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Allied Shipbroking - Weekly Shipping

17 Σεπτεμβρίου 2020.

ploiadiafora2Market Analysis
7th-13th September 2020, Week 37

 

 

 

 

It is undoubtedly a period in which investment sentiment across the whole spectrum of economic activity has been severely hit. A global recession for 2020 is now a certainty, with the only question and debate being as to its scale. At this point and in line with all this, global trade has posted a massive decline this year, with estimates from the WTO pointing to an annual drop of between 13% and 32%. Given these dire circumstances it is of little surprise that newbuilding appetite for dry bulkers has hit rock bottom, with the number of new contracts this year having slumped to the second lowest figure on record for the past decade.

Newbuilding activity plays a key role in describing future market expectations and thus it has always been insightful to examine its trends and patterns deeper. Nowadays, interest for new orders has been limited, given the lack of confidence in the market. Putting down the numbers, as at 1st September 2020, the total dry bulk orderbook comprises of 614 vessels. This number is much lower than the respective figures for September 2019 (870 units), 2018 (863 units), 2017 (664 units) as well as 2016 (1043 units). This drop is vastly justified by the demand and supply balance that has been shaped by the pandemic, but has also been in the making for some time prior to this. During the period Jan – Aug 2020, 67 units were ordered, compared to 98 placed during the same period in 2019, 141 units in 2018 and 72 units 2017. However, is the longer-term outlook for this sector in line with this decreasing trend noted in
in the year so far in terms of newbuilding orders?

To answer this question, we could further scrutinize the potential future demand and supply fundamentals for this sector. Beginning with the demand fundamentals, it is important to state that the majority of forecasting models available are pointing to a significant rebound in global trade from next year onwards. However, given where we are today, it is likely that this rebound will just return things to pre-pandemic levels. On the other hand, it may well signal the beginning of a longer-term rising pattern for global trade. The average growth in total merchandise trade from 2010 to 2019 stands at 2.8%, on par with what we have seen for the average annual fleet capacity growth over the past 5 years. This shows that the two sides of this precarious balance are in a close “confrontation”. Here it is interesting to disclose another two crucial, though highly controversial points. The current orderbook to fleet ratio is at around 5.7%, its lowest point for the past decade, while the overage fleet (vessels above 20 years of age) to tal fleet ratio is currently at 9.3%. Finally, it is worth mentioning that the FFA market right now is pointing to a backwardation, with future BDI levels presently being below what we are seeing in the spot market. At the same time the costbenefit analysis of placing a newbuilding order is heavily depending on its price (though technical aspects also play a major role). Current newbuilding prices are at historical lows, yet when stacked up against the current second-hand prices, the investment opportunity “glimmer” quickly fades away.

All in all, it is fair to note that the newbuilding market has been considered for some time now as a threat to the shipping market balance and a significantly risky investment decision. It will be interesting to see if this belief starts to shift, possibly leading to a ramp up in new orders during the final quarter of the year, or if the current slump will continue, with shipbuilders shifting their hopes on a rebound to be noted in 2021.

 

Yiannis Vamvakas

Research Analyst

 

 

Freight Market

Dry Bulkers-Spot Market

7th-13th September 2020

 

Capesize – The downward correction continued for yet another week, with the BCI 5TC figure losing a further 6.2%. The negative pressure was rather attuned across all of the benchmark trade routes, given the uninspiring trajectory in fixing activity. For the time being, the Atlantic region seems to be the most under pressure, given the limited cargo availability and the fact that the overall market was in clampdown throughout the past week. All-in-all, despite the limited (so far) correction, the market is showing troubling signs in terms of how strong the final quarter can prove to be.

Panamax – Things moved on the negative side here too, as of the past week. The BPI TCA figure lost 10.9% of its value on a w-o-w basis, with demand for tonnage across all main routes experiencing strong downward pressure. Despite the good start to the week, the Pacific market lost traction, with the uninspiring mineral trade putting pressure on freight rates. Moreover, inline somehow with the bigger size segment, the Atlantic trade was also problematic, given the relatively large amassed tonnage availability in the region.

