Dry Bulk Market: Up to 7% of shipping fleet could be scrapped by end of 2016, but only if rates start falling again

May 16, 2016

Up to 7% of the existing dry bulk fleet could be scrapped by the end of 2016, if the current pace of demolitions is retained. That’s according to ship owner Norden. The company noted though that “with the current increasing spot rates, it is likely, however, that scrapping activities will ease off, and it is expected that scrapping for 2016 will end at about 5% of the fleet. World net fleet growth in 2016 is therefore still expected to be 1-3%”.

Norden said that “the historically poor conditions from 2015 continued into the first quarter of 2016. The dry cargo rates fell to an all-time low in February due to the usual seasonal slowdown in both iron ore and grain volumes as well as disappointing developments in the Chinese and Indian coal imports. Towards the end of the quarter, rates improved slightly as the South American grain season started and iron ore and coal volumes recovered. In February, China reported the lowest coal import volumes since the beginning of 2011. Volumes recovered significantly in March, however, reaching a total of almost 20 million tons – a level not seen since July 2015. The improvement in March was mainly driven by an increase in power generation as well as higher consumption of coal for steel production. Meanwhile, India, which is among the biggest coal importers, continued its negative developments compared to last year. Record high stockpiles combined with high domestic coal production have lowered the demand for coal imports. Poor finances at the importing coal fired power plants also contributes to limiting imports”.

According to the shipowner, “the Chinese iron ore imports have had a relatively strong start to the year due to the slowdown in the domestic extraction and higher restocking of inventories at the ports. The positive development resulted in an increase of 6.5 % over the first three months compared to same period last year. Steel production was surprisingly strong in March and reached the second highest levels recorded. This was on the back of government led infrastructure projects as well as slight improvements in the property market.

The increase in the Chinese iron ore imports continued to benefit Brazilian exports. The Brazilian exports increased by 7.5% in the first quarter compared to the first quarter last year. Likewise, Brazilian soybean exports has had a strong start to what looks like a record-breaking grain season in South America. Although China’s imports of bauxite from Malaysia have decreased due to temporary mining restrictions, total bauxite imports have risen by 35% compared to Q1 2015”.

In its market outlook, Norden said that “while Q1 has been historically bad, there are signs of improvement in the coming quarters as construction activity and steel production in China are showing positive signs. However, while rates are expected to be higher than during Q1, the sizeable overcapacity in the dry cargo market will likely persist throughout 2016”, it concluded.

Source from : Nikos Roussanoglou, Hellenic Shipping News Worldwide