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The Baltic Exchange
Daily Summary of Baltic Exchange Dry Indices
Baltic Exchange Dry Index TM 2696 (UP 1)
Baltic Exchange Capesize Index TM 4075 (DOWN 32)
Baltic Exchange Panamax Index TM 2745 (UP 40)
Baltic Exchange Supramax Index TM 1804 (UP 4)
Baltic Exchange Handysize Index TM 974 (UP 2)
Daily Summary of the Baltic Exchange Time Charter Routes
Rate($/Day) Change
BCI
Average of the T/C routes $40352 (DOWN 359)
BPI
Average of the T/C routes $22038 (UP 316)
BSI
Average of the T/C routes $18859 (UP 34)
BHSI
Average of the T/C routes $13781 (UP 32)
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Opportunity knocks in recession
The shipping industry, viewed over time, has been likened to a room with two doors, one of which admits new players, the other providing an exit for those leaving the industry. The room itself is growing, just as the world fleet grows with the expansion of world trade; only the participants change. The rate of change generally speeds up when this always cyclical industry is in recession. During such unpromising times, some shipowners will decide that their rewards from this activity are insufficient and will elect to sell their ships and do something else with their money. And it is inevitable that there will be owners who find that they are in financial distress, perhaps because their earnings from their ships – some of which may be laid up and thus inactive – are insufficient to meet their financial obligations. In such circumstances bankruptcy is a real possibility, with the ships taken over by the banks, and subsequently sold on.
Clearly, when there is a downturn in activity and demand for ships low, the values of ships slump, and anyone forced to sell at this time will see poor returns from the sale of their assets. And when ships are cheap, there is an opportunity for those with cash in the bank or good credit, to snap up these bargains. At such times it is not uncommon to see established owners modernising their fleets with these “distress sales”, while it is also an opportunity for newcomers to enter the industry at an affordable price.
It is a perfect illustration as to why timing is so very important in this hugely cyclical industry. All too often, when ship values are high and demand for shipping intense, owners may miscalculate the duration of the boom and order ships at the peak of the market, at top prices. But when values can more than halve in just a few months, owners can find themselves with expensive assets, freight rates slumped, and find themselves in difficulty.
This is as important with new ships as it is with those bought and sold in the second-hand market. Often an owner, who has ordered ships far in the future from a shipyard, finds that he is overtaken by events and has to cancel the newbuilding, or sell to the highest bidder. A shipbuilder who has “lost” a customer in such a fashion may find itself with partially built tonnage on its hands, and a perceptive owner with cash in the bank may seize the opportunity to obtain brand new ships at a very attractive price that is far cheaper than the price of the original newbuilding order. Shipyards, just like owners, can find themselves in distress, and opportunities will be presented to owners able to take advantage of them.
Source: BIMCO Seascapes
Hellenic Shipping News interviews Mr. Babis Simantonis, head of Silver Maritime
Confident that second hand dry bulk acquisitions will reignite after last week’s surge of the Baltic Dry Index Mr. Babis Simantonis, head of Silver Maritime, said in an interview with Hellenic Shipping News, that the dry bulk market still has some room for an upswing. But he also warns that this rise could prove to be short-lived, at least until the vast numbers of new buildings start hitting the water with increased pace. Mr. Simantonis is also the Cashier of the Union of Shipowners of Short Sea Shipping (Former Mediterranean Cargo Vessels Shipowners’ Union). The Union is eager to meet with the new Minister of Economy, Competitiveness and Shipping, in order to discuss the industry’s challenges. As for the recent transformation in public administration, with the abolition of an autonomous Ministry of Shipping, Mr. Simantonis appears cautiously optimistic about this change.
This past week we saw the abolition of the Ministry of Mercantile Marine, with most of it embedded under a mega-ministry of Economy, Competitiveness and Shipping, headed by Mrs. Louka Katseli. This brought mixed reactions among the shipping community. What’s your opinion?
Of course, this is a big issue. From a psychological point of view, it definitely isn’t something positive. We were used to having our own ministry, it was our true supporter. From the other hand though, the fact that shipping is now directly linked with the Ministry of Economy, could also be seen as an upgrade, provided that all jurisdictions are divided properly, so that the know-how of the old Ministry isn’t wasted. We shall wait and see. I wouldn’t want to believe that this change occurred to cut expenses.
