The dry bulk market in 2002
The freight market:
Capesize - Panamax
- Handymax & Handysize
The second-hand market:
Capesize - Panamax
- Handymax & Handysize
The dry bulk shipping market finished the year
2002 taking all sizes into account at levels that had not been seen since the end of 2000, at a
time when the overall economic conditions were far more favourable. At the beginning of the
year nothing indicated such a sprightly resurgence, and few analysts would have stuck their
necks out to predict freight rates around $25,000 per day for modern Capesizes. As in other
sectors of the shipping market, everyone was betting on a recovery of the American economy, and
in its wake that of countries in the European Union, occurring during the course of the second
half of 2002. This was by no means the case, and the uncertainties linked to the American
intervention and their allies in Iraq, more than ever casts a pall over the world economy and
the confidence necessary for a rebound. Japan is for its part still stuck in its quagmire which
has been going on for several years.
The factors that have contributed to the rise in freight rates during the year, mainly with
effect from September, are essentially:
a significant increase in raw
materials into China, Japan and other South East Asian countries ; whilst total world
growth has been flat the exception is China which registers annual increases in GNP
of the order of 7,5 %.
a decrease in the number of
newbuildings coming onto the market compared to previous years, at least as concerns
the Capesizes and Panamaxes.
a steady increase in the cost of
bunkers, which was caused initially by the policy of reducing OPEC production, and
secondly by the fear of conflict in the Gulf.
at the end of the year, shutdown for
maintenance of some Japanese nuclear power stations, resulting in a sizeable increase
of steam coal imports.
We will attempt a rapid tour of the main events
in the dry bulk market over the course of the past 12 months. For reference, the Baltic Dry
index which began the year at 876 points ended at 1739, the highest level since November 2000.
Based on the statistics published by IISI at the end of January 2003, world crude steel
production has totalled slightly over 900 million tons in 2002, an increase of 6,4 % over
2001. The lion's share of this rise is due to China producing 181 million tons, compared to
150 million in 2001, or an increase of 20,3 %. For comparison, in 1995 Chinese steel production
was 95 million tons and was below that of Japan's 101 million tons. In 2002, Japanese
production reached 107 million, an increase of 4,7 % compared to 2001, an impressive
achievement if we consider the lethargy of the Japanese economy. Production in the E.U. only
increased by 0,1 %, and to illustrate the contrasting situations, French production increased
by 5,6 %, whereas Germany was only able to come up with a modest rise of 0,4 %. The
restrictive measures taken by the U.S. seem to be taking effect since after months of declining
production, American steel figures for 2002 finished with an increase of 2,5 % over 2001 with
92 million tons. Japanese and Korean steel producers who fed the Chinese market throughout the
year, helped alleviate the American and European markets, thus allowing steel prices to find
their levels of the first quarter 2000 after two years of decline. With steel production being
the driving force of the Capesize market, the higher production levels were bound to have an
influence on freight rates.
The healthy standing of the Capesize market was partly due to the growth in Chinese imports of
iron ore. Based on provisional figures these should exceed 110 million tons in 2002, 20 million
more than in 2001. In addition, the share of Chinese imports coming from Brazil should
represent 27,1 % of the 2002 total, compared to 17,3 % in 1998, thereby stretching the
ton/miles. If this trend continues, in a short time Chinese imports of iron ore will surpass
that of the E.U. and of Japan. Still in the realm of raw materials, Japan was obliged to import
nearly 6 million tons of additional steam coal over the period September 2002 to April 2003,
following the shutdown of 9 nuclear power stations out of a total of 18, run by Tokyo
Electric Co. which helped to sustain the Panamax market in the Pacific during the fourth
quarter. In the case of cereals, Australia suffered one of its worst droughts in history and
its crop was halved, thus redirecting imports from the South East Asian countries. Grain trade
according to the International Grain Council should remain stable for the 2002-2003 season
around 207 million tons.
