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Allied Shipbroking - Weekly Shipping

09 Οκτωβρίου 2019.

ships19Market Analysis

30th September - 4th October 2019, Week 40

 

 

 

We have entered the 4th quarter of the year and the dry bulk market has already experienced a sharp downward correction. Yet, it is hardly a surprise, given that the peak numbers noted one month back wouldn’t be exactly considered as levels that could be sustained in the long-run. Furthermore, this came rather attuned with the slowdown in global trade, with recent figures pointing to the lowest growth rate figures noted in the last decade. The ongoing US-China trade tensions have come once again to spark further uncertainty in global markets.

We have often used the paper market as a proxy for forward sentiment "pulse". Instead of pointing to the overall bearish outlook being indicated by the closing figures on many FFA contracts, I will focus on the underlining trends seen. Using as a reference point the peak in Capesize rates at the very start of the previous month (4th of September), over a 30-day period, freight rates have eased back significantly. Indicatively, the BCI-5TC and BPI – TCA, have lost in the region of 38% and 23% respectively. Despite this, the impact on forward contracts was a mere correction of just 5.7% for the final quarter for Capes and 1.76% for Panamaxes. Moreover, as we extent the view to include a macroeconomic perspective, m-o-m the corrections were even more anemic. Given that, in most cases, a strong dive in freight rates should theoretically translate over to a strong push in the derivatives market as well, the current "bizarre" relation could be pointing either to a market that had already priced in the drop to begin with or what’s more likely is that we have a more robust sentiment taking hold of the market. Another indicator of the nature of this disconnection may well be the impressive upward movement noted in FFAs during the August rally. From the very start of August up until the peak point in the market that we mentioned earlier, closing numbers for final quarter contracts improved by 35% and 19%, for Capes and Panamaxes respectively. This points to an overall heftier net positive adjustment for future contracts over the past two months, something that seems to be at odds with both the dry bulk sector's state and forward market fundamentals right now.

Leaving aside the FFA market for a moment, similarly questionable trends can be derived from the sale and purchase market as well. Given the long-term nature of the investment involved, this market can technically be considered a forward market. Year -to-date activity in the Capesize market has it its very least been problematic, given that total volumes have halved compared to what we were seeing during the same time frame back in 2018 despite the fact that overall returns have held relatively on par while asset prices have shown the necessary discount levels required to trigger healthier buying appetite. Are we experiencing a decrease in investment appetite on this specific size segment, or is this slower activity due to a stringier availability of sale candidates (which can also mean that most owners of this tonnage size are far more optimistic than the figures noted in the market right now)?

The complexity of the dry bulk sector never stops fascinating (even when it is on negative terms). At this point, with just a couple of months before the closing of the year, the shipping market faces many "known-unknowns" that can radically and rapidly shift any prevailing direction in the short-run. Increased volatility and asymmetries have already proved this. With all that being said, 2020 may be a more challenging year even when looking at it from many different view perspectives.

 

Thomas Chasapis

Research Analyst

 

 

Freight Market

Dry Bulkers-Spot Market

30th September - 4th October 2019

 

Capesize – The market resumed on its sliding track this past week, with concerns among owners starting to intensify, as the BCI closed the week lower once again, settling at 3,021 bp (-9.5% on w-o-w basis), the lowest point of the last three months. Demand in the Atlantic continues to remain problematic due to lack of fresh enquiries from charterers, while an uptick noted at the end of the week on the Australia-China route helped curb losses to some degree.

Panamax – Another week with earnings softening on a weekly basis, but with some support being lent during the latter half of the week from the improved demand witnessed in the Pacific basin. At the same time, activity in the Atlantic remained subdued. The BPI fell by around 4% and closed at 1,731 bp, with the most severe losses being witnessed on the trans-Atlantic round voyage, where earnings fell by 7.4% w-o-w.

Supramax – A negative week was noted here as well, with the lack of fresh interest from charterers leaving several units unfixed and pushing the BSI lower by 4.8% to 1,199 bp. Some gains witnessed during the week from increased demand in Asia were not enough to support the market, given the severe softening of reported activity seen in the Atlantic basin.