As the Union of Shipowners of Short-Sea Shipping, we will seek a meeting with Mrs. Katseli, in order to inform her of our sector’s problems. The most important of them has to do with the renewing of the overaged fleet. This process must begin from providing incentives, or some form of subsidy in order to help us replace older carriers with new ones, under flags of the EU. This has been done with success in Italy, as well as other countries of the Mediterannean.
Almost from the beginning of July we’ve witnessed a downward trend in the dry bulk market’s freight rates. Lately, this trend has been reversed with the BDI climbing again. Where do you the index in the short term?
In my opinion, the freight market still has some room for some increase, at least until newbuildings deliveries pick up pace. From the beginning of the year, we’ve seen a rather balanced market, in terms of tonnage supply. What I mean by that is that for every newbuilding delivered, an older bulker usually left the market, being sold for demolition. But in my opinion, once ship owners witness a surge of new deliveries, they will move promptly to offload older vessels. Until today though, scrapping activity has remained relatively low. This is mainly because an older bulk carriers, i.e. built in 1987-88, even in today’s market covers its expenses and even brings out some small earnings. As a result, its owner is more reluctant to sell it for scrap.
For the market to return to healthy levels soon, a lot will have to do with the overall supply-demand balance. However, the threat of overcapacity is a major fear. Do you think that something should be done in order to provide incentives and maybe encourage owners to scrap their older vessels?
I think such an intervention is very difficult to occur. Let’s not forget that shipping is an international activity. I don’t believe that there could some kind of public intervention. After all, such an intervention is against the Union of Greek Shiponwers’ policy, which has always maintained that shipping is an international activity, governed by very specific rules of supply and demand and shouldn’t be a field of state intervention. If something like that was to occur, then things would be very different and the Union would lose its arguments, whenever it tried to raise certain issues.
Many analysts are raising the issue of new building cancellations. Is it crucial for the market to avoid much of the potential tonnage oversupply?
I can’t give you an estimate as to what percentage of the global orderbook will eventually be cancelled. What I can tell you is that both ship owners and banks must avoid as much as damage as possible. We’ve been seeing this portrayed vividly among the publicly-traded shipping companies. Most of them have managed to cancel newbuilding orders, clearly an indication that it’s preferable to avoid a “bad” deal, than go through with it. Besides that, with the freight market free-falling, we’ve witnessed renegotiations for almost 80%-90% of all time charter contracts. This meant that banks couldn’t use them as guarantee as well.
How has this recent surge of dry bulk rates affected the market for second hand vessels?
Despite the fact that until this week, the Baltic Dry Index was trading close to the 2,000-point area, values for second hand vessels hadn’t dropped in a similar move. Instead they had remained relatively higher. Still, these past few increases of the BDI, restored optimism among ship owners. As a result, inquiries for second hand bulk carriers took off and more deals were concluded these past few days. To me it is obvious that many Hellenic ship owners who sold their fleets during 2007-2008, when prices were still high, are now re-entering the shipping market, acquiring vessels. During March and April a lot of older ships built between 1981-1986 were bought internationally. Today ships built in 1985-1986 are scarce, compared to their older counterparts (1983-1984). Most owners prefer these smaller handy ships because there are particularly low valued. This means that no financing is required. They can be acquired through own capital, something which doesn’t apply for their bigger “brothers” like for instance the Panamaxes. That’s why we are seeing a lot of movement in the sale & purchase market lately.
Are you actively looking for investment opportunities in the secondhand sale and purchase market for ships?
Yes, in my opinion there are plenty of opportunities. Recently Silver Maritime bought a 25,000 dwt bulk carrier, while we are actively scanning the market for a bigger handysize vessel. For the time being the preferred choice is to trade ships in the spot market and that’s what we’re now doing. Earlier, we had sold four smaller carriers with capacities between 7,000 – 8,000 tons. Luckily, this was done prior to the crisis, which impacted shipping, meaning that we managed to find strong pricing.
