Tanker Market: Oil supply disruptions offer mixed outlook for tankers

Oil disruptions offer an additional parameter to the tanker market, in terms of determining supply and demand and thus freight rates. As such the current period is rather interesting. In its latest weekly report, shipbroker Gibson said that “major supply disruptions can be a frequent feature of the oil markets with the most recent examples this decade being Libya and Iran. Yet at the start of the year, global supply disruptions fell to their lowest levels since mid-2013 as Iran returned to the market. With more oil on offer, it was little surprise to see crude prices collapse to 12 year lows of $27 – $28/bbl in January. However, since then, global supply disruptions have increased once again. At the start of 2016, global supply disruptions stood at 1.9 million b/d, steadily increasing to 2.5 million b/d by April as disruptions impacted on production in Nigeria, Kuwait, Libya and Iraq. By May the situation deteriorated further with wildfires shutting in at least 1 million b/d of Canadian production, whilst Nigeria’s 0.3 million b/d Qua Iboe stream went offline for a number of weeks. At the same time, concern over a deepening crisis in Venezuela added fuel to the fire. With so much uncertainty, it was little surprise to see oil prices rally to a 6 month high of $49.28/bbl earlier this week”.

However, as shipbroker Gibson said, “global supply disruptions are nothing new, having averaged 2.3 million b/d since mid- 2014 when global crude prices collapsed. The world has simply become accustomed to disruptions, with alternative sources of supply acting as a buffer to volatile price increases. However, lower prices are slowly eroding these cushions. US production is falling, other Non-OPEC production pressured and signs are emerging that the crude market is starting to move closer towards equilibrium. Some analysts have even suggested that the outages experienced this month have led to a temporary stock draw, although the world remains awash with oil”.

The shipbroker noted that “our report last week identified an increase in the number of VLCCs engaged in floating storage, at the same time global shore based stocks remain at near record levels. In the IEA’s latest oil market report they noted that in Q1 2016, global stocks grew at the slowest pace since the end of 2014; however, growth is still growth. In the US alone, crude stocks built by 1.3 million barrels last week despite ongoing outages in Canada and falling domestic production”.

Gibson said that “for the tanker market, the impact is mixed. Ongoing issues off West Africa have contributed to the recent weakness in Suezmax freight, given that production from both Qua Iboe and Forcados has been disrupted. Thus the return of these lost barrels from Nigeria should prove supportive, although the escalation of violence in the West African nation remains a major concern. Disruptions in Canada could see US and Canadian refiners source cargoes from the Middle East, West Africa and Caribbean – if the fires persist. However, in the short term refiners have plenty of options, from drawing down shore based inventories to tapping floating storage, neither of which are supportive for tankers. Tapping floating storage might cause further pain as it would release ships back to trade. Yet this may prove unlikely considering that supply disruptions are largely centered in the West, whilst nearly all floating storage is located in the East. It is therefore most likely that refiners will opt to both draw down land based stocks and add incremental seaborne imports”, the shipbroker concluded.

Meanwhile, in the crude tanker market this week, in the Middle East, “the softening trend set late last week continued for VLCCs. Charterers eyed reasonably full medium term tonnage lists and trod cautiously into the new June programme to massage sentiment – and rates – lower. Currently, levels operate into the mid ws 50s to the East and to mid ws 30s to the West and there may yet be room for further deterioration. Suezmaxes started well stacked on the market shelf, and although there is now a degree of balance reforming, it will need a good dose of bargain hunting momentum to raise rates significantly from the present low ws 30 level to the West,and from the mid ws 70s to the East. Aframaxes suffered from very light enquiry so that last week’s 80,000 by ws 87.5 to Singapore remained cemented, and possibility of further discounting lurks”, Gibson concluded.

