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Intermodal Weekly Report

22 Μαρτίου 2020.

ploiadiafora2Market insight

By Konstantinos Kontomichis

SnP Broker

Despite we all knew about the Covid-19 weeks ago, few could realize the size of the thread until the last few days. The examples of China and Italy weren’t enough to prepare us for what we would face. While strict measures are taken around the world in order to limit the spread of the virus, it is also crucial that each of us individually takes every precaution so that we can effectively face this invisible enemy. In light of this enemy, stock markets, trade and every business activity as we come to know it, have all started to collapse, affecting even more the global economy to new lows.

The shipping industry was inevitably affected as well. In the dry bulk market we have been experiencing a bad period since Q4 of 2019. The seasonal slowdown that started since Christmas and extended up to the end of the Chinese New Year along with the IMO regulations left no room for a strong Q1 in 2020. Initially, the virus outbreak reduced the trade and rates in the Far East. The collapse of the Capesize market was so severe though, that on 31st of January the index turned negative. BCI levels remained negative, reaching -355 points on 12/03/2020. The rest of the dry bulk indices kept facing pressure, while the BDI showed resistance just over the 400 point in the beginning of February.

Two weeks ago, the injection of fresh cargoes in the Atlantic coupled with a reported slowdown in new Covid-19 cases out of China resulted in a shy improvement of sentiment. Up until then, SnP activity followed a similar pattern and gave us glimpses of hope. The low indices reminded us a lot the period Q4 2015-Q1 2016. Asset values also began to decline, but by no means to the same extend they did in 2016.

Many buyers, especially in the Middle East and the West started to show interest for ships built 2005 onwards. Since the beginning of March we have also seen Far Eastern buyers showing interest for vintage Handysize loggers, Supramax and Panamax vessels with the majority of these buyers being Chinese. The quarantine regulations in some airports and ports worldwide led to huge difficulties for owners that wanted to arrange pre-purchase inspections, while delays were also observed in taking delivery of vessels. Naturally, many prospective buyers changed their mind and decided to wait until after there is more clarity regarding the current situation.

The last days’ events have significantly frozen buying interest since the negative sentiment widened and partly confirmed fears of further market declines and falling asset prices. Under the current circumstances, it seems that new buying opportunities will arise. Buyers still clearly have the upper hand since the supply of secondhand vessels is steadily higher and freight rates still shaky.

Despite the difficulties that every person encounters, we all have to keep moving forward. My wish to everyone is to remain strong and supportive towards their loved ones and we will come out of this much stronger. I would like to finish with one quote; “When it is dark enough, you can see the stars”, Charles A. Beard.

 

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

 

Sentiment in the dry bulk market found support on the performance of the smaller sizes last week, while despite healthier levels compared to the beginning of the year, the extended weakness in Capesize earnings  remains a big concern. The BDI today (17/03/2020) closed at 612 points, down by 11 points compared to Monday’s (16/03/2020) levels and decreased by 15 points when compared to previous Tuesday’s closing (10/03/2020). Saudi Aramco’s move to cut its oil selling prices for next month has given a massive boost to tanker rates last week, with the substantial activity pick up out of USG resulting in huge premiums for rates across the board. The BDTI on Monday (16/03/2020) closed at 1,518, increased by 740 points and the BCTI at 835, an increase of 118 points compared to previous Monday’s (09/03/2020) levels.   

 

Sale & Purchase (Wet: Soft-/ Dry:Soft-)

 

The explosive spread of coronavirus in a number of countries and the consequent panic selling in markets around the world seems to have pushed more Buyers to the sidelines last week, with fewer sales concluding in both the dry bulk and tanker sectors. In the tanker sector we had the sale of the “AQUABLISS” (112,930dwt-blt ‘19, S. Korea), which was sold to Norwegian owner, Viken Shipping, for a price in the region of $56.0m. On the dry bulker side sector we had the sale of the “OCEAN PRIDE” (72,416dwt-blt ‘97, Japan), which was sold to Chinese buyers, for a price in the region of $4.4m.