Do you think that prices for second hand ships will keep falling or has the market hit bottom?
I don’t believe that we shall see any more devaluation. I think values for second hand vessels have concluded their fall. To be honest, I thought there was still room for a further reduction in prices, but from spring of 2009 until today, ship prices have increased by 30% on average, which means that the downward cycle has been concluded.
Is financing a major hurdle for owners who want to capitalize on today’s lowered prices?
For those who have decided to acquire a ship, yes, loan financing remains a big hurdle. That’s because the majority of banks don’t seek to loan towards shipping, even at 50% of the cost of the vessels. But, I believe that well-organized shipping companies, with low exposure can secure financing. Of course, a major role in this has to do with each bank’s exposure to the market. Another problem is that the cost of financing remains rather high, with high margins.
Do you think that Hellenic banks will stand by their clients in today’s market environment?
I believe that this will depend on a client-per-client basis. Most banks would most likely avoid ship owners with substantial loan portfolios. But, from my experience, lately and in a very cautious approach, some Hellenic banks are returning into shipping, but in most cases it will take some more time.
Nikos Roussanoglou, Hellenic Shipping News Worldwide
Oil Price Over $70 per barrel Despite Weak Fundamentals
In every occasion, market analysts remind to everyone that basic fundamentals for crude oil market remain weak, the demand low and the prospect of economic recovery fragile. At the same time, oil prices proved “to hard to die” as is stabilized at levels around $68 per barrel, grapping with the first chance the psychological level of $70 per barrel. That happened, for one more time, yesterday, when oil prices rose for a third day in New York after an industry report showed a decline in fuel and crude stockpiles in the U.S., the biggest energy-consuming nation.Crude traded above $71 a barrel after the American Petroleum Institute said yesterday that distillate fuel inventories fell by 2.91 million barrels last week and crude supplies dropped by 254,000 barrels. The U.S. Energy Department will report government supply figures today.
According to analysts and traders the fall of US inventories characterised as “unexpected” giving the signal for the new price hike. They also assume that the price hike would be more impressive but concerns about the rate of recovery are inhibiting a break higher
U.S. crude oil inventories reported by the Energy Department probably rose last week as refineries performed seasonal maintenance, a Bloomberg News survey showed. Stockpiles increased 2 million barrels in the week ended Oct. 2 from 338.4 million the week before, according to the median of estimates from 14 analysts.
“Fundamentals are still weak,” BNP Paribas SA senior oil analyst Harry Tchilinguirian said in an interview with Bloomberg radio. “This year is going to end with a contraction in global demand. There have been positive supply surprises in places outside OPEC like Russia, and OPEC’s own compliance has slipped.”Another factor that supported yesterday’s price hike was EIA’s projection for demand in 2010. EIA announced an upward revision in its expectations for world oil consumption. The revision amounts to an increase of 200,000 barrels a day for the remainder of 2009 and for 2010, in large part because of improved expectations for Asian growth. "Sustained economic growth in China and signs of a turnaround in other Asian countries continue to fuel expectations of a global recovery in world oil consumption," the EIA said in its short-term energy outlook. The agency, however, didn't revise its projections for oil prices because ample supplies remain on the market. Even after the upward revisions, world oil demand for 2009 and 2010 is projected to be well below last year's level of 85.46 million barrels a day. For 2009, daily demand is pegged at 83.67 million barrels, rising to an estimated 84.77 million barrels for 2010.
Makis Theodoratos, Hellenic Shipping News Worldwide
Tough times boost Bangladesh shipbuilding
When Bangladeshi labourer Abdul Karim was laid off from his shipbuilding job in Singapore because of the global recession, he did not expect to find the same sort of work at home. But the 35-year-old, like similarly skilled shipbuilding labourers who have worked abroad, returned six months ago to find the industry booming and his expertise much in demand.
"My salary is about 40 percent lower than it was in Singapore, but overall I'm better off in Bangladesh and I get to stay close to my family," said Karim, who now earns around 300 dollars each month.
Bangladesh is better known for shipbreaking -- dismantling of old vessels -- but now, just a few kilometres (miles) north of the shipbreaking yards, men like Karim are creating new ocean-going ships.
