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Intermodal Weekly Report

13 Ιανουαρίου 2018.

shipyardploiadMarket insight

By Theodoros Ntalakos

SnP Broker

Headlines from IMF's 2017 – World Economic Outlook:

January 2017 - “After a lacklustre outturn in 2016, economic activity is projected to pick up pace in 2017 and 2018”

April 2017- “Global economic activity is picking up with a long-awaited cyclical recovery in investment, manufacturing, and trade”

July 2017 - “The pickup in global growth anticipated in the April World Economic Outlook remains on track...”

October 2017 - “The global upswing in economic activity is strengthening, with global growth projected to rise by 3.8 percent in 2018, compared to 3.7 percent in 2017 [emerging countries]”

So, what has happened in 2017 that has been the drive of the recovery? Is it sustainable?  According to a special report by the Economist, in the first half of 2017 the volume of the emerging-market exports increased by 4.6% compared to a year earlier, the fastest growth since 2011; not only this, during the same period the BRIC economies (Brazil, Russia, India and China) all grew simultaneously for the first time in three years and for the first time since 2009, twenty one out of twenty four emerging countries have reported higher - than the previous quarter - quarterly GDP figures.

 After exceeding expectations in 2017, the global economy is projected to carry forward its current momentum to generate a 3% growth rate in 2018. China, the biggest contributor and the barometer of the shipping indexes, is expected to grow a bit slower compared to 2017, leaving India as the fastest-growing large economy contributing a growth of 7.8% in the world's GDP. The other countries of the area are also expected to hit growth in excess of 6%. The developed countries will also contribute since the momentum in mature economies increased during 2017 and it is expected to continue growing by a healthy 2.1% in 2018 - compared to the 1.8% 5-year average.

On the ship supply side, the dry bulk fleet (>20,000dwt) just exceeded ten thousand vessels (for the record, ten years ago the fleet was less than seven thousand ships); Whilst 430 vessels were delivered in 2017 the fleet increased by 226 vessels (2.3% fleet growth) as more than 200 bulk carriers were sold for demolition. For 2018 it is projected that the shipbuilders will deliver another four hundred forty vessels; so, if we can assume at least the same demolition activity with 2017 then the fleet growth will increase by about the same number of ships – less if you count slippage and non-reported cancellations. In absolute numbers the orderbook is also smaller compared to last year by about one hundred vessels. This means that despite all the 2017 placed orders, the orderbook was not replenished. The orderbook-to-fleet ratio is also at low levels not seen for many years, 9% for Handysize up to Kamsarmax size and 10% for Capes. So, with sustainable global economic growth, this could mean good news for shipowners.

So, after disappointing global growth over the past few years, this recent pickup combined with the relatively subdued fleet growth provides an ideal window of opportunity for the shipping industry to enjoy good returns.

Happy New Year to all and let’s hope to mark 2018 in our happy memories! 

 

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

 

Following the substantial slowdown of the end of year holidays, the Dry Bulk market seems to have started bouncing back steadily during the past days, with the bigger sizes still witnessing more volatility. The BDI today (09/01/2018) closed at 1,395 points, up by 10 points compared to Monday’s levels (08/01/2018) and increased by 165 points when compared to previous Tuesday’s closing (02/01/2018). The crude carriers market remained in search of silver linings during the past weeks, with uninspiring Middle East activity denying this much awaited positive reversal in sentiment the sector has been longing for. The BDTI today (09/01/2018) closed at 691, decreased by 9 points and the BCTI at 628, a decrease of 27 points compared to previous Tuesday’s (02/01/2018) levels.

 

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

 

SnP activity is steadily picking up, with the recent rebound in dry bulk rates sustaining buying appetite, while interest for modern second-hand tanker tonnage is also vivid, evidenced also in the upside prices in the sector have been witnessing in the past couple of months. On the tanker side we had the sale of the “HIGH FREEDOM” (49,990dwt-blt ‘14, S. Korea), which was sold to Italian owner, D'Amico, for a price in the region $28.0m. On the dry bulker side sector we had the sale of the “KERKIS” (177,489dwt-blt ‘06, Japan), which was sold to S. Korean owner, H-Line Shipping, for a price in the region of $22.5m.

