Kotak Securities has come out with its earnings estimates on shipping sector for December quarter FY13. The dry bulk market is persistently facing problem of oversupply of ships pegged at 8 to 9% per annum (Gross supply of 144 mn tonnes in the next 2 years) and that is putting the various Baltic Indices and freight rates under pressure. During the quarter all the baltic indices were under pressure.
The key Baltic Dry Index (BDI) lost 20% in the quarter to 845 points. Minimum activity was reported in the spot cargo for larger ships in the quarter which led to freights declining marginally by 5 to 10% on different
routes. Little activity was also seen in the Panamax, Supramax and the Handymax segments, not good enough to boost sentiment and
freight levels in the quarter. The orderbook to fleet ratio has also improved which currently stands at 21% - down from 36% in December 2011 and 52% in December 2010.
The oversupply of vessels is a serious concern even in the crude tanker market. Activity has slowed down in all the key segments of tanker market primarily due to sluggish world economy and the debt crisis in Europe
leading to poor demand for crude oil and petroleum products. Charters are withholding cargoes in anticipation of better freight rates. This is negatively impacting the market with number of ships exceeding the number of cargoes. The tanker market remained flat in the quarter primarily due to winter season in the west.
With slowing consumer demand and burgeoning order book, the container market was weak in Q3FY13 and is estimated to remain flattish in near term.
Shipping asset prices continue to hold in the quarter across segments which is positive reading for the shipowners. Concurrently, the NAV and replacement cost of most of the companies should continue to hold.
Another major positive news for the shipping industry was the fall in bunker prices which has fallen from $734/ tonne in March 2012 (Singapore) to $630/tonne. Lower bunker cost during the quarter should positively impact the margins for shipping companies.
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