The dry bulk shipping sector faces the heaviest oversupply pressures over the next 12 to 18 months compared with the oil tanker and container markets and will be last of the three to recover, Standard & Poor's said on Tuesday. Ship owners went on an ordering spree between 2007 to 2009 bolstered by earnings as rates in the bulk sector for larger capesize vessels, which carry iron ore and coal cargoes, reached a peak of over $230,000 a day in 2008.
Average capesize earnings have slid to just over $5,000 a day this week, below operating cost levels. "This sector will continue out of the three shipping segments ... to face the heaviest oversupply compared to demand in particular this year and next year," said Izabela Listowska, associate director with ratings agency Standard & Poor's.
"For the next 12-18 months, we see no improvements (in rates) and then as per our current base-case only 10 percent up and that will be a moderate improvement from very depressed levels." Shipping firms, especially in dry bulk, already hit by economic turmoil, weak earnings and oversupply now face tighter financing as banks cut their exposure to risky and dollar denominated assets such as ship finance to meet tougher capital rules.
"We see lower (bulk) demand growth. Last year there was (growth of) about 5 percent in demand for tonnage," she said. "We expect this to moderate in 2012 simply due to slowing economies, world trade and steel consumption in particular will be the reason."
One of Japan's oldest shipping firms Sanko Steamship sought to reassure its clients on Tuesday that day-to-day operations for nearly 200 vessels were running as normal, four days after alerting creditors it would not be able to pay some bills on time due to the shipping sector downturn. "The general outlook for the global shipping industry for 2012 remains negative," Listowska told Reuters in an interview. Rival ratings agency Moody's told Reuters last week the shipping downturn was expected to last well into 2013 and would challenge the toughest of companies.
"The alternative sources of funding like bond and equity markets are very limited at this stage," Standard & Poor's Listowska said. "Companies having spot exposure are the ones which aggressively invested in vessels at the peak of the vessel values and carry uncompetitive breakeven rates in their cost structure. They are definitely going to struggle. We may see more restructurings and insolvencies this year."
The tanker market has also suffered from a glut of vessels in recent years, but Listowska said the sector had better supply fundamentals. "Charter rates for all tankers in general could achieve a quicker turnaround simply because the supply surplus is not that dramatic as it is for dry bulk," she said.
"The relocation of refineries to the emerging countries, and so positive impact on tonne-mile demand are re-shaping the tanker market and we also think that the demand for oil is going to be reasonably stable. There will be a quicker turnaround for oil overall than for dry bulk."
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