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Dry Bulk Struggles to Stay Afloat as Supply-Demand Imbalance Weighs Heavily on Sector
Business Monitor International, Oct 2011, Pages: 27
BMI examines the outlook for the beleaguered dry bulk shipping sector, which has been blighted by sinking rates due to crippling overcapacity for the past year. BMI maintains the view that the continued glut of vessel availability will cap rate gains. While rates experienced an uptick beginning in August 2011, they remain a long way off pre-downturn highs. While scrapping is on the up, this alone is not enough to regain the supply-demand equilibrium. BMI needs to see less ordering of new builds, and more idling. For the time being lines remain reluctant to employ these strategies, exposing themselves to the danger of more bankruptcies. As such, the outlook for the sector remains bleak.
In “Chinese Slowdown Threat Presents Double Downside Risk To Dry Bulk Shipping” BMI investigates the possibility of a slowdown in Chinese growth, and analyses the potential effects of this worrying scenario for dry bulk shipping lines. BMI examines the demand-side risks to the sector posed by both the possibility of a slowdown in China’s construction sector, and a double dip recession in the US. We have already seen a crippling oversupply of vessels putting sustained downside pressure on rates, despite strong demand. If we also begin to see pressure on rates from the demand side, rates could plumb new lows
In Vale May Find Solace in Relations with South Korea
As Chinese Troubles Continue BMI looks at the risk mitigation strategy of one dry bulk shipper that is already looking to diversify its demand base; Brazilian iron ore giant Vale. The mining company is taking care not to place all its hopes on China, and is instead developing relations with South Korea, another major iron ore importer.
BMI believes that more dry bulk exporters will be following Vale’s lead as the possibility of a slowdown in Chinese demand becomes increasingly likely.
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