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Allied Shipbroking - Weekly Shipping

23 Μαΐου 2018.

shipshipyardMarket Analysis

14th-18th May 2018, Week 20

One thing that can be said with certainty is that 2018 is all but what can be described as a stellar year for the tanker market, given the turmoil it has faced during these past five months and the repeated inability to show an ability to sustain itself on a stable track.

Given that VLCCs are often considered as the flagship size segment for the crude oil market, it is notable to point out that they their TCE earnings eased back to - $ 5,449 per day during the latter part of the previous month, a figure not repeated since the last trough point back in 2014. For year so far their TCE levels haven’t been much more impressive, having stayed mostly in the negative territory, while the average figure for the past five months is closing in on - $ 2,100 per day. This is a level well below what we were seeing last year, which was in the region of $ 10,200 per day, let alone when compared to the respective figures of 2016 and 2015. Yet despite this softening in earnings, most market participants seem to be showing a fairly perplexing and multi facet sentiment for the time being.

Following the current downward spiral in freight rates, we have witnessed a record level of scrapping activity in the year so far. This can be considered to be attuned with the low earnings witnessed, but in part it has also been greatly nourished also by the strong fundamentals noted in the ship recycling market at the same time. Simply put and to get straight to the point, scrapping activity during this period has already exceeded that noted during the whole of the past year. On the other side of the balance and at the same time, we have seen a relatively enhanced level of newbuilding activity, which has come to add a level of considerable perplexity to the whole picture, given the supply/demand imbalance and the difficulties being faced. One would have hoped that new ordering would have scaled back, leaving room for some re-balancing to take place in the years forward. Against this logic, new ordering activity noted up until the end of April had already reached levels which were close to half of the total volume noted last year. This leaves us with an Orderbook to total overage fleet (vessels over 20 years of age) ratio in the region of 680%, a very high ratio that can easily turn out to be overwhelming over the next couple of years, given the bearish indication taken on the demand side of the crude oil trade. However, it is quite key to point out here that during this most recent ship recycling drive for VLs, we have seen a fair number of vessels being retired at ages of well below 20 years.

All-in-all, with what has been stated so far, the recovery for the tanker market in terms of earnings could prove to be a long and arduous journey given the current trends and geopolitical shifts being seen. For the time being, the most recent upward track noted in the price of crude oil can be seen as a possible glimpse of hope for the market, given the potential brought by the increased price arbitrage between markets and potential for contango trades. However, given that this most recent price hike has not been as a result of any demand shifts but rather shifts and fears of potential disruptions in supply, we could well see this turn out to be less than favorable for crude oil carriers. One would think that the overall approach being taken by most investors is that the overall long-term prospects look better, and it may well be that on this basis this most recent investment drive may inevitably find fertile ground.

 

Thomas Chasapis

Research Analyst

 

 

Freight Market

Dry Bulkers-Spot Market

14th-18th May 2018

 

Capesize - A sudden change in fortunes with the changing wind bringing a dramatic drop in rates across the board. Ongoing disruptions in parts of the Atlantic along with a fair availability of tonnage all around were to blame. Activity seems to still be at fair levels, something that may well be indicating a floor at these levels and could well leave some positive prospects in sight though perhaps not within the next few days.

Panamax - Despite a fairly active week, the overall market seemed to still be under pressure, with the only exception this past week being in the Pacific side. With enquiries now on the rise and most of the position lists having been cleared up fairly well, here too we may well see some slightly improved levels or at least start to feel a fair resistance emerge in most regions.

Supramax - We started to see some strengthening emerge in parts of the market here, with the improved enquiry levels in the Pacific helping push for some slight improvement in offered numbers in parts of the trade there. Things remained under pressure in the West, with most of the Atlantic basin suffering from a fairly slow flow of fresh interest and still battling fairly swollen tonnage lists.

Handysize - The market was relatively flat this past week, despite some slight improvement being seen in parts of the East. This however, being limited in terms of achieved improvement in rates, coupled with the fact that things continue to remain relatively sluggish in the Atlantic, leaves for little promise of any major improvement over the coming days.

 

Freight Market

Tankers - Spot Market

14th-18th May 2018

 

Crude Oil Carriers - There was a positive shift to be noted this past week, with rates in the MEG for VLs starting to show some slight positive pace, thanks to improved demand levels emerging from the Far East. Even so, the increased cost of bunkers continues to eat into earnings, making the marked gains only marginal at this point. Things were also looking to be better in the Suezmax segment, with both the WAF and Black Sea/Med showing slightly better promise thanks to the improved volume of fresh enquiries emerging now. A fairly positive week was to emerge for Aframaxes as well, as the North Sea/Baltic started to show better activity levels as we progressed through the week, while feeding off from this the remaining regions started to catch on the fresh flow of interest pushing through now, leaving promise of even better gains to be noted over the coming days.

Oil Products - DPP routes continued on their positive track overall, with only the front-haul North Atlantic routes showing some slight drop. Things were still under pressure on the CPP front, with most regions still on the decline.

 

Sale & Purchase

Newbuilding Orders

14th-18th May 2018

 

This week may well have shown a slight drop in the volume of activity noted, against what we were seeing one week prior. Yet, it looks as though the levels of appetite being shown amongst ship owners is on the rise. Counter to the rumors circulating last week, we only had one new order emerge on the dry bulk front, though given the overall state of the market and the slowly creeping up prices now being seen, expectations are now for a considerable boost in activity to be noted during the summer period. At the same time the flow of activity on the tanker front continues to hold firm, with ever more new deals emerging, despite what we are seeing in both the freight market and second hand market for these vessels. Overall it looks as though it will turn out to be a fairly active couple of months on the newbuilding front, with the Posidonia exhibition which is coming up now likely to drive a higher than average volume of new deals.

 

Sale & Purchase

Secondhand Sales

14th-18th May 2018

 

On the dry bulk side, a very busy week in terms of number of units changing hands, though it is worth mentioning that more than half have been part of the Songa deal snapped up by Star Bulk. Despite this, there is a sense that things are slightly waning now in terms of activity being reported, though with buying interest still there and with the freight market still supporting a more optimistic view amongst most investors, it looks as though we may well see some further price hikes down the road.

On the tanker side, here too the volume of units changing hands was relatively high when compared with what we have been used to over the past year, however given that these vessels were all part of three separate enbloc deals, one would consider this to be indicative of a market on the rise. The reality is that things are still under pressure here and given that earning are still scrapping close to bottom, it is hard to see a quick shift in sentiment take place any time soon.

 

Sale & Purchase

Demolition Sales

14th-18th May 2018

 

It looks as though the market has taken a step back this past week, at least in the Indian Sub-Continent, with prices looking to have eased back slightly as appetite in the region seems to be softening. We are still seeing a fair buying drive from Pakistani breakers, though with both India and Bangladesh having eased back their requirements and with poor weather conditions in the region already seeming to be causing disruptions despite being just before the monsoon season.

The remaining main ship recycling regions seemed to be charting a very different course, with China having stepped up in their competitiveness in terms of pricing trying to make a fair buying push before the new buying restriction take place. At the same time Turkey also looks to be showing a more bullish mood, though here the price shifts have been more marginal and are still under threat due to the ongoing pressure being felt on the foreign exchange front.