In the industrial sector new mergers were formed in 2002. In Japan, NKK and Kawasaki Steel
united forces in a new entity, JFE Steel, which initiates the first merger in the steel
industry in the country and follows the example within the European scene which underwent a
profound restructuring two years earlier. The combined production of the two companies totals
some 28 million tons. At the same time, NSC, Sumitomo Metals and Kobe Steel have entered
negotiations in view of getting together. And still within the steel sector, US Steel made a
proposal to take over National Steel for $750 million but as yet unconfirmed. Also to be noted
is the intended acquisition of the aluminium division of Corus by Pechiney.
Finally, at the end of the year, the IMO against the better judgement of certain countries,
decided to impose double-hulls on vessels over 150 meters for all newbuildings. This ruling
still has to be ratified within the context of the SOLAS convention by January 2004 at the
latest. Certain owners having anticipated this decision, placed orders for double-hulled ships
already during the course of the 2002.
Parallel to the increase in freight rates over
the year, one should not forget the rise in bunker prices. The price of IFO 380 cst went from
$100 per ton in January, basis delivery Rotterdam, to over $150 per ton in December, which
corresponds for a Capesize to an increase of 50 cents on an average freight rate of $ 8,15 on a
voyage Brasil ' Rotterdam.
To appreciate the movement of freight increases in the Atlantic we can
cite a few examples. On the iron ore route from Brazil to China, rates went from
$ 6/ton in January to $ 7,50 on average from March to August, to finish the year at $
13,50. Transatlantic cargoes took off from $ 4 at the beginning of the year to fix at over
$8 twelve months later. This hike was also repeated within the coal market out of South
Africa. At the start of 2002, cargoes were fixed to North Europe at under $ 5 per ton, to
achieve $ 8 at the end of September, and finish the year at above $10. In the Pacific,
there was a similar phenomenon despite the fact that the Atlantic market benefited with a
premium over the Pacific basin. Freights on the iron ore route from Australia to China
doubled between January and December. Backhaul routes however suffered from the drop in
liftings of minerals from Australia to Europe. This strong rise in rates was even more
pronounced on the time-charter market. Modern large ships, fixed for fronthaul trips with
delivery Rotterdam to the Far East via Brazil were achieving $ 8,000 in January and ended
the year above $ 26,000. Modern ships of 170,000 dwt chartered for 12 months
witnessed their rates reach over $ 18,000 at the end of the year, some $ 7,000 more
than they could expect in January 2002.
The Capesize fleet has remained relatively stable and delivery of new tonnage was limited
in 2002. Twenty-five ships for 4 million dwt were delivered, against 34 in 2001, whereas
17 ships were scrapped (of which 8 were combined carriers). In 2003 additions to the fleet
will stay limited, despite a small growth, due to the fact that there were very few major
orders during the period 2000-2001. Thirty-two additional ships, for 5 million dwt, should
come into service in the course of this year. However the sudden upsurge in freight rates
during the second half of last year, linked to low construction costs, and the
availability of early slots in certain Japanese shipyards, plus the creation of new
building docks in China has contributed to a flood of orders to be delivered as from 2004.
No less than 50 ships have been ordered in 2002, including several big carriers of 200,000
dwt for Japanese account.
In 2001 in line with large tanker owners, some of the principal players in the Capesize
market have created the pool Cape International which combined some 80 ships. This unit
had its difficulties in getting formed, since in October 2002 Zodiac who had the biggest
contribution to the pool decided to withdraw. Elsewhere, the Capesize and Panamax fleet of
two other major players in the dry bulk scene Coeclerici and Ceres Hellenic joined forces.
At the end of the year the Belgian Cobelfret strengthened its position within the Capesize
market by acquiring the 50 % held by BHP-Billiton in its affiliate Cobam.
