Eco-Conscious China Keeps Dry Bulk Market Down
The dry bulk shipping market is not expected to return to profitability until 2017, despite a modest recovery in earnings anticipated over the next two years, according to the latest edition of the Dry Bulk Forecaster, published by global shipping consultancy Drewry.
The dry bulk market has always been sensitive to demand fluctuations and seven years ago a demand-driven peak in the market made many owners cash-rich, helping them survive the weak market that has persisted since. While this market trough has been supply-driven, with the industry suffering several years of unprecedented oversupply, the more recent demand slow-down has added to market woes, demonstrated by the conversion of some dry bulk vessels to tankers in a desperate attempt by owners to return to profitability.
“Anaemic demand growth is here to stay, especially as the trade development in coal and iron ore into China is expected to decline further,” said Rahul Sharan, Drewry’s dry bulk shipping lead analyst.
Iron ore and coal form almost two-thirds of the global dry bulk market and China has been the largest influencer. One of the main concerns in China has been deteriorating air quality, hence the Chinese government shifting its focus from polluting, coal-fired power plants to renewables and cleaner sources of energy. This is casting a shadow over the thermal coal market which will have a detrimental effect on bulk shipping demand.
On the supply side, to date 2015 has seen a record number of demolitions. The average demolition age has fallen and if this trend continues, many more recently built vessels are likely to face a similar fate. Continued high demolition, conversions and low vessel deliveries will therefore keep a check on the overall fleet size.
“We do not expect any noticeable recovery in bulk shipping freight rates this year as the market remains severely over-tonnaged,” said Sharan.
“While we expect some improvement in earnings through 2016, this is unlikely to be sufficient for freight rates to reach breakeven. However, we anticipate that the sector will return to profitability by 2017, provided current rates of demolitions persist and ship owners refrain from placing new orders.”