Written by Jose Barrock Wednesday, 21 September 2011 11:14
KUALA LUMPUR: The recent rally in the Baltic Dry Index (BDI) could be short-lived as orders from Japan and China, and shipping disputes give way to a gloomy demand/supply picture.
Last Friday, the BDI, which tracks the cost of carriage of dry bulk goods such as iron ore, grain and coal, across sea routes, plunged 93 points or 4.88% to 1,814.
The charter rates for Capesize ships, so named as they can’t pass through both the Suez and Panama canals, fell 12% to about US$24,739 (RM77,680) a day, the steepest fall in eight months.
The BDI fell by another 50 points or 2.8% on Monday to 1,764.
This is a reversal to the 40% plus gain since early August, which drove the index to its highest level since December 2010.
Gains on the index were brought about by a rise in Japanese demand for coal and iron ore in the wake of the tsunami earlier this year that ravaged many parts of Japan. The country is rebuilding infrastructure and requires a replacement for the energy shortfall caused by the shutdown of the Fukushima nuclear power plant.
Other than orders from Japan that stirred the benchmark index, China has also stoked demand for coal and iron ore to meet steel production needs, further nudging the index northwards.
Charter disputes between China Ocean Shipping Co Ltd (Cosco) and Hong Kong’s Jinhui Shipping, Greece’s DryShips and Navios, and Switzerland’s Bunge SA also helped the index gain momentum.
Many companies had reportedly shied away from chartering Cosco’s vessels for fear of the ships being seized, which also aided the index in gaining ground. Cosco, the world’s third largest owner of dry bulk commodity vessels, has had three ships seized in the US and Singapore in the past three months, according to a Bloomberg report.
Such charter disputes are rife when rates pick up as charterers attempt to hire ships for older, lower prices while owners try to lock in newer, higher rates.
Despite the recent good run for charter rates, most pundits expect the situation to “normalise” soon given the dry bulk market’s gloomy outlook, during which overcapacity prevails.
So far this year, 166 vessels have been delivered, and an additional 156 are likely to be commissioned in the last three months of 2011. This will increase the world’s dry bulk fleet by over 13%, or more than triple the 4% rise in commodity shipping requirements, details from Clarkson Research Services, a unit of shipbrokers Clarkson plc, indicated.
Many of the orders were made in May 2008, when the Baltic Dry Index reached a record high of 11,793 points. Unfortunately, by the end of the same year, the index had shed about 90% of its value.
Many of the ships ordered during 2008 are being delivered now.
On the local front, Malaysian Bulk Carriers Bhd (Maybulk), controlled by tycoon Robert Kuok Hock Nien, has managed to remain in the black. For the six months ended June, the company posted a net profit of RM74.55 million on revenue of RM154.57 million. The company’s earnings per share for the six months stood at 7.45 sen.
For the corresponding period a year ago, Maybulk chalked up a net profit of RM82.92 million on RM210.5 million in revenue.
“The group maintains a cautious outlook and sees a challenging second half,” Maybulk said.
Its share price ended unchanged at RM1.81 yesterday, trading at a 52-week low.
Another local dry bulk player, Hubline Bhd, posted a net profit of RM17.36 million on RM448.1 million in sales for its nine months ended June 2011. In its cash flow statement, the company stated that RM15.96 million was generated from the sale of property, plant and equipment.
“The general outlook for both the container shipping business and dry-bulk market is expected to be challenging in view of the uncertainty in the global economy,” Hubline said.
The stock closed unchanged at nine sen yesterday, just off a 52-week low of eight sen.
This article appeared in The Edge Financial Daily, September 21, 2011.
Showing posts with label Baltic Dry Index BDI. Show all posts
Showing posts with label Baltic Dry Index BDI. Show all posts
Wednesday, September 21, 2011
Tuesday, January 4, 2011
Baltic Dry Index plunges amid overcapacity and growth fears
Written by Chong Jin Hun Tuesday, 04 January 2011 12:22
KUALA LUMPUR: The Baltic Dry Index (BDI), a barometer of global shipping prices for dry-bulk cargoes including coal, iron ore, and grain, fell 41% to close at 1,773 points on its last trading day for the year on Christmas Eve compared with a high of 2,995 in September.
