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Allied Shipbroking - Weekly Shipping

12 Φεβρουαρίου 2020.

shipdeck2Market Analysis

3rd- 9th February 2020, Week 6

With China and the world still trying to contain the effects and come to terms with the Wuhan novel coronavirus outbreak, the shipping industry sees freight markets in a complete state of collapse as demand gets paralyzed by the ensuing effects. As a general rule of thumb during the past decade, shipping markets tend to underperform when China’s economy is not at it’s best. China’s industrial might over the past two decades has helped drive the vast majority of demand for raw materials and resources. This reliance on the world’s second largest economy even seems sometimes to be almost absolute in keeping the freight markets afloat. It is therefore no surprise that the fears that have emerged of late as to the potential effects the outbreak of the coronavirus will have on China’s economy moving forward have left many to fear as to how well the shipping markets will be able to perform this year. The truth of the matter is that we have seen a major hit and correction noted over the past 1 ½ months in both the dry bulk and tanker freight markets, with the former having shown lows in some of its freight rate levels not even seen back in 2016. This sparks further worries, as the prevailing projections now are for China’s year-on-year economic expansion for 1Q2020 to well fall down to 4%, the slowest pace since China first started publishing quarterly figures back in 1992.

All this however has not been limited to the freight markets as other commercial aspects within the shipping industry have also been profoundly affected. This has ranged from shipbuilding production, maintenance and repairs, crew changes, cargo loading and discharging operations (with many traders having issued force majeure notices) all the way through to sale and purchase activity, as we have seen difficulties in undertaking superficial inspections as well as delivery of vessels in regions which have been severely hit by the virus outbreak. In terms of the sale and purchase markets, we are likely to see things take a further downturn over the coming days as the lack of activity coupled with the poor sentiment that is now seemingly overwhelming most in the market is likely to lead to a slower pace in buying interest. It would seem that even the few remaining buyers still actively looking into the market right now are more so keen to act on any bargain deals that could possibly emerge under the current circumstances rather than through a deep belief in strong market fundamentals, a fact in itself that pushes the view that we may well see some further price discounts down the line, especially in the dry bulk sector which has ultimately been the hardest hit up to now from the current market developments.

Taking into consideration however that these recent market developments have been considerably intense within a short space of time and look to be temporary in their nature, the prevailing belief is that we will likely see a considerable recovery take shape at some point in the second or third quarter of the year. Given how “compressed” markets have been during the past couple of weeks, the “spring effect” (just as a spring releases it’s stored mechanical energy) may well be considerable and quick in nature. We are likely to see many traders in the market looking to recoup “lost” cargo volumes during the time period that follows the containment of the virus, while we may even see a considerable wave of stimulus emerge as the Chinese government looks to offset the negative effects of the outbreak. All in all it has become clear that the current events will further dampen this years results, yet we shouldn’t take the recent over-exaggerations of the market as the new market norm.

 

George Lazaridis

Head of Research & Valuations

 

 

Freight Market

Dry Bulkers-Spot Market

3rd- 9th February 2020

 

Capesize – Another disastrous week for the Capesize market, with the BCI closing at –234 (and BCI 5TC at 2,660 US$/day). Seasonality pressure, limited cargoes from Brazil due to bad weather and the coronavirus outbreak have gone towards pushing the market to absolute bottom. Given the overall bizarre state, there isn’t much room left for further guesses to be made in terms of what to expect next (in the short-run at least). Notwithstanding this, units fitted with scrubbers command a relatively “good” bonus, but the stringer availability of cargoes may well eventually add pressure to all open vessels.

Panamax – Another negative week for the Panamax/Kamsarmax market too, with the BPI, here, noting losses of 5.7%. In the Atlantic, despite some sort of fresh enquiries (even limited), any gain was vaporized by the available tonnage, pushing rates 18.4% lower. Moreover, the Feast/Cont trade experienced a far more intense negative pressure, easing back by 19.7% on w-o-w basis.

Supramax – Inline with the bigger size segments, it was a negative week for the here too. The BSI—TCA eased back to $ 5,400/day, 6.3% less than the week prior. Here, the problematic supply-demand dynamic was also the main highlight of the week, with the lack of fresh cargoes and excess open tonnage capacity being the permanent setting for the market right now. At this point, only Med rates showed some sort of potential, with a w-o-w gain of 4.8%.

