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Dry bulk carriers: Jason shares.

Friday, April 9, 2010

A reader, Jason, has provided, in my opinion, a wealth of information on dry bulk carriers and what we should be concerned about in the next few years.  I would like to highlight Jason's comments here in a proper post:

"...there are monthly publications that cover dry bulk extensively. You can try - links to lots of shipping information, ship indexes and its weekly newsletter has got plenty of information also on dry bulk shipping.......

"Just so i give you an idea of what dry bulk shipping is all about category of ships:

"VLOCs (very large ore carriers) - primarily used to carry iron ore, Vale will become the owner of the largest VLOC fleet in the world.

"Purpose is to get economies of scales to move iron ore from Brazil to China, compete against BHP/Rio who are much nearer vis-a-vis Australia.

"Capesizes: Moving mostly the hard dry bulk cargoes viz iron ore + coal (usually 120,000 dwt to 220,000 dwt range)

"Panamax: moves coal/iron ore/grains (70,000 dwt to 120,000 dwt)

"Handysizes/Handymax/Supramax: moves everything under the sun - offers the greatest flexibility due to their size, can stop at any port of call to unload (5,000dwt to 69,000dwt)

"To gauge charter rates, you have to look at their respective indexes : BCI (baltic capesize index), BPI (panamax index), BHI (handy index)......charter rates for panamaxes have overtaken capesizes! This was driven by the grains markets - 5 biggest producers being USA, South America (Argentina/brazil), Russia, Europe, Australia.

"Right now, fleets are looking to Asia for business - China (iron ore + coal), India (coal), Japan (iron ore, coal), Korea (coal, iron ore) why? Cos Asia houses some of the biggest steel producers in the world! China - Baosteel/Shagang/many more. India - Arcelor Mittal. Japan - Nippon Steel. Korea - POSCO

"Right now,USA gets its iron ore from backyard (domestic + Canada). Europe still imports from Australia/Brazil but not much cos their economy is still in the toilet for now.

"Coal is very much part of the steel production (used in the blast furnaces) and power plants, of which India especially is lacking in the latter while China needs the former! Why the boom in China? Biggest car mkt in the world (13.6m cars in 2009), property boom, infrastructure spending from new stimulus package in 2010.

"So ships will be everywhere but mostly with an eye for Asia. China is gobbling up every known commodity on earth - copper/aluminium/zinc etc, wheat, cotton....rates keep going cos charterers pay more to get ships out from the far east to Europe/baltic/atlantic.

"So long as Courage Marine can focus its biz on China/Asia/India exclusively, the upside is there. And we all know doing biz in China is all about guan xi......:) Keep that guan xi and you are OK.

"As for the progressive new ships coming on board, the ship owners will suffer the most whilst the charterers will be laughing to the bank - i can pick and choose my shipper!"

In my reply, I suggested that the demand for dry bulk carriers is likely to remain strong in Asia but as Jason pertinently pointed out, the world of dry bulk carriers would be focusing on Asia to pick up the excess capacity and with new ships joining the fray in the coming years, a lid might be put on earnings with increased competition. 

Based on my analysis of Courage Marine's numbers, with their strict cost management and very low gearing, I believe that they will be able to do relatively well.  If revenue reduces and costs stay low, we can weather storms.  If revenue reduces and costs are high, we are most likely on a sinking ship.

Courage Marine is also very focused in offering their services in the Greater China region where growth is the strongest in the world.  Since 2001, Courage Marine has built a good name for itself in this region.  It is small but nimble. As long as Asia continues to do well, Courage Marine would be a key beneficiary.

A China Bubble? People Have Been Saying That Forever
Posted Apr 08, 2010 09:46am EDT by Henry Blodget

Related post:
Courage Marine: Riding the waves of recovery.


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