Predictions of a strong season

Big hitters in the dry bulk shipping industry gave their views on the outlook for the sector in a webinar organised and hosted by Capital Link last week. Randy Giveans, maritime shipping group head and equity analyst for American investment banking company Jefferies, kicked off by describing the market as “tight”, with capesize vessels rates moving from “$10,000 a day to $30,000 a day then back to $10,000 per day just over the last six months”. Mr Giveans also commented that the market is much stronger today than it was 12 months ago. One-year timecharter rates are 60% to 70% higher compared with January 2017 levels, with three-year rates up 40% to 50% since this time last year.

A spate of improvements

Hamish Norton, president of Star Bulk Carriers, put much of the rising demand for capesizes down to strong global demand for iron ore since August. “Despite Chinese steel production cuts during the third quarter, global steel profit margins reached record highs during the fourth quarter and so steel production elsewhere was strong,” he said. “But we’ve also seen strong growth this year for coal, grains, minor bulks, and with this strength in demand, we’ve seen port congestion that causes trading inefficiencies and is essentially equivalent to having fewer ships available to carry cargoes.”

While he conceded that freight rates had dropped recently, they were rebounding at the time of the webinar. He blamed the seasonally-low first quarter period for iron ore shipments due to weather disruptions in north Australia for the fall. Plus, he said, higher-than-average newbuilding deliveries always occur in the first two months of the year, because if an owner orders a newbuilding and it is scheduled for delivery in November or December, they generally prefer it to be stamped with the later-year stamp, hence delay delivery to January or February.

Robert Bugbee, president of Scorpio Bulkers, agreed with Mr Norton’s points and stressed that the keyword is ‘seasonal’.

“It’s like: why is there less ice cream sold in Central Park in January than there is in July?” he said. “It kind of just happens all the time. But the rate structure itself is very strong. All the companies – doesn’t matter what size range – have had excellent starts to their first quarters. And remember that the stuff that they were booking back in December actually shows up in the first quarter, so there’s every chance that first-quarter numbers and guidance from all of these dry bulk companies are going to be very, very good on a year-on-year comparison basis which is how we should really look at this market.”

Mr Bugbee said that the market will generally pause a little into Chinese New Year, but moving into March, he gave the example of how on the day on which he was speaking, his company had extended a short-term charter on a kamsarmax vessel at $15,000 a day for a three-to-four-month charter starting in March.

“That is way up on today’s rate, way up on last year’s rate, way up on the first quarter,” he said. “So this market may have technically gone up and down, stocks may have gone up and down and are clearly not reflecting the growth in the market, but on the physical side, it’s really going great. And it’s going great because demand across all commodities – it’s not just iron ore and coal – everything that there is in the world is going so much higher, and the supply growth that’s coming into the market is slowing, slowed dramatically and will continue to slow for this year.”

Looking ahead

Also on the panel, Stamatis Tsantanis, chairman and chief executive of Seanergy Maritime Holdings, said, following a round of meetings with the world’s largest miners and commodity traders, that the outlook through to 2020 is anticipated to be extremely robust.

“Demand from China for iron ore and coal as well appears to be very, very strong, and … supply … is going to be much more joined-up,” he comments.

Mr Bugbee added that his company was “getting verification” across many data points that the global economy is really recovering and economists are revising their numbers upwards as a result. “And that directly benefits the dry cargo market, carrying those soft commodities, building materials, and making stuff that the world “either needs or wants to eat”. ”That demand is pretty elastic,” he said, “and it’s moving nicely-upwards in its elasticity. The supply-side is now pretty inelastic.

“This is definitely a market where the tide will raise all ships in the dry cargo market, from the handies all the way through to the big capesizes. I think that any of the [dry bulk carrier operator] stocks are pretty-much great buys here.”

To find out more about the webinar, visit http://webinars.capitallink.com/2018/drybulk/.