Pacific Basin believes worst of dry bulk cycle is over

Minor bulks Pacific Basin Shipping specialist believes the worst of the current dry bulk market cycle is over as first losses narrow.

Pacific Basin said that while market freight rates in the first half were "significantly above" the historic low levels of one year ago, earnings are still not profitable for most dry bulk shipowners.

Pacific Basin itself remained in the red but narrowed first half losses to $12m from $49.8m previously as revenue rose to $702.9m from $488.4m in the previous corresponding period.

Meanwhile although the shrinking orderbook "bodes well for the long term", cutbacks in scrapping and continued global fleet growth "remain negative factors", Pacific Basin said, adding that "more scrapping and limited ordering are required for a more normal market balance to be sustained".

The group highlighted the fact that its core dry bulk business reduced losses dramatically to $6.3m from $60.4m previously as contributions from the handysize and supramax segments returned to positive territory.

Average handysize and supramax TCE earnings of $7,920 and $8,920 a day were up 30% and 51% respectively year-on-year and outperformed their relevant indices by 20% and 11% respectively, the group said.

"Dry bulk freight rates in the first half of 2017 were markedly improved compared to the same period last year, albeit from an historically low base. In this better but still challenging trading environment, we generated a much improved underlying loss of $6.7m and EBITDA of $56.6m," said ceo Mats Berglund.

Looking ahead, Pacific Basin said: "We believe the worst of the current dry bulk market cycle is behind us. However, the market improvement year-on-year was from a very low base, and more time, scrapping and limited ordering are required for a more normal market balance to be sustained."

It noted that historically low ordering in the handysize and supramax segments over the past 18 months bodes well for the long term, but there are still concerns over reduced scrapping and the growing global fleet.

"We believe that new low sulphur fuel regulations and ballast water treatment regulations will over time drive scrapping of older ships and ships of poor design, thus improving the supply-demand balance," Pacific Basin concluded.

Posted 28 July 2017

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Vincent Wee

Asia Editor, Seatrade Maritime News

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