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Allied Shipbroking - Weekly Shipping

13 Οκτωβρίου 2020.

shipsport92Market Analysis

5th-11th October 2020, Week 41

 


It has been a relatively bumpy ride these past few weeks for the crude oil market. The major disruptions noted by Hurricane Delta and the Norwegian oil workers’ strike, have caused major havoc on markets, limiting trade and providing a temporary boost in oil prices as supply concerns started to grow. In the US, Hurricane Delta shut down a fair portion of offshore crude oil production as well as a number of refineries early last week. This is not the first time we have seen disruptions occur in the Gulf of Mexico due to hurricanes, though it is the biggest disruption in more than 15 years, halting more than 92% of its output (equally to roughly 1.67million bpd), placing it slightly above the disruptions caused back in 2005 by Hurricane Katrina. At the same time, we had seen major supply disruptions in Norway’s total oil output capacity since the 30th of September as groups of oil workers started to go on strike after wage talks faltered. With both the US Gulf seemingly getting back to full production and Norwegian oil companies having struck a deal with labor unions, the market has started to show fair gains. At the same time, this week we witnessed the lifting of the state of force majeure on Sharara oilfield, Libya’s largest oilfield, with an initial output flow of 40,000bpd imminently coming online and looking to quickly ramp up to 355,000bpd. In the short-term all these factors could quickly turn the tide on the downward slide being noted in the tanker freight market over the past couple of weeks. With a fair amount of output coming online in the near-term and crude oil prices dipping further from their current lows, it looks as though trade could get a fair positive “jolt” for the time being, while given that we are nearing the seasonal winter demand spike for the northern hemisphere, things could get even firmer.

Yet all this is unfortunately limited to the short to very very near-term outlook. Still being in the shadow of the global COVID-19 pandemic (which could be looking to ramp up its disruptions over the coming months) and with demand already having slumped considerably since the start of the year (leaving large inventories to be held around the world) and the upcoming US elections looking to cast further doubt and concerns as to the future of the crude oil trade, it looks as though the current flow of positive news may well be short lived. We have already seen this week a sharp drop in bullish bets made by several hedge funds, partly driven by major demand outlook concerns. At the same time, we have seen a rush by the world’s largest oi traders to invest billions of dollars into renewable energy projects within the next five years.
Adding to this, both OPEC and the International Energy Agency (IEA) have been expressing a more pessimistic outlook for crude oil than in the past, reflecting the concerns and trends that have surfaced since the start of the pandemic.

Yet will all this at hand, we are still looking at a fairly robust hold on current market conditions for the crude oil tanker freight market. The tanker fleet to date has had a very modest growth rate, while it current orderbook to fleet ratio stands at the lowest level we have seen in many years. A troublesome demand outlook should always be of some concern, yet if the supply of vessels is still holding well and is placed well in line with what we market requirements could well be moving forward, the market should hold fairly balanced. This isn’t exactly an outlook an investor dreams of, but it sure goes a long way in moderating any major risk concerns one may have. 

 

George Lazaridis

Head of Research & Valuations

 

 

Freight Market

Dry Bulkers-Spot Market

5th-11th October 2020

 

Capesize – Last week we saw an end to the upward momentum that was noted as of late in the Capesize market, with the BCI falling by 10.8% w-o-w. The initial rise in freight rates seen during the week pushed charterers away, limiting interest and actual stems. This pattern was seen in both the Atlantic and Pacific basins, but it is not expected to remain that way. The increased demand mainly from China is likely to boost activity once again in the coming weeks, fueling BCI further.

Panamax – A positive week for the Panamax/Kamsarmax size segment, as most of the key trade routes posted gains, leading the BPI to rise by 4.8% w-o-w. The increased demand for minerals and grains from the Baltic and US East Coast played a key role this past week in gains made. In addition, the enhanced interest in these regions had as a result the gradual limitation of available tonnage, pushing rates even further up.

Supramax – A slight correction was witnessed in the Supramax front this past week, with the BSI marginally falling by 0.9% w-o-w. The lack of fresh enquiries from Asia (partially due to Chinese holiday period) dragged freight rates down this past week. However, the improved demand view emerging in the Atlantic was able to curb some of the losses for the time being.

