Thanks to low charter rates and concerns about how the International Maritime Organisation’s (IMO) 2020 rule will impact marine fuel prices, bulker new build orders declined during the first half of the year. But the slowdown is not expected to continue in the long term, according to Drewry Shipping Consultant’s lead analyst for dry bulk shipping, Rahul Sharan. “There are two reasons for the decline in new orders compared to 2018 – low charter rates compared to 2018, and uncertainty among many owners about the viability of scrubbers. So whether to order a scrubberfitted vessel or a non-scrubber fitted remains a pertinent question,” Sharan said. Additional market shocks that have also impacted orders included the Brazilian dam collapse that led to a stoppage in processing at mining giant Vale’s Brucutu mine in January, impacting iron ore exports, a key demand driver for the Capesize vessel market. According to research firm VesselsValue, just 80 bulker new build orders were placed in the first six months of this year, a decline of 66% compared to the same period last year. Bulker new build orders are projected to hit 160 this year. The slowdown follows a period of high demand in recent years averaging 720 new build ship orders from 2013 to 2015. This declined to an average of 266 new build orders per year from 2016 to 2018. However, according to Drewry, this trend is expected to reverse in the mid-term. “We definitely believe that demand will increase over the next two years or so. China’s steel production expanded by close to 10% in the first half of this year and there is no reason that it will not grow further,” Sharan said. “Additionally, China’s iron ore imports growth did not match with its steel production growth because the supply was not there. As a result, China consumed its inventories. Now, when Vale and Australia try to come back to normalcy, we expect that China will import additional iron ore to rebuild its inventory, helping demand for larger vessels to increase over the next six months or so,” Sharan added. He said that the sharp rise in bulk freight rates would also drive new orders. “With an increase in charter rates, new building orders should also improve. However, the uncertainty over use of scrubbers will certainly limit the extent of increase in new orders,” he said. Sharan added that he expected the lending appetite of banks, which had been dampened, to gradually improve over the next six months to a year.
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