2004

Since the end of the 1990s, FSU oil production as well as exports have shown a remarkable recovery and to a great degree, changed the tanker markets. Not least as a result of new terminals being opened in areas that are ice-bound during winter and spring. In addition to the current situation and expected developments in the Baltic, there are great expectations for new projects in Arctic Russia. As a result, shipowners have flocked to shipyards and ordered ice-strengthened tankers, and especially product tankers, as if there were no tomorrow! Well, disappointment looms.

After strong downward corrections in dry bulk freight rates earlier this year, we have witnessed a fantastic recovery and a very strong upward momentum for all vessel sizes, resulting in a new all time high for the Baltic Dry Index.

Now that I have relocated to the United States, I spend more time trying to find something to watch on TV than actually watching. However, I was pleasantly surprised the other day to see that now and then they air political discussions in the UK´s House of Commons......as entertainment. Especially during the course of the Q&A sessions, it is not uncommon to hear the "speaker" demand "order, order!" as the discussions top off. In a way, this reminds me of recent developments in the LNG shipping market.

The tanker market reached new highs in September on a wave of transient factors topping a very strong global oil demand development. The latest global oil demand forecasts from IEA shows a very strong increase from 81.5 million barrels per day in 3Q to 83.8 mbd in 4Q this year and 84.2 mbd in 1Q 2005. At present there is already a very tight tonnage balance in the tanker market. Therefore, in the short term it is hard to see any substantial downside risks, albeit unforeseen events could always change the market scenarios.

Against all odds, coal has definitely been the star performer among the main energy commodities in the last few years. Despite pollution concerns and the Kyoto Protocol on carbon dioxide emissions, the global use of coal is now out-pacing  oil and gas. In addition to the phenomenal growth in China´s steel industry with higher iron ore import volumes, the coal trade is the main contributor to the strong dry bulk market.

July was an exciting month in the dry bulk market, especially for the largest sizes. After the strong downward corrections from the fantastic rate levels seen earlier this year, a strong recovery took place from late June through mid July, before easing somewhat and then showing a strong finish to the month. From 22 June to end July the Baltic Capesize index rose 59% and the Panamax index was up 68% over about the same period, whereas the Handymax index was up 32%. Indeed quite a lot in just six weeks´ time.

It remains to be seen how stable conditions within Iraq can become after the surprising ahead-of schedule handover of political power to the transitional Iraqi government. In the short term, hopes in that direction are limited with almost daily reports of violence throughout the country. However, foreign forces with the support of the UN and Nato seek to protect the long road to democracy in this country, which is supposed to have the second largest oil reserves in the world after Saudi Arabia.

The high point of the 2004 China commodity boom may well have been marked on April 22 by the appearance of a banner advertisement in the South China Morning Post for 14 million metric tonnes of iron ore pellets "available promptly in South Africa". On April 28, Wen Jiabao made his famous speech about the need to take "very forceful measures" to curb the economy.  At the same time the State Council issued new guidelines requiring companies to cut back on the use of debt to fund projects in the areas of steel, aluminium, cement and property.

In recent months, the LNG shipping market has been strongly focused on super large LNG carriers with cargo capacities well above the current "standard" size of 145,000 cbm. With demand for LNG and LNG vessels expected to grow significantly over the next decades, shipowners have ordered more vessels on speculation.

Last November, Turkish authorities introduced a new set of regulations concerning vessel transits through the Bosphorus and Dardanelles Straits. Amongst others, the new rules introduced daylight sailing restrictions on all vessels with an LoA of more than 199.9 m. This caused enormous delays in transitting the straits during the darkest period of the year, but the queues vanished in March as a result of - longer days!

The strong steel market is at present sending sweet vibrations through the dry bulk market with an almost uniform resonance in all size groups of dry bulk carriers. When volumes of steel making raw materials, such as iron ore coking coal, coke, steel scrap, limestone, manganese, various ferroalloys, and some other input materials together with finished steel products are added, it appears that the steel industry now accounts for close to 50% of the total volume of seaborne dry bulk trade.

The phenomenal freight rates now experienced in the dry bulk market are reflected in very strong price increases for existing vessels and rather modest increases for newbuildings. The value of being present in order to scim the cream from the unprecedented market conditions has never been greater, with Panamax resales ready to sail valued over 60% higher than current newbuilding prices.