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Earnings hit by glut of ships

Earnings hit by glut of ships
CAPESIZE owners face little respite from the gloom that has descended on the sector as brokers forecast a further slide in rates after the slump last week.

Owners" earnings hit by glut of ships and cargo drought.

Pacific spot rates hover just above $9 per tonne.

CAPESIZE owners face little respite from the gloom that has descended on the sector as brokers forecast a further slide in rates after the slump last week.

?Now is not a good time to be a capesize owner,? said one Singapore-based broker. ?The market is overtonnaged, there are relatively few cargoes and, as a result, rates are falling. It"s pretty rubbish, really.?

Pointing to the surfeit of ships, a Hong Kong-based broker said there were more than 150 capesize vessels available in the Pacific alone. He thought the Atlantic was not as quite so bad, with about 20-30 vessels ballasting to Brazil.

He said that for the dry bulk market as a whole ?the smaller the ship, the better the rate. Capesize rates are the worst.?

The broker said that while the index showed spot rates from Western Australia to China were slightly over $9 per tonne, Rio Tinto was trying to force the price below $9 to around $8.80 per tonne.

He thought owners had a psychological barrier to fixing below $9 and could draw a line in the sand. But he also voiced concern that it would only take one or two owners to panic for that barrier to be smashed.

The broker believed the situation would be similar in the Atlantic, where rates are around $25 per tonne from Tubarao to Qingdao.

?As soon as rates move down to around $23-$24 per tonne, there will be a lot of resistance,? he said. The broker estimated there were just 50-60 ships, including the ballasters, potentially free in the Atlantic, which would give owners more leverage in resisting charterers" lower rate demands.

Illustrating these rate levels, brokers said BHP Billiton fixed the 1999-built 171,746 dwt Cape Sun at $9 per tonne for a voyage from Port Hedland to Qingdao. Cargill also paid the same rate to fix the 1991-built, 147,275 dwt Hebei Pride for a spot charter from Port Hedland to Qingdao. In the Atlantic, Dreyfus fixed the 2009-built, 178,022 dwt Zhong Teng Hai for a voyage from Tubarao to Qingdao at $25 per tonne.

Brokers reiterated there would be no recovery in the capesize sector until China agreed new iron ore prices with producers. ?Chinese mills, including Baosteel, are anxious for the new contract prices to be fixed as quickly as possible,? said the Hong Kong broker.

But he thought there would be protracted negotiations because discussions would have to start from 2008 contract prices. As a result, China could be faced with an eventual increase 60%-70% higher than prices two years ago.

He said uncertainty in the spot market had also spilled over into the period sector. ?There is still quite a lot of interest from charterers, but there are not many candidates being put forward by owners who believe the market will get better in the next few months,? he said.

Brokers said the major period deal done last week was by Hongxiang, which chartered a 176,000 dwt Golden Ocean newbuilding from delivery at China"s Jinhaiwan yard in August for four years at $29,000 per day. The Hong Kong-based broker reported rumours Golden Ocean had fixed a second ship on long-term charter.

On Friday, the average time charter rate for a capesize bulk carrier dropped to $28,378 per day, according to the Baltic Exchange.

Chinese steel demand lifts iron ore price
THE price of iron ore delivered to China has reached a one-year high as steelmakers increase demand for the material.

Norwegian broker Lorentzen & Stemoco reported that the price for 62% content iron ore delivered to Tianjin rose to a 14-month high of $133.10 per tonne, up almost 10% than a week ago.

?The high spot prices may make it more difficult for China to reach a fixed price contract with its main suppliers, and several analysts do not believe there will be a benchmark price this year, indicating that price talks will break down for the second year in a row,? the brokers" daily report said.

Chinese iron ore imports dropped to a 12-month low of 46.6m tonnes in January, down almost 50% from the country"s record high of 62.2m tonnes in December last year.

In contrast, January 2010 exports of steel products were up 51% year on year to 2.9m tonnes.


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