Handysize – The negative trajectory continued for the smaller size segment for yet another week, with the BHSI losing a further 8.4%. The overall marker is in clampdown state, with very limited activity noted in-between.

 

Freight Market

Tankers - Spot Market

3rd- 9th February 2020

 

Crude Oil Carriers – The coronavirus effect, along with the oversupply concerns from the re-emergence of the Cosco fleet led the crude oil segment to a sharp correction this past week, with the BDTI losing about 9%. In the VL size class, the lack of fresh inquiries pushed rates lower and as fixtures remained limited, the average VL TCE fell to US$ 9,554/day. At the same time, demand in the Suezmax front improved somehow, but this was not enough to boost rates with the average TCE falling by 25% on w-o-w basis. Finally, Aframaxes remained on a sliding trend, with the average earnings down on a weekly basis by 23%. However, a ramp up noted in inquiries the last few days, giving hope for a better market soon.

Oil Products - On the DPP front, the market remained on negative territory following the crude oil segment pattern. However, the improvement noted on the supply side in UKC/Baltic helped curb losses for now. On the CPP front, a mixed picture was noticed, with improving demand in the Med giving a boost in freight rates, while limited inquiries in the UKC pushed rates and sentiment lower.

 

Sale & Purchase

Newbuilding Orders

3rd- 9th February 2020

 

The current distressed conditions noted in the freight market have left little room for any optimism to be held that could help boost newbuilding activity anytime soon. Earnings below OPEX levels and severely hurt sentiment have curbed interest even amongst the biggest risk-taking investors. Meanwhile, the fact that prices have not posted any decline yet despite the negative investment atmosphere is also playing its part on the current limited activity trend. Despite all these, we witnessed some fresh activity this past week, with 8 new dry bulk and 2 tanker units being added to the global orderbook. Given the current situation and the fact that there is no sign of any improvement shift in the near term, we expect buying appetite to remain reduced over the coming weeks. At the same time, it will be interesting to see if shipbuilders will find room to further drop their margins and offer more competitive prices over the coming months.

 

Sale & Purchase

Secondhand Sales

3rd- 9th February 2020

 

On the dry bulk side, a fair volume of transactions came to light for yet another week, with a good number of units changing hands (especially for the bigger size segments). The good momentum in terms of total activity during the past couple of weeks or so is still surprising, given the very pessimistic atmosphere noted from the side of earnings, as well as from the notable commercial hurdles that have been put up by the virus outbreak. We do however see a slow shift in buying interest, with most now looking to focus more on any bargain deals that may emerge rather than face current price levels.

On the tankers side, a slight correction in total volume was noted during the past week. This came rather attuned with the downward correction in freight rates noted of late. Witnessing this hefty negative pressure from the side of earnings, it is yet to be seen if we experience a similarly pessimistic trajectory on the overall sentiment and buying appetite during the coming weeks.

 

Sale & Purchase

Demolition Sales

3rd- 9th February 2020

 

With freight earnings having slid in some case and on some sectors to unviable levels and with sentiment amongst owners having deteriorated severely during the last few weeks, breakers have been able to attract some fresh tonnage this past week. Meanwhile, as there are few signs of an improvement in the near term, it is expected that owners will likely resume offloading their vintage units. What makes all this more noteworthy is that this elevated volume and intense interest has been seen in the market were offered prices are still below the US$ 400/Ldt mark. In Bangladesh, a new series of units has been secured, adding to an already busy program for the local breakers. However, the recent decrease noted in steel prices has pushed some owners to look to alternative destinations. India was able to attract only a part of this excess flow during this past week, while also being hampered by a decline in both steel prices and adverse forex movements. Meanwhile, the Pakistani market has been brought back to life with fresh tonnage being snapped up, after a prolonged period of inactivity. The deteriorating fundamentals in Bangladesh and India has been a golden opportunity for the local breakers in Pakistan to return back into the game and at fairly competitive levels.

 

 

 

 

 

 

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