The fall of the dry bulk market to levels well below operating expenses has started to “sting” Capesize owners, who are increasingly looking for ways to minimize their losses. As such, shipbroker Intermodal said in its latest report, that more and more of the larger European ship owners of Capesizes are starting to “park” their ships, at least until rates pick back up.

According to the shipbroker’s report, “while we have seen various correctional signals for the wet sector (especially for the MR and VLCC segments), the dry market has had very few reasons to be hopeful. The BDI has been fairing at historical lows over the past few months and this had created a climate of widespread anxiety among dry bulk shipowners as there are limited hints of a recovery in the short-term”.

Mr. Linos Kogevinas, Marketing – Harbour Towage & Port Agency, Cotzias Intermodal Shipping Inc. said that “with current cape spot market rates being significantly below OPEX levels, it seems that the patience of many Cape owners has finally begun to run out. As a result, they are left with a few options on how to proceed. There are two value-maximizing (or rather loss-minimizing) options; one is of course scrapping the vessel, almost certainly at a loss compared to the initial capital investment. With the scrap market revolving predominantly around bulk carriers and container vessels during the past weeks, it seems that many owners have selected this option”.

He added that “on the other hand, some of the largest European Capesize players have selected the alternative route of parking their capes. A number of them have selected Kaohsiung, Taiwan as the ideal place to park their capes until rates pick up from the current depressing rates. Eastern Pacific has reportedly parked a number of their capes in anchorages (favoring the Kaohsiung anchorage). Navios is also reported to have alluded to following the same route even going as far as suggesting that cold layups are the next step in order to cut what costs they can. The effects of such decisions on the market are hard to predict unless they are followed by a bigger number of owners, therefore for now it is expected that there will be a minor and more importantly temporary (lasting only until they’re back in the market) support in the market”, Kogevinas noted.

However, as has been the case back in 2008-2009 when similar layups occurred, one has to wonder how sustainable will this strategy be? Kogevinas said that “while the larger owners (many of whom have diversified fleets, thus hedging their exposure to the dry market troubles) may be able to sustain themselves long enough to survive through the current market slump, smaller players and those primarily invested in the cape segments will most definitely have trouble surviving where the situation is to persist for long. With current conditions pushing more and more vessels out of the market, owners are awaiting Q2 in order to decide on their future moves. While short-term prospects are dire, the Indian coal market together with the Chinese steel import market, are possible candidates to partially help in the medium-long term recovery/ revival of the dry market sector”, he noted.

Concluding his argument, Cogevinas said that “as always, the amount of new orders that will be placed during the next quarters will play a determining role in the segment’s recovery, but given how quiet the newbuilding market for Capes has been since the summer of 2014, we believe that this should currently be the least of our worries”.

Meanwhile, in the demolition market this week, Intermodal said that “demo prices were unchanged last week, with a firm number of dry candidates continuing to find its way into the demo market, while despite this recent price stability, sentiment hardly improved. Let’s not forget that very recently, a similar short-lived stability period took place, only to be followed by a sudden drop in prices, which is what the current market fundamentals are also implying for the weeks ahead. The situation in the Indian market remains extremely fragile, with the pressure exerted both in local steel prices and the Indian Rupee increasing and weighing down on sentiment across the entire subcontinent, while cheap Chinese scrap steel is still trying to be absorbed pushing global steel prices further down. Prices this week for wet tonnage were at around 230-395 $/ldt and dry units received about 215-370 $/ldt.”