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BULK - Climbing Cape Capacity

29335 fcras 18/5 2010 08:42

Climbing Cape Capacity ?

17 May 2010

By Ms Amy Lovelock

For some time now the size of the bulk carrier orderbook, and in particular the Capesize orderbook, has been a somewhat pressing issue.

Enthusiastic ship owners who contracted new vessels apace in the boom times have long expected a surge in supply in 2010/11.

However, slippage and cancellation have become increasingly common features of the ship building industry, and some scepticism has crept in as to just how drastic the fleet expansion will be.

Constant delivery rate
During 2007 and 2008 when the dry bulk markets were witnessing record rates and earnings, the bulk carrier fleet was arguably undersupplied.

A steady stream of Capesize newbuildings hit the water over the two years (averaging 4.1 vessels and 0.8m dwt per month) and the Capesize fleet grew at a relatively steady annual rate, as shown on the Graph of the Month.

The undersupply felt in 2007/08 and arguably beforehand too, along with record profits to bulk carrier owners meant that investment in newbuildings rose significantly.

In 2007 alone, 499 new Capes of 90.0m dwt were contracted, and the orderbook eventually swelled to a record 119.1% of the fleet as of October 1st 2008.

Supply surges
All ordering suddenly came to an end as global financial turmoil hit.

However, the damage was already done, and in Q1 2010 the full force of the supply surge has started to hit home.

As the graph shows*, deliveries of Capesizes took off in H2 2009, deliveries for the six months rising by 208% y-o-y.

In the year-to-date 2010, 64 new capes have hit the water of total 11.7m dwt, already surpassing deliveries in any other year on record apart from 2009 and equating to an average of 16 vessels and 2.9m dwt entering the fleet every month.

As a consequence, the rate of Cape fleet expansion in the first few months of 2010 rocketed, and stood at 21.9% y-o-y as of May 1st 2010.

VLOCs add volume
Adding to the general expansion picture is the overall upsizing of the Cape fleet.

The popularity of ordering VLOCs (very large ore carriers) during the boom has now meant a massive increase in the number of ships of 200,000 dwt or above entering the fleet.

The VLOC fleet had increased by 28.0% y-o-y at the start of May 2010 to stand at 42.6m dwt, meaning that the fleet accounted for 23.5% of the Cape fleet on the 1st May, a dramatic increase from the 14.9% it accounted for at that start of 2007.

Too much tonnage??
Despite a heavy proportion of deliveries slipping (in 2009 a non-delivery rate of around 40% is estimated for Capes), the Cape fleet has entered a significant period of growth.

How effectively the dry bulk market can absorb the extra capacity is going to strongly depend, as always, on the health of global iron ore demand.

But even with seaborne iron ore trade growth of 10.5% y-o-y currently projected for 2010, the question remains ? is this going to be enough to soak up the extra tonnage

As the graph shows* / link:


18/5 2010 12:33 fcras 029344

Tuesday, 18 May 2010

CME Group Inc., the world?s biggest futures exchange, will clear derivatives tied to the cost of shipping coal and iron ore for the first time and extend its coverage of the tanker market.

CME will clear 12 new commodity shipping routes as well as backstop 10 new Worldscale-based tanker accords up to three years into the future, the Chicago-based company?s London office said by e-mail today.

It already clears tanker trades on a dollars-per-metric-ton basis.

Source: Bloomberg

CME Group Inc. Website: