More scrapping needed for dry bulk: Precious Shipping

The Baltic Dry Index (BDI) will continue to stay under pressure as shipowners are not scrapping enough vessels even as demand has grown, pointing to a slow market recovery up until 2020, warned Khalid Hashim, managing director of Precious Shipping.

“Negative sentiment has started to dissipate from the market resulting, unfortunately, in shipowners refusing to scrap their older ships. This has allowed an overall net fleet growth of 2.27% in the nine months of this year,” Hashim commented.

Though demand has grown with help from China, the net increase in supply has exceeded expectations at 18.45m dwt. Only 4.43m dwt of dry bulk vessels have been scrapped up to 30 September 2018 compared to last year’s 12.8m dwt.

New orders to end-September 2018 at 80.8m dwt, however, are near historically low levels. This has helped reduce the pressure from the supply side.

Read more: 2020 will be an “interesting year” for dry bulk: Precious’ Hashim

“If scrapping doesn’t accelerate, the BDI will continue to remain very volatile, solely dependent on what the demand side does,” Khalid said.

“In other words, shipowners are not helping their cause by not scrapping ships, making the recovery in 2018 to 2020 slower, extremely volatile, and totally dependent on demand continuing to outperform.”

The BDI has averaged 1,175 points in the first quarter, 1,260 points in the second quarter, 1,607 in third quarter, and ending at 1,540 on 28 September 2018. The BDI was seen at 1,304 points on Wednesday.

Khalid’s comments came as Precious Shipping announced a third quarter profit of $3.25m as against the loss of $5.23m in the year ago quarter.

Posted 08 November 2018

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Lee Hong Liang

Asia Correspondent