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Future Bulk Commodity Market: Vision and Directions for Shipping and Port Companies
Giriraj Singh Rathod, Deputy Secretary, Mumbai Port Trust Demand for seaborne trade is potentially infl uenced by the world economic growth and industrial production, which is not always symmetrical. Sustained global economy and industrial production from fi rst quarter of 2005 to third quarter of 2008 had held the freight market higher, but with negative growth rate from fourth quarter of 2008 following economic crisis, the market crashed in 2009 to a historically low point (Shipping Insight, October, 2010, 6).

In a volatile market like shipping, not only the ship owners but bankers lending money, shipyards developing designs, engineering companies selling equipments, rating agencies calculating the risk of default on bonds and ports developing their facilities, all are interested in forecast though in reality maritime forecasting has a poor reputation. Future freight inter alia depends on how many ships are ordered, a totally unpredictable behavioral variable, and developments in the world economy, which with its business cycles and crisis are far too complex to predict (Stopford, 2009).

This article is prompted by a news item appearing in English daily The Hindu dated 11th May 2012 quoting Shipbrokers: ‘rates for Panamax dry bulk carriers on key Asia freight routes are expected to hover near three weeks lows over the next week, pressured by an abundance of vessels and limited Chinese activity’. Taking into account the past performance, current trade pattern and demand projections made on the basis of economic growth envisaged for another 20 years for dry bulk and liquid bulk commodities the article attempts to make an educated guess on the future market scenario for these commodities.

Dry Bulk:
During the last ten years, sea borne dry bulk trade grew on average by 5.7 per cent yearly. Since summer of 2003, demand for dry bulk transport had been high, supported by demand for natural resources and energy on the back of high economic growth in emerging countries (Hono, 2009, 30). With nearly 95 per cent in 2008, the shipment of coal, iron ore and grain reflected by far the most important shipping demand in dry bulk trades. According to Fearnley´s trade and shipment figures, iron ore trade represented largest share of trading volume of all major dry bulk commodities at 40.6 per cent followed by coal with 39.3 per cent and grain with 16.3 per cent (ISL Shipping Statistics and Market Review, Vol. 53 No 4, 2009).

Grain is an agricultural crop, subject to vagaries of the nature. Because the trade is seasonal and fluctuates with the harvest in exporting and importing regions, shippers rely heavily on the spot market, using the ships that are available (Stopford, 2009, p. 455). As regards coal and iron ore, following dramatic collapse in freight rates at the end of 2008, the dry bulk sector has shown signs of recovery, mainly due to the expanding imports of iron ore and coal into China and India. This demand may even drive global seaborne trade in iron ore to new records helping to absorb new buildings being delivered in 2010 (International Chamber of Shipping, 2010, p. 16).

Following projected volume of transport in Iron Ore and Coal upto 2015 present a rising growth trend.

Insofar as imports are concerned, China has been largest importer (410 mtpa) followed by Western Europe (135), Japan (135) and Other Asian region (100). While the Australian export has been catering to importing nations in Asia such as China, Japan and other Asian countries, Western Europe’s demand is met by Brazil.

As regards imports 89 per cent of Australian export is absorbed in Asian region with Japan (105), Korea (42), Taiwan (25), China (25) and India (25). Likewise, Indonesian export has also been catering to the demand in Asian regions. Demand of North America and Europe is served by Columbia.

For the period beyond 2015, consumption of coal is anticipated to remain almost at current levels in North America and rest of the World but is projected to grow consistently in non-OECD Asia to register growth from 80 quadrillion Btu to 140 quadrillion Btu in volume from present level by 2035. This will be primarily to meet the energy demand (http://www.eia.doe.gov). Considering that China’s strong growing industry depends heavily on imports of iron ore and coal (ISL Shipping Statistics and Market Review, Vol. 53 No 4, 2009, 10) and that the demand for coal is linked to need for energy consumption (http://www.eia.doe.gov), market for bulk carrier in Asian region is poised to remain steady upto 2030. As can be seen above, given the geographical location of present and projected demand and supply of coal and iron ore the trade will predominantly remain concentrated in Asian region.

On ship supply side the total bulk carrier fleet on 1st January 2009 comprised 1073 Cape-size and 1381 Panamax vessels (ISL Shipping Statistics and Market Review, Vol. 53 No 4, 2009, 21). Capacity increase in world bulk carrier fleet was registered at 5.9 per cent in 2009 and at 8.9 per cent in 2010 (ISL Shipping Statistics and Market Review, Vol. 54 No ½-2010, 18). Even if the trend continues at same pace, projected growth in Iron Ore and Coal is large enough to absorb the capacity addition, making it profitable to deploy a bigger Cape-size vessel in Asian region for transporting coal and iron ore interchangeably.

Liquid Bulk (Crude Oil):
Crude oil is presently dominating the liquid bulk trade. In the year 2008, OPEC (Organisation of the Petroleum Exporting Countries) countries strengthened their market share in world oil production by increasing it to 44.8 per cent from previous year’s 43.7 per cent. In contrast production level fell by 0.9 per cent in Russia and other oil producing countries of former Soviet Union. In the long term, International Energy Agency (IEA) forecast expects Saudi Arab’s production to reach 15.6 million barrel per day by 2030 (ISL Shipping Statistics and Market Review, Vol. 54 No 3, 2010, 6-8).

On the demand side, until now oil shipments are traditionally mostly affected by demand pattern in North America, North West Europe and Mediterranean countries. Notwithstanding the fact that oil consumption in China has shown a steady growth at the rate of 8.2 per cent per annum between 2003 and 2008 US continued to be the largest oil consuming country in the world. However, as per the Gibson Report carried by Business Line on 14th May 2012 edition crude exports from Nigeria and Angola to the US reduced from 1.58 b/d in 2007 to .64 million b/d during the first four months of this year. Further, the loss of crude production in Libya in 2011 diverted West African crude to Europe. According to IEA forecast, primary oil demand is likely to reach 107 million b/d by the year 2030 with annual growth of 1.0 per cent between 2008 and 2030. It is the China’s growing reliance on seaborne crude oil imports that will set the tone of the tanker market for coming decade. Assuming that incremental volume is sourced from the gulf, it will generate demand for almost 80 VLCCs by year 2015. This assumption is based on the fact that 70 per cent of Chinese imports have hitherto been from Persian Gulf. (ISL Shipping Statistics and Market Review, Vol. 54 No 3, 2010, 6-8).

On tanker supply side, as on 1st January 2010 world tanker fleet comprised 848 Aframax tankers and 538 VLCCs. Average growth of world tanker fleet from the year 2005 to 2009 is reckoned at 5.5 per cent. Since 2005 Suzemax fleet has grown by 53 per cent, VLCCs by 34 per cent and Aframax by 27 per cent. This capacity addition is on a higher side than anticipated trade growth at the rate of 1 per cent per annum. Also, in post economic crisis recovery, though dry bulk freight market already witnessed a rise, tanker market remained quiet with low freight rate for both dirty and clean oil tankers. As a result, 6 million dwt of oil tanker tonnage was converted to bulk carrier in 2009 (ISL Shipping Statistics and Market Review, Vol. 54 No 3, 2010, 17).

Above market analysis based on current and projected demand and supply suggests strong market for deployment of Cape-size vessel interchangeably to transport Coal and Iron Ore in Asian region in the next twenty years.