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Intermodal Weekly Report

03 Δεκεμβρίου 2019.

ploiof192Market insight

By Ilias M. Lalaounis

SnP Broker

As the end of the fourth quarter is approaching, one could say that the wet market has maintained the strong pace observed during the third quarter and will probably prove right those market specialists that predicted that tanker rates would be soaring coming into 2020 with the “IMO effect” ready to kick in.

The million dollar question is if this firm market recovery (both in asset prices as well as freight rates) is the beginning of a new cycle. What definitely helped boost earnings was the recent sanctions imposed by the USA to the Chinese Cosco tanker fleet that abruptly removed a significant amount of ships from the market and inevitably pushed the market to the recent highs. COSCO Dalian and its subsidiaries own 43 oil tankers, including 26 very large crude carriers (VLCCs) which consist over 3% of the VLCC fleet.

Despite the sanctions, the fundamental drive in this increase is still the coming IMO regulations that as many analysts predicted triggered an incremental move of cargoes from the desulphurization units towards major bunkering areas. Opportunities for profit were also created for traders finding market imbalances deriving from the shock of new regulations and the need to create a “new” mainstream fuel. It therefore seems that what we have been witnessing is not just a short lived spike but the start of the “IMO story”, which will be in full effect the first half of 2020.

On the Dry market, the BDI has been extremely volatile throughout the year, shifting sentiment several times as a result. The year kicked in with a steep decline amidst fears of the US-China trade talks, the Vale dam disaster and seasonal Chinese New Year celebrations declines.

Most feared 2019 could be a repeat of the lows observed back in 2016, while during Q1 we observed an SNP drought with only 103 bulk carriers changing hands. However, during the second quarter the market stabilized and increased steadily along with the feeling that the worst part of the year was already over and hopes for a rebound came along, with SNP transactions increasing to 137. The third quarter was overwhelming; freight rates increased rapidly and helped most companies return to the black, while more ships changed hands and transactions totaled 166. So when the last quarter begun, sentiment was firm and freights were high, while the majority of the industry was prepared for a very strong finish to the year.  

To the surprise of most, the positive sentiment that prevailed during the past summer is currently questioned by the performance of the BDI and uncertainty over the new regulations has become a growing concern for dry bulk owners. Consequently, one would expect transactions to decline. However, SNP activity remained strong, with more than 85 transactions already confirmed half way into this quarter, while the majority of them was concluded to Greek owners, which  itself constitutes a vote of confidence on an imminent rebound of the market sooner rather than later.

 

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

 

The dry bulk index has been moving in tandem with Capesize rates in the past days, while amore stable market for Supramax and Panamax rates was finally witnessed last week. The BDI today (26/11/2019) closed at 1,426 points, up by 75 points compared to Monday’s (25/11/2019) levels and increased by 122 points when compared to previous Tuesday’s closing (19/11/2019). Last week brought more excitement in the crude carriers market that saw rates across the board moving up, while the end of the year is now widely expected to be equally positive. The BDTI today (26/11/2019) closed at 1,297, increased by 103 points and the BCTI at 961, an increase of 265 points compared to previous Tuesday's (19/11/2019) levels.

 

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

 

SnP activity has picked up considerably in the past days, with tanker buyers showing renewed faith in the sector following the latest spike in earnings for the sector, while interest in dry bulk tonnage is steadily increasing as we head towards the end of the year. In the tanker sector we had the sale of the “BRIGHTOIL GEM” (319,798dwt-blt ‘13, S. Korea), which was sold to Greek owner, Pantheon, for a price in the region of $57.4m. On the dry bulker side sector we had the sale of the “KM TOKYO” (83,483dwt-blt ‘10, Japan), which was sold to Greek buyers, for a price in the region of $15.75m.

 

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

 

The newbuilding market witnessed a slowdown in the number of reported deals last week, while given the very healthy ordering in the tanker sector during the past months, the complete lack of tanker orders is certainly notable. On the other hand the small pick in dry bulk contracting seems to be extending throughout the last weeks of the year with most notable the pair of Ultramaxes rumoured ordered by Atlantic Bulk Carriers at Hyundai Vinashin, given that the last time a Greek owner was reported placing a dry bulk order was back in the beginning of July. In terms of recently reported deals, Taiwanese owner, U-Ming, placed an order for two firm bulk carriers (100,000 dwt) at Oshima, in Japan for a price in the region of $37.0m and delivery set in 2022.      

 

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

 

The demolition market continues to enjoy positive momentum, with increased bids being reported out of the Indian subcontinent market during the past days.  Cash buyers in Bangladesh have now fully returned back into action, displaying increased appetite and determination to dig deep into their pockets in order to secure available tonnage. At the same time the Indian market has been somewhat taken by surprise as the country’s administration appeared to be moving quickly into implementing the HKIC procedures. The news seem to have given extra incentive for purchases ahead of any upcoming changes in the importing procedures, with an average of $10/ldt premium offered in the local market, while additional price improvements are also being witnessed out of Turkey on the back of stable scrap steel prices in the country. Average prices in the different markets this week for tankers ranged between $240-370 /ldt and those for dry bulk units between $230-360/ldt.

 

Wet Chartering

 

Christmas has definitely come early this year for the tanker market that has seen another week of surging rates across the board, dismissing any doubts that the previous spike was attributed entirely to one off market events and further supporting the more bullish views that have long supported that a stronger market would be witnessed ahead of the IMO2020 introduction.  The growing enthusiasm was also evident in the period market, where rate ideas have been moving up quickly and premiums over last dones were noted on reported business, while optimism about a resolution to the trade war has been continuously supporting oil prices.

With positive demand in Middle East and West Africa extending, it was easy for VLCC owners to assume further control over rates, while most expect that enquiry will be sustained at high levels in the coming weeks.

Despite no particular increase in activity, West Africa Suezmax rates moved another leg up on the back of limited supply of tonnage and firming sentiment all around. Strong demand across Europe has given another boost to Aframax rates last week, while the Caribs market also remained positive, with owners hoping for increased activity ahead of Thanksgiving.

 

Dry Chartering

 

The performance of the dry bulk market remained negative last week, with  falling Capesize rates being the main reason behind the index’s drop below 1,300 points, while the fact that Panamax and Supramax earnings seem to have stabilized after more than three weeks of sharp falls helped offset softening momentum to a degree. The period market saw little enquiry and sharp declines at the same time, while longer periods seemed to be in focus this time round. Extreme volatility and a lack of  a clear sense of direction are still the main characteristics of this market. The very strong start to this week for Capesize earnings has further added to the sense of uncertainty among owners as there have been many times in the recent past that rates for the big bulkers have enjoyed short-lived spikes that were quickly followed by sharp drops.

Capesize rates noted back to back declines almost throughout last week, while the positive reversal that has started on Friday has so far lasted throughout yesterday and today, with healthy activity in the W. Australia/China and a pick in Atlantic demand supporting sentiment so far.

The Panamax market moved sideways last week, with bottoming rates in most key trading regions allowing for some optimism to built up. In the Atlantic ECSA was still weak, while the market in the East was more positive with NoPac demand keeping things busy in the region.

It was a slightly more positive week for Supramax earnings, with Continent activity picking up and positional improvements seen in the Asian market, while pressure extended for Handysize rates across most routes.

 

Analysts:

Eva Tzima

George Panagopoulos

 

 

 

 

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