Port stocks and politics to decide dry fortunes

Future earnings will likely be influenced by events beyond the control of shipowners, says MSI.

Volatile trade prospects and political policies are set to dominate earnings potential for the dry cargo market, says a new report from Maritime Strategies International (MSI).

As a result the UK-based research consultancy is forecast weak forward prospects for the dry bulk sector for the first quarter of 2017.

“January was a mixed month for the bulker market, though on the whole rates were not as bad as had been anticipated by MSI, despite a month-on-month fall for all but the capesize benchmark,” says MSI senior analyst Will Fray.

“Indeed this year has been the first time since 2009 that January’s average capesize spot rates were higher than the preceding December.”

However, Fray says capesize demand weakened into February and spot rates have tumbled to just $4,500 per day.

The impact of demand weakness was compounded by an uptick in supply: January heralded a seasonal new-year spike in vessel deliveries, with 16 vessels delivered more than double the number scrapped.

MSI said it expects ore trade to be weak until May, keeping downwards pressure on earnings despite a marginal fall in the fleet size as demolitions more than offset deliveries.

Worryingly for capesize owners, MSI forecasts that charter rates will remain below $8,000 per day for the whole of the first half of 2017.

In contrast, MSI says panamax spot rates have been relatively strong, and as of early February are higher than all other benchmarks thanks in part due to robust US coal trade and an increase in vessels ballasting from the Pacific.

“MSI’s short term forecast for panamax earnings is tied to a highly uncertain outlook for coal trade this year, which depends on two key factors: Chinese government policy on the one hand (particularly with regards to domestic production), and the performance of Coal India on the other.”

However, MSI says anecdotal evidence from traders suggest stronger US coal exports will continue for the next three months at least, and Fray says he is relatively more positive for panamax spot rates.

MSI is less positive for geared bulkers over the next six months partly related to an oversupply in the Atlantic and lacklustre Pacific demand, most notably for minor ores including nickel.

“The impact of weaker demand on rates will be exacerbated by stronger supply of ships following a strong month of deliveries in January at numbers in excess of this time last year,” says Fray.

“In January the Philippines government ordered the closure of half of the country’s nickel ore mines and although the impact will be minimal in the short term, the outcome of this process represents a downside risk to the MSI six-month view.

“Simultaneously, the Indonesian government announced that it may permit the export of nickel ore once again, reversing a three-year old ban, but the impact on trade is also highly uncertain and MSI assumes a marginal fall for annual nickel ore trade as a result.”