Author: Nikos Roussanoglou

Source: Hellenic Shipping News

Ship owners flock to modern dry bulk tonnage, as values head north

With the freight rate market for dry bulk carriers having stabilized to higher levels than the historical lows witnessed in mid-February, ship owners have increasingly turned to modern second hand tonnage. According to the latest weekly report from shipbroker Allied Shipbroking, “carrying on from the rally noted in freight rates during the second half of March, most of April and the first week of May, sentiment across the dry bulk market has improved considerably, despite the still fearful fundamentals pointing for a possible continuation of problems to be faced ahead. With prices having bottomed out in April and a considerable number of shipowners itching to get in on the Secondhand purchasing action, we quickly started to note the presence of an increasing price momentum. Up until a couple of weeks ago little “tangible” evidence of this had emerged in the form of actual transactions. However just after the Greek Easter holidays, this all started to change”.

According to Mr. George Lazaridis Head of Market Research & Asset Valuations, “the majority of change seemed to be coming from the more modern units, given that they have a longer potential life span (and in turn a longer repayment period if all goes wrong) while earnings are still relatively weak and there are but a few that believe in a quick market recovery. In cases such as the much discussed M/V “ARCHIMEDES” (81K dwt, blt 2011 S. Korea) it managed to outperform younger units (vessels built 2012 and 2013) in an auction sale on the 3rd of May, achieving a price of around mid/high US$ 14’s (the winning offer was reported to be just shy of SGD 20.0m) while sale of similar and younger units concluded in March and early April were seeing levels closer to US$ 12-13.75m.”

Lazaridis added that “what’s more astonishing about this particular case is that the vessel had originally been sold back in December 2015 (though the sale failed) at a price of US$ 14.6m. Similar cases have been noted in the Ultramax size range, with prices for a Japanese built prompt resale now valued in the region of around US$ 20.5m given the most recent sales, while a month back this figure would be closer to the region of US$ 19.0m, a US$ 1.5m increase (7.9% increase in just a few weeks). Yet even given the above, market conditions are strained. Sellers are still not in the best position under these current prevailing prices (given the fact that most of these assets were originally ordered only a few years ago for considerably higher sum of money), while things on the buying side aren’t doing much better so as to support prices hikes at such a fast pace”.

According to Lazaridis, “buyers are still relatively few in this market, most held back by lacking ease of access to financing while all holding themselves back after having been spooked by how quickly the freight market collapsed in the final quarter of 2015. The majority of buyers out there (as pointed out several times in the past) are mainly out there to take advantage of the asset play potential. This however is a factor highly reliant on the fact that prices remain at aggressively low levels. The recent price hikes could easily start to overturn this major buying factor and given that earnings are still underperforming, there will be little else left to keep buyers there if prices rise too fast and too far. This is one of the main reasons that it looks as though we are setting up for another “sticky point” in asset prices, taking considerably more market factors to drive asset over the “next mile” (next 7-8% increase). In the meantime, for those who can find good opportunities and have the cash and/or financing to support them, “sales” are still on for dry bulkers”, he concluded.

Author: Nikos Roussanoglou

Source: Hellenic Shipping News

Dry Bulk Market: Up to 7% of shipping fleet could be scrapped by end of 2016, but only if rates start falling again

Up to 7% of the existing dry bulk fleet could be scrapped by the end of 2016, if the current pace of demolitions is retained. That’s according to ship owner Norden. The company noted though that “with the current increasing spot rates, it is likely, however, that scrapping activities will ease off, and it is expected that scrapping for 2016 will end at about 5% of the fleet. World net fleet growth in 2016 is therefore still expected to be 1-3%”.

Norden said that “the historically poor conditions from 2015 continued into the first quarter of 2016. The dry cargo rates fell to an all-time low in February due to the usual seasonal slowdown in both iron ore and grain volumes as well as disappointing developments in the Chinese and Indian coal imports. Towards the end of the quarter, rates improved slightly as the South American grain season started and iron ore and coal volumes recovered. In February, China reported the lowest coal import volumes since the beginning of 2011. Volumes recovered significantly in March, however, reaching a total of almost 20 million tons – a level not seen since July 2015. The improvement in March was mainly driven by an increase in power generation as well as higher consumption of coal for steel production. Meanwhile, India, which is among the biggest coal importers, continued its negative developments compared to last year. Record high stockpiles combined with high domestic coal production have lowered the demand for coal imports. Poor finances at the importing coal fired power plants also contributes to limiting imports”.

