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Intermodal Weekly Report

14 Απριλίου 2019.

starbulkpl2Market insight

By Christopher Whitty

Director, Towage and Port Agency Division

The tragedy in Brazil’s Vale Brumadinho where a tailings dam collapsed in January ranks among the world’s worst mining disasters. It continues to this day as the effects of the disaster ripple through local communities and the shipping industry. 

As most of us are aware, Vale is the world’s largest producer of iron ore, and runs several deep-draft ports in Brazil as well as Indonesia, Malaysia and Oman, equipped to receive Valemax ships, the biggest mineral vessels in the world, with capacity for 400,000 tonnes of ore. The company charters Capesizes and Very Large Ore Carriers (VLOCs) and its fleet primarily services the Asian energy needs.

This is actually the second dam collapse incident Vale saw in less than four  years. Back in 2015 a larger dam, SamarcoMineracao SA, a joint venture between Vale and BHP, collapsed claiming the lives of 19 people and creating a major environmental disaster. So coming just a few years after a similar disaster in the same state, the Brumadinho collapse enraged many in Brazil, particularly when everyone found out that Vale had earlier received warnings about its fragile state.

The crisis at Vale is already rippling worldwide with strong effects on the iron ore markets and the Capesize segment. The price of iron ore last week surpassed $90 a tonne amid concerns that the closure of Vale’s dams could provoke a supply crunch. The company itself said it would sell a maximum of 330m tonnes of the raw material this year. Last year Vale produced 380m tonnes.

Tailings dams are cheap and obviously risky. The upstream sort have been banned in Chile and are very rare in America and Europe. Their widespread use in Brazil is one way the government helps mining firms. Miners such as Vale in particular, are obviously favoured because they often shoulder the responsibilities of governments in remote places, building schools and hospitals, for example. In Minas Gerais (literally, “General Mines”), the state where Brumadinho is located, Vale often dominates local economies as we can all understand.

This disaster weighed heavily on the market for big Capes, with still a lot of uncertainty about shipments/future exports leading to a sharp drop in rates. The miners had largely been absent from the market recently, with just a handful of other player in the region with large iron ore cargoes to move. Rates are expected to still experience a significant pressure moving forward. It is quite a unique situation and it is interesting to see it’s future dynamics in the Capesize sector.

 

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

 

The rebound in Capesize rates might have given a breather to the dry bulk index during the past days but as average earnings for the big bulkers still hover below OPEX, optimism remains reserved. The BDI today (09/04/2019) closed at 725 points, up by 11 points compared to Monday’s (08/04/2019) levels and increased by 51 points when compared to previous Tuesday’s closing (02/04/2019).Following an extremely disappointing first quarter, the crude carriers markets remains unable to find a stable footing, with VL rates feeling most of the pressure at the moment. The BDTI today (09/04/2019) closed at 618, decreased by 14 points and the BCTI at 600, a decrease of 109 points compared to previous Tuesday’s (02/04/2019) levels. 

 

Sale & Purchase (Wet: Firm+/ Dry:Firm+)

 

SnP activity is firming up for both tankers and bulkers. Buyers showed particular interest in both markets for small sizes. More specifically, the majority of sales on the tanker side were for Chemical tankers and MRs, while on the dry bulk sector was for Handies up to Supramaxes. In the tanker sector we had the sale of the “ARDMORE SEAFARER” (45,744dwt-blt ‘04, Japan), which was sold to Far Eastern buyers, for a price in the region of $9.7m. On the dry bulker side sector we had the sale of the “ASCANIUS” (76,878dwt-blt ‘04, Japan), which was sold to Greek owner, Newport, for a price in the region of $8.7m.

 

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

 

Last week saw another round of generous contracting activity surfacing, with more orders reported across both the tanker and dry bulk sector. Having said that, dry bulk ordering seems to be down year to date by more than 50%, while if we look into the specific sizes, we actually see that Handysizes are the only ones witnessing increased activity, while as expected, Capes/VLOC show the biggest drop. On the tanker side and the crude carriers specifically we observe an increase in Suezmax ordering and a slowdown of 33% in VLCC. Product tanker ordering seems to be steady  at the same time, with the small year to date decrease in MR ordering being offset by the increase in Handy orders, while in terms of absolute numbers MR vessels still account for most of the action across the entire tanker sector. In terms of recently reported deals, Greek owner, Kyklades Maritime, placed an order for two firm and two optional Suezmax tankers (158,000 dwt) at Hyundai, in South Korea for a price in the region of $63.5m and delivery set in 2021.  

 

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

 

The demolition market remained active for yet another week, while expectations for an imminent comeback of Pakistan seems to be materializing, with average bids out of the country showing their first signs of strengthening after more than two months. The markets in India and Bangladesh have sustained their appetite at the same time, while the supply of dry bulk candidates remains generous. Year to date dry bulk scrapping has more than doubled, while this increase is attributed to larger vessels of above 120,000dwt that have seen an increase of more than 180% in scrapping in the first quarter of the year, while vessels below 120,000dwt have in fact seen a decline in demolition that is estimated at around  28%.

 

Wet Chartering

 

The second quarter of the year has kicked off with additional losses for the crude carriers market that has been marking consecutive year lows in the past few weeks. Extended weakness in VL earnings keeps weighing down on sentiment across the board, while on the flip side ideas in the period market remain stable/positive, with enquiry focusing on one and two year periods at the moment. At the same time TCE levels have been feeling the pressure from more expensive bunkers last week as the price of oil seems to be gaining ground on the back of domestic tension in Libya.

The VLCC market has experienced a complete change of scene since the beginning of the year, with extended pressure last week pushing average rates to end of spring 2018 levels. A well supplied Middle East and no positive surprises from USG demand have passed more control over to charterers, with most feeling that the market is bottoming out at current levels.

Another week of strong enquiry in West Africa has finally managed to boost Suezmax rates that are expected to firm further on strong European demand, while Black Sea/Med was also more positive. The cross-Med and North Sea Aframax markets ended the week flat, while an oversupplied Caribs market coupled with uninspiring activity for yet another week resulted in further discounts.

 

Dry Chartering

 

As the Capesize market bounced off the new historical lows it reached at the beginning of last week, it also helped the BDI move above 700 points, while as earnings for the smaller sizes turned negative, optimism was hard to be sustained. Most look at the reversal in the Capesize market as a development due given that rates for the big bulkers had bottomed out and while there is evidence that healthier activity has also assisted in last week’s positive reversal, skepticism will keep reigning over the dry bulk market until Cape earnings reach and sustain truly healthy levels. Either or, we do expect this week to be more positive across the board, while in the little activity that has been reported on the period front last week, rates continue to reflect significant premiums over spot levels.

With W. Australia/China finally seeing some decent action last week, Capesize rates in the East moved up, while the North Atlantic market also reacted positively shortly after the improvement in the Pacific on the back of increased enquiry. Activity ex-Brazil that is still very quiet remains in focus, while at the same time period ideas continue to increase.

The Atlantic Panamax market was still seeing most of its action out of ECSA while transatlantic action saw a slower week. In the East, the market was positional with NoPac action remaining limited for a second week in a row, while the very little action reported on the period reflected stable/positive numbers.

Rates for the smaller sizes turned negative, with ECSA being the main positive exception for Supras as less active markets in USG and Cont/Med denied owners further upside, while holidays during the second part of the week in the East put pressure in numbers out of the region as well.

 

Analysts:

Eva Tzima

George Panagopoulos

 

 

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