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Intermodal Weekly Market Report

19 Οκτωβρίου 2020.

ploiof192Market insight

By Timos Papadimitriou, SnP Broker


The tanker market has experienced severe freight rate and asset value declines over the past 5 months. A potential market upturn may arise in the coming winter period due to the seasonal demand for oil and its derivatives, however, such a boost will likely not suffice in positioning the market towards a recovery phase. With a second COVID-19 wave being potentially imminent, a dampening of crude oil demand may be upon us. A softened importing activity is already being observed in China (the world’s most prominent importer of crude). Chinese imports have been on a slowdown with volumes approaching end of Q1 – start of Q2 levels. Similar import tendencies have been exhibited by other leading importers due to the expectation of a second lockdown.

Tanker vessel values have come under significant pressure from the start of the year. With the exception of a few short-lived periods when a high demand for older tonnage due to storage projects was observed, crude ships have seen their values decline year-to-date. Leaving aside the Ocean tanker’s fleet, there is a scarcity of 5 to 10-year-old crude tankers on sale. There is a slightly higher supply of candidates for sale in the 13-16-year-old tanker vessel segment. The question is whether one should invest in a 15-year old crude tanker under a market that shows little signs of recovery. The present-day assumption employed by seasoned shipping veterans is that there is still a long way to go until the tanker market reaches rock bottom.
Despite potential long-run returns that an investment in a depressed market may yield, it can be argued that taking a stake in the secondhand market under the current market conditions may not be the only way forward for a shipping company. Present-day VLCC and Suezmax orderbook to fleet ratios are 8% and 9% respectively which are 5-year lows. Moreover, if we factor in demolitions to be undertaken until the end of the year, we could be looking at lower VLCC, Suezmax and crude tanker fleet growths than the already respectively subdued ones of 2.5%, 3.3% and 2.4%. 

Newbuilding prices placed in Japanese, South Korean and Chinese yards with established track records have significantly decreased since the start of the year. Current VLCC and Suezmax newbuildings come at 8% and 10% price reductions respectively as opposed to January, 2020. Placing a VLCC or Suezmax order may make intuitive sense should the pressure on the tanker market continue to mount while signs of a recovery ahead remain bleak. By placing an order now, one would be allowing for a healthy time leeway for the combating of the pandemic. Despite being in the middle of a global health crisis, the shipping market still holds numerous opportunities in both the newbuilding and secondhand fronts which are awaiting to be exploited.

 

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

 

As the drop in Capesize rates resumed last week so did the fall of the BDI. The small uptick in Panamax earnings provided some support while the geared sizes market activity was almost constant. The BDI today (13/10/2020) closed at 1735 points, down by 75 points compared to Monday’s (12/10/2020) levels and decreased by 365 points when compared to previous Tuesday’s closing (06/10/2020). Two and a half months before the end of the year, the crude carrier market is immersed within appalling rate levels with average earnings for all sectors hovering below their respective OPEX floors. The BDTI today (13/10/2020) closed at 410, decreased by 14 points and the BCTI at 351, a decrease of 24 point compared to previous Tuesday’s (06/10/2020) levels.

 

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

 

SnP activity was at satisfactory levels this past week with tanker transactions being dominant. Tanker sale volumes were almost double w-o-w; half of the sales were VLCCs and the rest were a mix of small and medium sizes. Dry bulk SnP activity was significantly softer on from last week with interest spread uniformly among the different sizes. All-in-all, dry bulk transactions were at sub-moderate volumes. In the tanker sector we had the sale of the “VOYAGER I” (299,996dwt-blt ‘03, S. Korea), which was sold to Middle Eastern buyers, for a price in the region of $25.0m. On the dry bulker side sector we had the sale of the “MINERAL ANTWERPEN” (172,424dwt-blt ‘03, S. Korea), which was sold to Greek owner, Moundreas, for a price in the region of low $10.0m.

 

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

 

The weak contracting activity reported on the newbuilding front this past week once again highlights the very soft momentum that the shipbuilding industry is witnessing since the start of the year. Following an increased appetite for crude carriers’ tonnage, tanker ordering activity has been non-existent in the previous days while the repeated lack of dry bulk orders remains prominent with no expectation for a significant increase soon. At the same time, competition in the industry has led yards to offer prices at significant discounts especially in the tanker front which always constitutes a good argument for placing a new order in the tanker sector.