According to the shipowner, “the Chinese iron ore imports have had a relatively strong start to the year due to the slowdown in the domestic extraction and higher restocking of inventories at the ports. The positive development resulted in an increase of 6.5 % over the first three months compared to same period last year. Steel production was surprisingly strong in March and reached the second highest levels recorded. This was on the back of government led infrastructure projects as well as slight improvements in the property market.
The increase in the Chinese iron ore imports continued to benefit Brazilian exports. The Brazilian exports increased by 7.5% in the first quarter compared to the first quarter last year. Likewise, Brazilian soybean exports has had a strong start to what looks like a record-breaking grain season in South America. Although China’s imports of bauxite from Malaysia have decreased due to temporary mining restrictions, total bauxite imports have risen by 35% compared to Q1 2015”.

In its market outlook, Norden said that “while Q1 has been historically bad, there are signs of improvement in the coming quarters as construction activity and steel production in China are showing positive signs. However, while rates are expected to be higher than during Q1, the sizeable overcapacity in the dry cargo market will likely persist throughout 2016”, it concluded.

Author: Nikos Roussanoglou

Source: Hellenic Shipping News

Dry bulk FFA market: It might as well be spring…

After last week’s moves upwards on capesizes, the paper market opened the week with a pause.

Volumes remain good with pockets of volatility but ultimately the paper knows physical is running the show. The fact that the April contract is pricing in only a small move up for the balance of the month suggested that caution could continue.

The physical market slowed further despite reports of charterers having to pay up for prompt positions in the Atlantic. The Pacific felt quieter too which had a negative impact on paper.

Though busy the cape market lacked impetus with rates hovering rather than flying. However by midweek the tone was firmer again with a mini bull run giving us impressive gains on most periods down the curve. The 4TC index even made it over $5,000 which in turn pushed May up to $6,400 while Q4 made it to $9,000.

Panamaxes also saw levels looking to move south in light volume as physical began to cool off and sentiment softened. But after edging lower, we saw some renewed support and sellers scaled back to suggest a more positive tone.

The positive tone persisted with T/A and F/H business underpinning the optimism. There is however still an element of caution around and as a result the carry remains rather conservative with prompts still very flat.

After starting the session with a weaker feel, supramax paper also turned it around as we saw better bids flourishing to push the market up. Index was unexciting but with more positivity around the prompt pushed up followed by Q3 – 4 and Cal 17.

The small ships continued to gather momentum as levels were bid up on Thursday, May and June rallying before offers thinned out. Another positive index – though no more than expected – saw Q3 – 4 trading to a high of $5,800.

Source: Freight Investor Services (FIS), Hellenic Shipping News

Dry Bulk Recovery at Hand?

According to Seatrade’s February “Shipping Market Assessment – Forecasting for Professionals in Dry Bulk Shipping”, the dry bulk market was due for an upside bounce, with smaller ships rising first and capesize ships starting to improve in April. This forecast has been right on target, both in timing and magnitude of the upturn so far in each sector. The latest condensed update shows that rates continue to maintain forecast upward momentum, with capes finally joining the party.

The global economy, and manufacturing, is presently going through a slowdown which may get worse before it improves.  China’s metals demand has been declining for 2 years, but production started declining sharply in 3Q15.  During 4Q15, lower Chinese and Indian coal imports, slowing ex-China steelmaking raw material imports and lower overall Chinese grain imports were combined with fleet growth and faster voyage speeds. These events finally caught up with freight rates by late 2015 = very poor earnings and not enough cargo demand to support the entire fleet. The greatest impact was felt during early 2016.

After exceeding our downside target of 320-340, the BDI bottomed at 290 in mid-February, with earnings at the lowest level in 30+ years. Since then, it has risen 93% to 560.  This time driven by panamaxes first, as the ECSA grain export season got underway.  February is usually the worst month of each year, and perhaps, with more demolition and layups, will again be the low point in earnings for this year.  Global steel production remains very weak, including China, but has recently started to improve.  Australian iron ore exports to Asian customers remain strong while a considerable portion of rising Brazilian exports have been channeled through Vale’s Malaysian blending terminal.  Q1 cargo demand was very depressed, and led to the record low BDI.  Q2 cargo demand is improving in all sizes, partially driven by a strong ECSA grain season.  Somewhat improved global steel raw material demand in Q2 will also help, but nothing exciting.  The fleet is growing, even with very high demolition.  Idle ships have artificially reduced fleet supply, especially in capesize sector.

