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Allied Shipbroking - Weekly Shipping

28 Ιουλίου 2020.

ploiolimani2Market Analysis

20th-26th July 2020, Week 30

 

During the peak of the COVID-19 pandemic there was but one freight market to be hindered by what was going on. Market participants witnessed skyrocketing volumes being traded during the March-April period, driven by the monumental drop in oil prices which reached levels not seen since 2003. With many traders looking to get their hands on as much oil as possible and utilising all storage options, freight rates reached record highs. However, since then this rally has come to an abrupt end, with the BDTI slumping to levels even below the 500bp mark.

Undoubtedly, in all this freight market splendour, low oil prices were the key driver. Key importance to this has been the role of the supply glut created during this time. The collapse in discussions between OPEC and Russia over production cuts led to an excessive flow of oil reaching markets, pushing both Brent and WTI to record lows. These excesses did eventually scale back, with the OPEC+ group eventually coming to an agreement for a massive output cut program of approximately 9.7 mbpd for the period of May-June. This is set to be scaled back to 7.7 mbpd for the remainder of 2020 (although production cuts for August and September could end up being deeper as some countries may need to compensate for previous lack of compliance), while come January 2021 this is set to drop to 5.8 mbpd. All these gradual increased flows at any point could be met by the potential of an increase in Iranian exports, which although currently at around 150,000 bpd, could easily reach 2 million bpd at any point. US oil production has also increased by 1.2 mbpd to around 10.9 mbpd as of late, a fair level though still much lower than the 13 mbpd seen back in March.

At the same time and on the side of demand, the pandemic has had considerable effects as well, having caused a severe drop in consumption from all OECD as well as a large number of major developing economies. A second wave of lockdowns will definitely dampen any anticipated recovery, but the impact is not expected to be as severe. The recent news regarding a potential vaccine have helped calm down fears, with oil demand forecasts having been revised up by between 5 and 7 mbpd for next year. Meanwhile, demand data for 2020 is also improving, with OPEC estimates for the year standing at 90.72 million bpd, an increased of 0.13 million bpd compared to its previous forecast. In China, official data illustrated a significant rise in volumes coming out of domestic refineries. In particular, June data showed a volume output of 14.08 million bpd, 1 million more than in May. The respective figure back in February, at the peak of pandemic spread, was only 10 million bpd. However, this boost in China may only be temporary, with local storage capacity looking to have already peaked during previous months. Meanwhile, the EIA has recently stated that demand for petroleum and liquid fuels is not expected to surpass 2019 figures before August 2021, despite the recent uptick in demand.

Things are pointing to a possible mild recovery in consumption during the coming months, which though may be disrupted by a second wave of lockdowns, it is unlikely to be hindered to the same extent. At the same time, the supply of oil coming to the market is expected to rise by a fair amount over the coming months, likely keeping a solid cap for now on these low oil prices. Taking everything into account, there can be a case to argue for much better freight market conditions to emerge during the latter half of the year, though surely not to the extent seen back in the March-April period.

 

Yiannis Vamvakas

Research Analyst

 

 

Freight Market

Dry Bulkers-Spot Market

20th-26th July 2020

 

Capesize – The downward continuation was due for yet another week, with the BCI 5TC losing the US$ 20,000/day mark. The corrections was sharp in both basins, despite somehow the potential of some cargo availability in the Atlantic being present for the near term. With all other main trades moving on the negative side too, it seems as though the overall Capesize market is in a bearish mood. Moreover, given that bunkers have started to add some slight pressure in realized earnings, it remains to be seen how things will evolve over the coming weeks.

Panamax – In line with the bigger size segment, a hefty negative correction was due here too during the past week. Indicatively, the Panamax TCA lost 20.3% of its value during the same time frame. All main routes finished on the negative side, with the Atlantic currently leading the way with losses of 36.7%. Moreover, the sluggish pace in Indonesia and Australia keeping fixing activity low and tonnage availability relatively high in the Pacific. Notwithstanding this, fresh enquiries ex US Gulf were sustained at relatively satisfying levels.

