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Allied Shipbroking - Weekly Shipping

20 Ιουλίου 2021.

shipyardploi2020Market Analysis

12th-18th July 2021, Week 28

Tanker owners are currently facing the most challenging period noted in the last decade. Earnings have plummeted, charterers’ interest has been anemic during the last 12 months and overall trade seems to be fallen in a never-ending pit since the peak of the pandemic crisis and from which it is finding it extraordinary difficult to revive from. The more than 100% surge in oil prices since the low noted in November 2020 fully illustrates the trimmed demand for crude oil cargoes noted in the market, while many traders are still mostly utilizing their built-up inventories. 

However, the recent decision by OPEC+ to start ramping up production once again after the decision made last year for a record 10 million bpd cut in oil output, is likely to evaporate some of the upward pressure prices have encountered as of late. In particular, the oil cartel, after its initial disagreement between U.A.E and Saudi Arabia, decided on a total output rise to gradually take place during the August to December 2021 period by 2 million bpd (at around 0.4 million bpd per month). Additionally, the cartel decided that its previously agreed production cuts will end in September 2022. Brent prices posted a 5% daily fall today, while crude oil future contracts are trading at backwardation on the back of these news, and it will be interesting to see if this pattern continues. Nevertheless, the organization has not excluded any scenario for fresh production cuts in the case that fundamentals change dramatically during the following months due to the still ongoing pandemic. Another important note that emerged from the OPEC+ meeting was the possible adjustment of the cartel’s policy in case that Iranian oil returned to market. Iran will be able to add an extra 1.5 million bpd in the market in the case that sanctions are lifted. 

Meanwhile, it is worth mentioning that figures are depicting an improved picture on the demand side as well, as according to preliminary EIA data, demand during the 2Q2021 (43.95 mill. bpd) surpassed the respective number for 2Q2020, as well as 1Q2021. This implies that consumption is likely to have showed signs of a rebound, but trading has not yet followed this upward momentum. This could be clearly illustrated though from oil inventories data of key market players. In the US, commercial crude oil inventories have declined to their lowest point since the beginning of 2020 to around 437.6 million barrels, while the same declining trend is witnessed in Europe as well. Refineries have so far used the already imported crude oil, with commodity traders trying to avoid the current elevated oil prices. Given though that crude oil inventories have already dropped significantly, it is likely that interest will start to ramp up in the market for crude oil shipments. Prices though are expected to still be a determining factor in the final demand levels that tanker owners will witness over the coming months, with preliminary data show a fair rise in monthly trading flows for July, leading to their highest monthly level for the year to date.

The tanker market is clearly lagging in its role in the global economic recovery cycle and has been for some time now, but the duration the market will remain as such has been extensively tricky to forecast up to now. Nevertheless, there are signs that demand will pick up at some point during the year, curbing in turn tonnage lists and boosting freight earnings for owners. However, this process will likely emerge to be a gradual one, as the market is still currently severely wounded from the oversupply effect it has encountered.

 

Yiannis Vamvakas

Research Analyst

 

 

Freight Market

Dry Bulkers-Spot Market

12th-18th July 2021

 

Capesize – Market moved on a correction path this past week, with the BCI TCA figure falling to US$28,542, posting a 7.8% weekly decline. The lack of fresh interest from charterers on the Brazil to China route was enough to trim earnings for the sector. The rest of the Atlantic was also quiet during last week with limited businesses taking place. Meanwhile, activity in Australia was also unimpressive, but remained firm, curbing some of the losses.

Panamax – The declining momentum was resumed this past week, as it depicted in the 11.4% fall of the BPI TCA figure w-o-w. The moderate demand levels noted in the Atlantic were not able to support the built-up of tonnage lists in the region, pushing rates lower. In the Pacific, activity was also subdued last week, with some increased coal demand from Indonesia being the only exception.

Supramax – In line with the bigger size segments, losses were encountered here as well this past week. The BSI TCA figure fell to US$30,526, posting a weekly decline of 4%. Enquiries were scarce last week, leaving several units in both basins unfixed. The uptick noted in terms of activity in the Med was not enough to boost the market as a whole.

