Bulker Earnings: A Story Of Two Halves

Despite expectations of an improved market environment in 2014, particularly in the Capesize sector, average spot earnings registered year-on-year declines across the four major bulkcarrier sectors. During the year, the continued impact of oversupply and limited growth in coal and minor bulk trade led to a notable shift in sentiment in the second half of 2014.

Early Optimism…

Average earnings in the bulkcarrier sector decreased y-o-y in 2014, with Capesize spot earnings down 15% y-o-y to $13,309/day and average Panamax spotearnings down 5% y-o-y to $6,260/day. In 2014, early indications were that the market had tightened as Capesize spot earnings in 1H 2014 averaged $13,172/day, more than double average earnings registered in the first half of the preceding three years. This increase in Capesize spot earnings was supported by a lack of seasonal weather disruptions to iron ore exports out of Australia and Brazil, as well as the scheduled expansion of iron ore production in Australia. Meanwhile, the Panamax market remained in the doldrums, with earnings in the first half of the year averaging $6,256/day, below or close to typical operating costs.

…Misplaced?

However, in 2H 2014, further market improvement did not come through as expected. During this period, average spot earnings remained fairly flat compared to 1H 2014. In the second half of 2011 and 2013, a seasonal rise in iron ore exports supported a significant improvement in Capesize spot earnings. However, a similar increase did not occur in the second half of 2014 despite strong iron ore trade volumes (in full year 2014 iron ore trade growth of 11% outpaced Capesize fleet growth of 5%). Capesize spot earnings averaged $13,445/day in 2H 2014, down 31% on average earnings during the same period of the preceding three years. Meanwhile, the Panamax market remained relatively weak in 2H 2014, with spot earnings averaging $6,264/day, reflecting the level of oversupply that has built up within the sector in recent years. Furthermore, a slowdown in seaborne coal trade growth, partly due to a fall in Chinese coal import demand, appears to have also placed downward pressure on earnings in the Panamax sector.

Shifting Sentiment

These trends in spot earnings led to changes in expectations for the bulkcarrier market as the year progressed, as reflected by the lines on the graph. The one year timecharter rate for a Capesize started the year at $31,250/day, which was the highest level since November 2010, but declined 48% to stand at just $11,500/day at the end of the year. Meanwhile, the bulkcarrier secondhand price index fell 18% from 155 points at the start of 2014 to 127 points at the end of 2014.

Overall, alongside the shift in sentiment in the bulkcarrier sector in recent months the outlook appears to have become more bearish this year than previously. Given that supply growth is expected to accelerate moderately in 2015, short term shifts in demand trends in either half of the year are likely to play a key role in shaping market developments.
Source: Clarksons