The next 12 months will be affected by potential changes in fleet supply caused by very significant newbuilding (NB) slippage, cancellations, demolition and actual number of ships that enter cold layup, a potentially large decline in Chinese steel exports and volatility in commodity and forex markets that can change established trading patterns.  The potential fallout from La Niña and its effect on worldwide weather can alter global grain production, drive up grain trade and reduce hydro power output in China, India, Vietnam and EU that could lead to rising thermal coal imports.

Besides crude oil, large short positions were taken on metals futures during the past 2 years, and especially since last June-July, when the Chinese stock markets imploded.  Metals, including aluminum, copper and nickel had record short positions by early February.  At some point these shorts will need to be covered and it could cause a fairly large short-covering rally.  This will drive up metals prices, similar to crude oil since January, even though actual physical demand has not improved.  More market volatility !!!

The pressure on some dry bulk owners is readily apparent as they sell off 2, 3, upto 4-5 ships just to reduce high cash drain – including NB’s in various stages of construction.  The intensity of such “fire-sales” increased during Q1, driving prices down to near historical lows, inflation adjusted.  And is providing an opportunity for owners with strong balance sheets to make some very cheap acquisitions.  The key question for buyers is obviously the duration of this downturn, when cashflow on these ships will finally turn positive and if they will ever be profitable.  Our new report “To Buy or Not to Buy – that is the $$$ question” analyzes this rare investment opportunity.

The basic issues that have and will impact dry bulk earnings over next 6-9 months:

1. China’s end-use bulk commodity demand is slowing sooner and quicker than many had expected.  Their rising exports of metals, from aluminum to steel, has caused ROW producers to cut output and is upsetting traditional trade patterns and seaborne dry cargo flows;

2. Overall global grain trade is expected to decline later this year as China reduces imports of corn and corn substitutes. Even so, during Mar-Jul, China and others will significantly increase purchases of soybeans from Brazil, and Argentina will be increasing long-haul grain and soymeal exports for the first time in 2 years. Although short term, it will cause earnings on sub-capes to continue rising during Q2. And perhaps significantly if ECSA port congestion rises more than last year … and idled ships remain idle;

3. Global thermal coal trade has been slowing for past 2 years, with China leading the decline. A hot summer, caused by La Niña, should lead to higher thermal coal import demand over the next several months, mainly by China and north Asian nations. This is a short term situation. Metcoal volumes will remain about flat at 2H15 levels due to relatively weak ex-China pig iron output;

4. Strong Chinese steel exports, at 112mt last year, reduced ROW steel output. We expect their exports will remain relatively high in 1H16, but mounting anti-dumping actions will slow their exports during 2H16. In the meantime, ROW steel output will remain lower than during 1H15. So, even with some seasonal worldwide iron ore and metcoal restocking during Q2, ROW raw material imports will remain generally subdued, at least until Q4;

The low steel product inventories held by China’s mills and traders in Jan-Feb is now leading to higher Q2 steel production and will lead to rising iron ore imports. Better economic growth in China from stimulus measures is expected to gain momentum as the year progresses. If this materializes, a further pickup in iron ore imports should be expected as steel production and ore consumption rise during 2H16. So far, previous stimulus measures have had no effect in stopping the down turn in Chinese steel consumption because building construction and FAI continues to decline faster than any benefits gained from stimulus;

Rising Australian iron ore exports to China plus rising Vale exports to Asia via its Teluk Rubiah terminal will continue to increase polarization of capesize iron ore trades within Asia this year. Remainder for subscribers;

