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Dry bulk 'largely out of the woods': Pacific Basin chairman Turnbull

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A demand driven market recovery caused the dry bulk market to improve significantly in 2017, although from a historically low level the year before, minor bulks specialist Pacific Basin Shipping said while releasing its full year results, in which it finally returned to a $3.6m profit on revenue of $1.5bn.

“The dry bulk market is largely out of the woods,” declared chairman David Turnbull. However he warned that with 2017 rates in the bottom third of the range since indexing began, the improvement was from “an extremely low base … (and) there is still some way to go before the dry bulk market sees sustained healthy freight earnings, but supply and demand fundamentals are now more positively balanced and we are cautiously optimistic for a continued market recovery albeit with some volatility along the way”.

Pacific Basin noted that the year saw stronger seaborne trade growth across most dry bulk categories, stronger Chinese industrial activity, record South American grain exports, longer trade distances which supported stronger seaborne tonne-mile demand (up 5.1%), but also reduced steel and cement shipments mainly due to strong Chinese domestic demand which limited exports.

Looking ahead, Pacific Basin saw a favourable demand-supply outlook driven by fewer deliveries in 2018 and 2019, tonne-mile growth and possible effects of the global sulphur cap in 2020, further out. Berglund also saw a strong South American grain season this year.

Among threats to the market however are a reduction in Chinese industrial growth and investments impacting demand for dry bulk shipping; environmental policy in China encouraging greater shift to renewable energy, possibly impacting coal imports; excessive new ship ordering if the price gap between newbuilding and secondhand ships closes; and reduced scrapping due to improved market conditions, which may be insufficient to offset new ship deliveries.

On its own operations, Pacific Basin ceo Mats Berglund was noted that the group was able to predict that based on current fleet and commitments, a change of $1,000 per day in annual average TCE market rates would be expected to change net results by about $35-40m per year.

Pacific Basin has been active during the year positioning itself for a recovery in the market, picking up eight second hand ships at historically low prices and ultimately growing its fleet to 106 owned ships from just 34 in 2012. Berglund declared that the group does not intend to order newbuildings in the medium term but will watch technological and regulatory developments closely.

“There remains extra capacity in the existing global fleet through potentially higher operating speed, and the market does not need more newbuildings. What we shipowners need is a more reasonable level of profitability,” he said.

On upcoming regulatory changes, Berglund said Pacific Basin has scheduled installations of ballast water management systems for its fleet beginning from later this year and the bulk of these would take place in 2021.

He also emphasised that Pacific Basin does not think scrubbers are an effective solution to the problem of sulphur emissions. The group would “much prefer a mandate to use low sulphur fuel”, he said, which in turn  would support a level playing field, lower speeds and lower emissions.

“Overall, we believe these new regulations will be positive for the supply-demand balance and benefit larger, stronger companies with high quality fleets that are better positioned to adapt and to cope practically and financially with compliance,” Berglund concluded.