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Allied Shipbroking - Weekly Shipping

22 Μαρτίου 2018.

shipyard18Market Analysis

12th-16th March 2018, Week 11

 

It has been a chilling start to the week for the global economy, with the vast majority of stock exchanges noting a fair drop, after a series of sell offs in the technology sector. At the face of it, it may well sound as if this is something restricted to an industry which is disconnected in its most part from the shipping industry. However, in part these tremors being noted in the form of price drops in equities are tied in part to the overall friction being seen in global trade. It has been just over two weeks since US President Donald Trump announced import tariffs on steel and aluminum, and the geopolitical aftershocks are still being felt. The period just after the announcement seems to be mainly characterized by a number of countries, including but not limited to Australia, the European Union and Japan, pushing to win exemptions from these newly announced tariffs. Yet, things seem to be taking a darker tone now, with a number of these countries now vowing to act through reprisal levies and tariffs on US imports.

As an overall read-through, the main note that most of us in shipping have taken is that these current tariffs have a limited direct effect on shipping markets. China, which is the leading producer of both these commodities has a minute share in the overall imports entering the US, despite the fact that the US President has focused on China in his usual populist rhetoric with regards to trade. China’s exports of steel and aluminum to the US amount to only just 0.03% of its GDP, while it only makes up around 4% of total steel imports into the US. The biggest threat has been to the US market’s main suppliers, which are the European Union, Canada, S. Korea, Mexico, Brazil and Japan, with Canada and Mexico having for the moment escaped the current levies as part of the ongoing negotiations with regards to the NAFTA trade agreement. The majority of the rest seem to be taking the option of retaliatory levies quite seriously, while despite China being relatively unaffected for the time being, they have also joined in the general discussion proactively, possibly taking this opportunity to proclaim themselves as defenders of free trade.

The risk of a wider trade war sparking off does lay in the realm of possibility right now, yet even if things were to escalate to such a level, the negative effects on shipping would most likely come in the form of gradual waves. Under such a scenario we would likely see most retaliatory tariffs and levies being placed on finished final goods, possibly causing a disturbance on the containership market first and limited to mainly this sector in the initial phase. It would take a while before we would see a gradual slump emerge on the demand for raw materials, as the overall slump in global demand for finished products would slowly push purchasing managers to cut back their requirements. This all sounds like a dire scenario indeed and most would be in angst as to the actual probability of such a series of events pulling through, especially given that we have only just started to see a favorable environment emerge in terms of global trade. The general thought and hope for the time being is that to some degree the US President will back down having been brought to his senses in a similar fashion to how back in the early 2000’s George W Bush eventually backed down on his protectionist steel-tariff plan. Lets hope things aren’t taken too far too quickly and we miss the point of no return.

 

George Lazaridis

Head of Research & Valuations

 

 

Freight Market

Dry Bulkers - Spot Market

12th-16th March 2018

 

Capesize - The slow start to the week seems to have held things back, despite the improved activity being slowly noted in the South Atlantic now. The Pacific was also holding up relatively well in terms of cargo volumes, however it seemed to be insufficient to reverse the trend now being noted in terms of rates. Position lists have started to clear up slightly in most regions leaving some promise of better rates to come as we progress through the week.

Panamax - There was a sense that activity has slowly started to ease, though rates have managed to hold their levels for now. Despite the US Gulf still showing a fair amount of movement, the Atlantic seemed to be softening overall. Things started off fairly firm in the Pacific, though cargo volumes started to drop as the week progressed. The limited availability of promptly open tonnage however should help keep things buoyant for the now.

Supramax - A considerable improvement was noted this past week across the board, with both basins showing increased activity and helping boost freight rates further, The positive moment is said to hold for now, riding off the back of fairly lean tonnage lists in all regions.

Handysize - Despite the minimal activity reported this past week, rates were holding their ground on most major routes. Things were still fairly positive in the US Gulf, though there are signs that a ceiling may well have been reached for now. The Pacific looks to be the main support for the market given the continued climb in rates noted.

 

Freight Market

Tankers - Spot Market

12th-16th March 2018

 

Crude Oil Carriers - Despite not much to be noted in terms of activity for VLs in the MEG, rates managed to show a partial improvement week-on-week for both Eastbound and Westbound voyages. Things did not seem to be as fruitful in the WAF, with a slight slide back in rates being seen. Equally pessimistic was the environment for Suezmaxes, with both the WAF and Black Sea/Med, scaled back considerably. Things seemed to be under pressure for Aframaxes as well this week, with rates dropping across the board. The biggest drops were being seen in the Baltic/North Sea and the Caribs which witnessed a softening in fresh interest. Things however looked to be losing ground in the rest of the major routes as well.

Oil Products - Hardly any good news to be seen in the product tanker range, with both DPP routes losing ground across the board headed by the significant drop in the Caribs and cross Med. Things weren’t looking to be much better for CPP routes with the vast majority of routes noting a drop, while the main exception seemed to have been the Cont-USAC voyage which pushed up slightly.

 

Sale & Purchase

Newbuilding Orders

12th-16th March 2018

 

A rather surprising uptick in activity witnessed this past week, mostly due to the increased interest noted on the tanker front, with many fresh projects coming to light. Given the poor climate and high volatile nature of the wet side though, new orders for tanker will struggle to sustain a stable track. Notwithstanding, while the sector may well be in a state of transition, with the fleet being heavily restructured, as many units in the larger segments being sent for scrap, there may well be incentives for many to invest on and enter at a relatively low point in the market. Moreover, while many are now considering that the current prices on offer will not be available in the future and it would be rather costly to push back further any decision to invest in newbuildings. On the dry bulk side though, things were relatively subdued for yet another week, with most market participants seemingly remaining conservative, despite the overall firm performance of the sector. All-in-all, fresh interest exists in the market, when the right opportunity arises, with more pressure being added to the financial sector, in order to step up and cover the recent flow of demand being noted.

 

Sale & Purchase

Secondhand Sales

12th-16th March 2018

 

On the dry bulk side, buying appetite scaled back down considerably this past week, with the number of transactions coming to light being limited to a single digit for the first time after a long while. Despite this, the overall buying interest seems to still be at relatively high levels and it seems as though this recent pause in activity may well be more so due to the shifts being slowly noted in terms of pricing, with most negotiations trying to keep up with the shifts in the market sentiment.

On the tanker side, not much has changed this week, with yet another week characterized by a slow trickle of sales pulling through. The overall environment seems to be experiencing further pressure now, as conditions in the freight market deteriorate further this past week. There is still considerably resistance being felt from sellers in terms of pricing, something that may well be a continual cause as to the lack of sales taking place.

 

Sale & Purchase

Demolition Sales

12th-16th March 2018

 

Once again the recycling market enjoyed a week of robust flow of demo candidates, most of them on the back of very high offered numbers, mainly due to the spate of larger wet units being sent for scrap as of late. This rather insatiable appetite of the Cash Buyers has been mainly nourished by high expectations of a potential reopening of Pakistan for tanker vessels, and by the fact that as the overage fleet declines substantially, the limited availability of demo units will only push the prices further up. However, this excessive speculative attitude towards the market, has inevitably driven the market to a limit point. Week by week, the fragility in the market is becoming more apparent, and it remains to be seen how the increased stock piles, as well as, the price gap with the End Buyers will affect the state of the market as a whole.