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Intermodal Weekly Report

28 Ιουνίου 2020.

shipyard35Market insight

By Zisis Stylianos

SnP Broker

 

The World Bank estimates that the global economy will fall by 5.2% this year, underlining that the Covid-19 pandemic has had rapid and massive consequences despite the implementation of unprecedented programs to support local economies.

In its report on the Global Economic Outlook the World Bank points out that in the developed economies the decline will be in the order of 7%, while in emerging ones 2.5%. This is the deepest recession the planet has known since World War II, and 70 to 100 million people may find themselves below the poverty line. This revised forecast shows that the damage to the global economy will be worse than estimated in April by the International Monetary Fund that estimated a global contraction of 3% for 2020. China has announced it will not set a growth target for 2020, as the country will focus on stabilizing employment and ensuring the living standards of its citizens.

While addressing the 13th National People’s Congress, China’s Prime Minister, Li Keqiang, said the decision not to set a development goal was related to the uncertainty caused by the Covid-19 pandemic. According to the report shared at the conference, China will focus on maintaining security in the financial sector, foreign trade, foreign investment and domestic investment. The report also listed six areas the world’s second-largest economy should focus on, namely; job security, basic living needs, the functioning of market bodies, food and energy safety, stable industrial and supply chains and the normal functioning of first-level functions.

In the oil sector, the U.S. government is seeking to put an end to oil exports, Venezuela’s main source of revenue, in order to weaken President Nicolas Maduro government. It may even extend its sanctions to a dozen more tankers. So many oil companies are reviewing their plans to charter tankers found in Venezuela over the past twelve months. According to Reuters, Chinese oil companies may soon cease chartering any tanker that arrived in Venezuela during the last year. The aim is to avoid blacklisting if the US decides to impose sanctions on more ships that engage in commercial activities with Caracas.

As far as the dry bulk sector is concerned, we are witnessing a very impressive increase in the BDI index in the past two weeks, with the strong momentum pushing the index above the 1500 points barrier. It is worth noting that on June 1st the BDI closed at 520 points and the Capesize index at 82 points with average daily earnings for the big bulkers at $ 3,648/day. Within 15 days both the BDI and BCI increased by more 139% 2,893% respectively, while the average daily fare of Capes went up by 448.9%. Based on the positive market sentiment and the momentum that is inspiring it, the recovery of the ground lost in the past months appears to be even closer now.

 

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

 

Following the phenomenal performance of the Capesize market, the dry bulk sector has taken a much needed breath, while positive expectations for the remainder of the summer kept growing. The BDI today (23/06/2020) closed at 1617 points, up by 59 points compared to Monday’s (22/06/2020) levels and increased by 563 points when compared to previous Tuesday’s closing (16/06/2020). Opposite to dry bulkers, tanker rates faced further reductions last week, with activity out of key trading regions insufficient to support owners’ ideas. The BDTI today (23/06/2020) closed at 473, decreased by 57 points and the BCTI at 412, a decrease of 10 points compared to previous Tuesday’s (16/06/2020) levels.   

 

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

 

Buyers have been once again showing particular interest for dry bulk candidates with optimism widening further amidst the recent impressive improvement in the freight market, while on the tanker front, it seems that uncertainty has restricted buyers’ appetite for the time being. In the tanker sector we had the sale of the “SEADANCE” (105,477dwt-blt ‘99, S. Korean), which was sold to Middle Eastern buyers, for a price in the region of excess $9.0m. On the dry bulker side sector we had the sale of the “ALPHA ERA” (170,387dwt-blt ‘00, Japan), which was sold to Chinese buyers, for a price in the region of $7.8m.

 

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

 

Reported shipbuilding volumes remain low, with less than a handful of recently inked deals surfacing in the past week, while among them tankers and bulkers were holding the lion’s share.  The softer activity trend witnessed during the first half of the year that affected newbuilding prices will most probably extend in the short term, as even in sectors like dry bulk where sentiment is strengthening fast, appetite for newbuildings is expected to remain soft until the freight market remains healthy for an extensive period of time. On the asset values front, tanker newbuilding prices appear to have stabilized for now, while bulker prices on the other hand remain on a downward course. In terms of recently reported deals, Saudi Arabian owner, Bahri, placed an order for 6 firm and 4 optional product tankers (50,000 dwt) at Hyundai Mipo, in South Korea for a price in the region of $35.0m each and delivery set in 2022.          

 

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

 

Cash buyers in the Indian subcontinent region kept facing contrasting fortunes last week, with the Indian market sinking deeper into the doldrums stimulated by the continuously weakening currency and Bangladesh together with Pakistan remaining particularly encouraged by the favorable budget announcements in both countries that seem to have restored the appetite lost during the past months. There have been some firmer prices reported last week but given that India seems to be out of competition for now, we doubt that bids will keep strengthening for much longer purely based on increasing demand, with the drop in the number of demo candidates being the only meaningful possible support that the market could see going forward. Average prices in the different markets last week ranged for tankers between $180-300/ldt and those for dry bulk units between $170-290/ldt.

 

Wet Chartering

 

The crude carriers market remained quiet last week on the back of negative fundamentals prevailing across all sizes. Rates across most key trading regions pointed further down with the period market also feeling the growing pressure, while news of a second coronavirus wave in the East enhances the uncertainty that is currently dominating across the entire the market. The same fears have been also threatening the stability of oil prices despite the fact that tighter supply has given a sustainable boost to the commodity in the past couple of months.

The VLCC market remained under pressure last week despite the injection of fresh cargoes out of MEG and USG, which added no significant value to earnings as charterers were still given ample choices in terms of tonnage.

Rates for both the West Africa and the Med Suezmax witnessed substantial discounts on the back of excessive availability of tonnage and dampened demand. The Aframax market also continued suffering despite the fact that rates in certain cases have already touched very low levels, with the European markets touching August 2019 levels.

 

Dry Chartering

 

Optimism remains wide in the Dry Bulk market, which has enjoyed another week of firming rates across all reported sizes with the BDI surpassing 1,500 points, a level that has not been witnessed since December last year. The positive reversal that took place in the Capesize market at the beginning of this month has now led to astonishing gains with average earnings posted over $25,000/day, while the speed of the recovery is having everyone wonder whether the market will maintain its current levels during the following months or if a downward correction is due soon.

The Capesize market remained the strongest link last week inspiring the positive feeling all around following the impressive upside average earnings for the size have noted in the past days that if, extends further, could offset the negative impact of the historical low levels during the first quarter of 2020. The Atlantic basin saw impressive gains amidst firm demand outpacing tonnage supply in the region, while in the Pacific, owners enjoyed notable premiums as well.

The Panamax market kept rising last week as well, on the back of increased demand in both basins and strengthening sentiment among owners. The Continent region witnessed the largest improvement with transatlantic round voyage T/C earnings increasing by more than 100% compared to the week prior, while the period market also noted substantial increases across most periods.

Momentum for the smaller sizes also continued to improve, with sizeable premiums witnessed in most routes, while at the same time, increased demand for period candidates allowed for owners to achieve premiums over last done levels.

 

Analysts:

Eva Tzima

Yiannis Parganas