 

Newbuilding (Wet:Firm+ / Dry:Firm+)

 

Activity in the newbuilding market has lived up to expectations even during the last weeks of 2017. Despite the fact that most of these deals concerned older orders  placed a couple of months back, the number of the most recently inked deals alone is strong enough evidence of the healthy appetite investors are still displaying for newbuildings. Preliminary data for 2017 contracting activity is in fact showing a 308% increase in dry bulk orders compared to 2016 in terms of vessels, while in the case of tankers the increase is calculated around 145%. In terms of recently reported deals, Chinese owner, CSET, placed an order for two firm VLCC tankers (308,000 dwt) at DACKS, in China for a price in the region of $80.0m and delivery set in 2020 - 2021.

 

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

 

Despite the fact that the majority of the market was expecting for the demo price rally that has been taking place since November to slowdown during the holidays, it seems that momentum still remains very strong, with some particularly high levels being fixed during the course of the first week of 2018. This is partly explained by the fact that scrap steel prices in the Indian subcontinent have been steadily firming lately, although voices raising concern that the market is now moving very much within a speculative range keep getting louder. Irrespective if the price rally has been running mainly on speculation steam or not, fact remains that these admittedly high prices that were last witnessed over three years ago, have offered a particularly attractive option for owners of vintage tonnage that had been looking to dispose off older tonnage, while with the exception of the one Capesize bulker we saw being sold for demo last week, the rest of the sales concerned exclusively tanker and container vessels. Average prices this week for tankers were at around $240-450/ldt and dry bulk units received about $230-440/ldt.

 

Wet Chartering

 

The new year has been  denied a much anticipated positive reversal in the crude carriers market that has kicked off 2018 witnessing additional losses, while as the winter season peak is shortly approaching, scepticism has been building up quickly in regards to what could possibly drive earnings up if no seasonality boost has not been enjoyed so far. On the other hand, the period market continues to see healthy activity, with rates holding around last done levels, which possibly signifies a bottoming of rates in this case. Oil prices have in the mean time reached highs last seen in 2015, with recent reports of soaring U.S. production once again setting a ceiling to the upward movement of the commodity in the past couple of days.

Uninspiring demand in the Middle East combined with increasing availability of prompt VL tonnage in the region has pushed rates for the size further down, while the West Africa market also saw discounted levels being fixed.

Poor demand was also the key market driver for the West Africa Suezmax that has been seeing fewer and fewer cargoes for almost a month now, while Black Sea & Med numbers also aligned with the negative trend. Aframax rates also saw heavy discounts, with the exception of North Sea levels that held steady, while the Caribs Afra remained under pressure with WS levels falling back to 2-month lows on the back of slow demand.

 

Dry Chartering

 

The expected holiday slowdown the Dry Bulk market witnessed during the ending of 2017 resulted in the BDI losing more than 20% of its value in less then ten days, mainly on the back of a sharp drop in Capesize rates. Despite the sizable discount the index witnessed, sentiment was not particularly affected as a significant drop during the last days of the year is almost a given for dry bulk earnings plus the ground the market has covered during the last quarter of 2017 has provided more than enough reasons for optimism of quick comebacks following shortly after any downward movement. Indeed, the second half of last week showed exactly that, with a strong rebound taking place and proving that great resistance has been built during the past year.

Following a rather dramatic drop in rates throughout the end of December and the start of 2018, rates for Capes managed to bounce back nicely just before last weekend on the back of an improving market in the East and sharp increases in Atlantic where tonnage availability was tight.

The Panamax market moved in a similar pattern. After the last two weeks of 2017 that were particularly slow, a positive reversal was finally witnessed in the past days, partly as a result of increased enquiry in both basins and partly due to a strong paper market that set a more bullish tone.

Rates for the smaller sizes displayed greater resistance during the holidays slowdown but have failed to display the positive momentum the bigger bulkers have during the past few days, with Pacific trading remaining particularly slow and Atlantic business being steady but still overall uninspiring, while most of the pressure is being witnessed in ECSA.

 

Analysts:

Eva Tzima

George Panagopoulos

 

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