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Allied Shipbroking - Weekly Shipping

20 Μαΐου 2020.

ploia43Market Analysis

11th-17th May 2020, Week 20

 

The dry bulk market seems to be in a state of complete disarray ever since the outbreak of the pandemic. Given that we are now slowly transitioning from a state whereby the problem was a short-term shock over to a fully-fledged macroeconomic problem, many are looking to see how things will transpire in the market moving forward. For the time being, the true impact is but a notional one as we have yet to fully count the economic casualties at hand, while the extent of the damage will take some time to fully unravel. Beyond this, something that is commonly shared within the shipping industry of late is as to if we will be able to see a recapture of the lost trade and to what extent this will materialize. From the perspective of an optimist, a relatively strong recovery is looking to be a very probable outcome for the near-term. However, taking this over to a market fundamentals approach, we find ourselves asking whether this will it be a short-term correction and straight back to some “known normality”, or a transition over to a new market environment?

Let’s start with the freight market, where things have been very disappointing for a while now (especially for the Capesize segment). The step back is tremendous, especially when compared with the past 3 years or so, with returns losing the recovery path momentum and putting an end to a mini upward cycle that had started to emerge since late 2016. The main question for most is whether we are experiencing similar market conditions to those faced back in 2016. While earnings seem very prone at the moment to further downward corrections, the same can’t necessarily be said for asset price levels. The truth of the matter is that asset prices have been under pressure for a long time now and have already experienced hefty corrections. Yet the current illiquid state of the secondhand market has left for any further corrections to hold only as a notional idea. Certainly, the lack of volumes in transactions is a core culprit of this, however, the price gap between buyers and sellers has also played a key role. Maybe this represents a glimpse of optimism amongst many in the market with respect to their future earnings potential.

In many ways we seem to be sailing in “unknown” territory, with all parties involved seeking the best strategy to help deal with the situation at hand. Personally, I support the argument of a steep upward momentum in freight returns to take place some point in the upcoming months. Regardless of the difficulties, disruptions and risks faced in the market, the economy will inevitably move forward. Yet, as time goes by and the bearish period extends ever further into the horizon, there is the risk of this recovery in numbers taking an asymmetrical and “artificial” form. This is because of the fact that even if we assume a very strong bullish “window” taking place, it won’t be enough to support an adequate percentage of the “real economy” within the shipping industry. It will boost the various benchmark indices and shape better average yearly freight returns. However, it will be narrowed down to participants of a well diversified portfolio in terms of spot and period employments, who can afford to take risks and remain available to potential market shifts, or for units with a rather good “time position” for a small number of voyages. All-in-all, to sustain a modicum of bullish sentiment, there needs to be enough fixing activity to cover a significant portion of current losses, but this will be very challenging moving forward.

 

Thomas Chasapis

Research Analyst

 

 

Freight Market

Dry Bulkers-Spot Market

11th-17th May 2020

 

Capesize – Another catastrophic week for the Capes, with the BCI crashing down to 26bp, just above negative territory, losing more than 94% in a week. Demand was very limited this past week with cargo holders taking a step back, a fact that led several units to remain uncovered and freight rates to reach much lower levels. However, given that global markets are gradually re-opening and China’s need for restocking is intensifying, there are some hopes that this current downward momentum will not continue for long.

Panamax – A further slump noted here as well last week, with much less severity however. The BPI fell by 9.6% on a w-o-w basis, reaching 603bp. The anemic interest noted in the Atlantic basin and the long tonnage lists pushed rates lower. However, losses were curbed from the improved picture seen in the Pacific, where demand for minerals from Indonesia and Australia was robust.

Supramax – In contrast to the bigger size segments, gains were being witnessed here. The BSI climbed to 450bp, rising by approximately 6.4% on w-o-w basis. The push came mainly from Asia thanks to a fresh series of enquiries noted, while an uptick was seen in Med as well last week. On the other hand, interest from charterers in the Atlantic remained weak, trimming some of the gains.

