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Intermodal Weekly Report

13 Σεπτεμβρίου 2020.

bunker21Market insight 

By Yiannis Parganas

Market Analyst

 

The uneventful summer lull which is coming to an end soon has left its stigma on the newbuilding market, which has already been devastated by the global social and economic effects of Covid-19 pandemic during the first half of 2020.

The newbuilding sector has been rather discouraging in terms of its activity levels over the past summer lull period of time. Over the past summer months, the asset investment decision between purchasing a newbuilding versus a modern secondhand dry bulk vessel has been illustrated. Owners are inclined to choose respective modern ships owing to the lucrative price discounts on display over pricey, time and capital intensive newbuildings. Both vessel investments do not differ significantly in terms of operational efficiencies. Sectoral newbuilding analysis has shown that dry bulk vessel orders remained at significant lows over the past summer months whereas tanker candidates (especially MR and clean product vessels) monopolized the global vessel orderbook with volumes however being at low levels.

Owners are not able to pin down their future green fleet-composition strategies adding an extra burden on shipyards which are already struggling to stay afloat during the pandemic. The shipping industry’s “divided” view on the commercial and long-term implementation feasibility of eco-friendliness and sustainability is causing concern and investment ambiguity. The key rationale behind this uncertainty is that there is a need to promote decarbonization in shipping by reducing its carbon footprint. This will be achieved through the further digitization of vessels and their navigation technologies. Current eco-friendly alternatives in shipping include LNG-fueled vessels & carrier of ammonia, alternative propulsion fuels and batteries. The path towards greener shipping is non-trivial and most definitely non-obvious. Therefore, this cloud of uncertainty regarding eco-friendliness has adversely impacted newbuilding orders.

This widespread scepticism is more than justified when taking the example of scrubbers into consideration. Up to now scrubber installations have simultaneously seen a decent amount of praise and criticism. Scrubbers have not yet been proven to be environmentally friendly and their exact effects on the environment remain to be seen. In the end of 2019, the low Sulphur to high Sulphur fuel oil price differential was over $350/ton, which rendered the decision to install scrubbers an intuitive one. However, with the differential falling to below half the aforementioned value, scrubber adoptions have seen a rapid cessation, and this has adversely impacted the respective investor sentiment for eco-friendly newbuildings further.

The last quarter of the year is ahead us, however the economic fundamentals remain weak and poised towards a bleak year over year newbuilding orderbook. The soft freight market activity in both the dry bulk and tanker sector coupled with the aforementioned necessity for environmentally friendly adoptions have pushed potential newbuilding investors to the sidelines. This new reality, has intensified the competition among shipyards for the less available newbuilding order market share. Nonetheless, in every crisis there is always a story silver lining which in the newbuilding front is depicted by the smiles of owners who are destined to see a substantial overall fleet supply decrease with the current year contracting activity being analogous to the 2017 very low levels.

 

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

 

Momentum in the dry bulk market remains soft, with consecutive negative closings being noted across all sizes. Capesize and Panamax performance witnessed most of the pressure with substantial earnings discounts reported w-o-w. The BDI today (08/09/2020) closed at 1328 points, down by 21 points compared to Monday’s (07/09/2020) levels and decreased by 143 points when compared to previous Tuesday’s closing (01/09/2020). Rates in the crude carrier market are still pointed south, with average earnings hovering below OPEX levels across every sector. The BDTI today (08/09/2020) closed at 446, decreased by 20 points and the BCTI at 465, a decrease of 17 point compared to previous Tuesday’s (01/09/2020) levels.   

 

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

 

Sale and Purchase activity remained healthy in the dry bulk sector realm for yet another week. Tanker sales were subdued w-o-w with deals focusing on older vessels (above 15 years of age) while clean product carriers were the most common secondhand transactions. All bulker segments exhibited healthy transactional volumes. In the tanker sector we had the sale of the “PETROPAVLOVSK” (106,532dwt-blt ‘02, Japan),  which was sold to U.A.E based owner, Kasco, for a price in the region of $10.2m. On the dry bulker side sector we had the sale of the “CAPE VANGUARD” (206,180dwt-blt ‘06, Japan), which was sold to Chinese buyers, for a price in the region of $14.7m.

