Shipping sector outlook for March 2010

Brokerage house ICICI Securities is of the view that components of freight component index which help in indicating performance of shipping sector are likely to improve in March 2010.



Dry bulkers:
Dry bulk vessel rates firmed up marginally with a 2% rise in Capesize vessel rates. Brokerage house ICICI Securities notes that dry bulk freight rates are expected to improve significantly in March 2010 as demand from China for iron ore and coal improves. China continues to be the main driver for dry bulk commodity demand and commands a very significant hold on dry bulk freight rates.
Dry bulk freight rates also showed signs of weakness as they corrected across asset categories in February 2010. Rates for Capesize vessels declined to USD 30036 per day, Panamax rates declined to USD 26308 per day, Supramax rates declined to USD 27558 per day while Handysize rates increased to USD 18889 per day, which was the only exception in the category. Dry bulk rates remained weak on account of sluggish demand for commodities from China, which continues to remain the prime driver of dry bulk freight rates.
Tankers:
Tanker freight rates gave up most of the gains of the previous month and reported a sharp correction across all categories. VLCC rates dropped 47% to USD 25908 per day, Suezmax rates dropped 58% to USD 14495 per day while Aframax rates dropped 40% to USD 10476 a day.
The brokerage house expects tanker rates across all categories of vessels to rise marginally in March on account of rising demand for crude oil. Product carrier rates are expected to remain stagnant on account of high inventory levels of refined products in US.
LPG carriers and Offshore vessels:
LPG freight remained flat in February 2010 except for a small decline in large sized gas carrier rates. Utilisation level for drillship, jack-up rigs and semisubs were at 91%, 81% and 86%, respectively in February 2010.
LPG rates are likely to recover in March 2010 on account of improvement in demand for gas carriers.  Utilisation levels for offshore vessels are expected to remain high on account of firmness in crude oil price and the improved outlook for oil exploration and production activities.  The brokerage house expects this to translate into higher day rates for offshore vessels especially offshore rigs. It also expects rig deployment announcements from offshore companies in India.
Statistics of other components:
The Baltic Dry Index (BDI) declined by 4% to 2738 level in February 2010 as against 2848 in January 2010. The decline was led by a 9% fall in the Capesize vessel index, which declined to the 3174 level.
New build asset prices showed negligible price movement. Five year old asset prices for tankers remained weak with maximum correction in Suezmax rates by 2% and MR Tanker rates by 6%. Dry bulk vessel rates firmed up marginally with a 2% rise in Capesize vessel rates. .
New building orders for dry bulkers decreased from 42 to 35 vessels while that for tankers increased from 12 to 18 vessels in February 2010.
Demolition of vessels continued to be strong in February 2010 with demolition of 67 vessels. India acquired the most vessels for demolitions (35) with an average scrap price of USD 276 per LDT in India with global average scrap prices at USD 355 per LDT.