Sunday, July 26, 2009

Shipping rates facing short-term fluctuations

The current downtrend in shipping rates may be no more than short-term fluctuations, although excess capacity could weigh on the Baltic Dry Index (BDI) going forward, analysts said.

The BDI, a measure of shipping costs for commodities, slid 5.3% over a one-week period to 3,355 points on July 23. Year-to-date, the BDI reached its peak at 4,291 points on June 3 while its lowest level was 995 points on Jan 26.

CIMB Research analyst Raymond Yap told StarBiz that the recent downtrend in BDI was a short-term fluctuation largely influenced by iron ore demand and an over supply of ships.

“China, the largest iron ore importer, is overstocked. But, generally, the BDI is expected to be stronger in the next six months,” he said.

According to Lloyd’s List, the volume of iron ore imported into China has dropped in the last two months from a record high of 57 million tonnes in April, with volumes falling to 53.5 million tonnes in May but rising slightly to 55.3 million tonnes in June.

Kenanga Research said it was very hard to pinpoint the factors currently pushing the BDI down but the general view was that index was still very much caught in a downturn, with excess capacity a continuing concern.

“The dry bulk vessels orderbook is still too huge that cannot be absorbed by the current demand,” said analyst Liong Chee How, in reference to the high number of orders for dry bulk vessels.

“It is too large that even stable economic conditions two years ago would not have been able to support the current orderbook.”

“The consensus is that dry bulk fleet growth will continue to accelerate in the next two to three years when demand growth is likely to lag despite very high scrapping,” he added.

In a report on the dry bulk situation, Kenanga noted that “Drewry (shipping consultant) has painted a bleak dry bulk outlook, projecting average annual fleet growth of 8.7% for the next five years which will produce an excess capacity of 105 million dead weight tonnes (dwt) this year, 140 million dwt in 2010 and 200 million dwt in 2011 respectively.”

Even with a forecasted scrapping of 20-30 million dwt, or 5% to 7.5% of the global fleet, “the outcome is still a 6% to 8% net fleet growth for 2009 when demand is clearly on the fall,” the research house said in the report.

Source: StarBiz

No comments: