three years in a row, and displacing Japan from the pole position it had occupied continuously since 1975! Coal imports are expected to grow steadily but are contingent on import pricing parity versus domestic coal production/transportation costs. In a country that currently produces and consumes some 3,800 MMT of Coal per annum, with the figure expected to grow to 4,150 MMT by 2015, even a small change in China’s coal imports could have a dramatic impact on the Dry Bulk freight markets. The BDI started the year at 698 points, but ended the year at 2,277 points just shy of its year high of 2,337 set on the 12th December due to a restocking of iron ore imports into China. It was the international price of iron ore that had fallen to a low of about USD 114 pmt landed in China during June 2013, compared to the cost of domestic production around the USD 135/140 pmt mark, which drove the restocking process in China. This of course led to an inordinate amount of congestion in the Cape size sector in China with the July 2013 import figure of 73.1 MMT of iron ore into China breaking all previous monthly records. This was followed by fresh monthly records in September (74.6) and November (77.8)! Another factor supporting the index was the 322.01 MMT of Coal that China imported during the year from places as far away as the USA and the ton-mile impact of this change from being an exporter to becoming the largest importer. Finally, it was the scrapping of 21.39 MDWT of dry bulk ships that kept the BDI on life support. The BDI average for 2012 was 1,206 points the ninth lowest average in BDI history, however, the average BDI of 842 points in the first half of 2013 was the second lowest in BDI history. The pain felt in the first half of 2013 was so intense that we had a spate of bankruptcies with Today Makes Tomorrow, Excel Maritime and STX Pan Ocean making up the 3 largest and most spectacular cases to be reported in the month of June 2013. To give this some perspective, the long term average for the BDI (1985 – 2003) prior to the recent Bull Run was 1,358 points; including the Bull Run period (1985 – 2010) was 2,133 points; and during the Bull Run (2004 – 2010) was 4,265 points. We had suspected that 2011, 2012 and maybe 2013, would not be so kind, with many entities being forced to the wall due to the pressures being exerted on the freight market. We were, therefore, not surprised by the spate of financial restructuring and bankruptcies that we have seen during 2011 to 2013. With the BDI and rates moving up sharply in the second half of the year for the Cape sector and in Q4 of 2013 for the rest of the other dry bulk sectors, the intense pain felt by the market during 2011 to 2013, should hopefully, be a thing of the past. The Time Charter Equivalent (TCE) earnings of our Fleet during 2013 averaged USD 7,508 per day per ship which was almost identical to our forecast of USD 7,500. In terms of daily average Operating Expenses (Opex), we were marginally higher than our target of USD 4,500 per day per ship reaching a figure of USD 4,535 per day per ship. Market Segmentation/Benchmarking: During 2013, the Baltic Handy Size Index (28,000 DWT Index Ship) averaged 562 points derived from the average Time Charter (TC) rate of USD 8,179. Compared to that, our Handies (27,427 DWT, 2.1% smaller than the Index Ship) earned USD 7,139 underperforming the BHSI TC rate by 12.72%. Further, the Baltic Supramax Index (BSI) averaged 983 points derived from the average TC rate of USD 10,275. Compared to that, our Supramaxes earned USD 8,928, underperforming the BSI TC rate by 13.11%.
THE INDUSTRY OUTLOOK: Scrapping was not as strong as in 2012. 167 ships were removed or scrapped whilst 185 ships were added, resulting in an increase of 18 ships or 0.65%, with the world fleet increasing from 2,752 ships to 2,770 ships in our sector (10 – 30,000 DWT) during 2013. The continued weakness of the freight market is the main force driving the acceleration of scrapping rates. It also helps that scrap steel prices have remained reasonably robust. It is, however, impossible to escape the conclusion that the age profile of ships in our sector will lead to a continued healthy scrapping rate in the future.
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ANNUAL REPORT 2013
Precious Shipping Public Company Limited