Supramax – An overall uninspiring week, with the benchmark TCA figure finishing the week with a slight uptick albeit an only marginal one. Moreover, things across the majority of main trades has been rather mixed, with some routes already experiencing a small correction.

Handysize – A year high for the BHSI index was reached this past week, helped to a great extent by the Atlantic market. While most of the main routes finished the week on a positive tone, we see, though, at this point, indications of negative pressure mounting in the Pacific.

 

Freight Market

Tankers - Spot Market

20th-26th July 2020

 

Crude Oil Carriers - An overall uninspiring week for the crude oil trade market, with the BDTI remaining at 520bp. In the VLs, things were under pressure for yet another week, with both MEG and WAF rates losing traction. On the other hand, the Suezmax market moved on the positive side, with all main routes noting some fair gains. A stronger WAF market and the fact that we were seeing stringer tonnage availability in the Black Sea/Med trades were mostly the highlights of the week. Finally, the scene was relatively a mixed bag for Aframaxes for the time being. Despite somehow the upward movement on most benchmark routes, the NSEA-CONT trade finished the week with losses of 15.5%.

Oil Products - On the DPP front, it was a rather mixed week, with some routes, though, experiencing some good gains on a w-o-w basis. The Med trade, on the other hand, seems to be under some pressure as of late. On the CPP front, it was overall a positive week, with most benchmark trade figures noting fair gains. Notwithstanding this, the USG-CONT route finished the week with slight losses.

 

Sale & Purchase

Newbuilding Orders

20th-26th July 2020

 

A fairly active week for the whole newbuilding market, given the fair number of new orders being concluded across most of the main sectors. In the dry bulk market, we witnessed a strong push in the bigger size segments, despite somehow the recent steep negative corrections noted from the side of freight earnings. On the tanker side, we are currently seeing a keen interest towards different size segments. This may have caught some by surprise, given both the recent slowdown in the SnP market activity for relatively similar size units, as well as, the downward correction that has be noted for some time now in terms of freight returns. Notwithstanding this, given the general uncertainty since the onset of the pandemic and the fact that we are already well in the midst of the summer period, it is highly unlike that we will see this trend noted of late to continue on a similar pace. However, if we assume a continuous improving sentiment, the fact that greater opportunities can be had now in terms of pricing and early slots, potential buyers could well be enticed for a second and more amplified round of newbuilding ordering over the course of the second part of the year.

 

Sale & Purchase

Secondhand Sales

20th-26th July 2020

 

On the dry bulk side, after the tremendous rally in total activity noted during the past week or so, things slowed down considerably over the last few days. The week closed off with but a handful of units changing hands in the meantime. At this point, we saw volume being concentrated in the medium and smaller size segments, given the hefty negative corrections in freight returns noted in the larger sizes. Hopefully, even if we are in the midst of a sort of correction from the side of earnings, buying appetite will should be sustained at relatively good levels for the near term at least.

On the tankers side, little has changed in terms of volume of transactions being noted during the past week or so. It seems that we have already entered a sluggish period in terms of buying appetite. Moreover to this, given the considerable pressure being noted in terms of earnings as of late, this mediocre appetite may well be sustained in the near term.

 

Sale & Purchase

Demolition Sales

20th-26th July 2020

 

Another good week for the ship recycling market, with a fair number of units being concluded for scrap. In the Indian Sub-Continent, Pakistan remained the leading demo destination for yet another week, with offered numbers being on the rise. Whether these new price levels will be sustained remains to be seen. A lot will depend on tonnage availability in the near term, as well as, how the other main competitor destinations react. At this point, Bangladesh is still lagging well behind, seemingly unable to compete during this upward momentum noted in scrap prices. If it is manage a strong comeback, this will most likely take place later in the summer period. In India, the situation seems to be a bit more blurred for the time being, given the problematic situation developing as part of the Covid-19 pandemic. Hopefully, given the improving local steel plate prices, overall sentiment as well as the lack of tonnage availability, we may well see a strong push from the side of breakers take place at some point. Finally, Turkey seems to still be on a recovery path, though here too we are seeing some signs of possible disruptions taking place in the near term as part of the COVID-19 pandemic.

 

 

 

 

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