The last few weeks have been rather strenuous for Greece and China, each for their own reasons, affecting most markets around the world.
In Greece we witnessed some of the most historical moments of the last forty years. Having just avoided a financial meltdown and with a new agreement from Greece’s creditors on the table, one can only hope that long-awaited reforms will slowly bring back stability and trust. China, the world's second-biggest economy, witnessed a 30 percent slide in its stock market since mid-June. Following these massive losses, unprecedented measures were taken in order to soothe investors' concerns about the stability of the economy. Whilst we have seen a strong rebound last week, we expect volatility to remain for some time.
There has been a lot of activity in the tanker market both in terms of new building orders as well as second hand sales. On top of that, yesterday it was reported that Iran reached a landmark nuclear deal with six countries that would see an easing of sanctions against the country and a gradual increase in its oil exports. In an already oversupplied market with the Saudi output at record highs, the oil price should move further down. Cheap oil will be followed by increased consumption and storage and will possibly provide the grounds for further macroeconomic growth. We already see oil and oil product trading to grow at higher levels than the previous years.
On the dry bulk side, earlier in the year with the BDI at its lowest historical levels, we argued that there was a plausible scenario that can play out in 2015, in which as long as a series of logical events occurred, things could shift towards the right direction of a stronger and more balanced 2nd half of 2015. Now, without seeing anything remarkable, we are experiencing for the past month a higher utilisation of the fleet, less idle time, period charters that are coming into play and in general a more balanced situation. On the sale & purchase front one thing is for sure, a modern Japanese Handysize, Supramax or Panamax bulk carrier will now certainly find buyers.
In an environment of depressed demand and ship oversupply and in the middle of the summer, can this market upturn be explained?
On the demand side, things are very weak albeit stable and in line with forecasts. Japan's and China's steel production and coal trading are contracting, the iron ore trade is anemic and the seaborne trade forecast is to remain at the levels we had in 2014. IMF in its world economic outlook for 2015 (data from April) is keeping its forecast for a 3.5% growth (compared to 3.4% in 2014).
On the supply side however, things now look much brighter since we have seen a lot of demolition activity, a fair amount of cancellations and conversions of new building orders and very limited replenishment of new orders.
Since January 2015 the dry fleet has increased a mere 0.75% and even less in terms of deadweight. As a matter of fact, in terms of deadweight, the Capesize fleet has diminished by about 1%, the Panamax fleet has grown about 1%, the Supramax/Ultramax fleet has grown by 4% and the lastly the Handysize has contracted by around 0.4%.
Despite the weak growth of the demand for seaborne trade so far - which has nonetheless remained in line with estimates/forecasts - the growth of the fleet (the supply side) has been lagging behind allowing for higher utilisation of the dry fleet. So the numbers show a different picture than what many people tend to have in their minds and the scenario that we described back in February is starting to play out.