 

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

 

Despite tanker and bulk carrier demolition rates remaining constant at relatively high levels across the board, a decrease in dry bulk candidate scrapping was observed. This can be majorly attributed to recent dry bulk sector earnings increases. In Bangladesh, demolition and steel-plate prices held steady. The Bangladeshi cartel has not yet managed to keep scrapping rates at the low levels it originally aimed for. Indian breakers are struggling to compete with their counterparts owing mainly to further w-o-w reductions recorded in Indian steel prices which fell to below 379 USD/ton levels on Friday. India still remains the number one green ship recycling destination. For yet another week, Pakistani scrapyards offered the highest demolition market premia. Local steel demand remains high enough to top up demo prices offered by competitors. Sentiment is pessimistic in the Turkish demolition market owing to weak market fundamentals with the TYR continuing to trade marginally below 8 TRY/USD. Turkish breakers have managed to maintain steady offered scrap prices, however weak fundamentals are projected to chip away at Turkish scrap prices for vessels in the immediate future.

 

Wet Chartering

 

The tanker market experienced another slow week as daily earnings reached their lowest year-to-date levels for Suezmax and Aframax markets on Friday. VLCCs saw their lowest spot earnings posted on Thursday before Friday’s slight uptick closure. Oil demand and exports out of China have been minimal owing to the Golden Week public holidays which were further extended in order to limit the spread of COVID-19. With the cessation of the country-wide slowdown in China, activity in the tanker market may begin to pick up. However, the sector’s foreseeable future outlook is bleak because the vast tonnage supply that has amassed will require significant activity boosts coupled with potential positive disruptions to be depleted. 

VLCC activity was all-in-all subdued; rates in MEG were consistently low owing to lack of fresh cargo enquiries. A similar trend was observed on the WAFR front with rates however, being at more sustainable levels as opposed to the Middle East. USG rates for VLCCs were slightly up w-o-w.

On the Suezmax front, weak fundamentals continued to eat away at owner’s earnings levels in WAFR. The Middle East market further declined owing to the accumulation of ample tonnage supply. Poor Aframax activity was seen in the Med and MEG regions as the supply of tonnage continues to overwhelmingly exceed demand for its transportation usage. Aframax sentiment in the Baltic was below par as fixed daily cargoes were at disheartening volumes.

 

Dry Chartering

 

The previous week kicked off with some positive reactions in the Capesize market on Monday and Tuesday which proved to be short-lived and losses across the board were witnessed thereafter. The Supramax market also saw additional discounts with a bit more action taking place in the Atlantic. On the other hand, both Panamax and Handysize levels improved owing to a solid injection of cargoes out of the North Continent and USG coupled with scarcity of available tonnage in the regions. All in all, Chinese holidays denied the BDI its fourth consecutive w-o-w improvement which closed off the week down by 128 points. 

Despite a favourable start to the week during which the BCI reached its highest yearly mark, the Capesize market lost some ground soon afterwards as the week progressed. The softening activity was mostly evident in the Atlantic, where sizeable discounts were noted for trips out of both the Continent and ECSA regions. In the pacific, limited trading activity amidst the Chinese holidays resulted in a more stable market with no meaningful earnings fluctuations materializing across the board.

The Panamax market witnessed strengthening rates across both basins throughout the course of last week, with the Atlantic routes in north Europe being the most prominent risers. Overall, the BPI posted at the 1439 mark, which illustrates an increase of 66 points compared to the week prior.

Supramax market saw a steady course in terms of its average earnings which ended the week with small discounts. The Atlantic basin activity enjoyed small improvements with fronthaul trips out of Med being the only negative exception. In the Far East, sentiment remained subdued due to limited trading activity. In the Handysize sector, apart from the ECSA the rest of the Atlantic territory saw increases on average earnings. The Handy pacific basin activity remained on par with that of the Supramax segment; fixtures numbers reported were relatively unchanged compared to the previous week.

 

Analyst

Yiannis Parganas