Analysts said dwindling demand for dry-bulk cargo such as iron ore and an oversupply of vessels have resulted in lower charges for transporting these items. This has lent credence to expectations that dry-bulk shipping companies’ profitability in the near future could be under threat as vessel capacity supply grows faster than the growth in dry-bulk cargo consumption.
“Supply of ships will increase this year and iron ore imports will be less,” an analyst from TA Securities Holdings Bhd told The Edge Financial Daily yesterday.
Among the notable regional dry-bulk shipping services providers are Malaysian-listed Malaysian Bulk Carriers Bhd, and Hong Kong-listed China Cosco Holdings Co Ltd and Pacific Basin Shipping Ltd.
The analyst said lower demand for iron ore, the raw material for steel production, comes at a time when rapidly growing China is tightening its monetary policy to combat inflation. This has led to expectations of lower demand for steel to spur the construction and real estate development sectors in the world’s second largest economy.
According to the analyst, more shipping capacity is expected as new vessels ordered in 2007 are due for delivery this year.
Credit Suisse, in a note dated Nov 23, said it had revised downwards its average BDI forecast for 2011 and 2012 from 2,500 points to 2,300 points after taking into account the demand-supply dynamics.
According to the research house, dry-bulk demand growth is expected to slow to 5.5% and 4.3% in 2011 and 2012 respectively, compared to an almost 9% expansion anticipated in 2010.
Meanwhile, vessel-supply expansion is expected to rise to 13.3% for last year, compared with about 10% a year earlier. For this year and 2012, capacity is expected to grow around 12% and 13%, respectively.
“Freight rates could trend significantly lower on accelerating deliveries,” said Credit Suisse which recommends investors “underweight” the Asian dry-bulk shipping sector. This is in anticipation of weaker profitability for the sector as shipping rates fall.
According to the research house, ship owners can ease the vessel-oversupply environment by cancelling their orders or scrapping existing ships.
But cancellations are deemed economically unviable due to high penalties imposed for terminating purchases, and as such, shipping companies tend to scrap depreciated old vessels that contribute to the excess supply in the market.
“With the BDI remaining significantly above operating cash costs since early 2009, owners have little incentive to cancel their vessel orders. Instead, delivery delays have been the most preferred means for owners facing financing difficulties,” Credit Suisse said.
On a broader scale, the BDI is also seen as a global economic growth indicator. This is because dry-bulk cargoes comprise essential inputs for the production of building materials as well as electricity generation, both of which are also deemed important indicators of world economic fortunes.
As such, a decline in the barometer could offer a glimpse of the world economic landscape in the months ahead.
The BDI had touched a high of 11,793 points on May 20, 2008, at a time when China was importing more commodities to fuel its economic growth while shipping capacity faced supply constraints.
On Dec 5 that year, the BDI plunged to a low of 663 when news of the US financial crisis rocked global markets.
Two years down the road, the external landscape suggests that global uncertainty is far from over.
As advanced countries are grappling with high jobless rates, tight credit and high levels of debt, the spotlight inevitably falls on emerging economies as the primary drivers of global growth.
Traditional major importing nations such as the US and Europe are now looking abroad to boost exports in anticipation that domestic demand may not be enough to sustain growth at home.
Meanwhile, capital flows from advanced economies into emerging Asian markets have also been a widely debated topic. This in anticipation that demand for regional assets such as stocks, bonds and real estate will fuel inflation.
Asian currencies, including the ringgit, have traded stronger versus a weaker US dollar while regional equity markets and real estate prices have risen as investors seek better returns in countries with higher interest rates and growth prospects.
This comes as investors weigh the effects of further quantitative easing in the US which, essentially, increases the supply of the US dollar and, hence, devalues the greenback.
As such, Asian central banks have been closely watched as policymakers in the region weigh the risks of slowing economic growth versus escalating inflation.
China, Australia and India have embarked on pre-emptive monetary tightening in anticipation of rising consumer prices.
Against the current macro backdrop, it is worth watching how global shipping firms navigate rougher waters in the year ahead.
While an overcapacity of ships is the primary reason for the plunge in the BDI, investors will also see if it is an ominous sign of another economic slowdown ahead.
KUALA LUMPUR: The Baltic Dry Index (BDI), a barometer of global shipping prices for dry-bulk cargoes including coal, iron ore, and grain, fell 41% to close at 1,773 points on its last trading day for the year on Christmas Eve compared with a high of 2,995 in September.
