In spite of the delivery of new bulk carriers ordered during the shipping golden age, dry shippers bulk freight rates are rising due to Chinese iron ore purchases. The shipowners are back on the bulk carriers spot market to meet the increase in Chinese steel production, the highest in three years, which is driving the biggest jump in shipping rates since 2009.
This increase in steel output has reduced the iron ore stock which fell to its lowest level since 2007. The number of Capesize vessels in service, the largest bulk carriers, increased by 51% in September to 124 from August according to a study by Morgan Stanley. More than 90% were intended for China.
Also, despite the willingness of the Chinese authorities to reduce the share of coal in the energy mix of the country, the consumption of thermal coal will continue to rise, says Intermodal Shipbrokers Co. research analyst Eva Tzima. The increased volumes of coal transported by sea will add up to the 1.17 billion tonnes of iron ore, a 6% increase in one year, two-thirds being for the Chinese steel industry.
The BDI (Baltic Dry Index), assessment of the price of moving the major raw materials by sea, has doubled since August and has now been stable for several weeks around 2,000. The Capesize indice, for the largest bulk carriers, which was just slightly above 1,000 in early 2013, quickly appreciated to get to 4,300 before falling back to 3,500, having increased by more than three times in four months.
The daily rate for a 160,000 tonnes capesize vessel on September 25 reached $42,211, the highest in 34 months, before falling to $30,000. In the fourth quarter, shipowners expect an average daily rate of $28,500, the highest since 2011, nearly double the $14,500 needed to be profitable. This rebound in rates has slowed the pace at which old boats were decommissioned which was the highest in the last three decades.
Consequently, capesize vessels building has resumed and shipyards have orders representing 16% of the total fleet, a small volume compared to 100% five years ago. According to Clarksons, a leading provider of integrated shipping services, the fleet will increase by 5% per year, the slowest growth pace in a decade.
For 2014 and 2015, Herman Billung, Golden Ocean CEO, expects an average annual increase of 3.5% of the activity, sufficient to maintain freight rates. Demand is expected to grow at a higher pace than the supply for the coming years and a 2% margin is sufficient to strongly push rates up.
Today’s BDI was at $1,878.