Baltic Dry Index Down in the Dumps

The Baltic Dry Index has fell below 300 points, plunging to a new low of 298 points on Thursday, February 4.

The Cape Index was down by one point at 208, followed by Supramax index at 271 after a dip of 9 points. Only the Panamax index had a slight improvement with 5 points up settling at 289 points.

Capesize rates fell below USD 2000 per day in January 2016 and with the current OPEX for a standard capsize sitting at around USD 6000pd, the majority of vessels are operating at a loss, according to VesselsValue.

“Industry sources suggest that rates could sit somewhere between USD 6000pd and USD 8000pd for the remainder of 2016 but this is hardly a worthwhile improvement. Suggested period for recovery receives mixed estimates ranging from 12 months to five years with the majority suggesting 18-24 months,” VesselsValue’s Valuation Analyst William Bennett said.

The latest developments have seen bulker value drop with some capes losing up to 60% of their value over the last 12 months. However, despite further expected downturns in value circa 10-15% according to broker sources, 2016 will be a good year for dry bulk acquisition; particularly cheap, high-risk capes.

Owners’ survival in the oversupplied market will be decided by their cost efficiency strategies, the age of their fleets and the depth of their wallets.

To Lay Up or Scrap?

The owners are now split between laying up their vessels and scrapping. It is estimated that cold layup will cost around USD 1500pd for a standard Capesize. If rates sit below USD 4500pd then this is the cheaper option. Rates are indeed currently below USD 4500 which is why cold layups over the coming months will doubtless become more commonplace, Bennett claims.

For younger vessels out of charter, layup will be the lesser of two evils, the greater being demolition. In 2015 Capesize scrapping almost tripled on levels seen in 2014. A total of 15.1m DWT was sent for demolition. The average age of vessels being scrapped has fallen by around 25% – in 2015 it stood at 20.9 years compared to 2010 where the average vessel was 27.7 years old.

Much attention has recently been given to 15 year old ships, becoming a new ‘pivot’ age for demolition. No capes younger than 15 years have been scrapped to date, however three 15 years old capes were scrapped in 2015. There are approximately 140 Capesize vessels still live that are older than 20 years, while 257 are 15 years old or more.

“With some owners’ dwindling cash reserves and a glut of tonnage supply, younger scrapping may become the only option. Scrapping, however, is going to be market driven as well as owner specific,” Bennett concludes.