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Dry Bulk Market Looks Up: J. Lauritzen

Lauritzen Bulkers. Photo:  J. Lauritzen

By Aiswarya Lakshmi

Both the dry bulk market and the market for small gas carriers are anticipated to benefit from the expected rise in economic activity in 2018, more so as supply growth will be rather limited in both segments, says J. Lauritzen, the Danish shipping company with worldwide operations.

For dry bulk though, slow steaming and congestion are at levels where capacity releases could dent the rise.
After strong rises in dry bulk rates in 2017, the outlook for 2018 is for continuation of this trend, but at a lower rate of change. Tonnage prices are forecast to continue increasing.
The market for gas carriers is in general expected to be weak for most segments due to sustained demand-supply imbalances. Small gas carriers, having the smallest order book yet to be delivered, are poised for a slow recovery in 2018, assuming there is no further loss of market share to midsize gas carriers. For larger gas carriers, the road to recovery is forecast tobe somewhat longer.
"Based on the above, we expect 2018 to be another challenging year for our businesses on our way back to profitability. Financially, we expect the result for 2018 will be better than in 2017, however not satisfactory," it said.
Depreciation is expected to be at a level similar to 2017, whereas special items and net financial expenses are expected to be down on 2017.
Currency and interest rate fluctuations as well as effects from the sale of assets, if any, may impact the result.
The result for 2018 is subject to a considerable degree of uncertainty related to both our dry bulk and gas carrier activity and hence to the global economy and global trade in general.
The global ship yard capacity continues to threaten to make an upturn relatively muted in terms of duration and rate levels.
Improved market conditions require net fleet reduction through a combination of increased scrapping of fairly modern tonnage in many markets - in dry bulk in particular - and owners and investors refraining from ordering despite attractive newbuilding price levels.
Thus, restoring market equilibrium in the dry bulk market is bound to take time, but provided limited ordering is maintained in the next couple of years, a more sustainable recovery in dry bulk markets looks attainable in the medium term.
The market for smaller gas carriers is currently overtonnaged, in part due to increased competition from midsize gas carriers.
The semi-refrigerated and fully pressurised gas carrier subsegments up to 5,000 cbm are close to market balance, whereas the 5-23,000 cbm gas carrier segment is oversupplied.
However, ordering has developed very slowly during the last couple of years and early 2018 the order book stands at 6% of the fleet on water.
Thus, a restoration of the market balance could be back in a couple of years time, based on demand growth in both LPG and petrochemical gasses on a positive trajectory
In 2017, demand growth for dry bulk carriers is on ton-mile basis estimated at 5.1%. Utilisation rate for handysize and supramax is estimated to have increased by almost 4 percentage points to 84%, according to Maritime Strategies International Ltd.
2017 turned out to be a very difficult year for small gas carriers with some players coming under severe financial stress due to rising tonnage surplus.
In the small gas carrier segment, supply growth is estimated at 3.9% compared to 4.7% in 2016 according to ViaMar.
Demand for small gas carriers is assessed to have fallen by almost 3.7% due to midsize gas carriers cutting into handysize LPG liftings with cascading effects for small gas carriers.
Despite strong growth in seaborne transportation of petrochemical gasses, the sizeable decline in LPG liftings combined with supply growth led to a deterioration of the market balance.

Feb 23, 2018

 

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