Supramax – The general negative pressure also hit the freight market here, with the BSI TCA losing 3.7%. Things remain rather uninspiring, given the lack of fresh enquiries, as well as, the limited activity in many of the benchmark trades.

Handysize – In a very short period of time, the market has reached once again a periodical “ceiling”, seemingly unable to push through at this point. However, even with the small correction noted during the past week, the market is still sustained at year-to-date high levels.

 

Freight Market

Tankers - Spot Market

7th-13th September 2020

 

Crude Oil Carriers - A week with mixed signals in the crude oil tanker market, with downward pressure though prevailing, pushing the BDTI 2.9% lower w-o-w. On the VL front, owners finally witnessed a rebound, with increased demand from the MEG playing a pivotal role. The positive vibe was not transferred to the other segments. Suezmax freight rates posted an overall decline, sourced from the lack of fresh enquiries in key regions such as the WAF and Black Sea/Med. The same negative pattern was also seen in the Aframax front. Activity remained subdued in almost all key trading routes with limited cargo being available. The largest losses were noted on the BALTIC-UKC route, where WS rates fell by 13.8%.

Oil Products - On the DPP front, it was a week with no clear direction, as gains were posted on some routes such as ARA-USG, with a healthier demand-supply balance. On other routes though, earnings posted losses due to limited available cargoes. On the CPP front, things were less positive, with interest from the charterers side being weak, while several units remained unfixed.

 

Sale & Purchase

Newbuilding Orders

7th-13th September 2020

 

A rather positive week for the newbuilding market, with a limited though number of fresh orders coming to light. More specifically, in the dry bulk sector, activity was narrowed to the Kamsarmax size segment, with a single (but strong) 4 + optional 4 order being placed. Partially at least, this can be attributed to the downward pressure of late in terms of freight earnings, with potential buyers being rather hesitant to any big commitment in this sector at this point. A lot will depend on how things evolve during the final quarter of the year. Notwithstanding this, the tanker sector was in complete regress, with zero fresh deals being reported. On the other hand, the gas sector had an astonishing week, especially for high spec LNG vessels. All-in-all, given the fragile status in shipping markets since the Coronavirus outbreak, it is difficult to see any positive balance developing soon. Hopefully, the negative correction in asset price levels will start to incentivize some to invest towards this direction in the near term.

 

Sale & Purchase

Secondhand Sales

7th-13th September 2020

 

On the dry bulk side, a fair boost in the SnP market was noted as of the past week, given the strong number of units changing hands. At this point, we see movement across all main size segments, suggesting a rather equally shared buying appetite in the sector. Notwithstanding this, activity seems limited for more vintage units, for the time being at least. All-in-all, on the back of a more bullish sentiment and freight returns during the final quarter of the year, we may well see a more vivid SnP market taking shape in the coming months.

On the tankers side, activity seems to be in a mediocre state over the past few days or so. The uninspiring track from the side of earnings can be seen as one of the main culprits for the softened appetite of late. During the past week, we saw volumes concentrated on the medium to smaller size units, as well as, of age older that 15 years. For the coming period, a lot will depend on how realized returns respond as we approach the end of the year.

 

Sale & Purchase

Demolition Sales

7th-13th September 2020

 

A relatively strong week for the ship recycling market, with a fair number of units concluded for demo during the past few days or so. The main ship recycling destinations in the Indian Sub-Continent have succeeded in keeping a rather bullish sentiment, despite the fragile state noted since the onset of the Covivd-19 pandemic. Pakistan remains the “top” market for the moment, with buying appetite though, already indicating some signs of softening, given now the amassed tonnage capacity in the region. On the other hand, Bangladesh is currently the market showing the highest potential in the India Sub-Continent. Given the sort of relief from the excess inventory of previous months, it seems to be ready to compete heavily for any fresh tonnage that comes to market. Moreover to this, a lot will depend on scrap price levels, that are now hovering at a “balanced“ level of around US$ 350/LDT. Finally, for India, things are very uncertain, given the increasing number of new COVID cases. With no clear picture from this front, it is very difficult, to point to any robust trend taking shape, even in the short-run.