Summary
Tradewinds reports on Drewry's latest forecast for dry bulk to remain depressed through 2014. This is a very unlikely scenario.
Analysis
Citing a slowdown in order cancellations and predicting 11% demand reduction, Drewry's suggests that dry bulk rates will not substantially recover before 2014. According to Drewry's, fleet expansion will be 13% in 2010, 17% in 2011, yet demand will only grow by 6% and 7% respectively. In the end, Drewry's predicts the recovery in the BDI is short-lived.
I agree that the recovery is short-lived. Iron ore speculators have propped up demand in the first half of 2009, while steam coal has been strong. Frankly, the fundamentals over the first half of the year should have supported higher rates but the market sentiment has been extremely negative. Newbuild delivery delays (NOT cancellations) coupled with very high scrapping has helped, but the onslaught of new vessels will soon overcome any perceived strengthing of the market.
The balance of 2009 and all of 2010 will be very, very weak. There are not enough suitable vessels to scrap to offset supply expansion. The focus of various stimulus packages has been for internal infrastructure. Manufactured export goods are not moving, which dampens the demand for bulk commodities supporting that sector.
The issue I have with Drewry's report is the post-2010 orderbook. On the surface, 2010 and '11 deliveries are exceptionally daunting. The reality is that the 2010 book will lose some 20% through outright cancellations and defaults, and the 2011 book is mostly theoretical at this point. Offsetting this is what I consider to be overly optimistic demand growth numbers. Coal will be an offset to falling iron ore demand, but the relative tonne-miles are substantially smaller. Further, minor bulk volumes are terrible at present.
I expect recovery to come as soon as early 2011 and as late as 3Q11. "Recovery" is a relative term, as I expect the days of $100k+ capesize rates to not be seen in the next five years.
