The Baltic Dry Index, a measure of global freight rates for commodities, fell on Friday to within 0.9% of the all- time low in July and August of 1986. China’s seaborne coal imports slid 10% in 2014, reversing growth of 16% the year before, according to Clarkson Plc, the world’s largest shipbroker. The Chinese economy, which buys almost half the world’s coal and ore cargoes, will grow at the slowest pace in 25 years, economists’ forecasts compiled by Bloomberg show.
Falling freight rates that have curbed earnings at operators from Nippon Yusen Kaisha to Star Bulk Carriers Corp. are damping new ship orders, as vessels ordered in 2013 on bullish forecasts hit the market. Contracts to hedge second- quarter rates, an indication of where traders are betting prices will go, are trading at levels 34% lower than six months ago, according to data from the Baltic Exchange in London.
“It doesn’t seem like there’s any relief in the near- term,” Omar Nokta, an analyst at Clarkson Capital Markets LLC in New York, a unit of the world’s largest shipbroker, said by phone Thursday. There’s “very little spot activity, especially for the biggest ships.”
Owners increased orders for dry bulk carriers threefold in 2013 on the expectation of coal imports that didn’t materialize, according to Jeffrey Landsberg, managing director of Commodore Research, a New York-based adviser to ship owners. Those vessels are now competing for cargoes and they are swamping demand, he estimates. A total of 947 were ordered in 2013, compared with just 267 in 2012.
China’s coal imports fell by 39 million tons last year, Chinese customs data show, enough to fill 263 Capesize vessels, the largest dry bulk ships to carry the commodity. The country now allows the largest ore-carriers, known as Valemaxes, to call at its ports, Vale SA, the world’s biggest iron ore producer, said Jan. 29.
The shift from coal is in part because China is finding other ways of generating power. China brought online 22 gigawatts of hydroelectric capacity in 2014, enough to replace about 44 million tons of coal, data compiled by Bloomberg show. One gigawatt translates into about 2 million tons of coal a year, according to a formula from Bloomberg Intelligence.
The slump in coal cargoes to China hasn’t helped dry bulk ship operators including Nippon Yusen Kaisha, the largest publicly listed operator of the vessels.
Rates for about 20% of Nippon Yusen’s dry-bulk fleet are being “severely affected” by the slump, Izuru Ehara, a manager of the Capesize fleet at Nippon Yusen, said by e-mail on Feb. 3. NYK’s net income increased 0.3% to 28.5 billion yen ($242 million) in the nine-month period ending Dec. 31 as revenue rose 8%.
The company has long-term bookings for 80% of its fleet, meaning they’re unaffected by the slump, Ehara said. Demand for iron ore cargoes may strengthen from about 2017 because that will mark an increase in shipments of the raw material from Brazil and Australia, he said.
Mitsui O.S.K. Lines Ltd., Japan’s second-biggest publicly traded ship owner, isn’t anticipating an immediate rebound in dry-bulk freight costs, spokesman Takafumi Shiina said by e-mail Feb. 3. The company has other vessel types, including tankers, and rates for those remain high. Charters for moving Middle East oil to Asia are the highest for the time of year since 2010, according to Baltic Exchange data.
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