Oil Versus Dry Bulk Investors Know Which They Like

Bulk investors are on the war path and there's some serious business being done. Last year orders for tankers and bulkers slumped to 36m dwt, even lower than in the late 1990s when bulk orders averaged 44m dwt a year. With only 13m dwt of tankers and 23m dwt of bulkers ordered, analysts could relax. But this year orders have doubled again, with 24m dwt contracted in the first four months.

Love Bulkers, You Cheap Chicks

Despite all the pain in the dry bulk market (and the products tanker euphoria) the serious money is still on bulk carriers, with 15m dwt ordered compared with only 9m dwt of tankers. Capes still top the charts with 57 ships ordered of 10.4m dwt. With earnings so far this year only $9,000/day, surely this does not make sense. Or does it? It all depends on how good future dry bulk trade turns out to be and what cheap deals investors are managing to squeeze out of the hungry shipyards.

Bouncy Bulk, Slumpy Oil

On the cargo side, the story is all about the way trade trends have developed since 2002 (see graph). Between 1986 and 2000 the oil (including products) and dry bulk trade followed a similarly subdued growth trend. Both increased from 1.4-1.5bt to 2.2bt in 2001. Then in 2002 everything changed. Dry bulk trade took off and oil trade lost what little momentum it had. As a result by 2012 the dry bulk trade had grown to be around 50% bigger than oil trade, with an average growth trend of 6% pa.

Slippery Oily Waters

As dry bulk trade accelerated oil trade growth slowed, and by 2012 it had grown by less than 600mt, around 2% pa. The problem was mainly the North Atlantic economies, still a major force in the oil trade importing over 16 mbpd of crude oil in 2012, 43% of the global total. But the 2000s started badly for them and things got worse after 2006 when the oil price rocketed over $100/barrel, boosting the North Atlantic's domestic supplies from unconventional sources and undermining global demand, leaving the oil trade looking shaky.

All the Dried Eggs in One Basket

Meanwhile the dry bulk story is just China. The dotted line, showing dry bulk trade less Chinese imports, demonstrates that without China dry bulk would be in the same predicament as oil. So how robust is the Chinese story going forward? Of course it's a very big country, but iron ore imports are getting into the high risk zone. Luckily in the last couple of years coal has stepped in to provide a bonus bulk boost. China has lots of coal, but in the wrong place and quality is not brilliant. In four years imports have jumped by over 200mt.

Big Country, Big Bulk, Big…

So there you have it. Maybe there is method in the madness of diving into the Capesize market at this rather delicate moment in the recession. Of course it might be boredom, as investors get fed up with vacillating. Or perhaps, despite everything, big bulk is still beautiful.