The Panamax market began the year 2002 at depressed levels. Inter-zone
rates for modern ships did not surpass $5,500-6,000 per day. The spread between the two
basins, Atlantic and Pacific, have progressively widened. All newbuildings were delivered
into the Pacific area, and the reduction of voyage times (ton/miles), quickly
repositioning these ships into their original area of operation, weighed heavily on
freight levels. As with the Capesizes, levels from the Atlantic to the Pacific rose during
the first three quarters, with modern vessels obtaining daily returns rising from about $
7,500 in January to nearly $13,000 end December. This situation lasted until the beginning
of the fourth quarter when volumes of coal coming out of China primarily for Japanese
destination helped push rates even higher. At the end of the year however the Pacific
market went along with its alter ego in the Atlantic. Backhaul rates stayed low throughout
the year, with owners having tonnage in the zone being prepared to make sacrifices in
order to return to the more advantageous Atlantic.
As with the Capesize fleet, the number of Panamaxes delivered in 2002
was down compared to the previous year. Fifty-five ships for 4,1 million dwt entered
service, as against 116 in 2001. This drop in deliveries will be even more marked in 2003,
as only 26 new ships for less than 2 million dwt, will come out of the Asian
shipyards. For the same reasons as with the Capes, orders burgeoned during the second
half, mainly with the Japanese yards and to a lesser extent with the Chinese. As a result,
76 orders were placed in 2002, with deliveries being spread out over 2004 and 2005.
Scrappings remained modest, with only 29 units of which 4 combined ships removed from the
fleet. Finally a new type of Panamax should be noted, the Kamsarmax, its name being
derived from a port in Guinea and developed by the Japanese shipyard Tsuneishi, with a
deadweight of 82,000 (length of 229 meters, width of 32,26 meters, draught of 14,35
meters) and capacity of 97,000 cbm and of which seven units have been ordered.
The bulk carrier market of Handymax and Handysize offers a more
contrasted picture. On the one hand, the Pacific market has suffered for a long time from
the high level of newbuildings being delivered, since on average nearly 3 ships per week
have been coming onto the market in 2002. Conversely the Atlantic market has been well
supported mainly with traffic to the Far East. Important volumes of steel, fertilisers,
and cereals leaving the Black Sea, the Mediterranean and North Europe helped sustain
freight rates for a good part of the year. Consequently large, modern Handymaxes have been
able to obtain rates reaching up to $14,000 per day for voyages to the Far East.
Satisfactory levels were seen throughout the year, with levels never falling below $10,000
per day after April. As with the Panamax, Handymax owners not wishing to go off into the
Pacific zone at any price, were able to get premiums on these destinations. At the start
of the year the Atlantic market was hesitant, with the grain trade out of South America
being slow to get off the mark. For ships between 43,000 ' 45,000 dwt, daily returns for
inter-Atlantic business averaged at $8,500 per day, the lowest being in January at below
$7,000 per day, and the highest in December at around $10,000 per day. The Indian Ocean
and the Middle East Gulf zones also benefited from a generally favourable market due to
traffic into India or China. The Pacific market remained depressed for the first three
quarters of 2002, with levels for inter-zone voyages rarely going over $ 6,000 per
day. During the last quarter freight rates firmed up steadily to the point of reaching
Atlantic levels right at the end of the year.
Handysize ships traditionally enjoy a less volatile market and started the year below
$6,000 per day for short periods reached levels near $7,000 during the last quarter. The
Handysize fleet is old and should therefore diminish progressively over the coming years,
and with no new units coming in to replace those leaving the fleet bringing about changes
mainly in the sugar and fertiliser trade.
The decrease in deliveries of Handymax and Handysizes in 2002 compared to 2001 had less of
an affect on the large size of dry bulk carriers, but the persistent flow of nearly 3
ships per week coming out of the Asian yards put continuous pressure on the Pacific
market. 148 ships for 6,2 million dwt came into service compared to 155 the previous year.
With the same causes producing the same effects, orders were extremely high in 2002.
About 160 new contracts were signed with confirmation this year of the attraction for
Super Handymaxes, ships over 50,000 dwt, for which an increasing number was ordered with
Japanese and Chinese shipyards. Against these deliveries, there was an offset of 123 old
units which went to scrap. But contrary to the Capesize and Panamax, the volume of
deliveries will continue to be felt in 2003 since nearly 130 ships should be delivered.
