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Intermodal Weekly Report

08 Φεβρουαρίου 2019.

shipyardploia19Market insight

By George Iliopoulos

SnP Broker

As the market is already going through the first days of the Chinese New Year, dry bulk earnings are getting a lot of pressure. Slow trading is really affecting owners’ confidence and while the downward trend is pretty much expected during this time of the year, the fact that rates saw steep weekly declines a few weeks ahead of the Chinese holidays is weighing down sentiment and expectations.

There are a few reasons why the BDI is currently at a two year low, with the dam accident in Brazil involving Vale and the consequent decision of the company to reduce its yearly production of iron ore by 40 million together with the unresolved trade war between the US and China being two of the most important. As far as the latter is concerned there are high hopes that a resolution could be soon reached and help alleviate some of the pressure currently seen on dry bulk earnings.

On the SnP front and despite the sharp drop of rates in just a few weeks’ time, we have seen overall heathy activity with around 40 vessels - Handysize up to Capesize - being sold during January. Buyers showed no particular interest in a specific age range while most of these sales concerned Handysize and Supramax vessels. We have to note here that most of the January sales took place during the first half of the month, with activity considerably slowing down from then onward.

What is also notable is the fact that despite the Chinese holidays we have seen quite a few purchase enquiries from Chinese buyers especially for older vessels, Panamaxes and Supramaxes mainly, a trend not very usual during this time of the year. Chinese interest aside, owners of other ethnicities show decreased appetite for dry bulk vessels compared to the last four months of 2018, although this trend will most probably reverse once the Chinese market opens again.

When the market is hovering around its lows there is always the dilemma of whether to invest or wait in case asset prices move even lower given that second-hand values follow the performance of freight rates with a usual delay. This is a difficult question to answer as finding the exact bottom in each mini cycle is fairly hard. At the same time, even a small positive reversal in freight rates down the line usually increase Sellers’ ideas almost immediately, while a number of sale candidates are then withdrawn from the SnP market and are chartered instead. This was also the case back in 2016, with certain candidates increasing their ideas in a short period of 4-5 months.

It will be very interesting to see the reaction of the dry bulk market after the end of the Chinese holidays, which will hopefully bring along an improvement towards a more stable and healthy market for the remainder of the year.

 

Chartering (Wet:Soft- / Dry:Soft- )

 

With Vale deciding to cut down its yearly production by 10% after the Brazil  disaster and Chinese Holidays kicking off, hope that the dry bulk market would get onto a more stable footing evaporated in the past days. The BDI today (05/02/2019) closed at 629 points, down by 5 points compared to Monday’s (04/02/2019) levels and decreased by 168 points when compared to previous Tuesday’s closing (29/01/2019). The further slowdown in the Middle East market set the negative tone all around for crude carriers earnings that witnessed another disappointing week. The BDTI today (05/02/2019) closed at 806, decreased by 66 points and the BCTI at 636, a decrease of 31 points compared to previous Tuesday’s (29/01/2019) levels.

 

Sale & Purchase (Wet: Stable+/ Dry:Soft-)

 

With Buyers lowering further their ideas amidst further discounts in the freight market and Sellers trying to resist until performance of the dry bulk market in the past days has impacted SnP activity in the sector. Interest for second-hand bulkers is still there but as falling freight rates are passing more control over to Buyers, Sellers’ ideas consequently become unrealistic in a number of cases, impacting SnP activity as a result. In the tanker sector we had the sale of the “ARDMORE SEAMASTER” (45,840dwt-blt ‘04, Japan), which was sold to Chinese buyers, for a price in the region of $9.7m. On the dry bulker side sector we had the en-bloc sale of the “SASEBO SASEBO 854” (84,700dwt-blt ‘19, Japan) and the “SASEBO SASEBO 855” (84,700dwt-blt ‘19, Japan) , which were sold to Taiwanese buyers, for a price in the region of $32.0m each.

 

Newbuilding (Wet:Stable+/ Dry:Stable-)

 

The list of freshly reported newbuilding deals below is slightly misleading given the fact that it mainly consists of older contracts placed by CSSC leasing a while back. Saying this, the few orders that refer to most recent deals reveal that despite the recent slowdown in ordering there is still appetite for both tanker and dry bulk vessels with focus staying on bigger sizes in both cases. More notably in the case of tankers, the latest VLCC order placed by Greek owner Evalend brings the number of confirmed orders in the size since the beginning of the year to 10. n terms of recently reported deals, Greek owner, Evalend, placed an order for two firm and one optional VLCC tankers (300,000 dwt) at Hyundai, in South Korea for a price in the region of $95.0m and delivery set in 2020.  

 

Demolition (Wet:Stable- / Dry: Stable-)

 

Little has materially changed in the demolition market during the course of the past week, with Bangladeshi cash buyers still getting the biggest share of the action, while the Pakistani market remains inactive and appetite in India is fairly obstructed by volatility in scarp steel prices. At the same time the fact that prices seem to have found a floor at least for now is definitely a positive sign given the extended pressure demo levels saw during the past three months. Whether this stability will be sustained will also depend on the supply of demo candidates going forward with some expecting more dry bulk vintage tonnage to be sold for demo should pressure on earnings extends beyond the Chinese New Year. Saying this, dry bulk scrapping was steady last month compared to January 2018, while demolition activity in tankers and containers decreased around 73% and more than doubled respectively. 

 

Wet Chartering

 

Rates for the crude carriers market saw additional discounts last week, with extended weakness in the Middle East market allowing charterers to assume further control. The period market has at the same time seen some fairly active days, with both shorter and longer term contracts being fixed,  while average levels reported indicated a stable market overall. Oil prices showed additional strength at the same time and despite the fact that US factory data seems to have put a halt on the upward trend today, we expect the recently imposed US sanctions on PDVSA will ensure that the price of the commodity doesn’t run out off steam in the following days.

Discounts in the VLCC market resumed for another week, with activity in both the Middle East and West Africa markets falling below expectations, while this week has also kicked off with small discounts.

The West Africa Suezmax saw increased demand during the first half of last week but softer activity later on wiped most of the upside off, while Black Sea/Med numbers moved sideways and ended the week slightly down. saw more discounts from the further streamline of delays in the Straits. Healthy enquiry in the Med resulted in small gains for Aframax tonnage in the region, while North European rates were less busy throughout the week.

 

Dry Chartering

 

They say a picture is worth a thousand words and indeed just a look at the dry bulk indices above is more than enough to describe the very challenging time the dry bulk market is going through. Just before the Chinese New Year holidays kicking off, average earnings took another significant hit, with big weekly discounts taking place across the board and sentiment dipping further low. The bigger than expected slow down of the market has taken most by surprise, while the deadly dam collapse in Brazil last week that has put Vale on the spot has definitely given another blow to the already frail momentum as the company announced that it will cut down expected production of iron or during this year.

As expected, the knock-on effect of the tragedy as far as the dry bulk market is concerned was mostly felt by Capes, average earning for which took a massive hit last week, with significant discounts taking place in both basins. At the same time, the little period business reported reflected the mounting downward pressure, with the few active charterers remaining in full control of the market.

Panamax rates witnessed a similar drop to that of the week prior, with pre-holiday fixing in the East not materializing at levels that would allow the market to take even a momentary breather, while the Atlantic was also disappointing with some small improvements seen nonetheless out of ECSA for more forward dates.

Rates for the smaller sizes also remained under significant pressure across the board, with very low levels offered in both the spot and the period market and suppressing activity as a result, while the Chinese holidays are expected to delay further the long due upward correction.

 

Analysts:

Eva Tzima

George Panagopoulos

 

 

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