With the dry bulk market sentiment rising, ship owners have placed more and more newbuilding orders, threatening to throw the current favorable market fundamentsl off course. However, a combination of enough demolition candidates and robust demand growth, despite the ongoing trade tensions, are keeping the current momentum in shipping’s favor. Still, things could be even better market-wise, if less ordering has occurred.

In its latest weekly report, shipbroker Allied Shipbroking said that “in economics one of the most fundamental principles for any market relates to the rule of supply and demand and nowhere is this more prominent then in a market such as shipping. As such and given that we are entering a crucial quarter for the year, it would be interesting to measure the prevailing balance noted in the dry bulk sector. The dry bulk fleet currently stands at 10,164 vessels, having grown by around 1.7% since the start of the year, while the total increase in the last 3 years has reached a level of around 6%

Allied says that “this means that currently there are approximately 580 more vessels in the sea than what we were seeing in the final quarter of 2015, a period where the BDI was in its most troubled state. Despite the fall that was noted after the slump of 2016 in the dry bulk market, the current orderbook still stands at 602 vessels, or at 5.92% of the current trading fleet. The equivalent ratio during the same period of 2016 was 5.05%, while in 2017 it was 5.62%. The enthusiasm that has been built up in the market over the past few months has significantly driven ship-owners to place ever more new contracts in the market”.

According to Allied’s Research Analyst, Yiannis Vamvakas, “in the year to date, there have been 175 new contacts placed, 72 vessels more than what was seen during the same time period back in 2017. On the other hand, the number of potential demolition candidates is still a source of optimism, given that there are 888 vessels that are over 20 years old, equal to 8.7% of the total fleet. Adding to this, the potential pressure being placed by the 2020 regulation deadline for the new global sulphur limits, and in theory we could see an ever-larger proportion of these older units be taken out of active service sooner than what we would see under normal market conditions”.

“With these supply figures in mind, it is up to demand to properly match these figures to such a level where a net balance can be created in the favour of ship owners. According to the global trade figures noted thus far we have seen a fair increase noted, though the question is if this growth can be sustained to such a level so as to over shoot the global carrying supply. Industrial production, according to the World Bank, is expected to stand at 4.3% in 2018, following on from another favourable growth figure noted in 2017 (4.6%). With the current trade barriers imposed by the US and the new environmental regulations placed in China, key markets for the dry bulk sector are under threat”, Vamvakas said.

He added that “nevertheless, demand for iron ore, coal and other bulk minerals has been on the rise in 2018, following on from the positive momentum seen back in 2017. Meanwhile, Australia’s iron ore exports are expected to climb to 869 million tonnes in 2019/2020, while recent news have come to light that Brazilian mining giant, Vale, is planning to expand its iron ore mining capacity in order to respond to the increasing buying appetite seen from China. As for agricultural products, it looks as though the trade tensions between the US and China, have only resulted in an overall increase in the average haul noted during the summer months as the Brazil to China trade got significantly enhanced”.

According to Allied’s analyst, “all in all, as we can see demand growth in 2018 has been robust despite all the political developments that have unfolded. Even when taking under consideration a fair slowdown in trade momentum that may unfold, it looks as though we are still set for a net positive effect to result in the overall balance in the near term even if this net effect falls short of the overall market expectations that were being expressed during the same time frame last year”, Vamvakas concluded.

Source: Hellenic Shipping News.