Summary
Some iron ore contract renewals in Japan, impressive 1Q Chinese iron ore imports, and expectations of the impacts of stimulus packages have vastly improved market sentiment for a continued improvement in dry bulk shipping rates. This is "irrational exuberance."
Analysis
Goldman Sachs, Rio Tinto and others are publicly commenting that the worst is over for dry bulk shipping. They base their opinions on an uptick in demand and expectations for a stellar second half of 2009.
Unfortunately, the reality of supply will stifle any meaningful improvement in rates. Despite widespread talk of massive cancellations and delays, Worldyards has only been able to confirm 5% order terminations. Delays are modest as well. Second half deliveries are going to be significant, and the short-term improvements in rates has led to a substantial decrease in vessel scrapping.
Current spot rates are running $40k+ for Capes, $18k for Panamax and $22k for Supramax. These are historically strong rates and profitable for virtually every owner. Given the current market sentiment, we may even see the $50k level reached for short periods in the coming months. However, this short term euphoria will not last into 4Q09 and will not benefit most public equities due to limited exposure to the spot market.
The 2009/2010 delivery book was unsustainable even before the economic crisis. There is no realistic demand scenario that will change that picture.
