt, according to VesselsValue. The boom in ordering from 2004 onwards saw Capesize still being delivered long after the favourable market had dissipated; consequently, the average age of the fleet is young at seven years.
The Capesize fleet witnessed less robust scrapping in the first six months of 2018 (nine vessels) compared to the same period the year before (19). H Line of South Korea sold three Capesize in January, HL Port Kembla, I Spirit, and Innova, for scrapping. All three vessels were built in South Korea in 1993, but only one had a reported price – US$492/ldt.
There were two other South Korean sales in the period. Sinokor Merchant Marine sold the 1995-built Chokang Surprise for US$480/ltd in February. Korea Shipping sold what must have been one of the last 149,500 dwt CSBC Keelung-built Capesize, Boryeong, for US$439.5/ldt, the price reflecting the smaller size. Indeed, according to VesselsValue, Korea Shipping controls the last two smaller Capesize built in Taiwan, the 1994-built Danjin Friendship and the 1995-built Danjin. Taiwan had been a prolific builder of the size of Capesize, and in the 1990s, this size formed the majority of the Capesize fleet.
Stocznia Gdynia: the shipyard where Kiran was built in 1994, possible the last Capesize built in Poland
Another standout sale for scrapping was the 1994-built Kiran, which was built in Poland at the Stocznia Gdynia. It is believed Kiran may be the last of the Capesize built in Poland, although not the last built in Europe. There are still 10 Capesize in the water that were built in Romania at the Daewoo-Mangalia shipyard, the last of which was built in 2016. Of course, there are also the more famous six Capesize built between 2009 and 2010 in AP Moller’s own shipyard, Odense Steel, before it closed. Today the yard in an industrial park, specialising in the production of offshore wind turbines. C’est la vie, say the old folks.
The average age of the nine Capesize sold for scrap in the first six months of 2018 was 24 years old, with the youngest just 21 years old. However, age is only one factor in the decision to scrap a vessel. A bigger factor is the cost to maintain trading, which hinges on the next Special Survey (SS). Not only is dry docking a major expense, but there is the loss of earnings and the cost of any steel repairs, not to mention upgrades like ballast water management systems and scrubbers (depending on the owner’s options for the 2020 Sulphur Cap).
The nine scrapped Capesize vessels had SS dates falling between two months and 39 months. Dismissing the outlier 39 months gives a range of two to 24 months.
Analysis of VesselsValue data suggests there are currently 21 Capesize that are 21 years or older with SS dates falling up to 24 months after the end of June 2020. Two-thirds of these vessels are currently sailing with South Korean companies, and these have been the most prolific in disposing of elderly Capesize.
However, the Indian sub-continent markets will be entering the mid-summer slump with decreasing demand and struggling local fundamentals, leaving cash buyers with tonnage in hand, unable to offload their inventory at anywhere near breakeven levels. After the monsoon season has drawn to a close and the scrapyards have drawn down their inventory, the market will pick up again.
As Marine Propulsion went to press, cash buyer GMS reported that the VLOC ORE VITORIA (26,695 ldt) fetched a very firm US$440/ldt basis an onward sale to a RINA-approved green recycling facility in Bangladesh, for strictly Hong Kong convention-style recycling.
Capesize fleet additions
A walk around the bridge of sold for scrap ORE VITORIA
The deletion of nine Capesize vessels from the fleet was more than made up for by the 29 Capesize (including six VLOCs) that entered the fleet in the first six months of 2018. According to VesselsValue, another 20 Capesize are due for delivery in 2018.
On top of this, contracting was brisk in the first three months of 2018, with 32 Capesize contracts placed (including one Valemax), although just two orders were placed between April and June 2018.
Capesize sale and purchase activity
There was a considerable amount of sale and purchase activity in the Capesize sector in the first six months of 2018. The largest single sale was the JP Morgan Global Maritime sale of five Capesize to prospective IPO company GoodBulk. JP Morgan Global had bought at a low point in the cycle and nominally made a tidy profit, cost of carry and trading notwithstanding.
JP Morgan Global Maritime was set up to speculate on the low historic values of ships, and seems to have achieved its goal with the sale of these Capesize vessels. The buyer, GoodBulk, also purchased a sixth Capesize, Ocean Commander, from Miyazaki Sangyo Kisen in April 2018 for US$21.5M.
The purpose of the purchases was to boost the GoodBulk fleet to a credible 22 Capesize vessels (plus another three smaller units) and to launch GoodBulk as a counter-cyclical dry bulk shipping story in New York on the NASDAQ Global Select Market. The IPO was timed to launch in early July 2018, with the aim of raising US$150M, a modest amount for an IPO, but a large amount to raise from investors still wary of shipping. Indeed, no shipping company IPO has taken place for three years.
The chief executive and sponsor of Bermuda-registered GoodBulk is John Michael Radziwill, whose private shipping company, C Transport Maritime of Monaco, will provide commercial and technical management.
Mr Radziwill must have been surprised to learn that the day before the GoodBulk IPO, the lead bank Morgan Stanley (no direct connection with the aforementioned JP Morgan), had taken another dry bulk shipping deal to prospective investors.
Given the small pool of potential investors in dry bulk shipping at any one time, this strange move by Morgan Stanley effectively sucked dry the dry bulk investment pond and Mr Radziwill had no choice but to postpone the GoodBulk IPO.
Panamax dry bulk carriers
The Panamax dry bulk carrier sector (50,000 dwt to 99,999 dwt) is nominally the most popular dry bulk sector. According to VesselsValue, the current Panamax fleet numbers 2,064 vessels with a total capacity of 161M dwt. The average age of the fleet is only nine years old.
For such a large fleet, the number of sales for scrapping in the first half of 2018 was extremely small, at just two vessels. The youngest was the 1992-built Rin, which was sold for US$450/ldt. The other was the 1982-built Krakow, which fetched US$425/ldt.
Sales for further trading were far more numerous, at 70 vessels. Interestingly, one of the groups of sales was indirectly linked to the Goodbulk purchases above. This was the 10 Panamax dry bulk carriers sold by Songa Bulk ASA to Star Bulk Carriers.
Star Bulk Carriers is a US listed company formed by legendary Greek shipowner Petros Pappas. The company purchased 15 operating dry bulk vessels from Songa Bulk ASA for an aggregate of 13.725M common shares of Star Bulk and US$145M in cash. The chief executive of Songa Bulk ASA, Arne Blystad was appointed to the board of directors of Star Bulk as class C rirector and Mr Herman Billung, also ex-Songa Bulk ASA, joined the management team of Star Bulk as senior vice president.
A secondary listing of shares in Star Bulk on Oslo Børs is expected to take place soon, but it was Morgan Stanley’s agreement to underwrite Oaktree Capital Management’s sale of shares in Star Bulk that interfered with the aforementioned GoodBulk IPO. By underwriting the Star Bulk share offering, Morgan Stanley absorbed the investor pool for both GoodBulk and Star Bulk. As the lead banker for both, this action before the day of the IPO was impolite, to say the least.
The other major sale in the period was the fleet replenishment exercise by George Economou’s Dryships. Another Greek-led New York listed company, Dryships sold six Panamax dry bulk carriers to mainly Chinese investors. George Economou publicly stated that he wished to sell off dry bulk carriers over 15-years old and found willing buyers in China. However, Chinese authorities are said to be imposing a ban on the import of non-Tier II vessels.
This would effectively limit second-hand sales from foreign owners to Chinese owners to those vessels built after 2011. This would rule out the sale of 11 of the 12 remaining Panamax dry bulk carriers in the Dryships fleet, unless this could be accomplished before the introduction of the ban.