Dry bulk market – dull or rich with possibilities?

Market analyst Fred Doll of Doll Shipping Consultancy examines the possibilities in the dry bulk shipping market for short and long term trading positions:

The lacklustre market of 2011 has shown low vessel earnings versus 2010. Panamax and Handymax earnings have decreased, with Capesize earnings decreasing even more, resulting in lower earnings versus smaller vessels.

However, the apparently lacklustre market has some interesting possibilities. As we move into the summer of 2011, demand and supply interactions however some interesting choices to the market participant forming a market view.

Demand side choices

Looking at the components of the supply/demand balance, high commodity vessel demand scenarios are based on high steel production and electricity demand, with resulting high requirements for iron ore and coal. Grain, oilseed, and oilseed meal trades also remain at strong levels, based on high end user demand and good harvests in the Southern Hemisphere. Steel products and other minor bulk trades continue strong growth based on strong industrial production performance.

Low commodity vessel demand scenarios are based on dry bulk demand retrenchment during the summer of 2011. The Chinese government restrictions designed to reduce in ation and cool an overheating economy, along with electricity cutbacks, result in lower iron ore and coking coal demand. High iron ore and coal prices, and ongoing effects of the Japan earthquake, reduce demand elsewhere. Grain enters its seasonal low period.

2011 has been a year of healthy demand for dry bulk commodities, resulting in high prices for iron ore and coal, with prices further boosted by supply problems due to Australian flooding (coal) and Indian export restrictions (iron ore). The main iron ore suppliers in Australia and Brazil have provided material to the market with volumes and timing that has not undermined the high prices.

Steel production in China, India and South Korea is growing and is above pre-crisis levels. Elsewhere, world steel production is increasing, but still has not returned to precrisis levels. March 2011 total world steel production of 129 million tons (mt) is about 7% above the March 2010 level. The EU27 produced 16.2 million tons in March 2011, up 0.6 million tons versus March 2010, but still below the 17.5 mt per month averaged in 2007. Along with raw materials demand, steel products trades benefit from the higher levels of steel production.

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