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Intermodal Weekly Report

21 Ιουνίου 2020.

ploiasea10Market insight

By Stelios Kollintzas

Tanker Chartering Broker

After experiencing record earnings during the first half of the year, the focus of headlines concerning the tanker market has shifted from the developments regarding the pandemic outbreak and geopolitical tensions to the challenges that the sector is now facing. The considerable slowdown in momentum is evident on rates across the board, with expectations for the remainder of the year being gloomy so far.

During the past months, the steep drop in oil products demand caused by COVID-19 had been overshadowed by the developments on oil supply and prices. When Russia and Saudi Arabia, two of the biggest oil producing countries, engaged in a price war back in April, they flooded the market with millions of extra barrels each day, pushing prices to unprecedented lows. At the same time, demand was collapsing. Contango markets were shaped and encouraged traders to buy and store oil on shore and on vessels like never before. Tonnage availability was tight and freight rates climbed to record levels. Indicatively, VLCC earnings reached as much as USD 280,000 per day during April, whereas the ‘clean’ products trade of LR2 and LR1 ships reached about USD 170,000 per day and USD 115,000 per day respectively.

However, since then, the market woke up to reality of poor demand for products globally, while at the same time the contango play is no longer attractive with oil prices having moved up to much healthier levels. More and more vessels used as storage are now entering the market, when at the same time refineries around the world are cutting production in order to adjust to poor demand. The effects on the freight market are already evident. At the time of this writing, VLCCs are earning USD 40-50,000 per day, LR2s about USD 20,000 per day and LR1s as low as USD 10,000 per day.

Taking into account that oil products account for about 60% of the transportation demand and that many parts of the world are still under lockdown and face travel restrictions, the outlook for the rest of the year is rather challenging. The Energy Information Administration (EIA) estimates that global oil demand will be about 8m bpd lower in 2020 than last year. Major products’ demand such as gasoline and jet fuel are down about 17% and 60% respectively since the beginning of the year and the recovery appears to be slow. In shipping terms, this would be more than 6% decrease in demand for product tankers this year, while the fleet growth in the sector is expected to be about 0.7%.

It seems that for as long as the economic impact from the pandemic keeps unravelling, global demand will remain restricted and uncertainty will keep prevailing in the tanker market, adding more pressure to freight rates as a result.

 

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

 

As the Capesize market continues to post impressive gains, sentiment on the dry bulk front kept strengthening for yet another week. The BDI today (16/06/2020) closed at 1054 points, up by 81 points compared to Monday’s (15/06/2020) levels and increased by 340 points when compared to previous Tuesday’s closing (09/06/2020). The crude carriers market has been testing new lows in the past days, with oil prices also taking a substantial hit. The BDTI today (16/06/2020) closed at 530, decreased by 47 points and the BCTI at 402, a decrease of 46 points compared to previous Tuesday’s (09/06/2020) levels.   

 

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

 

Impressive SnP activity took place this past week with a generous number of transactions reported particularly in the dry bulk sector where interest was spread across all sizes, while tanker asset prices continue to face pressure amidst negative sentiment in the freight market. In the tanker sector we had the sale of the “STOLT GULF MIRDRIF” (46,011dwt-blt ‘10, S. Korean), which was sold to Chinese buyers, for a price in the region of $19.0m. On the dry bulker side sector we had the sale of the “AQUAGLORY” (171,015dwt-blt ‘03, Japan), which was sold to Chinese buyers, for a price in the region of $9.5m.

 

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

 

Challenging macro-economic fundamentals and a complete change of scenery in both the dry bulk and the tanker market within less than a couple of months, seem to have put a break on appetite for newbuilding orders, with owners having adopted a much more sceptical approach as far as investments on the newbuilding front are concerned. Despite the general feeling of uncertainty in the industry, yards in South Korea have a few reasons to be optimistic, with large LNG projects, including the Qatar Petroleum one and the upcoming Total liquefaction development in East Africa, set to provide some much needed business and eventually improved liquidity for yards in the country that have secured the respective LNG orders. In terms of recently reported deals, Greek owner, Pantheon Tanker, placed an order for two firm Aframax crude carriers (114,000 dwt) at SWS, in China for a price in the region of $45.0m each and delivery set in 2021.      

 

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

 

Following some very challenging months on the demolition front, the market has finally started to show signs of improvements last week following the positive reversal in Bangladesh and Pakistan, as cash buyers in both countries were encouraged by the respective budget announcements that have boosted sentiment and allowed for firmer offerings. On the other hand, India appeared to be losing more ground, with appetite in the country seriously hit by the recent volatility that the local currency and scrap steel prices in the country have been displaying, while given how aggressively competition in the Indian subcontinent seems to be moving on the price front in the past days, we expect the gap between India on one side and Bangladesh and Pakistan on the other to widen at least in the short term. Average prices in the different markets last week ranged for tankers between $170-300/ldt and those for dry bulk units between $160-290/ldt.

 

Wet Chartering

 

Activity in the crude carriers market slowed down last week, with rates across the board ending with losses, while the period market surrendered to increasing pressure as well. Oil prices also witnessed losses with both benchmarks seeing substantial discounts as the week came to an end on the back of an increasing number of coronavirus cases recorded out of the US, while with both rates and demand prospects being shaky, sentiment for the coming months struggles to remain stable.

VLCC rates were again under pressure, with limited fresh West Africa enquiries, while despite the fact that Middle East demand remained overall steady, it failed to provide meaningful support to the already depressed market.

Activity in the Suezmax market moved further down last week, with rates out of both West Africa and Black Sea/Med recording new year- lows, while disappointing European demand has kept Aframax earnings on a downward path as well, with some fresh enquiries on the USG front inspiring hopes of a possible rate revival in the region in the coming days.

 

Dry Chartering

 

The BDI closed off on a positive note last week, further strengthening the belief that that market is on its way to regain some of its lost ground back.  Capesize rates were the main driving force behind the significant move up, while the improving sentiment in the sector was reflected on the performances of the rest of the sizes too.  The change in momentum was also evident on the period front where a very healthy number of fixtures emerged especially in the Panamax front, while everyone is now waiting to see whether this upward momentum will be extended throughout the second half of 2020.

Rates for the Capesize market followed the pattern of the week prior, with impressive premiums being quoted across all the main reported routes and average earnings recording year highs. The Atlantic basin saw major gains with considerable activity seen for both transatlantic and fronthaul business, while iron ore stems kept the Pacific region extremely busy throughout the week.

It was a relatively good week for Panamaxes as well, with demand, especially in the Atlantic, starting to pick up mid-week onwards. A firm supply of cargoes coming out of ECSA provided owners with the confidence needed to push freight levels up, while the Pacific on the other hand lost some of its momentum, which resulted in small decreases on T/C earnings.

The geared sizes enjoyed a positive week as well with tonnage lists tighter all around and demand at stronger levels. On the Supramax front, the USG market set the positive note with significant improvements seen in freight levels out of the region, while in the Handysize market, positive sentiment across both basins helped owners achieve premiums over last dones.

 

Analysts:

Eva Tzima

Yiannis Parganas