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11 Ιουλίου 2019.

bulker2Market Analysis

1st - 5th July 2019, Week 27

Feeding off the formidable jump in dry bulk freight rates that has been noted since mid-June, we have seen a fair amount of optimism emerging in the market once again. As impressive as this may seem however, to what extent are we looking at a shift in market fundamentals taking place and to what extent is it just a seasonal rally that will likely subside once the typical market normality returns once more.

 Looking at the bread crumb trail, it starts to become more and more evident that this recent rally has been, to a considerable extent, driven by the jump in iron ore demand that has been witnessed of late. Prices for Iron ore reached a fresh peak this past week, matching a price level last noted back in 2014. Albeit, that to a great extent this has been driven by the crunch in supply after the Vale dam accident back in January, there has been a fair drive seen during the past couple of weeks on the demand side as well, which has helped boost market conditions. Chinese demand for Iron ore has spiked recently as increasing prices for steel have pushed many steel mills to ramp up their production levels while also trying to rebuild most of their iron ore feedstock piles. From all this the capsize market has been quick to respond, having been plagued by a lackluster 1Q and 2Q. The healthy fleet development figures have started to show face here, while charterers seem to have been in a fairly big rush to fix any and all vessels that they could find on a prompt basis.  All this has been taking place during a period that has over the past couple of years shown to be a seasonal high point in demand for dry bulkers and we have found ourselves in the midst of a perfect recipe for a fair market rally to take shape. At the same time, we were witnessing a strong pull from the Capesize market on that of the smaller size segments, while most of these size segments were also feeding off some increased grain activity that was taking place in the Atlantic basin. The most impressive example of this has been that seen in the Panamax market, with the BPI-TCA noting this past Thursday its biggest one day jump since 2013. For now, it looks as though we are still riding on this positive momentum, with most of the smaller size segments still showing positive gains for the time being. Yet it looks as though the initial market pull has lost some steam and come late summer we may well be seeing a fair bit of freight market corrections taking place.

All in all, this latest rally may not have been able to show that the market is in perfect shape and that we will be able to sustain these recent spikes in freight rates for longer periods of time. However, it does help point out that a reasonable amount of balance has been achieved in terms of demand and supply, something that may well prove to be invaluable in helping get the market back on the recovery path we were witnessing back in late 2017 and early 2018. There are still several considerable obstacles to over come on the demand side of things, with poor demand growth figures still being anticipated for 2019 as a whole. Yet with the fleet supply being relatively constrained, there is room for a steady improvement in average freight levels to take place.  All this of course comes with a big if and is highly dependent on the fact that we will not see any more extreme (tail risk) events take place like those that were noted during the end of 2018 and early 2019.

 

George Lazaridis

Head of Research & Valuations

 

 

Freight Market

Dry Bulkers-Spot Market

1st - 5th July 2019

 

Capesize – A very impressive week, with the BCI witnessing a rise of 34.5% on a w-o-w basis, closing at 3,346bp. Both the Atlantic and Pacific basins faced firm gains, while rates rose by 39.3% and 42.9% respectively, while the stringer availability of tonnage in Atlantic can actually help pushed things even further (in the short run at least). Notwithstanding this, despite the excessive upward momentum of late, conservatism in respect to the recent trends is still evident.

Panamax – An even more impressive week was to be seen against that of what was being seen in the larger Capesize market, with the BPI rising by 29.5%, while closing at 1,286bp. This of course can be seen once again as a mere reflection of a very firm Atlantic market, with the Atlantic RV benchmark route rising by 54.2% in just one week. The Pacific also witnessed some fair gains, with the market there closed 14.8% higher on Friday.

Supramax – Rather attuned with the recent trends noted in the bigger size segments, things here too also remained on an upward trajectory, with the BSI closing with gains of 4.2%, when compared with the week prior. The US Gulf, followed by the Mediterranean showed the most promise, both building a more positive attitude, while looking forward.

Handysize – For yet another week, the market felt an uptick, with the BHSI closing 1.4% higher on w-o-w basis. Both the US Gulf and East Coast South America helped things remain on the positive side. On the other hand, the Pacific market seemed to still be under pressure throughout the week, easing back by 4.6%.

 

Freight Market

Tankers - Spot Market

1st - 5th July 2019

 

Crude Oil Carriers – A rather negative for the crude oil trade, with the BDTI losing 4.4% from the week prior, while closing at 650bp. The main culprit for this slight pressure of late has mostly been the VL market. Things in the VL segment have been on a downward correction, with all main routes losing a bit of traction the past couple of days. Things for Suezmaxes have been relatively mixed, with the WAF being under slight pressure, while the Black Sea/Med showing some positive gains. Finally, the Aframaxes saw some opposing signs too. While things in the MEG and CARIBS routes closed in the red, all other main benchmark routes witnessed a small boost these past few days.

Oil Products – On the DPP front, the downward path continued for yet another week, with all main routes moving on the negative side. At this point the Med seems to be most pressured. On the CPP front, things were overall negative, with some routes losing more than others. For the time being, only the Continent showed some resistance to the overall negative trend of late.

 

Sale & Purchase

Newbuilding Orders

1st - 5th July 2019

 

A rather interesting week for the dry bulk sector, inline somehow with the overall positive momentum that is being portrayed in the freight market as of late. At this point, we are seeing a robust jump in interest in the Capesize market (even if it is still at an early stage), while given the overall upward direction, it wouldn’t be surprising to see a fresh flurry of new orders coming to light pretty soon. Moreover, a positive week, in terms of volume, was also due in the tanker sector, with some interesting deals coming to light these past few days (mostly in the larger size segments), nourished at the same time, by the overall positive attitude still being shared for most of the tanker freight market. With all other sector being fairly quite, the overall total volume reported this week was still relatively soft. Yet given the recent spark to life, the rest of the summer period may well prove to be more active than what we have typically become accustomed to.

 

Sale & Purchase

Secondhand Sales

1st - 5th July 2019

 

On the dry bulk side, interest for dry bulk tonnage has remained on an upward trajectory, rather attuned with the overall bullish mood that the freight market has been currently under. Notwithstanding this, we haven’t witnessed an excessive SnP market as of yet, with the Capesize segment being relatively quiet at this point. Most deals being materialized these past few days involve units of the medium and smaller size segments.

On the tanker side, the scene in the market stayed at relatively similar levels, with a fair volume of transactions coming to light, but seemingly constrained at this point. Nevertheless, VLCCs have been in relatively hot demand, mostly for vintage units, while the MR market has eased back a bit. All-in-all, given the current state, we may well expect many interesting deals to come through in the near term, with some ups and downs in-between.

 

Sale & Purchase

Demolition Sales

1st - 5th July 2019

 

The ship recycling market remained quiet for yet another week, with just a handful of units being concluded for scrap the last couple of days. In India, it was a rather difficult week, with local steel plate prices easing back considerably, leaving limited room for local recyclers to offer higher levels. In Bangladesh, despite the better sentiment that has been brought on by the possibility of a tax hike, most local breakers seemed to be busy with the amassed tonnage stockpile they have, while it seems unlike that they will push things further any time soon. Finally, Pakistan remains in clampdown mode, given the turbulent scene noted in their local currency and will most probably take some time before any sort of balance is restored. With all being said, the summer period is expected to be relatively quiet, while things from the side of freight rates will also play an important role, likely acting as a further deterrent to seeing a fair number of demo candidates come to market.

 

 

 

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