Handysize – The mixed picture that was shaped in the Handysize market this past week, led the BHSI to remain almost unchanged at 595bp. On the one hand, we witnessed much-improved demand in the USG and Cont, giving support in the market for now. At the same time, we saw much worsen activity take place in key regions of S. America and Asia, hampering any hope for overall gains to be had.

 

Freight Market

Tankers - Spot Market

5th-11th October 2020

 

Crude Oil Carriers - The marginal correction for the crude oil tanker market continued for yet another week, with the benchmark BDTI index experiencing losses of 4.0%. In the VLs, the scene was mostly stagnant, with few changes in terms of sentiment both for Middle East and West Africa rates. In the Suezmaxes, the situation was rather similar. The Black Sea/Med trade was under slight pressure, with sentiment across the main trades finishing on a negative tone. In the Aframaxes, the general negative pressure was more intense, given the relatively attuned correction across most of the benchmark routes. For the time being, the Baltic—UKC trade seems more problematic, though this should reverse soon.

Oil Products - On the DPP front, it was another negative week, given the continuing bearish mood across most of the main trades. With the exception of Med rates that remained stable, all other trades witnessed some small losses. On the CPP front, there were some mixed messages, with most routes though, finishing on the negative side. However, the MEG-Japan showed some slight potential.

 

Sale & Purchase

Newbuilding Orders

5th-11th October 2020

 

It was another week with limited interest from potential buyers for newbuilding projects in both the dry bulk and tanker segments. On the dry bulk side, we have recently witnessed a decline in appetite despite the more competitive newbuilding price levels that have been noted as of late. In the year so far, we have seen 81 units being added to the orderbook, which right now stands at a total of 603. This is much less than the 116 units that had been ordered during the same 9 month period last year. It seems that the discount of second-hand units is still attractive in the eyes of potential buyers and thus fresh enquiries remain scarce. In the tanker market, the lack of fresh interest is persisting for now, as market fundamentals have not yet the negative trend they entered into during the 3rd quarter. The number of new orders being placed in the year so far has amounted to 97, a figure much lower compared to the 123 units that had been ordered in the same period last year. We do not expect this trend to change significantly during the final quarter of the year, as sentiment has been hurt considerably as of late.

 

Sale & Purchase

Secondhand Sales

5th-11th October 2020

 

On the dry bulk side, the positive momentum was sustained for yet another week, given the relatively modest flow of fresh transactions taking place. At this point, the boost is more apparent in the bigger sizes and especially in the Capesize segment, in line somehow with the general steep upward path from the side of realized returns. Given now that we are already due the final quarter of the year, with many taking a bullish stand, we can anticipate a rather vivid SnP the coming months.

On the tankers side, another strong week in terms of activity noted was due. Given the prolonged uninspiring trend noted from the side of earnings, this trend of late on the SnP side might well catch many by surprise. Once again, we witnessed a firm presence from the bigger size segment, given the good number of units changing hands. With all other sizes showing some slight movement, we can expect a robust flow of fresh deals coming to light (in the near term at least).

 

Sale & Purchase

Demolition Sales

5th-11th October 2020

 

An improved week in terms of tonnage volume being sold for demolition, as surging prices helped owners of vintage units to take the decision to retire some of their current vessels. We expect the activity in the demolition market to continue on at moderate levels at least, as uninspiring freight markets (especially in the tanker market) and current offered price levels are making scrapping an attractive option. In Bangladesh, the recently shaped cartel by breakers has limited the competition within the country but ramped up the rivalry with the rest of Indian Sub-Continent countries. Demand in the country remained robust, due to attractive offered prices and healthy fundamentals. In India, the ongoing crisis with COVID-19 has had an impact on the demolition market as well, decreasing interest from the side of end-buyers, as well as the costs of the local scrapyards that are unable to compete with Bangladesh and Pakistan. In the case of the latter, the new era that began as of late with very competitive prices seems to still hold durability, as more and more owners are choosing Pakistan for the recycling of their fleet.

 

 

 

 

 

 

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