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Intermodal Weekly Report

14 Ιουνίου 2020.

cargovessel1Market insight

By Panos Makrinos

Offshore Director

In contrast to the economic projections of the past two years for the first half of 2020, the oil & gas industry and those involved in it faced particularly challenging times, with global demand for the commodity crashing in April and dragging oil prices to unprecedented levels as a result.

COVID-19 caused panic in societies, with lockdowns quickly translating to a severe hit to the global economy. Sadly, this epidemic has killed over 393,000 people so far, with over 6,500,000 cases being recorded worldwide, and even today, it continues to spread terror and uncertainty. Hopes are placed on a vaccine being discovered sooner rather than later in order to provide communities with a big relief on a humanitarian level and to eventually restore confidence across the different markets that economies are jump starting again and doing so at full speed ahead.

As far as oil and gas projects from major oil producers are concerned, since the COVID-19 outbreak, delays and cancellations have been announced, while most hydrocarbon projects are expected to be postponed for one up to three years according to reports. Representative examples of this big setback, especially in the short-cycle projects of the African continent, are those of ENI and TOTAL. The two international oil and gas majors, who have the largest presence in Africa, have already cut off around 25-30% of their investment in exploration and production projects in 2020 in an effort to ensure their survival in the long run.

As expected, offshore service providers such as AHTS and PSVs, have been also hit by this crisis and are currently going through soft demand and disappointing freights, with today’s challenges proving even worse compared to those during the 2015-2017 period. Most offshore unit owners have already lowered their offers at very realistic levels in order to survive as long as possible, with no increase in the number of laid up units as a result. However, if this situation continues for several more months without no visible signs of improvement, the lay-up option will be the only alternative in order to limit costs, which is also what happened during the 2015-2017 period.

Even those more optimistic do not believe that anything will change drastically during the remainder of 2020 for the oil & gas industry, in terms of demand and offshore projects. Undoubtedly, we might see later in the year some tender / projects but a lot of competition is expected for these, which means that no particular positive effect on the industry/rates is expected. It will take a while before we can have a more clear view of what’s ahead and we expect the market to keep facing challenges at least in the short-term, while on the positive side, governments around the world, OPEC and its allies and all concerned bodies and organizations seem to be taking serious action in order to support demand and prices.

 

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

 

The strong rebound on the Capesize front supported sentiment across the dry bulk market, with rates for all sizes ending the week with gains. The BDI today (09/06/2020) closed at 714 points, up by 16 points compared to Monday’s (08/06/2020) levels and increased by 168 points when compared to previous Tuesday’s closing (02/06/2020). Pressure extended in the crude carriers market that saw rates across all key trading routes noting substantial discounts last week. The BDTI today (09/06/2020) closed at 577, decreased by 76 points and the BCTI at 448, a decrease of 98 points compared to previous Tuesday’s (02/06/2020) levels.   

 

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

 

Appetite for dry bulk candidates resumed with owners focusing mainly on smaller sizes while a healthy number of secondhand tanker transactions took place with clean products carriers monopolizing buyer’s interest. In the tanker sector we had the sale of the “HANSON” (44,923dwt-blt ‘97, S. Korean), which was sold to undisclosed buyers, for a price in the region of $5.0m. On the dry bulker side sector we had the sale of the “PACIFIC CEBU” (52,464dwt-blt ‘02, Philippines), which was sold to Chinese buyers, for a price in the region of $4.75m.

 

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

 

Following a generous second half of May in terms of reported contracting, the number of weekly surfacing orders has moved down to more realistic levels and in line with current sentiment and appetite, while the four firm Kamsarmax orders placed in different yards in China are certainly the most notable part of the list below given the anaemic demand the dry bulk sector has seen on the newbuilding front so far in the year. It seems that despite the uncertainty in regards to future prospects for dry bulkers, there are still a few owners who prefer to invest on newbuilding vessels instead of second-hand candidates, enticed by the more attractive shipbuilding values compared to recent years. In terms of recently reported deals, Isle of Man based owner, MX Bulk, placed an order for three firm Kamsarmax (82,000 dwt) at Tsuneishi Zhoushan, in China for a price in the region of $33.0m each and delivery set in 2021.          

 

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

 

Despite the fact that the effects of the extensive lockdowns in the demolition market over the past three months are still very much present, activity remained healthy for a third week in a row, fact which clearly reflects the backlog of supply that could not find its way to the typical demo destinations due to restrictions that have only recently started to ease. Firming scrapping activity doesn’t therefore reflect overall market sentiment, which remains soft across the board, with additional price declines in the past days showing the lack of confidence among cash buyers who decide to position themselves amidst a falling market. Average prices in the different markets last week ranged for tankers between $160-305/ldt and those for dry bulk units between $150-285/ldt.

 

Wet Chartering

 

Rates for crude carriers succumbed to pressure last week that ended with substantial discounts across the board, while the weakening momentum was also evident on the period front, where very little enquiry emerged and discounts on last done levels were seen in contracts for which details were made known. Following strong performance on the back of OPEC+ agreeing to extend current cuts until the end of July, oil prices appeared to be easing during the past couple of days as concerns regarding oversupply have been once again haunting investors.

The VL market was under the control of charterers last week, with falling rates seen out of the Middle East region despite overall healthy activity, while West Africa trading was softer both in terms of demand and rates.

The Suezmax market succumbed to increasing pressure on the back of quickly increasing vessel supply in both the West Africa and Black Sea/Med regions, while on the Aframax front, European routes were once again the biggest losers across the board as distinctive lack of fresh cargoes persisted throughout the week.

 

Dry Chartering

 

The BDI noted its third weekly positive closing in a row, with the Capesize index being the main driving force behind the upward movement after the size witnessed an increase of more than 115% in its average earnings compared to the previous week’s closing. Following the same pattern, Panamax rates also moved north, while premiums were seen for the smaller sizes as well. It could well be that the panic that guided sentiment during the first half of 2020 is over and we expect that the recent positive turnaround in psychology will continue providing the market the steam needed to move further up.

Capesize earnings outperformed the rest of the market, with impressive gains being reported for fronthaul trips out of ECSA and the Continent region, while an admittedly notable increase was also seen in transpacific round voyage time charter earnings. The significant boost of the past week has supported the psychology of owners who expect that rates will remain firm in the following days.

Earnings for Panamax vessels remained on an upward path, with fresh cargo enquiries emerging from ECSA and Continent further supporting Atlantic levels, while in the Pacific, demand continues to firm, with improved numbers reported throughout the week.

Rates for Supramax vessels were holding around last dones levels following a slow start to the week, with ECSA tonnage requirements being particularly positive amidst an otherwise sideways moving market, while on the Handysize front fresh enquiries were seen across both basins, with most notable the improved activity witnessed in the USG region following a very quiet period during the past month.

 

Analysts:

Eva Tzima

Yiannis Parganas