BDI equals all time low - where does dry bulk shipping go from here?

As markets remain relatively listless ahead of Chinese New Year a new record low would appear to also be rather likely.

The crash in the dry bulk market goes against the generally perceived wisdom of one to two years ago that 2015 would be a year when dry bulk shipping would rebound. Indeed a story we ran early in March 2013 ‘Dry bulk recovery forecast by 2015’ still gets regular readers today - perhaps they are trying to work out where it all went wrong? The confidence seen in the latter half of 2013 and into early 2014 has simply evaporated.

For those that gambled on the belief of a 2015 recovery, combined with the benefits of ordering cheap new eco-ships, the headlines about the BDI must make very depressing reading indeed.

Perhaps the most audacious move was Scorpio Bulkers, born little more than 18 months ago, ordering vast amounts of new tonnage. According to its website Scorpio Bulkers has five owned vessels on the water and 68 newbuildings to be delivered by Q3 2016, comprising 22 capesizes, 19 kamsarmaxes and 27 ultramaxes. Scorpio has managed to swap nine bulker newbuildings to product tankers but does not expect any further conversions.

This leaves Scorpio with a very large fleet delivering into a highly depressed market, with no hope of selling the vessels for a quick profit. Certainly investors have not seemed overly impressed, the company listed just over a year ago with an IPO share price of $9.75, yesterday they closed at $2.04, actually a slight improvement over a couple of weeks ago.

Scorpio was not alone its belief that it was the right time to buy. Another new dry bulk shipowner Pioneer Marine took a $275m punt on handy bulkers, and currently has 13 on the water and 14 newbuildings under construction. Speaking at Mare Forum Singapore last week Pioneer ceo Pankaj Khanna, when asked where he would invest $200m in shipping if he had it, said he would opt for a diversified fleet rather than putting everything in one sector.

These are just two of the more high profile examples, but many others made similar investments banking on a better dry bulk shipping market in 2015. There are also many existing players who have struggled through the years since the collapse of the dry bulk market in late 2008 into 2009, for which a prolonged market around current levels could prove the final straw, as it did for Copenship last week.

Obviously the market will rebound to a certain extent from current levels. There are some positive signs such as China’s iron ore imports being forecast to top the 1bn tonne mark this year, 7% growth over 2014. But where these are sourced from will be a major factor as the fourth quarter of last year demonstrated. Overall though there seems to be little confidence in 2015 as low commodity prices and too many ships leave owners with very few options.

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