2005

Lately, we have observed a changing trend with respect to bulk carrier sizes. The Very Large Ore Carrier (VLOC) has re-entered the scene. One could always discuss where to set the lower limit for a VLOC, however, if we use 250,000 dwt as such a limit, we have not seen any VLOC´s delivered since 1997,...but 23 such vessels have been ordered during the past 20 months.

As of end November, US oil production and refinery operations are far from restored to the output levels before "Katrina" and "Rita" struck at end of August and September, respectively. More than 0.5 mb/d oil production is still shut in and more than 0.8 mb/d of refinery capacity is out of operation. At the same time PDVSA has signed a deal to supply China with crude and fuel oil. How will these factors impact next year´s tanker market?

The global steel market has recently been overheated, with much higher production than consumption. Steel stocks increased and prices fell back. In sharp contrast, raw material prices are locked in at very high prices,  resulting in severe losses for many steel producers. After self-imposed steel production cut-backs in several countries, Chinese authorities in late October announced a 4th quarter cut of 10 million tonnes in the country´s production of certain steel products. That corresponds to more than 15 million tonnes of foreign iron ore.

In the oil and grain markets it is much more important to talk about the weather than listening to macroeconomic massaging of impacts of rather marginal GDP changes. Once again, extreme weather conditions have caused big havocs in the US Gulf area, the heartland of the US oil industry and the main outlet for the country´s grain exports and a very busy import and export area in general.

After a long period of decline the dry bulk market bounced back in early August, with the Baltic Dry index increasing 51% in just three weeks before easing somewhat to end the month up 44% from end July.

In July, the IEA revised its forecast for world oil demand growth in 2005 down from 2.2% to 1.9%, whereas estimates for last year were revised up from 3.4% to 3.6%. World oil demand in 2Q was only 1.0% higher than last year, after a growth of 2.0% in 1Q. The most striking feature is that China´s oil consumption is reported to be down 1.0% in 2Q this year, against a growth of 23.4% in the same quarter last year.

We can´t help experiencing a  sense of déjà vu noting that the Capesize market bounced back a little in the closing days of June. Considering the robustness of China´s economy, at least as perceived from Hong Kong, there has always seemed to be an inevitability about some sort of market recovery by the autumn.

Most leading flag states have minimal shipping involvement apart from providing an "open registry" or a "flag of convenience". About two thirds of the world merchant fleet is today registered under other flags than the domicile of the shipowners and only 34% fly national flags.  National pride or sentimentality is not much reflected in the choice of flag in shipping, which is more globalized and outsourced than most other industries. The colours of the flag have become much less important than the issue of where the shipping companies are operated from and where decisions are made.

Gazing into the proverbial crystal ball is an important part of any market analyst´s life. Traditionally, shipping analysts have approached this kind of activity with caution, and have, for the most part, limited their predictions to future fleet development based on knowledge of shipyards´ order books. Tallying up vessels on order is, therefore, an important task in this regard.  The question remains, how do the various tallies produced by different analysts tally with each other?

The well-being of the dry bulk, tank and container markets is increasingly linked to developments in China. Warnings of cooling down an overheated economy along with an apparent enormous momentum in the country´s key industries open for quite some confusion and repeated upward revisions of shipping demand forecasts.

Even the most casual observer cannot help but notice that the level of activity in the crude oil tanker market has not been exactly high since the beginning of 2005. 

Naturally all eyes are once again on China as we come to the end of the Year of the Monkey next week. Will the new year be the year of the Rooster - or the Year of the Headache?