By Jonathan Saul

LONDON, Dec 28 (Reuters) – Shipping firms that transport commodities resembling coal, iron ore and grain face a painful 12 months forward, with solely the strongest anticipated to climate a deepening disaster attributable to tepid demand and a surplus of vessels for rent.

The predicament dealing with companies that ship commodities in giant unpackaged quantities – often called dry bulk – is partly the results of slower coal and iron ore demand from main world importer China within the second half of 2015.

The Baltic Exchange’s important sea freight index – which tracks charges for ships carrying dry bulk commodities – plunged to an all-time low this month.

In stark distinction, nevertheless, tankers that transport oil have in latest months loved their finest earnings in years. As crude costs have plummeted, bargain-buying has pushed up demand, whereas house owners have moved extra aggressively to scrap vessels to go off the type of surplus seen within the dry bulk market.

Symeon Pariaros, chief administrative officer of Athens-run and New York-listed delivery agency Euroseas, mentioned the outlook for the dry bulk market was “very challenging.”

“Demand fundamentals are so weak. The Chinese economy, which is the main driver of dry bulk, is way below expectations,” he added. “Only companies with very strong balance sheets will get through this storm.”

The dry bulk delivery downturn started in 2008, after the onset of the monetary disaster, and has worsened considerably this 12 months because the Chinese financial system has slowed. The Baltic Exchange’s important BDI index – which gauges the price of delivery such commodities, additionally together with cement and fertilizer – is greater than 95 p.c down from a document excessive hit in 2008.

The index is commonly considered a forward-looking financial indicator. With about 90 p.c of the world’s traded items by quantity transported by sea, world buyers look to the BDI for any indicators of modifications in sentiment for industrial demand.

“The state of the dry bulk market especially indicates that economies worldwide are likely to stay weak, much to the disappointment of central banks … FX traders, miners, steel makers, trading houses, and commodity economies,” mentioned Basil Karatzas, head of New York consultancy and brokerage Karatzas Marine Advisors & Co.

Ratings company Fitch downgraded the delivery sector to unfavorable, from secure, this month attributable to slowing world commerce and an financial slowdown in rising markets, including that dry bulk would stay underneath strain.

COMMODITY PRESSURE

Slowing demand and issues over the well being of the Chinese and world economies have pushed the 19-commodity Thomson Reuters/Core Commodity CRB Index, which tracks the costs of 19 commodities together with oil and grains, to its lowest degree since 2002.

“There is no doubt that the overall macro situation is one that does not engender a lot of confidence for increased trade flows in 2016 and beyond,” mentioned Khalid Hashim, managing director of Precious Shipping, one among Thailand’s largest dry cargo ship house owners.

Worsening circumstances have already claimed casualties.

In September, Japanese bulk provider Daiichi Chuo Kisen Kaisha filed for cover from collectors, and personal fairness backed Global Maritime Investment Cyprus Ltd filed for Chapter 11 chapter safety within the United States.

Smaller dry bulk ship house owners are anticipated to battle in coming months.

“There are clearly big problems for almost all dry bulk owners, certainly those who cannot subsidize dry bulk through ownership in tankers. Debt can only be serviced through reserves of capital and not from cash-flow,” mentioned Tony Foster, chief government of British delivery asset supervisor Marine Capital.

“Public companies will issue discounted shares. Small private companies without obvious external support will be at the most risk.”

Ship house owners are additionally contending with extra vessel orders, that are anticipated to extend oversupply additional.

While the dry bulk market has been in a downturn since 2008, there have been temporary rebound intervals of comparatively good earnings in that point that emboldened ship house owners to order extra vessels, which usually take as much as three years to ship.

“Too many factors are against ship owners at present, and January sees a disproportionate delivery of vessels from the shipyards,” mentioned Karatzas.

Analysis from Axia Capital Markets confirmed the cumulative lack of revenues for 13 delivery firms publicly listed in New York reached over $3.36 billion within the first 9 months of 2015.

“Given the current oversupply of vessels in the marketplace that has built up over the past five years, we expect rates to remain at depressed levels for at least two more years as the market struggles to find a new equilibrium,” mentioned Robert Perri of Axia Capital Markets.

DIVERGING FORTUNES

By distinction, demand for oil tankers and the charges they command have surged to their highest ranges since 2008 previously three months.

Dry bulk delivery markets have been hit exhausting by a slide in demand for coal by China, which can be making an attempt to ease its dependence on the polluting gas and meet environmental pledges.

But the nation has been trying to enhance strategic reserves of crude, profiting from multi-year lows in costs, which has helped the oil tanker market rally. Earlier this month China mentioned it greater than doubled the scale of its strategic crude oil reserves between November 2014 and the center of this 12 months, a fee exceeding analysts’ estimates.

Oil tanker gamers have been extra conservative since 2008 in ordering ships as they skilled rock-bottom charges that noticed earnings falling beneath zero as not too long ago as final 12 months, which means house owners clocked up losses every single day. The scrapping of tankers, which picked up in 2011, has additionally shrunk the fleet.

Average earnings for supertankers hauling 2 million barrels of oil on the benchmark Middle East Gulf to Japan route have surged to over $110,000 a day.

In distinction, common earnings for capesize ships, among the many largest vessels used to haul coal and iron ore, have slumped to underneath $5,000 a day in latest weeks – beneath the essential working price degree a ship wants to interrupt even, which is round $8,000.

“The (tanker) market is on fire,” mentioned Deutsche Bank analyst Amit Mehrotra, however added: “Owners of dry bulk ships are likely to spend the holiday break quietly reflecting on how they will further endure the worst market many have seen in their lifetimes.”

(Editing by Veronica Brown and Pravin Char)

(c) Copyright Thomson Reuters 2015.