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Shrinking fleet may aid smaller dry bulk segment

Western Bulk, a Norway-based operator of dry bulk vessels, expects a greater improvement in the market in the final quarter of the year and into 2020 because of better supply-demand fundamentals in the supramax and handysize sectors. However, the biggest challenge remains the availability of bunker fuel

The dry bulk sector should end the year at least 10% higher on the Baltic index compared with 2018, said Western Bulk’s managing director in Singapore, Vivek Kumar

AN UNPRECEDENTED contraction in the global fleet of supramax and handysize ships because of a reduced appetite for newbuilding orders could be start of a sustained recovery, according to Western Bulk’s managing director in Singapore, Vivek Kumar.

He noted that the markets followed a parabolic curve pattern, which would always rise and fall depending on season. But what was key was how low or how high the curve reached.

“If the market starts pushing too high, then in shipping, people forget things and become more optimistic. That is where the problem comes,” he said in a recent interview with Lloyd’s List.

“But at least on the dry bulk side, things are becoming more sensible, because owners have learned their lesson, which is why even though the market has slowed down a little bit, compared with the highs seen in the previous month, it is still at a very healthy level.”

This would lead to a much brighter supply-demand index forecast for bulkers in the years up to 2021.

“On an average this year, the sector should end on a higher note compared with the previous year,” he said. “It is a healthy market and is far above the operating expenses of the ships.”

So far this year, the average of the Baltic Supramax index stands at 857 points.

Mr Kumar said that the reason for the current optimism in the market was mostly because of the effect of Vale’s suspension of mining.

Brazilian miner Vale cut iron ore shipments over the first quarter of the year after an ore tailings dam breach in January shut down production at several mines, causing dry bulk rates to plummet. Iron ore supply reactivation and the retrofitting of scrubbers on larger dry bulk carriers in the final quarter of 2019 is likely to boost rate recovery for bulk carriers.

However, Mr Kumar believes that the market should end up better next year as compared to 2019 due to healthy supply-demand fundamentals.

Despite the opportunities emerging, Mr Kumar warned that the availability of bunker fuels was a major concern for the industry.

“What happened last week was that, at least for us, a lot of bunker stems were cancelled because of unavailability of fuel in Jeddah and South Africa. So, we were taking bunkers from places like Mozambique and Djibouti. That is the biggest challenge now as it becomes very difficult to manage the fleet.”

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