Handysize – The freight market moved sideways here last week, with the BHSI rising only slightly to reach a gain of 0.9% and close at 230bp. The increased activity in the Pacific noted amid the last few days helped rates rebound, coming up from their lowest point in the year after a long haul of weak trading days.

 

Freight Market

Tankers - Spot Market

11th-17th May 2020

 

Crude Oil Carriers - An overall positive week for the VL market with demand remaining relatively strong, especially during the start of the week. However, the long tonnage lists noted over the following days in key regions, such as the USG and WAF, trimmed gains. In contrast, losses were witnessed last week in the Suezmax front, as limited demand in the WAF and Black Sea created an imbalance in the market, pushing rates down. In the Aframax sector, things were more positive as increased activity helped owners to persist on higher rates. However, given that some units previously used for storage are now expected to return back to trading, we may see a fair correction take shape during the following weeks.

Oil Products - On the DPP front, things were disappointing as lack of fresh enquiries in key regions such as the Med and Black Sea worked in the charterers favor, pushing rates lower. In the meantime, the same negative momentum was witnessed last week in the CPP front as well, with limited activity and long tonnage lists leading to a fair drop in rates across all main routes.

 

Sale & Purchase

Newbuilding Orders

11th-17th May 2020

 

Key investment’ sentiment seems to have been split across the two key segments. On the one hand, the poor performance of the dry bulk freight market and the discouraging market outlook, at least for the time being, has trimmed any interest for new projects. It is important to state here that most of the new orders coming to light seem to be older transactions that have only just emerged. We expect activity to remain weak in the near-term, while any fresh interest that we may witness is expected to be focused mainly in the Panamax and Supramax segments. At the same time, the outlook for the tanker markets is at the moment much more bullish, something that is depicted in the intensifying interest noted amongst potential buyers for new orders amid a difficult period for the global economy. The main bulk of focus is expected to remain on the more versatile units such as Aframaxes and product tankers. Meanwhile, prices will play an important role over the coming period as it will shape how much of this interest will materialize over to actual transactions.

 

Sale & Purchase

Secondhand Sales

11th-17th May 2020

 

On the dry bulk side, a modest level of activity was seen for yet another week. The recent severe drop in freight rates though is expected to hurt market sentiment further and lead to decreased appetite from the side of buyers. However, last week we noted several new deals being reported, with focus given once again to the smaller size segments such as Supramaxes and Handysizes. This trend is not expected to change anytime soon, as buyers are looking for the security provided by the lower risk/lower volatile market segments.

On the tankers side, things may be much more positive with regards to the current market outlook, but this has yet to be properly reflected in the volume being noted in the second hand market. Last week was no exception to this with a still slow flow of new deals coming to light. The bullish appetite is still dominating the segment though and thus it is likely that we will see further activity emerge over the coming weeks.

 

Sale & Purchase

Demolition Sales

11th-17th May 2020

 

Some restrictions seem to have been lifted recently in the key Indian Sub-Continent markets, but this does not mean that lockdown has ended just yet. However, given the expectations for a return to normality (in terms of operational matters) over the following weeks could help feed healthier appetite amongst breakers after several weeks of inactivity. In Bangladesh, the government allowed for some scrapyards to proceed with the demolition of units that were awaiting at Chattogram anchorage due to the upcoming Amphan cyclone (most of these deals though have been re-negotiated to lower price levels). However, the general restrictions are still in place curbing any further interest for the time being. Meanwhile, restrictions have not yet been lifted in India either, but with local authorities allowing vessels with Indian crew to be scrapped. The surge noted in steel plate prices and the anticipated stimulus package from the domestic government will help the country to regain cash-buyers’ interest once the market is fully re-opened. The same conditions are currently seen in Pakistan with the only vessels proceeding for demolition being the ones with local crew members. However, with some stimulus movements being anticipated from the local authorities, we expect interest for business to start showing a gradual revival here too.

 

 

 

 

 

 

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