Freight market fails to recover

With demand failing to improve enough to contain the colossal increases in supply, the dry bulk freight market stayed near the dreadfully low levels witnessed last month. The Baltic Dry Index edged up by nine points to an average 1,352 from 1,343 in April.
Only the Panamax segment recorded increases in rates, while Capesize and sub-Panamax segments witnessed further declines in rates. However, the decline in bunker prices, albeit a small one, gave owners some relief as decline in voyage cost provided a support to the earnings.
Even as the freight market failed to bring any cheer in the owners’ camp, newordering activity remained high (albeit lower from last month) as owners relentlessly tried to capitalise on falling asset prices. A total of 74 bulkers were contracted in May, as compared to 72 in April. In dwt terms, however, a total of 5.8 million dwt of orders were placed in May, compared with 6.5 million dwt in April. With the Capesize turning out to be the least profitable segment, the pace of neworders for Capesizes slowed, resulting in the overall reduction in total tonnage ordered over the month.
Despite the freight markets giving unpromising returns, owners remained undaunted and continued to acquire prompt tonnage. Secondhand sales during the month stayed at April level of 2.2 million dwt. In the demolition market, a situation where the market is ailing from a glut of ships, increases in demolitions might take the market closer to the equilibrium. A total of 2.4 million dwt of tonnage was sold for demolition – a level last seen in January 2009. An increase in demolition prices provided further push to owners who were contemplating demolishing their tonnage. Demolition prices increased on an average by 5-6%.
Our view

Although demand is improving with China increasing its coal imports amid higher domestic prices and grain trade generating longer tonne-miles with South American countries continuing to bridge the gap before the return of Russia and Ukraine in the grain market, the supply side anomalies pose grave danger to the recovery in the dry bulk freight market.
Source: Drewry