There is an unfathomable optimism in the dry bulk sector. Maybe the unexplained buoyancy is because of remarkably low orderbook or China’s unexpected economic performance through the first half – whatever the reason 2017 is looking better than expected.
As the summer calendar inches towards August, the BDI (Baltic Dry Index) again has like the wash from a splash, lapped over the 900 mark (at this writing 912 to be exact) and there is a curious optimism surrounding the dry bulk sector (see Matt Miller story on page 4). It’s a little hard to explain but real nonetheless.
The year-to-date tally is down just over 5% but it is considerably better than 2016 which show lows of under BDI 300. Still back in 2014 – a date that seems long ago – the BDI cracked 2,000 on two runs and over 1500 for much of the year.
Some of the reason for the optimism is the dry bulk carrier orderbook, or more probably lack of one. At the end of April, the dry bulk carrier orderbook was around 8.5% of the existing fleet (with delays in deliveries expected to push out orders even farther) – easily the lowest in modern history. Some reports suggest that construction hasn’t even started on 25% of the ship orders scheduled for delivery in the 2nd quarter of 2017.
At the same time vessel utilization, has been largely between 80%-85% since 2015. To put this in perspective, at the height in 2013/2014 vessel utilization was around 90% while in the boom years of 2004 to the 2009 recession, vessel utilization was around 95% for the entire period. Correspondingly, on May 20th 2008 the BDI hit an all-time high of 11,793, only to see it lost by December 5th when it bottomed out at 665.
So why would the market react favorably to finishing above 900, which is akin to applauding a 12-minute mile at a world-class track meet?...
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