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Allied Shipbroking - Weekly Shipping

10 Οκτωβρίου 2018.

shipdrydock1Market Analysis

1st - 5th October 2018, Week 40

In economics one of the most fundamental principles for any market relates to the rule of supply and demand and nowhere is this more prominent then in a market such as shipping. As such and given that we are entering a crucial quarter for the year, it would be interesting to measure the prevailing balance noted in the dry bulk sector.

The dry bulk fleet currently stands at 10,164 vessels, having grown by around 1.7% since the start of the year, while the total increase in the last 3 years has reached a level of around 6%. This mean that currently there are approximately 580 more vessels in the sea than what we were seeing in the final quarter of 2015, a period where the BDI was in its most troubled state. Despite the fall that was noted after the slump of 2016 in the dry bulk market, the current orderbook still stands at 602 vessels, or at 5.92% of the current trading fleet. The equivalent ratio during the same period of 2016 was 5.05%, while in 2017 it was 5.62%. The enthusiasm that has been built up in the market over the past few months has significantly driven ship-owners to place ever more new contracts in the market. In the year to date, there have been 175 new contacts placed, 72 vessels more than what was seen during the same time period back in 2017. On the other hand, the number of potential demolition candidates is still a source of optimism, given that there are 888 vessels that are over 20 years old, equal to 8.7% of the total fleet. Adding to this, the potential pressure being placed by the 2020 regulation deadline for the new global sulphur limits, and in theory we could see an ever-larger proportion of these older units be taken out of active service sooner than what we would see under normal market conditions.

With these supply figures in mind, it is up to demand to properly match these figures to such a level where a net balance can be created in the favour of ship owners. According to the global trade figures noted thus far we have seen a fair increase noted, though the question is if this growth can be sustained to such a level so as to over shoot the global carrying supply. Industrial production, according to the World Bank, is expected to stand at 4.3% in 2018, following on from another favourable growth figure noted in 2017 (4.6%). With the current trade barriers imposed by the US and the new environmental regulations placed in China, key markets for the dry bulk sector

are under threat. Nevertheless, demand for iron ore, coal and other bulk minerals has been on the rise in 2018, following on from the positive momentum seen back in 2017. Meanwhile, Australia’s iron ore exports are expected to climb to 869 million tonnes in 2019/2020, while recent news have come to light that Brazilian mining giant, Vale, is planning to expand its iron ore mining capacity in order to respond to the increasing buying appetite seen from China. As for agricultural products, it looks as though the trade tensions between the US and China, have only resulted in an overall increase in the average haul noted during the summer months as the Brazil to China trade got significantly enhanced.

All in all, as we can see demand growth in 2018 has been robust despite all the political developments that have unfolded. Even when taking under consideration a fair slowdown in trade momentum that may unfold, it looks as though we are still set for a net positive effect to result in the overall balance in the near term even if this net effect falls short of the overall market expectations that were being expressed during the same time frame last year.

 

Yiannis Vamvakas

Research Analyst

 

 

Freight Market

Dry Bulkers-Spot Market

1st - 5th October 2018

 

Capesize – A robust week for Capes in the East despite the holidays in China, with earnings on the Australia to China route increasing by 9% during the week, but these gains being capped later. This growth was mainly down to port delay issues that affected vessel availability and increased bunker costs. In the West, a rumored upsurge in activity never materialized, squeezing rates 2% lower. At the same time, the North Atlantic activity remained subdued, as interest for open tonnage remained was held back.

Panamax – A week with improved earnings, with the BPI climbing to 1,727 points, an increase of 35 basis points. ECSA activity supported the market, as demand remained strong for yet another week, mainly thanks to Far East demand. The North Atlantic saw gains during the week as well as position lists were being slimmed. Meanwhile, the market in the Pacific basin was as also fairly robust, with demand for coal in the region remaining strong and keeping things busy.

