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What a year!

About one year ago, writing this column, we were expecting “doom and gloom" for the dry bulk market and we were not very optimistic for the tanker market either. Looking back, we see that we were far too pessimistic for bulk carriers and too optimistic for tankers. Having said this, the 2009 BDI average is below the 2003 average, and the 2009 BDTI and BCTI averages are the lowest on record.


One year ago we wrote that the depressed situation in the bulk carrier market would remain depressed throughout 2009 as deliveries would outpace demand growth (or rather demand contraction), and there was no room for freight increases. Looking back we observe that deliveries fell massively short of expectations and we didn’t see (as in 2003) the substantial increases in Chinese imports of predominantly iron ore but also coal. Still, we estimate that the fleet expanded close to 8.0% this year and Chinese imports of raw materials have barely compensated for losses in imports to Europe, Japan, South Korea, and Taiwan. Demand in 2009 performed better than originally expected. However, we believe it is operational matters that have carried the market through this year: Slow-steaming at the beginning of the year combined with hot lay-up and congestion in the last three quarters. We have periodically observed that as much as 14% of the Capesize fleet has been waiting off Chinese and Australian ports. In the latter part of the year the Panamax queues off Australian ports have grown longer on almost a daily basis.

 

What about 2010? Can China yet again rescue demand for bulk carriers? Will congestion persist? How much of the registered order book will actually be delivered on time? If one answers “yes" to the two first questions and  60% of next year’s scheduled deliveries vanishes into thin air, well, we could see a decent 2010 in line with what we saw in 2009 and 2003. We don’t want to be  “party-poopers", but we find it extremely hard to be optimistic about 2010.

 

Tankers fared worse than expected one year ago. At the end of 2008, the IEA still expected 0.5% (0.4 mbd) growth in global oil demand. One year later, the preliminary estimate indicates a decline of 1.6%, or 1.4 mbd. This represents a 2 mbd downwards revision and is unprecedented in the history of the IEA. Adding insult to injury, US long-haul imports (mostly from the MEG) were 0.7 mbd lower in the first 9m 2009 compared to the same period in 2008. This exceptionally negative change in demand took us by surprise as crude carrier fleet growth this year ended slightly higher than expected - about 7% net fleet growth.

 

2010 is going to be a very interesting year as this is the final year for SH tankers and current oil demand forecasts are much more positive than only a few months ago. However, we expect the better part of the year to be quite poor, but we think we may see the start of an upturn by year’s end.

 

The product carrier market has, possibly with the exception of the container market, been the worst seen for many years. This is partly due to strong fleet growth, but again US imports are to “blame" for the poor results. US total product imports were, at the end of November, down almost 12% on a year earlier and finished gasoline and jet fuel were down 32% and 25%, respectively. Such massive changes are seldom seen and are, in our view, the key reasons for the poor market. If one combines this with the situation in South Korea and Japan, the picture gets even worse. We are not very optimistic for product carriers in 2010. Net fleet growth will yet again become excessive and as for crude oil, we just have to wait for Uncle Sam. There will be support from China and India (due to new refinery capacity), but as long as product demand in the USA as well as in Europe remains in the doldrums,  we see little hope for a freight revival.

 

Finally, many pundits postulate that we are out of the financial crisis. This could very well be the case, but we think that a lot of owners with huge order book commitments will be facing tough times in 2010. Banks, though lending more than a year ago, require substantially higher equity ratios these days, and it is hard to finance newbuildings contracted at prices as much as 40% higher than going resale values. We believe there will be a very active sale & purchase market in 2010, but values will, in our view, slide for some time before stabilising.

 

Sverre B Svenning

 

31st of December 2009



04.01.2010 Printfriendly version

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