Trends align for Pacific Basin during 3Q

Pacific Basin Tiawai Point

Healthy demand combined with muted supply has been the main drivers behind Hong Kong-based Pacific Basin’s continuing recovery in the third quarter of 2018.

Both Handysize and Supramax spot earnings reached their highest third quarter levels since 2011. Supramax daily earnings of US$12,180 per day showed a year-on-year increase of 30%. Handysize rates also surged 24% during the period to US$10,800.

Pacific Basin noted: Demand for dry bulk shipping in the third quarter was partly driven by healthy North American grain exports which have supported stronger freight earnings in the Atlantic compared to the Pacific. However, Pacific earnings still improved to third-quarter levels last seen in 2011, supported by solid growth in Indonesian coal exports and a recovery in Indonesian minor bulk exports following the 2017 lifting of the bauxite and nickel ore export ban.

Chinese imports of coal and minor bulks grew 14% and 5% respectively in January to August, year on year. Chinese log imports to August are 15% up year on year. Clarksons Research estimates that overall dry bulk tonne-mile demand will grow around 3.1% in the full year 2018 compared to last year, with coal and minor bulks adding the largest volumes.

A fall in newbuilding deliveries – as much as a third lower year on year, leading to global dry bulk fleet growth of around around 2.3% net between January and September, similar to the same period last year.

Despite much lower levels of scrapping in 2018, Clarksons Research estimates that global dry bulk capacity will grow around 2.7% net in the full year 2018 and 2.8% in 2019, as compared to 3.0% in 2017, was also favourable for the trade.

Fundamentals are even more favourable for Pacific Basin’s minor bulks with combined Handysize and Supramax capacity estimated to grow about 2.2% in 2018 and less than 2% in 2019.

On future prospects Pacific Basin said:

“Despite increasing trade tensions, the outlook for widely-spread global GDP growth remains favourable, which bodes well for dry bulk demand. In addition, supply is expected to be kept in check as many shipowners in our segments refrain from ordering new ships.

“The trade conflict between the United States and China has resulted in import tariffs on a wide range of goods traded between the two countries. Affected goods which could impact cargo flows in our minor bulk segment include US

agricultural products, primarily soybean, as well as forest products and cement, but protectionist actions to date impact only a small fraction of the trades in which Pacific Basin is engaged. Total US soybean exports to China in 2017 represented only about 0.6% of total dry bulk seaborne trade, and commodity trading patterns tend to shift rather than cease as a result of trade tariffs.

“A protracted trade conflict between the United States and China would weaken sentiment which, in the longer run, could impact global GDP growth and consequently overall trade and dry bulk demand. However, we continue to believe that the negative impact these protectionist actions have on the dry bulk trade will be largely outweighed by moderate dry bulk fleet growth and continued global dry bulk trade growth overall.”

For the final quarter as of 10 October Pacific Basin has secured 68% of its contracted Handysize revenue days at US$10,560 per day net. Some 78% of its 5,290 contracted Supramax revenue days at US$11,970 per day.

During the third quarter the company took delivery of a secondhand Supramax vessel, increasing the fleet to 109 ships. Three of four vessels on order are scheduled for delivery over the next five months.

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