Supramax – Activity remained relatively stable in the East, lending a fair amount of support in the market despite the slight drop in rates noted in the region. In the Atlantic, ECSA seemed to be the key driver while elsewhere a fair amount of business seemed to be more positional than anything else.

Handysize – Limited activity in the sector last week, with few shifts in earnings being seen in the West, The main market drivers were the US Gulf and Continent while some support was to be seen from ECSA grains. In the East, the market remained relatively flat, as holidays in the region suppressed overall interest.

 

Freight Market

Tankers - Spot Market

1st - 5th October 2018

 

Crude Oil Carriers - VL rates rocketed last week, as the average TCE reached $16,620 per day, from the $2,210 reported the week prior. The rise was fueled by the limited available tonnage and the healthy volume of fresh inquiries noted in the MEG and WAF. In the Suezmax segment, things followed in suite, with the tightening of tonnage that was seen in both the Black Sea and WAF and the stronger demand coming out of Asia. IT was a bit of a different story for Aframaxes, with limited activity and subdued interest pushing for a slight correction in most of the main routes. The only exception seems to have been the North Sea / Baltic region were a late upward push helped things close on the positive side.

Oil Products - On the DPP side, the market seems to have been on a contracting mood, while things are expected to remain subdued as a number of ballasters from the US being added to position lists within the next couple of days. On the CPP side, there was a slight boost to be noted on the Cont-USAC rounds though elsewhere things seemed to be under negative pressure.

 

Sale & Purchase

Newbuilding Orders

1st - 5th October 2018

 

The Newbuilding market has started to build up a positive momentum week by week, with a robust flow of deals coming to light again this past week. The dry bulk sector has a leading role in the reported activity noted of late, a mere result of the good fundamentals and the upward attitude that is being seen in the market. Moreover, given that we are just at the onset of the final quarter of the year, and having seen how bullish sentiment in terms of earnings affects new order placing (just a simple look of the orders placed in the 4th quarter of 2017), a considerable flow of fresh orders can be expected to be seen during the final months of 2018. On the tanker side though, thing remain rather blurry, with most placing their focus on current opportunities seen on the secondhand market, while seemingly putting on hold their long-terms plans for new projects until the market finally sets its foot on a more stable trajectory in terms of earnings.

 

Sale & Purchase

Secondhand Sales

1st - 5th October 2018

 

On the dry side, a considerable boost in volumes noted during the past few days. The main focus seems to have been on Panamax tonnage, closely followed by the Supramax segment. A key difference however seen is that while in the Panamax segment most deals involved vintage units, in Supramax sector most transactions involved more modern vessels. All-in-all, given that we are starting to see some positive omens emerge in the freight market, this could well drive buyers further over the coming months.

On the tanker side, a relative gear up in activity was also noted this past week. This can be seen as mere reflection of a very active VLCC market, inline somehow with the considerable boost noted in the freight market during the same time frame. Given the opportunistic attitude that has been key in the market so far this year, we should continue to see interest hold firm for now, while this gear up in activity is still unlikely to drive any excesses in terms of pricing.

 

Sale & Purchase

Demolition Sales

1st - 5th October 2018

 

A modest flow of candidates was sent to the breakers these past few days, a big shift in the market when comparing to the typical weekly volume we have been noting of late. Overall there has been a large increase in appetite amongst breakers, with a fair jump being noted in the quoted prices across all of the Indian Sub-Continent. The dry bulk sector continues to make a rather "loud" absence, while much of this “gap” seems to be still covered sufficiently well by tanker units. Moreover, given that we are at the very start of the fourth and final quarter of the year, and with most holding a bullish attitude in terms of earnings, especially for the dry market, it will take ever more efforts on the side of breakers to keep this activity volume going. Notwithstanding this, we have already started to see this being reflected on the pricing front, while with local steel prices still holding strong and most of the previous inventory now processed, it all seems as though the next couple of weeks will see a fair amount of heated competition take place as each looks to outcompete the previous seen price levels and entice the more high spec favorable units circulating the market.

 

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