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17 Ιουνίου 2020.

shipyardploi2020Market Analysis

8th-14th June 2020, Week 24

 

A remarkable change has been witnessed of late in the dry bulk market, with demand ramping up significantly and boosting freight rates to levels not seen for some time now. However, the question holds to if the current demand trends will hold through during the rest of the year or if this is just a temporary peak.

Given the most recent global developments, the worst impacts on trade as part of the global pandemic seem to have passed for now. The gradual re-opening of all countries and the intensified interest for restocking have given a boost to the dry bulk market. China posted in May their strongest industrial production growth rate since last December, with the y-o-y growth standing at 4.4%, up from 3.9% in April, while worth mentioning that it had dropped by 14.8% during the first five months of the year. At the same time, retail sales and fixed asset investments have both improved in May but still fall short from what they were earlier in the year. According to official data, retail sales posted a -2.8% y-o-y decline in May while fixed asset investments posted a - 6.3% drop, but this is still encouraging considering that the respective figures for April where -7.5% and -10.3%. This comes after the massive stimulus package of nearly 3.6 trillion yuan (US$506 billion) that the Chinese government announced, which will increase the country’s budget fiscal deficit to a record high of 3.6 per cent of GDP. However, we should keep in mind that given the recent rise in Coronavirus cases and the already historical high unemployment rate, things are still at risk. Moving on to the US, the record high unemployment (highest level since the Great Depression) noted in April continues to hold concerns over the state of the economy. However, a gradual improvement seems to be taking place, with the official unemployment rate for May dropping to 13.3%, from 14.7% in April. Meanwhile, based on credit-card spending, ecommerce and consumer mobility data, consumer spending in the country rose to 90% of its pre-pandemic levels. Before the COVID-19 outbreak, US GDP was expected to grow by about 2% for 2020, while the IMF is now saying that a contraction of about 5.9% will likely be seen. Adding a touch of optimism here however, there looks to be another stimulus package of at least $2 Trillion under consideration. This will follow the already announced $3 trillion “Heroes Act” stimulus package. In Europe we have seen countries starting to re-open their borders for travel, while shops and industries have already restarted in most cases. The most recent mobility and consumer spending data is pointing to an improved picture, with the notable stimulus package announced in May slowly starting to show face. On 27 May, the Next generation EU was announced, which includes measures of a €750 billion in value, including €500 billion that the Commission plans to borrow on low borrowing costs and distribute as grants to EU companies.

With the bottom of the “trough” having passed, there is some confidence that demand will resume back on an improving trajectory for the dry bulk market. However, we should note that the current demand rebound is mainly influenced by the stimulus packages undertaken, something that cannot last forever. In addition, given that the pandemic looks to be far from over, this demand recovery is still fragile. Finally, aspects such as seasonality, fleet growth and commodity prices all affect the freight market as well and thus even if demand continues to rise during the rest of the year, it does not necessary mean that freight earnings will do so as well .

 

Yiannis Vamvakas

Research Analyst

 

 

Freight Market

Dry Bulkers-Spot Market

8th-14th June 2020

 

Capesize – Another strong week for the Capesize market, with the BCI 5TC experiencing a growth of 69.8%, while finishing well above the uninspiring territory of sub—OPEX levels that was seen for a prolonged period just a while back. A firm cargo activity from the Atlantic basin was the key figure of the week. Moreover, there was some presence from Vale, despite the uninspiring year-to-date production figures. All-in-all, with iron ore demand being on the rise, hopefully we will witness a relatively better market in the short-run (at least).

Panamax – Another modest growth was due for the Panamax market, with the BPI gaining a 4.7% on a w-o-w basis. As it was the case for the bigger size segment, the main driver for this upward momentum was the Atlantic market, with a weekly rise of 16.9%. However, it couldn’t be left unnoticed the step back that was noted in the Pacific trade, given the sluggish mode of late in this region.

Supramax – Relatively in line with the other size segments, the Supramax market witnessed a considerable increase (17.8%) as well during the past week, with the BSI—TCA closing at US$ 6,563/day. The strong number of fresh enquiries from the US Gulf seems to be leading the way at this point, portraying, at the same time, a far more bullish face for this size segment as a whole.