Analysts said dwindling demand for dry-bulk cargo such as iron ore and an oversupply of vessels have resulted in lower charges for transporting these items. This has lent credence to expectations that dry-bulk shipping companies’ profitability in the near future could be under threat as vessel capacity supply grows faster than the growth in dry-bulk cargo consumption.
“Supply of ships will increase this year and iron ore imports will be less,” an analyst from TA Securities Holdings Bhd told The Edge Financial Daily yesterday.
Among the notable regional dry-bulk shipping services providers are Malaysian-listed Malaysian Bulk Carriers Bhd, and Hong Kong-listed China Cosco Holdings Co Ltd and Pacific Basin Shipping Ltd.
The analyst said lower demand for iron ore, the raw material for steel production, comes at a time when rapidly growing China is tightening its monetary policy to combat inflation. This has led to expectations of lower demand for steel to spur the construction and real estate development sectors in the world’s second largest economy.
According to the analyst, more shipping capacity is expected as new vessels ordered in 2007 are due for delivery this year.
Credit Suisse, in a note dated Nov 23, said it had revised downwards its average BDI forecast for 2011 and 2012 from 2,500 points to 2,300 points after taking into account the demand-supply dynamics.
According to the research house, dry-bulk demand growth is expected to slow to 5.5% and 4.3% in 2011 and 2012 respectively, compared to an almost 9% expansion anticipated in 2010.
Meanwhile, vessel-supply expansion is expected to rise to 13.3% for last year, compared with about 10% a year earlier. For this year and 2012, capacity is expected to grow around 12% and 13%, respectively.
“Freight rates could trend significantly lower on accelerating deliveries,” said Credit Suisse which recommends investors “underweight” the Asian dry-bulk shipping sector. This is in anticipation of weaker profitability for the sector as shipping rates fall.
According to the research house, ship owners can ease the vessel-oversupply environment by cancelling their orders or scrapping existing ships.
But cancellations are deemed economically unviable due to high penalties imposed for terminating purchases, and as such, shipping companies tend to scrap depreciated old vessels that contribute to the excess supply in the market.
“With the BDI remaining significantly above operating cash costs since early 2009, owners have little incentive to cancel their vessel orders. Instead, delivery delays have been the most preferred means for owners facing financing difficulties,” Credit Suisse said.
On a broader scale, the BDI is also seen as a global economic growth indicator. This is because dry-bulk cargoes comprise essential inputs for the production of building materials as well as electricity generation, both of which are also deemed important indicators of world economic fortunes.
As such, a decline in the barometer could offer a glimpse of the world economic landscape in the months ahead.
The BDI had touched a high of 11,793 points on May 20, 2008, at a time when China was importing more commodities to fuel its economic growth while shipping capacity faced supply constraints.
On Dec 5 that year, the BDI plunged to a low of 663 when news of the US financial crisis rocked global markets.
Two years down the road, the external landscape suggests that global uncertainty is far from over.
As advanced countries are grappling with high jobless rates, tight credit and high levels of debt, the spotlight inevitably falls on emerging economies as the primary drivers of global growth.
Traditional major importing nations such as the US and Europe are now looking abroad to boost exports in anticipation that domestic demand may not be enough to sustain growth at home.
Meanwhile, capital flows from advanced economies into emerging Asian markets have also been a widely debated topic. This in anticipation that demand for regional assets such as stocks, bonds and real estate will fuel inflation.
Asian currencies, including the ringgit, have traded stronger versus a weaker US dollar while regional equity markets and real estate prices have risen as investors seek better returns in countries with higher interest rates and growth prospects.
This comes as investors weigh the effects of further quantitative easing in the US which, essentially, increases the supply of the US dollar and, hence, devalues the greenback.
As such, Asian central banks have been closely watched as policymakers in the region weigh the risks of slowing economic growth versus escalating inflation.
China, Australia and India have embarked on pre-emptive monetary tightening in anticipation of rising consumer prices.
Against the current macro backdrop, it is worth watching how global shipping firms navigate rougher waters in the year ahead.
While an overcapacity of ships is the primary reason for the plunge in the BDI, investors will also see if it is an ominous sign of another economic slowdown ahead.
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