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DNB Predicts Capesize Rates to Double in 2013

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October 29, 2012

Kanaris, a 178k DWT Capesize bulk carrier, image courtesy Safe Bulkers

(Bloomberg) — Rates to ship dry-bulk raw materials by sea are recovering after a four-year slump as Chinese demand for iron ore surged to the highest level since 2009, according to DNB Markets.

Average daily earnings for Capesizes, the largest ships hauling the commodity used to make steel, will more than double to $16,000 in 2013 from $6,705 so far this year, Nicolay Dyvik, an Oslo-based analyst at DNB, said in an e-mail today. Chinese demand for iron ore rose 41 percent in October from the previous month to 95 billion ton-miles, the highest since August 2009, the investment-banking unit of Norway’s largest bank estimated.

Capesize earnings more than doubled this month to $16,934 a day, according to the Baltic Exchange, the London-based publisher of shipping costs. Rates are still 93 percent below their 2008 peak of $234,000 after owners ordered too many ships before the recession. After years of unprofitability, slower sailing speeds are restraining fleet growth as China increases imports from Australia and Brazil, according to DNB.

“Dry-bulk market recovery has begun,” Dyvik said in a report e-mailed today. “Large expansion of low-cost iron-ore and coal exports make us positive on the dry-bulk segment.”

The recovery was delayed as returns trailed expectations this year, and other analysts have said it has yet to arrive. Analysts cut forecasts seven times from $15,000 a day at the start of the year, according to the averages of 10 estimates in a Bloomberg survey. The market consensus is that recent increases were driven by stockpiling, rather than a fundamental recovery, London-based shipbroker Galbraith’s Ltd. said in an Oct. 19 report.

Record Fleet

The dry-bulk fleet swelled 53 percent since the end of 2008 to a record 581 million deadweight tons, according to data from IHS Inc., an Englewood, Colorado-based research company. Global cargo demand will advance 5 percent this year and 4 percent in 2013, according to Clarkson Plc, the world’s largest shipbroker.

Owners can save on fuel, their biggest expense, and reduce the fleet’s effective capacity by slowing down ships. Capesizes sailed at an average speed of 9.13 knots last month, compared with 11.1 knots three years ago, according to ship-tracking data compiled by Bloomberg.

Iron ore is the largest commodity traded at sea after crude oil, and China is the biggest importer. Brazil increased its share of shipments to China to 28 percent in October from 24 percent the month before, DNB estimates. Australia’s share grew by 1 percentage point to 59 percent. Cargoes from other sources shrank to 13 percent from 19 percent, Dyvik said in the report.

Ton-mile demand is determined by multiplying the size of a cargo and the distance traveled for delivery.

– Isaac Arnsdorf, Copyright 2012 Bloomberg.

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