5. The dry bulk fleet increased about 100m dwt from end 2012 until end 2015.  Including an estimated 1% decline last year, cargo volume grew only 340mt during this period.  Cargo demand should have increased 620mt during 2013-15 to maintain balanced supply and demand equilibrium; however, using our metrics, fleet growth exceeded cargo demand growth by 2:1.  The dry bulk fleet will increase 10-15m dwt this year.  Unfortunately, we project another year of declining cargo volumes.  Consequently, while we expect an increase in dry bulk trade and vessel earnings during Q2, this will be a short term situation partly caused by idle tonnage and should not yet be taken as a sign of hope;

6. Some owners that have NB’s under construction now lack enough cash to make scheduled payments to shipyards.  Meanwhile banks are exiting the dry bulk lending business … again.  If many NB orders are postponed or simply cancelled partway through the building phase, NB deliveries this year may not be much more than demolition;

Problem:  Global dry cargo demand has not only slowed faster than many imagined possible, it has, as forecast, turned negative.  The fleet, though growth is slowing, continues to expand.  Earnings collapsed during Dec-Feb, with many routes showing negative TCE. This imbalance will return later this year, after a seasonal Q2 increase in cargo demand.

Solution:  The only short term way out of this dilemma is cold layup of modern tonnage and continued very heavy demolition of older ships.  Considering that more container ships, tankers and OSV’s will be competing for beach front property in 2H16, there is a physical limit of 40-45m dwt of dry bulk ships that can be scrapped this year.  This means that 35-40m dwt of layups will be required by year end so that earnings on the remaining actively trading fleet can return back up to reasonable levels and the BDI to about 1000.  Like chartering pools, a “layup pool” would reduce expenses for participants!!!

Capes: The short term seasonal rise in Q2 earnings that we forecast has arrived.  But even with the large number of idle capes and high demolition, the overall outlook for capes after this upswing remains poor for the remainder of the year.

Panamax: The recent improvement in grain exports from ECSA has seen panamax rates for ECSA-Asia reach US$8250 daily + US$300,000.  While these rates are still awful, it is a great improvement from Jan-Feb.  After a short term correction in the next week, we expect rates will continue to slowly increase through May as more cargoes become available and congestion rises.  2H16 will be another pressure point for panamax owners as ECSA demand slows.

Handymax: Ultramax NB deliveries this year will not only impact on existing oversupply of tonnage in the handymax sector, but will also cut into panamax demand as they increasingly compete for many of the same cargoes – as we forecast in our Ultramax Investment Analysis “Taking it to the Max”. Eventually ECSA grain exports will decline and during 2H16 some owners will need to make the difficult decision concerning cold layup.  Panamax owners will face this same dilemma.

Handysize: Minor bulk trades, a mainstay for handysize sector, have held up reasonably well during the recent downturn.  A decline in Chinese steel exports later this year will negatively impact on Pacific handysize and handymax demand. Remainder for subscribers.

General: While this year will remain very difficult, for those owners that can weather the storm, the upside should be quite profitable, though we expect the wait will be longer than many desire.

In the mid-1970’s, the tanker market was so poor that some owners took delivery of NB VLCC’s from Japan and ballasted them straight to scrap yards in India.  These ships never carried a cargo.  We don’t expect this scenario for dry bulk during this down cycle, but we do expect that the age of bulker demolition will slowly but surely get younger as older tonnage is scrapped away.

With some improvement in global steel prices and output combined with global raw material restocking in Q2, the BCI should reach our target of 850-950 by late May.  We expect this will be a short term improvement, unless there are far more laidup capes than we estimate, Remainder for subscribers. Rising capesize rates will provide owners of all sizes with a good reason to improve their outlook, and therefore, sentiment.

Obviously the issue will be idled capes that start trading again when earnings improve, thus capping any recovery in rates.  Remainder for subscribers.

Rising sub-cape rates in the Atlantic should also help boost sentiment among owners of all ship sizes by late April, which in itself will lead owners to raise their rates.  If ECSA grain exports remain strong through June-July, and Asian coal imports increase on hot La Niña summer demand, the BPI should reach levels of 750-800 and the BSI to 550-600.  This will need ECSA grain/sugar exports to rise – remainder for subscribers.  The main push for ECSA soybean and soymeal exports will only last 4-6 months.

