03/08/2015
Baltic indices have been in a recovery mode since the last few months with the Baltic Dry Index even doubling to over 1,100 levels from its all-time low of 509 noted in February. Baltic Dirty and Baltic Clean Tanker indices meanwhile, are enjoying the rising trend due to falling crude oil prices. Despite the buoyancy, which indicates high freight rates and in turn better earnings, domestic shipping companies remain low spirited.
“For the Baltic Dry Index, recovery in percentage terms is 100 percent but in absolute terms the rise is no big deal. There is some support from the marginal recovery the index has had but it does not put the dry bulk segment in any healthy situation,” a senior official from the bulk and tanker division of Shipping Corporation of India (SCI) told Business Standard. “There is a gain of just about five-10 percent in terms of earnings through this jump in index,” he added. The government-owned company which turned profitable in FY15 after a gap of three years has a well-diversified fleet of 69 vessels, including 17 bulk carriers.
Baltic Dry Index measures change in the transport cost of raw materials such as metals, grains and fertilisers by sea. Baltic Dirty Tanker is used to access the crude oil shipping segment, while Baltic Clean Tanker Index indicates freight rates of vessels carrying petroleum products.
“With Baltic Dry at record lows in February, the market was dead. So certainly a recovery from that level is some support for shipping companies, but one cannot say that there is good money coming in at this level. Companies will start to earn once Baltic Dry moves above 2,000. Overall, it continues to remain weak,” said an analyst with a local brokerage. Shipping Corporation offical also echoed the same.
The main reason for Baltic dry to be on the upside is that dry bulk products are exceeding capacity, especially as the sector even continues to scrap aging vessels, said industry officials.
Earnings from the bulk segment form only 20 percent of the total earnings of Shipping Corp as well as that of Great Eastern Shipping.
In the tanker division, companies are enjoying low crude oil as well as bunker fuel prices and to that extent gains are substantial, said industry officials. However, companies into spot contracts are more in advantageous position that those on time-charter.
“We are not deriving the benefit witnessed in the rising tanker indices since our vessels are on time-charter whose contracts will be renewed only on October this year,” said a top official with Mercator. “In fact, we have locked in our contracts at slightly lower levels than the prevailing tanker levels for dirty and clean, so we are losing out a bit” he added.
Mercator, another leading company, whose stand-alone business is largely pure shipping has seven tankers, one VLCC (very large crude carrier) and 13 bulk vessels. Mercator’s bulk business is handled by its Singapore subsidiary, Mercator Lines (Singapore).
Whatever the tanker segment is earning for the shipping companies, the dry bulk division is taking away, said the official with Shipping Corp. “Due to this, the overall gains are not much for companies. Nothing majorily changes in terms of earnings for us,” he said.
Going ahead, the outlook for both, dry bulk as well as tanker segment is not too strong.
“Until recently, China and Japan were filling up there strategic reserves. So freights moved up in the division, but now this activity is slowing down and has infact gotten softer than last week. US shale oil project is also not operating at optimum since crude oil prices are not supporting. So overall, in the short term a fall in tanker freights is likely,” said the Mercator official.
For the dry bulk, industry officials said the current grain season in Atlantic is supporting the freights and so its a seasonsal affair.
“We recommend ‘Hold’ in Shipping Corporation and Great Eastern Shipping,” said the local analyst.
The market meanwhile remains in the wait-and-watch mode as some shipping companies like Great Eastern Shipping have seen share prices decline 3 percent, while shares of Shipping Corporation of India have moved up 17 percent in the last six months of uptrend noted in Baltic indices.
Source: Business Standard
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