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Intermodal Weekly Report

10 Αυγούστου 2018.

shipyard18Market insight

By Christopher Whitty

Towage and Port Agency Division

Singapore's shipyard business has evolved over the decades, from shipbuilding and repairs to rig building. It's now evolving again, to cater to the liquefied natural gas trade and floating platforms. The oil price crash in 2014 has had a catastrophic effect on the offshore and marine sector - one of the jewels of  the Singapore economy. Some light has appeared at the end of the tunnel, however no one in the industry is talking about a major rebound yet. The rig-building industry in particular, has been on the mend in recent months as market activity continues to pick up. This could hopefully mark the beginning of an overdue recovery for the world's two biggest firms in the sector - Keppel Offshore & Marine (Keppel O&M) and Sembcorp Marine.

The offshore industry as a whole, along with a first class finance sector, has been a key pillar of Singapore’s economic transformation into a first world economy since it’s independence and a source of national pride. The collapse in oil prices over the last years has resulted in thousands of jobs lost, several defaults by big organizations and billions of dollars in debt restructurings.

Now, as oil prices pick up, the offshore industry in Singapore is slowly recovering and we hope coming back to life. The offshore and marine engineering industry’s direct output contribution has almost been  halved since 2014 to about 1 percent of the city-state’s economy, but its significance extends beyond manufacturing itself and has an impact across various segments.

On a positive note last month we saw two major listed groups linked to Malaysia's richest tycoon Robert Kuok joining forces to penetrate Taiwan's budding offshore wind sector. POSH (PACC Offshore Services Holdings) and Kerry TJ Logistics in mid Julyformalised a joint venture for Taiwan's offshore wind market. Mr Kuok is a controlling shareholder of POSH, a Singapore-listed offshore support, tugowner and vessel operator.

About one-third - 40 - of the vessels in POSH's current fleet are suited for deployment in offshore wind projects. Of course with the group’s joint venture POSH Terasea, they also have access as a specialist to offshore marine markets primarily focusing on niche specialty services like long haul ocean towage, mooring installation of FPSOs, Floating Production Systems, towage of semi-submersibles and other offshore installations.

Looking at the overall picture, the bigger question is whether the Singapore firms should consider to move out of the rig-building business altogether or diversify activities and reduce exposure. The offshore and marine engineering industry of Singapore remains an important one for the country, contributing 1.3 per cent to the economy in year 2015, with a value-add of $4.95 billion.

The numbers may be less impressive than the 1.9 per cent gross domestic product contribution seen in 2014 (just before the prolonged collapse of oil prices), with a $7.15 billion value-add, but the fact remains that Singapore continues to hold around 70 per cent of the global market for jack-up rig manufacturing as well as FPSO vessel conversion. Obviously this is a very strong position that has an impact across several industries of the Singaporean economy.

 

Chartering (Wet:Firm+ / Dry:Stable+)

 

Strong Capesize performance helped the dry bulk market achieve another positive weekly closing, with average earnings for the rest of the sizes displayed softer performance. The BDI today (07/08/2018) closed at 1,732 points, down by 41 points compared to Monday’s (06/07/2018) levels and decreased by 15 points when compared to previous Tuesday’s closing (31/08/2018). As healthy Middle East activity extended for another week, the crude carriers market  remained Sustained healthy VL demand in the Middle East finally translated into gains last week, with the positive sentiment spillovers quickly visible in the market for the other sizes as well. The BDTI today (07/08/2018) closed at 733, decreased by 35 points and the BCTI at 480, a decrease of 18 points compared to previous Tuesday’s (31/07/2018) levels.

 

Sale & Purchase (Wet:Soft - / Dry:Soft - )

 

It was a matter of time before dry bulk Buyers would move to the sidelines amidst the summer season peak. Last week, SnP activity showed strong signs of a slowdown across candidates of all of the more conventional sectors, which is expected to last for the next couple of weeks.  On the tanker side sector we had the sale of the “SEA LATITUDE” (308,700dwt-blt ‘01, S. Korea), which was sold to Singaporean owner, Da Shun Shipping, for a price in the region of $22.5m. On the dry bulker side sector we had the sale of the “GENCO SURPRISE” (72,495dwt-blt ‘98, Japan), which was sold to Chinese buyers, for a price in the region of $5.5m.