Handysize – The Handysize market moved on the positive side for yet another week, with the BHSI—TCA rising by 9.1%. A relatively vivid East Coast South American market was one of the main positive influences for this week. Moreover, with US Gulf market is now seemingly in a recovery mood, while it remains to be seen if this good momentum will continue over the following weeks.

 

Freight Market

Tankers - Spot Market

8th-14th June 2020

 

Crude Oil Carriers - There was a fairly uninspiring trend to be noted in the crude oil trade market during the past week, with the BDTI finally, easing back a bit (6.9%). In the VL space it was a rather quiet week, with hardly any significant changes being noted. Middle East rates succeeded an uptick, while West Africa on the other hand, took a small step back. In the Suezmaxes, the picture was far more negative, with the downward pressure on all of main trades being relatively firm at this point. In-line with the bigger size segments, Aframaxes remained mostly on the bearish side too, with most routes losing considerable ground. For the time being, only the Caribs-USG trade displays some sort of potential.

Oil Products - On the DPP front, for yet another week, the scene in the market remained on the negative side. The downward pressure is apparent across all benchmark routes, with the Med trade though, demonstrating a slight resistance. On the CPP front, despite the overall negative mode witnessed, the Med-Japan route experienced a strong growth during the past week or so.

 

Sale & Purchase

Newbuilding Orders

8th-14th June 2020

 

A rather uninspiring week was due for the whole newbuilding market. Following the strong market of just the week prior, new order activity seems to have returned back to the sluggish pace that we have experienced for a prolonged period now. However, for the dry bulk sector, it was rather an interesting week, given the firm activity mostly in the Kamsarmax size segment. Moreover, given both the bullish track from the side of earnings during the past couple of weeks or so and the considerable correction in newbuilding price levels, we may well expect some further activity to develop over the coming months. This, on the other hand, doesn’t indicating any sort of rebalancing in the market, given the general disarray being noted since the start of the pandemic. In terms of other market sectors, the Gas sector witnessed a firm order for 2 (with a further 2 optional) LNG units. Notwithstanding this, all other main sectors remained quiet for the time being.

 

Sale & Purchase

Secondhand Sales

8th-14th June 2020

 

On the dry bulk side, a modest flow of transactions took place for yet another week, with the whole SnP market seemingly being on recovery mode. As for the past week, the main focus remained once again for the more vintage unit, while the activity concentrated mostly in the medium to smaller size segments. All-in-all, given the upward momentum in terms of freight returns during the past couple of weeks or so, it is yet to be seen if both buying appetite and transaction volumes react accordingly too in the near term.

On the tanker side, the market moved on the positive side in terms of activity being noted. This may well have caught some by surprise, given that freight rates remained very volatile and have already experienced a strong downward correction. However, given the general positive attitude towards this specific market, we can expect the good flow of transactions to hold for the time being.

 

Sale & Purchase

Demolition Sales

8th-14th June 2020

 

It seems that activity has started to recover in the Indian SubContinent as of late, after the decision by countries to accept vessels for demolition under the condition of crew remaining at hotels until their outbound flight. The improved activity is witnessed despite that prices have not significantly improved from the low of around US$300/ldt. Most units that were recycled this past week were containerships, a trend that is expected to continue. In Bangladesh, the annual budget was announced from the local government last week, retaining all the fundamentals for the demolition industry unchanged, a fact that can be considered as positive news. Meanwhile, the end of the Eid/Ramadan holidays and the gradual recovery from COVID-19 is expected to increase appetite amongst breakers in the coming weeks. In India, little has changed this past week, with fresh enquiries though starting to diminish. Finally, this past week was a positive week for Pakistani breakers, as the annual budget was announced from the local government and from an initial reading it seems that it includes a drop to 5% on customs duties for steel products. Income taxes are also decreased and custom duties on imports of ships are eliminated. All these measures are expected to fuel further interest amongst breakers there, while likely pushing for a return of the market back to the foreground after a prolong period of low activity.