 

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

 

Some spark of life has emerged in the Newbuilding dry bulk front; however, the overall contracting activity remain soft, a trend which has continued from the start of the year. Among the recently surfacing orders, owners kept showing no particular interest for crude carrier vessels with their appetite concentrating on the chemical sector. As far as the dry bulk orders are concerned, interest has been for another week displayed on the Ultramax and Kamsarmax sizes while the four firm plus four options Kamsarmax order from China Minsheng Trust at Chengxi shipyard made the headlines. It remains to be seen how the market activity and the criteria that shape it will develop over the remaining last quarter with its current volume being at significant low levels. In terms of recently reported deals, Japanese owner, Noma Kaiun, placed an order for two firm Ultramax vessels (64,000 dwt) at Tsuneishi Cebu, in Philippines, for a price in the region of $28.0m  each and delivery set in 2022.              

 

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

 

The Demolition market kept being a lucrative option for owners willing to dispose their units, with scrap prices hovering at an average level of mid USD 300/LDT in the Indian subcontinent regions. During the past days, the supply of tonnage offering for scraping have increased with cash buyers have been anything but reserved with their bids and absorbing all the available tonnage. Pakistani breakers remain the most profitable option for non-green recycling units followed by Bangladesh and India in due order, with the latter having a respectable share of HKC candidates. The fact that Pakistan has emerged as the biggest player in the region, has boosted the competition, with Bangladesh seems that now have the momentum to prove its leading role in the coming months. Average prices in the different markets this week for tankers ranged between $205-360/ldt and those for dry bulk units between $200-340/ldt.

 

Wet Chartering

 

Owners of crude carrier vessels seem unable to provide any meaningful resistance for another week, with charterers kept lowering their bids and pushing rates at even lower levels. Every size’s average earnings posted with declines with VLCC rates outperforming the rest of the market. In the meantime, the WTI crude oil price dropped close to $3 dollars, just below the $39 dollar mark; it is interesting to see whether this level will result in a firming trading activity. Period fixtures remain timid as owners are not willing to discuss the very low ideas that are prevailing in the market.

The VLCC market kicked off on Monday with substantial earnings decreases. Middle East and West Africa activity were particularly limited resulted in discounts at average earnings which were closed of the week at $3496 per day mark.

The Suezmax rates remained under pressure last week, with limited tonnage requirements out of both Black Sea and West Africa regions weighing down on average earnings. The Aframax market has experienced another uneventful and uninspiring week with North European tonnage supply once more outpaced the number of cargoes in the region. In the Med, TD19 climbed to WS 59 points, yet with business offering almost $1500 per day optimism remains reserved among the owners.

 

Dry Chartering

 

The larger size dry bulk market sectors eased back this week with overall decreases being recorded across the majority of their trade routes. Conversely, both geared sized markets kept an overall steady activity with no clear governing trend across both basins. It remains to be seen whether the dry bulk market will be poised for a strong fourth quarter ahead.

Average Capesize T/C earnings came under pressure and decreased by $2,142 per day week-on-week. Noteworthy decreases were observed among fixing prices of iron ore cargoes from West Australia to Qingdao and in the Brazil fronthaul trade routes; reduced trading activity from Vale contributed towards the Brazil fronthaul route’s rates softening. Owners were faced with limited cargo enquiries in the North Atlantic which led to a decrease in respective rates while average earnings for transpacific round voyages lost more than 18% of their previous week’s value.

The Panamax sector followed a similar trajectory to that of its larger counterparts with average earnings recording consistent daily decreases which resulted in a w-o-w decline of 8.8%. Atlantic basin activity was soft with charterers dictating rates for cargoes out of the US Gulf and South America destined to Far Eastern receivers. A similar governing trend was observed in the Pacific basin owing to ample tonnage supply competing for reduced cargoes.

In contrast to the aforementioned larger sizes, the Supramax sector remained fairly constant with overall Supramax earnings decreasing marginally w-o-w. In the Atlantic, business activity out of ECSA saw small increases in rates with the rest of the trade routes slightly decreasing. The Handysize market also remained steady with overall earnings exhibiting few fluctuations. The ECSA rates softened while rates from the Continent remained positive. In the Pacific, both geared sizes displayed an unaspiring week.

 

Analyst

Yiannis Parganas

 

 

 

 

 

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