Handysize – In contrast to the other segments, Handysizes retain their upward momentum. The BHSI TCA figure increased by 1.1% during this past week closing at levels above US$30,000 for the first time since 2008. The US Gulf and the Indian Ocean were key drivers this past week in the upward movement of freight earnings, with demand elsewhere rising modestly as well.

 

Freight Market

Tankers - Spot Market

12th-18th July 2021

 

Crude Oil Carriers - The downward trajectory of the crude oil freight market looks to have taken a pause this past week, as the BDTI marginally rose to 589bp, though the uninspiring demand levels still hold. In the VLs, demand was not impressive once again with limited fresh interest noted in key regions such as MEG and USG. However, they were able to attract some of the excess demand noted in the WAF. In the Suezmax font, there was an improvement in terms of activity, especially in the WAF, trimming the already built-up tonnage lists. In the Aframaxes, a mixed scene was noted with improved freight earnings on most of the key trade routes, though little of this was supported by actual fixtures taking place.

Oil Products - On the DPP front, it was a disappointing week. The lack of fresh enquiries was apparent in both the North Sea and Med this past week, while things remained quiet in Asia. A similar picture was seen on the CPP front once again, with a declining pattern being noted on most of the trades. However, losses were curbed somehow by the increased interest in on the MEG-Japan route.

 

Sale & Purchase

Newbuilding Orders

12th-18th July 2021

 

An interesting week for the newbuilding market, with several fresh deals taking place during this past week. In the dry bulk market, we noticed a renewed interest for Capesize units, as two new orders were placed for a total of 10 units, all at Chinese shipyards. Meanwhile, we saw orders in the smaller size segments as well. The robust sentiment is still apparent in the market, while freight earnings continue at very attractive levels. Given this, interest has ramp up significantly since the beginning of the year and we expect more deals to come to light these coming weeks. However, the significant rise in newbuilding prices is likely to curb some this appetitet. In the tanker market, it was another week of lackluster activity, nourished by the discouraging freight scene and the lack of fresh demand in the oil markets. At the same time, newbuilding prices have posted a significant rise here as well, further trimming any potential interest from the side of buyers. A change in trend is expected to be seen only after the market fully enters a recovery path, something that still looks fairly likely to be seen at some point later in the year.

 

Sale & Purchase

Secondhand Sales

12th-18th July 2021

 

On the dry bulk side, it was yet another week with robust interest and several fresh deals taking place. Attractive freight earnings and healthy sentiment has increased the number of keen buyers in the market. Focus was given this past week on the smaller sizes, but appetite remains robust for the segments as a whole. At the same time, sellers continue pushing for higher premiums for their units, adding upward pressure on asset prices. Despite this, it seems that buyers are still considering these price levels as fair for the moment.

On the tanker side, it was a week with moderate activity taking place, with most units that changed hands being oil product tankers. Market sentiment continues to be hurt, curbing buying appetite. Despite the limited fresh interest from the side of buyers, secondhand asset prices are still on a rising trajectory, making it even more difficult for SnP activity to ramp up. We expect this trend to alter, once the market enters a more promising recovery stage.

 

Sale & Purchase

Demolition Sales

12th-18th July 2021

 

After a prolong period of high activity, things seem to have slowed down in the ship recycling market during this past week. A limited number of units were sent to scrapyards, while enquiries were also reduced, despite the resuming overall rising momentum of scrap prices. The lack of fresh interest was apparent in one of the most active demolition markets in the year so far, namely Bangladesh, during this past week. However, the attractive offered prices and the discouraging freight scene in the tanker sector seem to have retained optimism amongst local players for further businesses to take place in the coming weeks. In India, the domestic breakers may not be similarly positive, due to the limited activity conducted in the year so far, but fundamentals seem to be moving on an encouraging path. Local steel prices have increased, while the pandemic situation has started to improve, leaving some space for optimism. In Pakistan, the attractive scrap prices are also apparent, but activity is still limited here as well as of late. The new regulations over recycling tankers is likely to curb some interest from owners of vintage units, albeit domestic breakers expect demand to pick up again sooner or later.

 

 

 

 

 

 

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