And experts say it is a safer, less environmentally damaging industry that can create hundreds of thousands of jobs.
"Bangladesh's garment industry became big because it was cheaper here to make clothes than anywhere else in the world," said Sakhawat Hossain, chief executive of Western Marine, one of the main shipbuilders.
"The same thing is now happening with shipbuilding. European buyers are flocking here. If more building yards emerge, we can take orders worth a billion dollars a year by 2015."
Hossain said Bangladesh had become a natural destination for shipbuilding because costs in other countries had become too high.
His firm once built cargo boats and ferries for inland and coastal waters but it graduated into ocean-going shipbuilding three years ago and has enough orders until 2012 from Denmark, Germany and Norway.
He estimates that one in four of his 1,600 employees has recently returned from shipbuilding yards abroad, most after losing jobs through cuts due to contract defaults and delayed orders amid the recession.
He wants to hire another 2,500 welders, fitters and foremen in the next few months.
"The layoffs in other countries are a gain for us," Hossain said. "It's win-win, we benefit from their knowledge abroad and they get a decent salary at home."
Western Marine, along with the other main Bangladeshi firm Ananda Shipbuilders, have in the past two years signed deals to build 50 ships worth 600 million dollars.
All are on the small side of the business, but that is where Bangladesh has an advantage, according to Hossain.
"Top global shipbuilders are not interested in making smaller vessels that weigh less than 20,000 dead weight tonnage because of high labour cost and shrinking profit."
If this trend continues, Bangladesh, with its experience of building vessels to traverse the delta nation, could emerge as a shipbuilding hub.
"Shipbuilding is in our blood. Our workers have been building boats for centuries and now tens of thousands of them work in shipyards across Asia," said Khabirul Haque Chowdhury, a naval architecture professor at Bangladesh University of Engineering and Training.
He said that unlike the controversial shipbreaking industry, shipbuilding is environmentally safe, and could help the poor nation of 144 million people become a middle income country.
"Building ships is like building a city. When it grows, dozens of other industrial sectors such as painting, furniture, steel and electrical equipment also grow," he said.
The programme coordinator of the Danish Embassy's business-to-business programme, Morten Lynge, said European companies that placed the first orders in 2007 took a huge gamble, but it appeared to have paid off and the industry was showing big potential for the future.
"We have estimated that some 55 percent of the world's small ships are aged over 20 years, meaning they need to be replaced within the next few years. I think Bangladesh will be the largest beneficiary," said Lynge, who is hosting 23 Danish vessel makers in Bangladesh next month to explore joint ventures.
Although Bangladesh has so far been largely immune to the effects of the global economic crisis, the shipbuilding business has felt a small slowdown with a German firm cancelling orders for four ships worth 42 million dollars.
"We can win back the orders once the global economy turns around," said Ananda Shipbuilders owner Abdullahel Bari.
"Western companies will definitely come here. Bangladesh will be a major shipbuilder," he said, but he warned the government needed to invest in gas and electricity for the potential to be realised.
Subhash Moydey, an engineer who has recently returned to Bangladesh after 30 years working at yards across the globe, is optimistic.
"When I started in Singapore it was a small business. Until the economic crisis it was booming," the 55-year-old said.
"I predict the same story for my country. We have the workers to power the boom. I can already see it beginning to happen."
Source: AFP
POSCO stays world's No. 4 steel producer in 2008
POSCO, South Korea's leading steelmaker, remained the world's fourth-largest steel maker in 2008 for the second consecutive year, according to a global industry association. POSCO produced 34.7 million tons of crude steel last year, according to the World Steel Association.
ArcelorMittal of Luxembourg was the world's biggest steel producer with output of 103.3 million tons, followed by Japan's Nippon Steel Corp. with 37.5 million tons and Baosteel Group of China with 35.4 million tons, it said.
Four Chinese steel producers were ranked among the world's top 10 on the back of China's drive to boost its steelmaking industry, according to the association.
Hebei Steel Group ranked the world's No. 5 steelmaker with output of 33.3 million tons, and Wuhan Steel Group and Jiangsu Shagang Group took the seventh and the ninth places, respectively, it said.
Source: Asia Pulse