We have gone through the first seven months of 2016 and despite extensive efforts made to allow for a balance to be reached between supply and demand, the gap is still too wide to breach. Taking a look at the fleet compared to what it was back in the start of the year, the net effect has been one of growth, albeit on a slight growth. The total dry bulk fleet of vessels above 20,000dwt has increased by 0.76% or around 73 vessels. Some size segments have manged to witness a slight decrease such as that of Capes and Panamaxes, though being only 0.33% for the former and 1.26% for the latter does gear us towards any high optimism. After all, the trade segments suffering the most are those of the main dry bulk commodities such as iron ore and coal, primary cargoes for these two vessel size segments. Granted that compared to the estimated trade growth that the year will likely close at, the fleet growth figure is not that far off. However, we are not really looking for figures which are on par with trade but more so a slower growth in fleet as to be able to slowly eat away at the excessive glut in tonnage that is weighing down the market at the moment.
Taking a closer look at what’s been coming in and what’s been going out, the fleet has seen a total of 372 newbuilding being delivered during the first seven months while in comparison, only 282 vessels have been sent for scrap and even when adding a further 17 miscellaneous removals, we still see a net growth of around 73 vessels. As things stand now, there are still another 496 vessels scheduled for delivery within the remaining months of 2016, although given the rate of slippages and cancellations noted thus far, the final figure of deliveries for the remaining months is quite likely to be considerably smaller. Given that we still have a fleet of 864 vessels which are above 20 years of age, there is ample vessels to counter balance this inflow. At the same time taking a look at the orderbook schedule for 2017 and 2018 (which now stand at 407 vessels and 173 vessels respectively) and noting that we have had minimal new orders in the year thus far (44 vessels in the past 7 month period) and you can see how the balance should be getting considerably better as move forward.
There are however a few cavities to this train of thought. For one scrapping activity, though at good levels, has not been able to achieve the levels many would have hoped for during this time frame. This is partly due to the downward pressure afflicted on the price of scrap steel, as China continues to churn out record levels of steel exports (latest figures show that during the month of July shipments held above the record mark of 10 million tons for a second month in a row) dampening prices amidst the glut in supply that it is creating worldwide. At the same time, it is also worth noting that prices being quoted by shipbuilders for newbuilding orders have been dropping considerably over the past couple of months, while secondhand prices have noted considerable increases during the same period. This means that the gap between the two is closing and at a rapid rate, leaving the potential to drive buyers’ interest towards the former despite the poor medium-term market fundamentals for this sector. If this starts to materialise to a considerable volume of orders, then we may well see the orderbook get back into growth figures, pushing for an ever longer period of demand-supply imbalances and in turn lacklustre earnings for this sector.