Handysize – Limited information and lack of fresh interest was witnessed once again this past week. This had as a result the BHSI to continue on its declining path, falling by around 2.9% to 670 bp last week. Almost all routes in the Atlantic posted losses, while some improved demand levels were seen in the Pacific help keep things slightly more buoyant.

 

Freight Market

Tankers - Spot Market

30th September - 4th October 2019

 

Crude Oil Carriers – A bullish freight market for the VLs was noted this past week, as the US sanctions on COSCO, took several units from the Chinese giant out of the market, severely shortening available tonnage. With charterers rushing to fix their cargoes, the earnings’ boost was noted across almost all key regions such as MEG, WAF and USG. At the same time, rates for Suezmax were also moving up last week, as increased demand and tight tonnage list worked in favor of owners. Meanwhile, Aframax rates firmed as well, with several units being fixed, while the biggest improvements were seen in the Black Sea and Med regions.

Oil Products – On the DPP front, a very active week was noted in the Black Sea/ Med, helping rates push upward. Even more impressive was the soar being witnessed in the North Atlantic, with several MRs benefited from the firm Aframax market. On the CPP market, abundant cargoes in the Atlantic boosted earnings in key regions such as the WAF and UKC, while short tonnage lists noted in the East helped rates to remain positive there as well.

 

Sale & Purchase

Newbuilding Orders

30th September - 4th October 2019

 

Newbuilding activity returned to subdued levels last week, with buyers taking a step back, probably being affected by the persisting correction witnessed in the dry bulk freight market of late. Given the slump that was noted in the freight market earlier in the year, it is of little surprise that investors seem a bit reluctant to proceed with new contracts for now. It would take a fair rebound in rates and earnings to drive activity up though there is some expectation that this might be a bit more active during the next couple of months as we approach the end of the year. On the tanker side, newbuilding activity remained at fair levels for another week, with petroleum product units being the main focus point. The rising freight market and the bullish sentiment that is starting to show face once again in this sector has triggered investment appetite for new order contracts, despite the fact that offered prices are still keeping at relatively strong levels. Things are expected to remain firm over the final quarter of the year, with the positive forward outlook boosting sentiment and buyers’ appetite.

 

Sale & Purchase

Secondhand Sales

30th September - 4th October 2019

 

The slowdown in terms of activity resumed this past week on the dry bulk market, with the slide in freight rates curbing investor interest. However, a fair number of smaller units, mainly Supramax and Handysize vessels, changed hands this week, with buyers seemingly focusing on the less volatile segments. In the case that freight rates correction continues to push on, activity is expected to remain at moderate levels, while the reluctance amongst buyers may well push for some further price correction to be seen.

Softening in terms of activity was witnessed last week on the tankers side as well and despite the improved momentum noted lately in the freight market. A rebound though is anticipated, especially on the oil products segment, as investors are looking keen to return to the SnP market as we approach the end of the year. In the crude oil space, things are a bit more quiet and are expected to remain so for the time being despite the sharp boost in freight rates being noted.

 

Sale & Purchase

Demolition Sales

30th September - 4th October 2019

 

Despite the lack of fresh reported transactions noted last week, some first signs of increased appetite amongst breakers has started to surface, especially in Bangladesh, a market that has monopolize cash-buyers interest in the year so far. Some fresh interest from container and tanker owners is expected to materialize over to deals soon, given the improvement in market conditions and the increased offered prices seen from local players. On the contrary to this, interest for Indian breakers remained subdued despite the increased offered prices noted there too, with Bangladesh showing a hefty premium and attracting most tonnage for the time being. However, with the market firming in Bangladesh, it is anticipated some excess demand will spill over to the Indian recycling yards as well. Finally, things seem to remain unchanged in Pakistan, where scrapyards continue to offer relatively unattractive prices while little appetite seems to be emerging from most of the local breakers for the time being.

 

 

 

 

 

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