Handysize rates will see the least overall benefit from increased Q2 cargo volumes.  Rates in the Atlantic have increased due to ECSA grain and seasonal fertilizer and steel shipments. But as forecast, the Pacific has not seen the same improvement due to, remainder for subscribers.  Overall, we expect the BHSI will reach 300-325 during May, mainly driven by a stronger Atlantic market.

The BDI is expected to trade in a range of 300 to 500-550 this year with seasonal spikes taking it to 600-700. As rates rise we expect idled tonnage to start trading again during April.  If this happens, and it surely will, rates in all sizes will reach a peak below our targets and drop again.

Persistently low bunker prices, freight rates and commodity prices should assist some commodity exporters to access new markets.  This has been slow to happen, but when it does, it will lead to a return of some longer haul trades not seen for many years and partially absorb excess fleet supply going forward.

At the moment sentiment is very pessimistic.  Some catalyst is required to turn it positive. Perhaps stronger grain and iron ore demand from April will help.  An improvement in sentiment can raise earnings US$1000-2000 daily without any increase in cargo demand. Perhaps the year will end with better earnings than when it started.

At the end of the day, we expect earnings will try to retest the low point of February sometime later this year. But before then, we expect a continuation of present rise in earnings to, remainder for subscribers

Everyone is presently focused on the dire straits of the dry bulk market, the cash burn everywhere and whether this situation will last 12, 18, 24 months or even longer.  We can’t disagree with the negatives.  However, shipping markets have a long history of surprising everyone and moving 100% in the opposite direction than predicted.  We are trying desperately to find that surprise.

Source: Seatrade (Research) Ltd, Hellenic Shipping News

Dry bulkers’ prices could be heading upwards as buyers’ appetite increases

Investment sentiment is beginning to trend upwards in the market for second hand dry bulk carriers. According to the latest weekly report from shipbroker Allied Shipbroking, “mixed messages coming out of the secondhand dry bulk market this past week, with buyers and sellers seemingly split into two distinct camps, as the freight market gains momentum though still lacks to reach freight levels that can be considered long-term sustainable against the average OPEX levels noted in the market. On the back of all this, rumors had started to circulate that we had begun to see deals being concluded at slightly firmer prices compared to similar tonnage concluded a few weeks prior”.

According to Mr. George Lazaridis, Allied’s Head of Market Research & Asset Valuations, “the truth is that there has been increased resistance noted amongst sellers these past couple of weeks, while some buyers are expressing the opinion that the market is starting to turn, something that can to some extent be reflected by the fact that there has been a considerably increase in the number of active buyers taking on vessel inspections, a fact that on its own could drive prices up once again as competition amongst them heightens. Expectations have long been that we would see a recovery in secondhand asset prices long before earnings reach any sense of “lucrative”. This has mainly been in part due to the fact that given prices have reached well below anything seen during the past 25 years or more, there have been many in angst to take up buying options, feeling that there is a significant potential in asset price gains to be made once the market rebalances. The buy low – sell high strategy has always been a major part of the strategy composed by most Greek buyers as well as prominent shipowners around the world. As such there have been a growing number of suiters waiting in the background hoping to strike at the point where they believe would be the absolute bottoming of the market”.

Allied’s analyst also noted that “this distressed asset purchasing strategy has occurred several times in the past, sometimes to disappointing result (as an example one may look at the buying spree that took place during 2013), with even prominent distressed debt investors misjudging the downturn and as a consequence acting on prices which would later prove to be at considerable underestimates as to how low freight rates and prices could go. Sure it seems now as if prices and rates have been squeezed to their lowest if not fairly close to their lowest possible levels and even so, the given the past mismatched timing and more dire freight market conditions has led most buyers to take a more cautionary view up until now. It does feel however that we may well be close to the turning point in buyers sentiment, while it will only take a few in number to hastily pull the trigger in outbidding their competition with considerable premiums on last done, to eventual drive the rest of the buyers currently in the market into a buying frenzy and driving a rally (even a small one) out of their fear that they may have “missed the market buying opportunity” and have been left behind”.

