SINGAPORE : China's appetite for iron ore may be among the few bright spots for the shipping industry this year, although there are still many empty vessels plying the waterways.
Analysts have said that those unable to wait out the recovery are likely to go under.
After years of low freight rates, overcapacity and few cargoes, dry bulk shipping firms are finally seeing the light on the horizon.
Credit Suisse predicts China's appetite for iron ore will grow 11 per cent this year, fuelling a pick-up for shippers.
Credit Suisse expects this to spur global commodity demand to 5.3 per cent, from 4.8 per cent last year.
Mercator Lines (Singapore) believes 2013 may be a turning point.
During its third quarter, the dry bulk shipping company was forced to lower its debt by selling one vessel, and terminating settlement agreements with two of its chartered vessels in advance.
Shalabh Mittal, CEO of Mercator Lines (Singapore), said: "We have seen the worst in 2012. 2013 will be more of consolidation...We have already seen the current freight rates are better than 2012's average. So even though it is a very small increase from a very small base, the sentiments reflect that the growth in trade is happening."
But that does not mean a quick turnaround for the global market.
Industry watchers expect overcapacity rates to remain high.
ICAP Shipping said there is still an oversupply of about 16 per cent in the dry cargo market.
Christopher Jones, director of Sale & Purchase at ICAP Shipping, said: "This year, we do not see too much of an improvement. One of the key factors is the oversupply of tonnage in all sectors.
"Freight rates are still lolloping and we seize on any kind of upturn, but analysing ore trades into China for example, they are very slack at the moment because of the high price of iron ore."
ICAP Shipping added that unless more older vessels exit the market by 'scrapping', or the demolition of old ships, market fundamentals are not going to return to equilibrium anytime soon.
Meanwhile, others unable to hold out will either have to fold or find a more profitable business to operate in, like oil and gas.
Patrik Wheater, editor of Shipping World & Shipbuilder, said: "We are seeing a lot of diversification in the shipbuilding side. Shipyards, either building bulk carriers, tankers, that market is not as good as it once was, so they need to diversify and look at other segments and the oil and gas segment is a saving grace for some yards.
"Although last year 900 Chinese shipyards closed, more shipyards are likely to close in China this year."
So far in 2013, the Baltic Dry Index (BDI), the key benchmark for international freight rates, has risen 6.4 per cent, a minor recovery at least, from last year's near 60 per cent slump.
- CNA/ms
Impact of China's demand for iron ore on shipping industry
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Impact of China's demand for iron ore on shipping industry
