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Intermodal Weekly Report

09 Σεπτεμβρίου 2019.

ploia945Market insight

By Theodore Ntalakos

SnP Broker

For yet another time, the market seems to have its own drivers. After a very disappointing first half, the recent recovery in the shipping market in the second half of this year has buoyed optimism amongst the people in the industry. Yet if you are to ask most shipowners if they are optimistic you will get a “yes...but...” reply.

On the dry bulk ship supply side (>20,000dwt), the world fleet has increased by 241 vessels year-on-year corresponding to a growth of about 2,4%, while one year earlier it was below 2%. Nonetheless, it's still a moderate fleet increase versus 4.4% percent real GDP growth of the emerging market and developing economies. For example, Bangladesh has 7.3% GDP Growth in 2019 and has also secured the top position in the world in achieving the highest GDP during the last 10 years.

The current dry bulk orderbook – not including slippage/cancellations – stands at 8.7% of the world fleet. Whilst there has been little order replenishment of bulk carriers in 2019, the orderbook is today merely bigger than what it was a year ago by about 50 vessels. Furthermore, we are amidst of environmental regulations coming into force, with water ballast management systems being retrofitted (or not) and the bunkers already transitioning to comply with the 2020 sulphur cap. Compared to the same time last year we have about 80 more vessels over 20years old, and all the bulk carriers older than 20 years represent 9,5% of the dry bulk fleet.

On the tanker segment, things aren't less complicated. So far in 2019 there is less demolition activity, but also less new orders, while more ships have been delivered from the builders. The tanker fleet (>25,000dwt) has increased by about 3.5% led by MR tankers which increased by about 70 vessels, VLCCs followed with 55 vessels, 37 Aframaxes and just 15 Suezmaxes. The orderbook has not been replenished and is actually about 25% smaller than before, it represents about 7.7% of the trading fleet down from 10% same time last year. This rationalization of the orderbook, lays the foundation for a better future for the segment from the supply side alone.

On the other side of the equation for both dry and wet segments, there still is a growing demand for seaborne transportation. And while previously there were production disruptions, economic concerns, as well as political reasons that combined were suppressing the market, now there seems to be another combination that allows the freight rates to improve and drive the real demand for seaborne trade. The population continues to expand, emerging countries continue to absorb shipping goods and raw materials, so - still being the most fuel efficient and environmental friendly form of commercial transport – seaborne trade will continue to grow. 

Although nobody can foresee if the current freight market is sustainable or not, the fundamentals suggest so, at least for the short term. We will continue to have supply disruptions, limited ordering and fleet expansion on the one side, and solid growth from the developing and emerging economies on the other. So, as we have many times argued that shipping is an infinite game and the objective of the players is to perpetuate the game, as we enter a new era with higher environmental awareness, it's a good entry point for investments and the upside is there as long as shipowners are patient and avoid overreactions.

 

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

 

The dry bulk market remains unstoppable, moving another leg up last week, while Capesize average earnings are currently nearing 5-year highs. The BDI today (03/09/2019) closed at 2,501 points, up by 59 points compared to Monday’s (02/09/2019) levels and increased by 278 points when compared to previous Tuesday’s closing (27/08/2019).. The crude carriers market pulled back last week, with worries about the cost of the trade war on global growth increasing. The BDTI today (03/09/2019) closed at 651, decreased by 12 points and the BCTI at 470, a decrease of 1 point compared to previous Tuesday's (27/08/2019) levels. 

 

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

 

The number of deals in the SnP market during the past couple of weeks reveals the determination of Buyers, as improving performance in the tanker and especially in the dry bulk sector have been setting expectations very high for the last quarter of the year, while it seems that the Capesize rally has started to melt away some of the skepticism, with a couple of sales reported in the past days after muted activity for a month and a half. In the tanker sector we had the sale of the “CHEMBULK SYDNEY” (14,271dwt-blt ‘05, Japan), which was sold to undisclosed buyers, for a price in the region of $6.8m.  On the dry bulker side sector we had the sale of the “BULK SUCCESS” (176,021dwt-blt ‘14, China), which was sold to Singaporean owner, Berge Bulk, for a price in the region of $24.0m.

