India Ratings and Research (Ind-Ra) has maintained a negative-to-stable outlook for the shipping sector for FY17 on the expectation of varied trends across sub-segments.
The tanker segment, which accounts for the bulk of the fleet operated by Indian shipping companies (about 60%), is likely to continue performing better than other shipping segments due to its sound fundamentals. However, the dry-bulk, off-shore and container segments will remain under pressure in FY17, according to Ind-Ra.
The agency expects the performance of the tanker segment to remain better than other segments in FY17 owing to healthy demand, manageable supply growth and continuation of the recent increase in long-haul shipments from West Africa to Asia. After the fall in crude oil prices, tanker charter rates had increased rapidly in 2015 owing to a higher crude oil output, strategic reserve stock-piling and floating storage.
However, charter rates declined in Q4FY16, as the incentive of storing oil has reduced with oil prices remaining range-bound. The agency expects the charter rates to decline further in FY17; nevertheless the correction will be limited as demand for oil is likely to continue to grow at a healthy pace.
The agency expects the dry-bulk to be the worst-performing segment among all the shipping segments in FY17. The slowdown in emerging and developing economies particularly in China has exacerbated the demand-supply mismatch in the dry-bulk segment.
The agency expects freight rates to remain depressed in FY17, as Chinese demand remains subdued. Furthermore, growth in dry-bulk shipment volumes at Indian ports is also likely to remain limited in FY17 due to lesser imports of both coal and iron ore because of higher domestic production. Dry-bulk volumes at Indian ports (major and non-major) remained sluggish in H1FY16 owing to the lower shipments of coal (H1FY16: 0.7%, FY15: 20.1%) due to the record domestic production by Coal India.