The Baltic Dry Index (BDI), which measures the price of moving raw materials by sea, has fallen to 634 on May 15 after hitting a high of 1484 last November. Even that 634 mark is better than the record low of 509 which the BDI reached in late February.
The shipping industry has been hit hard by slowing demand for raw goods out of China as well as the fact that new ships commissioned during the boom times of the past few years are finally being finished. This change has been noticed by container companies such as Royal Wolf.
Thanks to these difficulties, dry bulk container ships are being scrapped at record rates, as 52 ships have already been sold for scrap so far in 2015.
How soon the dry bulk market will recover is a matter of debate. Global shipping consultancy Drewry released a report on Friday stating that they do not expect a return to profitability until 2017, according to the Maritime Executive.
“Anaemic demand growth is here to stay, especially as the trade development in coal and iron ore into China is expected to decline further,” commented Rahul Sharan, Drewry’s dry bulk shipping lead analyst.
But another analysis is that dry bulk shipping may have bottomed out and that the market will get better soon. Tony Caldaro from Investing.com agrees that the primary determinant of the dry bulk market is how high commodity prices are.
But while Drewry expects commodity prices to fall due to lower demand from China, Caldaro expects commodity prices to rise due to cyclical market trends. He notes how commodity prices have fallen for the past seven years, but prices have begun rising in certain key areas.
While the demand for crude oil and other commodities may rise, it seems clear that China intends to move away from coal iron and towards cleaner forms of energy and production. For now, the dry bulk shipping industry will continue to struggle for some time as companies restructure themselves.