 

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

 

A generous number of newbuilding contracts has surfaced during the past days, with the great majority of these concerning dry bulk and tanker orders. On the tanker side and the bigger sizes in particular, we still see focus remaining on vessels complying with the cleaner fuel regulations set to kick off in January, while we notice that price premiums over conventionally fuelled vessels remains at rather substantial levels. As far as dry bulk contracting is concerned, we notice that ordering of bigger deadweight vessels remains limited and when this does take place like in the case of Kmarin’s double order below, it is done almost exclusively on the back of pre-agreed long employment. In terms of recently reported deals, Swiss based owner, Trafigura, placed an order for one firm LPG carrier (90,000 cbm) at Hyundai Samho, in South Korea for a price in the region of $82.0m and delivery set in 2021.    

 

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

 

The demolition market remains under pressure with very little action taking place for yet another week as appetite across all demo destinations remains very much restricted. On the positive side, bids coming out of the Indian subcontinent seem to have stabilized at least for the time being following a negative streak that last for about a month and a half. The restricted supply of demo candidates at the moment on the back of the rally in dry bulk earnings and improved levels seen on the tanker market as well, seems to be driving this momentary stability. At the same time the Turkish market that has seen no price movement since mid-May seems to be also witnessing cracks as local scrap steel prices together with a weakening Turkish Lira are discouraging cash buyers at the moment, with further declines expected in the short term. Average prices in the different markets this week for tankers ranged between $265-375/ldt and those for dry bulk units between $255-365/ldt.

 

Wet Chartering

 

The positive momentum the crude carriers market enjoyed in recent weeks failed to extend in the past days, with most of the key trading routes recording losses, while period market ideas were stable across the board,  with focus remaining on longer periods. With VL rates still strong despite last week’s losses, sentiment is reservedly optimistic especially given the substantial upside noted from the summer lows, while oil demand remains at this stage probably the biggest concern across the market. The boost oil prices witnessed during the past week on the back of decreasing US oil inventories has been offset by increasing concern over the on-going trade war that has once again casted shadows of uncertainty over the markets.

As Middle East enquiry softened in the past days, charterers forced discounts over last dones on VLCC rates that also saw softer levels out of West Africa, while a sideways moving market is expected this week.

Suezmax owners also lost some control over the West Africa market where demand slowed down compared to the week prior, while the Black Sea market also saw a bit of pressure. Aframax earnings were the positive surprise of the week at the same time, outperforming rates for all other sizes, with strong performance extending in both the Med and Caribs region.

 

Dry Chartering

 

The dry bulk market continues to go from strength to strength, with the BDI currently standing above 2,500 points, a level last visited back in November 2010, and even higher expectations being built for the months leading to the end of the year. Having said that, the truth is that those more cautious remain sceptic in regards to how sustainable these levels will be particularly for the big bulkers, earnings for which touched depressive levels back in spring and in less than six months have moved up to multi-year highs. While the extent to which this very quick recovery has been based on fundamentals shifting or not is being debated, euphoria extends in the market, with period numbers for all sizes except Handies also shooting up last week, while the paper market has also moved higher despite news of China’s retaliation to additional US tariffs last week.

Capesize earnings remained positive throughout last week, with the Atlantic market showing remarkable strength amidst firm demand outpacing the supply of vessels in the region, while the Pacific market saw more balanced trading dynamics that resulted in small losses for the W. Australia/China.

South America remained the main source of cargoes last week for Panamaxes that saw slight consolidation in the North Atlantic region and an overall steady market in the East, while price details for the little period activity reported revealed a strengthening market on that front as well.

The smaller sizes continued posting gains last week, with both USG and ECSA keeping things busy for Supramax owners in the region and Continent numbers surfacing for Handysize vessels revealing premiums in most cases, while the market in the East was also more positive on the back of increased enquiry for both sizes.

 

Analysts:

Eva Tzima

George Panagopoulos

 

 

 

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