According to Lazaridis, “there are other factors as well that will surely play their role during the current market. Recent trends in FOREX movements have supported the resistance provided by sellers at these price levels, while given the fact that earnings have shown a fairly good improvement over the past couple of weeks most sellers will be entering any negotiation with a completely different sentiment as to what their counterparts had done a month back. As a final note, it will be interesting to see if this upward pressure materialises in full and if it does, how well it will be able to feed a positive upward momentum under low freight market conditions and more specifically during courses in the year which are typically seasonal lows in the freight market, he concluded.

Author: Nikos Roussanoglou

Source: Hellenic Shipping News

Dry bulk recovery will need demand growth to outpace supply

The reversal of the current balance between demand and supply will be the key for a shift of fortunes in the dry bulk shipping markets. It will take a significant change in the current equilibrium, in order for dry bulkers to return to profitability. In its latest weekly report, shipbroker Intermodal noted that “bulk carrier values are at historical low levels, therefore, painfully for many owners, we have replied to the question how deep this crisis is. It can’t go much deeper. The question now is how long this crisis will be and when should owners expect the bulk carriers to become profitable again and their assets to regain their value (or part thereof)”.

According to Mr. Theodore Ntalakos, Newbuilding / SnP Broker, “the answer to that question is ‘as soon as the demand for seaborne trade will consistently outpace the supply of vessels’. According to IMF data in 2015, global economic activity remained subdued. Growth in emerging market and developing economies (accounting for over 70 percent of global growth, and the main drivers of dry bulk shipping) declined for the fifth consecutive year, while a modest recovery continued in advanced economies. On top of that, the fleet has grown too much over the last decade and we need to see the fleet contract in order to meet the ailing demand growth”, Ntalakos noted.

He added that “looking at some data on the ship supply side, we can see that year-to-date 17.82mil tons of dwt have been delivered against 14.48mil tons of deadweight that have sent for demolition. In other words there have been fifty more deliveries than demolitions, these are mainly in the Handysize and Supramax/Ultramax segments. On paper, the fleet is still growing and the weak demand is bringing the utilization rate lower and lower. In reality, although this is temporary, the fleet has contracted since many of the new deliveries haven’t started trading yet and a number of a few hundreds of ships have been laid up”.

Ntalakos also noted that “another fact that we derive from the fleet data is how many vessels that were originally contracted for delivery in 2015 have actually been delivered and how many contracted for 2016 have been postponed to be delivered in 2017 and 2018. In January 2015 the orderbook stood at 1000 bulk carriers for delivery during 2015 whilst 617 ships have been actually delivered; an almost 40percent rate of slippage. That was obviously not enough to balance the market since the fleet grew by 2.3percent whereas the seaborne trade growth was negative. In January 2016, the orderbook for 2016 stood also at about 1000 vessels (including a number of vessels postponed from 2015) whilst today it’s about 700 vessels with only 211 deliveries so far; the difference being vessels pushed back in 2017 or 2018 where the respective orderbooks have increased accordingly, about 300 vessels”.

He concluded by noting that “looking forward, according to IMF, growth in emerging market and developing economies is projected to increase from 4 percent in 2015 — the lowest since the 2008–09 financial crisis—to 4.3 and 4.7 percent in 2016 and 2017, respectively. This means that demand will pick up over the next two years and if the supply keeps on its rationalization consistently, the answer to the “how long?” question could well be “earlier than the consensus”.

Meanwhile, in the demolition front this week, Intermodal said that “any excitement missing on the newbuilding front, the demolition market is definitely making up for. As prices continued climbing last week in the Indian subcontinent, sentiment started firming considerably, with buyers boosting competition and consequently prices even more. It is no wonder that activity levels also hit the roof, recording the best week in terms of dwt amount being reported sold for scrap since the beginning of the year. As far as bulkers alone, more than 1.5million dwt headed for scrap last week, with the Capesize segment getting the lion’s share. Owner’s of vessels of the worst hit dry bulk size so far, have certainly took advantage of firming demo prices. To put things into perspective, a Capesize owner can make $1.1-1.2mil more by selling a Cape for demo today compared to six weeks ago. Prices this week for wet tonnage were at around 150-290 $/ldt and dry units received about 130-280 $/ldt”.

