Is the dry bulk shipping recovery real?

The event, with an emphasis on social interaction, has grown to more than 250 attendees, bringing together ship agents, ship brokers, and a smattering of principals. During the two day event, titled “What’s On the Horizon?” looked at issues facing its members, but also outward at broader commodity and financial markets issues which drive the shipping markets. The Miami location draws in attendees from Latin America.

The timing of the conference, following a huge run-up in the capesize market, brought a tinge of optimism to the event. Keynote speaker John Wobensmith, the cfo of Baltic Trading Company believes that the tide has turned: his speech concentrated on the sharp reductions in the orderbook, a reduced delivery schedule, and likely continued strength in iron ore movements. Investors obviously believe this picture; two weeks ago, Baltic Trading completed its second “follow on” offering, raising $55m to buy vessels.

A brighter capital markets picture was the message from Jeff Pribor, who heads up maritime investment banking at Jefferies & Co. Going down a list of sectors, he identified LPG, product tankers and drybulk as three current favorites among Wall Street investments. Talking about dry bulk, he said: “We think that this recovery has legs.”

Economist Arlie Sterling, from Marsoft, sounded a cautionary note, pointing out that by 2015- 2016, an again- growing orderbook, and renewed vessel deliveries,  could be a drag on the market. Sterling hinted to the audience that a short term investment, of several years duration, may be the way to play the dry bulk cycle. Additional perspective on an anticipated resumption in healthy demand growth, had come from J. Lauritzen (USA)’s Jesper Bab, who said, “We are still in a supercycle.”

As well as dry bulk LPG, mainly propane and butane, came up in a number of contexts; Jeff Pribor identified the US energy renaissance as a factor which has contributed to the more positive investor view of shipping; he made special mention that “Investors are asking us about LPG”.  Jerod Kotter, from Enterprise Product Partners, went into some detail about how increased gas production creates a supply of  “liquids” byproducts for export; he noted that the US is now the world’s top propane exporter, having surpassed Qata, a prodigious gas producer.

As always, forecasting is dangerous, especially concerning the future, to quote the noted philosopher Yogi Berra, certain critical assumptions need to be the subject of scenarios rather than being presented as certainties. In discussions at various points in the conference, questions came up about the impact of speeding up the fleet which would increase effective supply and push capacity utilisation downward.

Sterling also asked the audience to ponder a scenario of oil prices moving sharply downward and all its implications. One looming “what-if?” that came up in discussions concerns shale oil, not in the US, but rather, in China and India. What if these countries, which figure in economists’ future estimates of hydrocarbon demand, were to produce tight oil from shale formations?