Shipping Recovery Seen by 2015 by Bank of America on Supply Ease

Hire costs for the global fleet of dry-bulk vessels will show a “meaningful increase” by 2015 as demand for seaborne commodities expands amid slowing fleet growth, Bank of America Merrill Lynch said.

“We see a major shift in the sector next year, as demand growth once again outpaces fleet capacity additions and the oversupply in the market starts to shrink. Yet, due to the magnitude of excess supply over demand, we believe a sustained recovery in bulk freight prices will take longer to materialize,” the Charlotte, North Carolina-based investment bank said in a note e-mailed today.

The Baltic Dry Index, a measure of commodity freight costs, averaged its lowest since 1986 last year. Dry bulk fleet growth peaked in 2011 and depressed hire costs now at levels below operating costs for the biggest vessels, the bank said. The index used to be a pulse-taker of the global business cycle until the recession of 2008 and 2009, according to the report.

“High domestic iron-ore production costs in China will encourage imports, which are increasingly being sourced from farther away,” the bank said. “Shipping demand should also find support on rising coal demand in China and India, improving harvests in Latin America and a cyclical recovery in minor bulks trade.”

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