 

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

 

August debuted with reports of softer activity in the newbuilding market, while given the strong momentum in which orders have been coming through during the biggest part of the summer, a slow-down was long due. With that being said, we do expect to see newbuilding contracting once again picking up at some point during next month once everyone is back from their holidays and those -  usually high -  hopes for the last quarter of the year once again take over sentiment. As far as the most recently reported orders below are concerned, the lack of tanker newbuilding orders for a third week in a row is probably the most noticeable development given the strong contracting activity the sector has been constantly seeing since the beginning of the year, while we believe this is also due to seasonality and expect to see healthy ordering resuming in the sector once summer is over. In terms of recently reported deals, Greek based owner, Hermes, placed an order for four firm and four optional Kamsarmax bulkers (82,000 dwt) at COSCO Yangzhou, in China for a price in the region of $27.0m and delivery set in 2020-2021. 

 

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

 

Prices in the demolition market remained in free fall last week. The few deals, for which pricing details were made available, show significant discounts, while average prices have now fallen back to last November’s levels. Given the lack of appetite displayed for different reasons by cash buyers across all demo destinations at the moment, we do expect to see even lower levels being quoted before the end of the month if not even sooner. Silver linings at the moment remain hard to find. From one hand the sharp fall in demo prices in China and most recently in Turkey as well have been hitting market sentiment hard and at the same even those buyers who might be interested in acquiring tonnage at the moment will have little reason to do so amidst a quickly falling market. Average prices this week for tankers were at around $180-425/ldt and dry bulk units received about $170-410/ldt.

 

Wet Chartering

 

With stable activity in the Middle East region setting a slightly more optimistic tone and bunkers prices falling substantially last week, sentiment in the crude carriers market is slowly becoming more positive, with hopes that a better last quarter of the year could be in the cards given that the first signs of a more stable market are already visible in the beginning of August. At the same time, the period market remained busy with focus on longer term contracts fixed at levels that suggested a stable market, while as far as oil prices are concerned, downward pressure from expected increased output from Saudi Arabia seems to have waned as OPEC sources said Saudi production fell last month.

The VLCC Middle East market remained busy last week, helping rates note more upside, while even more impressive was the reaction in West Africa, where healthy activity finally started giving some control back to owners.

The West Africa Suezmax stalled last week following strong performance lately, while as VLCC rates strengthen in the region we expect a comeback on Suezmax numbers as well. Aframax Med rates extended the positive performance of the prior week, while in the Caribs, healthy activity resulted in a premium of  WS30 points over last dones.

 

Dry Chartering

 

The strength displayed by the Capesize market during the past week managed to keep the BDI close to its year highs, while despite the fact that  average earnings for the rest of the sizes were already witnessing the usual summer season peak slowdown, sentiment remained overall positive across the dry bulk market. We do expect earnings to remain under relative pressure in the short–term and as Capesize rates have already started to pull back today. Saying that, the fact that we are now going through one of the quietest periods of the year for bulkers and  rates have so far displayed strong resistance is definitely a very positive sign in regards to how strong the dry bulk market is fundamentally.

It has been another very good week for Capes, average earnings for which climbed up to levels last visited in December during the past days following very strong fixing activity out of Brazil. In the East, rates found more support on strengthening sentiment rather than actual demand itself, while the period market was particularly busy, with enquiry focusing mainly on periods shorter than 12 months.

Rates for Panamaxes softened across most routes last week, with USG and ECSA seeing discounts to last dones, while a similar slow down was also seen in the East, where trading remained thin and the market positional with period interest almost non-existent at the same time.

Rates for the smaller sizes remained under negative pressure last week, while period interest was limited in this case as well. Rates for both Supras and Handies saw a sideways moving market in the Atlantic and an overall slow market in the East and specifically in the North Pacific.

 

Analysts:

Eva Tzima

George Panagopoulos

 

 

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