Author: Nikos Roussanoglou

Source: Hellenic Shipping News

Shipping’s $12 Billion Iceberg: Why the Baltic Dry’s gain is bad news for shipping

Here’s reason to hope that spring has arrived for the global sea freight industry: The Baltic Dry Index, a measure of shipping costs, is up 62 percent from its record-low reading of 290 on Feb. 11, and just two points below its year-high of 473 on Jan. 4.

That sounds like good news until you consider how far the index has fallen: The benchmark averaged 1,100 in the five years through 2015, and 4,406 in the five years before that.

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Still, the improvement’s a sign that the demand side of the dry bulk shipping industry may be past its nadir. China’s Lunar New Year is always a weak period for the commodities carried on such ships, including iron ore, coal, and grains.

In four out of the past five years, February was the weakest month for Chinese iron ore imports, a trade that increasingly dominates the sector. Even at a time when China’s economy is looking frailer, sparks in the country’s industrial machine carry enough of a kick to keep the boats afloat.

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If shipping only had a demand side, this would be cause for celebration. Unfortunately, there’s a supply side too — and it’s a horror show. Thanks to the ongoing need to replace aging ships and the long tail of orders placed in more profitable times, the world’s dry bulk shipping fleet is still growing despite losses that should be causing shipowners to throttle back.

About 2.8 million deadweight tons have been added to the fleet since December alone — equivalent to about one new Capesize bulk carrier every five days. Thanks to those super low iron ore prices, scrap is cheap, making it less attractive to clear the oversupply by demolishing ships. About 163 dry bulkers have been taken to the scrap yard so far this year, according to IHS Global, but there are still 9,484 in service.

While current-quarter rental rates for Capesize vessels are jumping with the Baltic Dry — they rose 24 percent last week alone — the latest price of $6,050 a day is more than a thousand dollars short of typical operating costs. As Bloomberg Intelligence’s Lee Klaskow noted, dry-bulk carriers burned through $12 billion of cash during January and February, and removing all the excess capacity in the market could take two-and-a-half years.

Against that backdrop, better rates are just prolonging the pain. Instead of sinking outright, the industry’s excess supply retains just enough buoyancy to cause a shipping hazard.

Source: Bloomberg, Hellenic Shipping News

Tankers: Asian VLCC freight rate drops 39% on week on muted demand

Worldscale rates on key Asian Very Large Crude Carriers routes fell sharply this week due to the easing of delays at China’s oil receiving ports coupled with charterers resorting to the strategy of drip feeding the market with cargoes, said sources Thursday.

Rates on the key VLCC Persian Gulf-to-Japan route fell 39 Worldscale points week on week to w61 basis 265,000 mt Thursday.

“The market has moved back after the abnormally high rates [for this season]. Spring is the maintenance season for Asian refineries so demand should not be strong,” said a North Asia-based charterer.

It was a roller-coaster VLCC market this month with the key PG-Japan rate rising from the year’s low of w50.5 at the start of the month to w102 in mid-March due to firm demand for cargoes loading in late March and tight supply from various port delays.

The last decade of March saw an influx of 55 VLCC cargoes, while the typical number is around 40 cargoes for the last decade of each month.

Sources said that for VLCC cargoes loading after April 5, vessel availability was no longer tight with port delays in China falling to five or six days from a waiting period of two weeks.

Demand for vessels has also returned to the typical levels with 38 cargoes fixed for the first decade of April.

The lowest fixture rate seen this week was S-Oil having placed the Kalymnos on subjects for a Ras Tanura-Onsan voyage, loading April 12-14, at w57 basis 280,000 mt. Sources said this was a discounted rate as the Kalymnos was a 2000-built vessel.

Market sources said rates were expected to bottom out as levels approached the low of the year — w50.5 — last seen on March 3, showed Platts data.

“The market is approaching the bottom, [competitive] owners are disappearing and the available ships on the list are mainly handled by strong owners. However I don’t believe there is any rebound [as the fundamental supply is more than demand],” said a South Korea-based charterer.

Charterers were expected to “cherry pick” re-let vessels and hold back until next week to charter for the remaining cargoes loading in the second decade of April, said a broker.

Source: Platts, Hellenic Shipping News