The new year's prospects are similar to those at the end of 2002. Iron ore and coal
volumes are on an upward trend. Moreover, concerning the Capesize and above all Panamaxes,
new deliveries will be very restricted in 2003, giving a welcomed respite for owners. Two
uncertainties remain however : during the course of the year will the hopes of a world
economic revival, repeatedly delayed, give an additional stimulus to the dry bulk
movements? Will China, the driving force in the dry bulk market, continue to charge ahead
at full speed and for how long? The American military intervention in Iraq, even of short
duration, will put back this recovery and would bring about repercussions which nobody can
* * *
The future is always right!
second-hand market (80,000 dwt and over)
Following as always the freight market with a
certain variation both in time as well as intensity, the second-hand Capesize market globally
tracked the drop in the last months of 2001 before picking up at the beginning of 2002.
This increase continued until March / April. Prices then remained stable before firming up
significantly again as from September. The year finished on a very strong upbeat.
We have noted some 36 sales for further trading (17 comprising ships delivered between 1990 and
2002, and 19 Capesize built between 1981 and 1989). Nine ships built between 1971 and 1982 were
scrapped this year, roughly 1.14 million dwt, whereas 26 ships were delivered amounting to 4.25
Owners lured by a modest orderbook (about 9.3% of the existing fleet at the end of 2001),
reasonable prices for construction and historically low dollar interest rates, were unable to
resist the temptation to order on a massive scale.
There have been about fifty firm orders placed in the course of the year 2002, for a total
capacity of 8.5 million dwt, figures which are worth comparing with the 20 orders of 2001
representing a total tonnage of 3.37 million dwt.
The strong rise in freight rates during the last quarter has however benefited primarily to
second-hand ships available on a prompt basis.
Based on construction in a good shipyard, fully classed and in good condition, the following
150 000 dwt
built in 1990
about $14 / 14.25 m
about $ 17.25 / 17.5 m
150 000 dwt
built in 1995
about $18.5 / 19 m
about $ 24.5 m
There are some encouraging signs at the end of
2002 and optimism is in the air, even if some of uncertainties cloud the market, such as the
collateral effects of the war in Iraq, new regulations being studied for the introduction of
double-hulls for bulk carriers, etc.
One should also not forget that the tonnage on order has to be absorbed by the market. In 2003,
there will be some 5.0 million dwt added, followed by a further 6.4 million dwt in 2004 and
with the firm orders recorded so far, over 2.0 million for 2005.
Handymax & Handysize bulk carriers second-hand market
Predicting what the future may bring can be
dangerous, whereas if a prediction proves to be correct then whoever was bold enough to make
it, can but refer to it.
In our last year's annual review covering these sizes we were of the opinion that 'values
had bottomed out' and that anyone interested in investing in these sizes should be inspecting
and offering as soon as possible as we felt that in the near future prices would increase. In
the case of Panamax and Handymax size we were in fact cautioning prospective buyers of a
possible 'stampede', which would in turn cause prices to climb faster and without any real
It seems that this is what more or less happened.
Freight rates were rather stable for the first part of the year but the feeling that prices had
reached the bottom fuelled competition amongst prospective buyers resulting in higher prices
than the last comparable sales. Then as soon as buyers started to cool down the freight markets
started to firm-up resulting in very good chartering returns for dry bulk owners, which was the
perfect reason for any potential buyer to go out hunting again.
Prices across the board increased about 10 / 15 % within a few months, whereas the overall
price increase at the end of 2002 reached a very healthy 25 % and in some cases has exceeded 30
% when compared to the beginning of 2002 / end of 2001. Once this trend was firmly established
in buyer's minds, it caused a flurry of activity in the sale & purchase market.
A total of about 330 ships reportedly changed hands during 2002, this is about double the
number of ships when compared to 2001. A 100 % increase in the number of transactions.