 

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

 

A healthy number of orders surfaced for a second week in a row, with dry bulk activity having the lion’s share in recently contracted deals after a long time. Despite the more generous volumes of orders being reported in recent weeks, we expect that at least for the first half of the year appetite for newbuilding contracting will remain softer compared to the same period in 2019  during which both the shipping industry and world growth in general was looking at very different and admittedly smaller challenges compared to today. The recent downward revision in global growth together with the fact that fuel prices have been correcting downwards, quickly rendering the need for more fuel efficient vessels less urgent as a result, are definitely expected to keep putting a break on ordering appetite going forward. In terms of recently reported deals, Chinese owner, COSCO, placed an order for four firm pulp carriers (62,000 dwt) at COSCO Dalian, in China for a price in the region of $33.6m and delivery set in 2021-2022.        

 

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

 

Shielding from the cascade effect of the coronavirus spread has proven to be an impossible task for a number of markets and the shipbreaking sector has been no exception. Following a few weeks of generous activity, the number of demolition sales has declined substantially in the past days, while increasing pressure became evident across prices offered in the Indian subcontinent market as well, with cash buyers from both India and Bangladesh lowering their bids further last week. We expect appetite for demo candidates to soften even further in the coming days, while those owners who are determined to sell at this stage should expect to face further discounts. Average prices in the different markets this week for tankers ranged between $240-375/ldt and those for dry bulk units between $230-365/ldt.

 

Wet Chartering

 

The crude carriers market witnessed a complete change of scenery during the past week, with WS rates and TCE levels going through the roof in a number of cases, while the change in momentum quickly became evident on the period front as well, with substantial premiums noted in ideas across the board. Demand for tonnage has found support in the escalating war between major oil producers. In a move that seems to be S. Arabia’s retaliation towards Russia’s disagreement to agree on additional OPEC cuts, Saudi Aramco announced an increase in its production and a cut in its April oil selling prices, boosting enquiry but also giving an additional hit to the oil markets, while news that China’s factory output plunged at the sharpest pace in 3 decades have additionally hurt the price of the commodity.

Following S. Aramco’s announcement for cuts in its oil selling prices for next month, it is no wonder that enquiry out of USG spiked last week with the positive spill overs enjoyed by West Africa rates as well, while the strong momentum is expected to extend in the coming days.

Sharing the excitement coming from the VLCC front, West Africa and Black Sea/Med Suezmax rates have also skyrocketed. It was a particularly positive week for Aframax rates as well, with USG and European routes noting equally high premiums over last done levels.

 

Dry Chartering

 

The BDI ended last week with small gains on the back of an encouraging number of cargoes out of key trading regions that helped sustain the reservedly optimistic sentiment of the past few weeks. Despite the fact that Panamax was the only size that witnessed losses in terms of its average earnings, it is the performance of the Capesize market that still causes the biggest concern given the substantial weight average earnings for the size have on the BDI and the fact that these remained exceptionally low for yet another week. At the same time, demand for the smaller sizes remains particularly healthy, with steady improvements seen week over week, while as the virus outbreak is proving to be a black swan event across all global markets, the performance of earnings even in the short term remains hard topredict.

Despite the uptick in average earnings last week, the Capesize market remains very much caught in the vicious cycle that kicked off with the Coronavirus pandemic. W. Australia to China was negative, while Brazil to China suffered even bigger discounts as the week came to an end.

Following positive performance during the prior weeks, the Panamax market succumbed to overall negative sentiment during the past days. Despite the fact that ECSA remained fairly busy during the bigger part of the week, the increasing number of ballasters kept passing more control over to charterers, while period enquiry remained particularly thin.

Supramax rates remained positional in the Atlantic with Indonesian coal cargoes providing at the same time a big boost in the East where sentiment for Handies also started improving, while both sizes saw improved demand on the period front with focus remaining on shorter term periods.

 

Analysts:

Eva Tzima

George Panagopoulos

Yiannis Parganas

 

 

 

 

 

 

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