(Source : BanqueThaler; Bloomberg)
Share prices of publicly traded bulk shipping companies followed the upward oriented freight rates, closing the month on a 4.5% gain, despite the (very) negative general stock market environment.
New vessel orders were very low during the first two months of the year, with only 6 new capesizes and 6 new panamaxes firmly booked at shipyards. This comes as a positive surprise, following the ordering frenzy of the second half of 2017, that had brought the order book close to 10% of the existing fleet. These orders will, however, only impact the fleet from the second half of 2019 onwards, to the tune of some 3% per annum, at which point scrapping can be expected to accelerate due to the introduction of the IMO ballast and sulphur emission rules. Ship owners will be hesitant to install costly treatment systems on ships that are more than 15 years old, accounting for some 14% of the total fleet.
Ship owners’ current hesitation to order new vessels can also be explained by the aforementioned new sulphur emission rules that will come into force in 2020. It is not yet clear how the issue will be tackled. Ships will either continue to sail on the current heavy fuel and require a expensive scrubber (costing several million dollars) to clean the exhaust gases, or their engines will have to consume sulphur-poor fuel, which costs on average USD 200 more per tonne than the current heavy fuel oil. Given that large vessels consume 30 to 50 tonnes of fuel per day (depending on their speed), ship owners obviously want to do their homework before engaging into new vessel orders.
All told, we expect bulker fleet growth to be limited for the next couple of years, and vessel supply-demand equilibrium to be reached – even turn short – sometime this year. Once the market becomes convinced of this perspective, a second leg up in bulk shipping stocks can commence, assuming of course a stable geopolitical and financial context.
(Last update : March 2018)