Looking closer at the three size segments, we note that when compared to the previous year
there was an increase in the reported number of sales as follows:
75 % more Panamax sales
(2002 : 70 ships / 2001
: 40 ships)
144 % more Handymax sales
(2002 : 117
ships / 2001 : 48 ships)
86 % more Handysize sales
(2002 : 143
ships / 2001 : 77 ships)
It would seem that the Greek shipping community
was quick to realise this trend and actively participated in purchasing vessels thus keeping
the leading role amongst the buyers of second-hand bulk tonnage. Greek buyers bought about 165
vessels representing about 50 % of the reported sales in the three size categories under
Favourite amongst the Greek buyers proved to be the Panamax size for which they picked up about
64 % of the ships sold during the year, the Handymax category coming second with about 58 % of
all transactions reported to Greek buyers, leaving the Handysize in the third place but with a
respectable 35 % of the sales being reported to Greeks.
Chinese buyers were always present especially in the Handymax and Handysize segments the latter
being their favourite 'hunting ground'.
Korean buyers where more active than in the past few years, especially in the latter part of
2002 going after ships in all three categories, although early 1980's built Panamax and
Handymax ships seemed to have been what they were most keen on.
As one would expect when looking at sales for demolition, the number of ships reported sold for
recycling during 2002 is significantly less than those sold during the previous year.
Panamax: about 0.9 million dwt was
removed this year, 13 vessels, representing a decrease of about 60 % over 2001
Handymax: about 0.86 million dwt was
removed during 2002, 20 vessels, representing a decrease of about 24 % over 2001
Handysize: about 2.12 million dwt were
removed this year, 78 vessels, representing a decrease of about 15 % over 2001
Less ships going for recycling resulted in a
sharp increase of prices obtained per light ton displacement from buyers of such tonnage which
at the end of 2002 for a bulk carrier stands at about US$ 170-175 per ton.
A total of 70 ships were reported sold
during 2002 and among these:
1 ship was built in 1977 -
she was sold for further trading to Indian buyers,
49 ships were built in the
1980's (70 % of the reported sales), of which 14 were over 20 years old,
28 were 15-20 years old, 7 were 10-15 years old,
19 ships were built in the
1990's (27 % of the reported sales), of which 14 were less than 10 years
1 vessel was built in 2000
' she was sold to Greek buyers.
At the end of 2002 a 10 years old
Panamax bulk carrier worth about US$ 11.75 / 12.0 million, representing an
increase of about 30 / 33 % over a period of 12 months, a 5 years old Panamax bulk
carrier worth about US$ 17.0 / 17.25 million, which represents about 28 %
appreciation when compared to the value one year earlier in December 2001.
At the end of 2002 a 10 years old Handymax
bulk carrier worth about US$ 10.5 / 11.0 million, representing an increase of about 20 /
22 % over a period of 12 months, a 5 years old Handymax bulk carrier worth about US$
14.25 / 14.5 million which represents a 16 % appreciation when compared to one year
earlier in December 2001.
- Handysize (18
000 ' 35 000 tpl)
A total of 143 ships were reported
sold during 2002 and among these:
26 ships were over 20 years
55 ships were 15-20 years
5 ships were built
1988 / 89.
3 ships were over 10 years
18 ships were
5 / 10 years old,
7 ships were 5 years old or
At the end of 2002 a 10 years old
Handy bulk carrier worth about US$ 8.0 / 8.25 million, representing an
increase of about 15 % over a period of 12 months, a 5 years old Handy bulk
carrier worth about US$ 11.25 million, which represents a 7 % appreciation when
compared to one year earlier in December 2001.
* * *
Concluding this review of the second-hand
Panamax, Handymax and Handysize bulk carrier market and looking ahead, a lot will obviously
depend on which way the freight markets will be heading for, but at the end of the year the
feeling is that the dry bulk market maintains it's momentum and this should be felt on
We would therefore expect values to remain firm with a slight upward trend over the next few
Shipping and Shipbuilding Markets in 2002
I N D E X