Intermodal Market Report

Market insight

By Katerina Restis
Tanker Chartering

Crude oil supply has been reported to have grown by approx. 2.5% reaching 40.1m bpd in 2017. However, tanker charter rates have been under pressure and have significantly been declining since Q3 of 2017 as a result of demand-supply imbalance. Lately, Brent crude oil has hit a 3-year high evidence that OPEC’s policy for supply cuts is supporting prices. Forecasts for 2018 indicate elevated oil demand that might lead to healthier tanker rates, subject to a number of other factors as well.

IEA forecasts global crude oil demand to rise by 1.3% mainly on the back of increased imports by China and India. China’s crude oil imports increased by 800,000 bpd in 2017, representing 50% of the global oil demand growth. China’s domestic oil demand continues to grow, while inland output is respectively descending. IEA projects China’s oil import dependence to rise to 80% by 2040. Additionally, India’s crude oil demand is increasing rapidly, with the country’s import dependence reaching 82% last year. India’s imports from OPEC’s countries declined during 2017, while total imports from non OPEC producers such as US, Canada, Russia and Kazakhstan significantly increased. BP projects the country’s energy demand to rise faster than any other major economy between now and 2035. India’s oil consumption averaged 4.6 million bpd in 2017 and it is projected that the country’s crude oil demand will increase 4.3% in 2018.

It is reported that OPEC will maintain output cuts, while demand continues to grow in 2018. Non-OPEC production is estimated to grow by 1.3 million bpd, with most of it sourced from the US, paving the way for significant ton-mile demand gains, as the USG to Asia represents one of the longest hauls possible. US exports have already started to increase, a trend which is probable bound to continue as OPEC sticks to current production levels. Asian refineries have already increased their oil orders from the Caribbean and Gulf of Mexico. Concurrently, the trouble in Venezuela could discourage ton-mile growth as Europe and Asia are important consumers of Venezuelan crude and exports to these regions represent one of the longest hauls. Therefore, as US exports continue to grow, much of this benefit may be offset by declining long haul routes out of Venezuela.

When prices trended lower in past years, inventories built up and demand for storage spiked. Respectively, such demand diminished as inventories reached peak levels and storage became rarer. Nowadays, we are in the downward phase of this cycle almost after 5 years, as inventories are being utilized. Once inventory capacities return to more manageable levels, in line with historical averages, this would allow trade flows to stabilize, which could be a sort of tailwind for the crude tanker market once it all plays out. Of course the tanker deliveries that are schedule for this year, estimated at around 10.7 million dwt, as far as crude carriers are concerned, will most probably offset part of this expected upside.

A healthier crude market is expected in 2018, with analysts anticipating most of the upside to take place closer to the end of the year. As discussed, various supply-demand essentials may disturb the trade patterns and as always numerous of currently unknown risks could also present themselves during the year. Undoubtedly it looks like all of these trends will require close monitoring in the year ahead.

Chartering (Wet: Stable- / Dry: Soft - )
The closer we get to the Chinese New Year holidays the deeper discounts we expect to keep seeing in the Dry Bulk index that ended the week with losses, settling not far above the psychological limit of 1,000 points. The BDI today (06/02/2018) closed at 1,095 points, up by 13 points compared to Monday’s levels (05/02/2018) and decreased by 96 points when compared to previous Tuesday’s closing (30/01/2018). The crude carriers market is still trying to catch a break, with small improvements in some cases and new year lows in others painting an uncertain picture for what’s ahead. The BDTI today (06/02/2018) closed at 648, decreased by 22 points and the BCTI at 615, a decrease of 13 points compared to previous Tuesday’s (30/01/2018) levels.

Sale & Purchase (Wet: Soft - / Dry: Stable- )
As we get closer to the Chinese New Year, Buyers in the dry bulk sector appear to be slowly moving to the sidelines, while in the tanker sector the very little buying interest is entirely focused on smaller sizes. On the tanker side we had the sale of the “YELLOW RAY” (19,937dwt-blt ‘03, Japan), which was sold to Indonesian owner, Waruna, for a price in the region $10.7m. On the dry bulker side sector we had the sale of the “ALBION” (58,732dwt-blt ‘08, China), which was sold to Thai owner, Thoresen, for a price in the region of $13.8m.

Newbuilding (Wet: Firm+ / Dry: Firm+)
A number of options have turned into firm orders during the past days, with respective owners clearly seeing an opportunity in declaring these options as newbuilding prices have moved upwards during the past months, appreciating these assets from day one as a result. It is hard to say whether such decision is right at this point of time. Looking specifically into the dry bulk and tanker sectors the reality is that against most peoples’ expectations both sectors continued seeing strong contracting activity and a consequent appreciation of newbuilding prices during the course of the past year, which eventually made the decision to order earlier one a right one. Can this be the case going forward though? The tanker market today remains under a lot of pressure and whatever balance the dry bulk market reaches post Chinese New Year might not lead to earning levels encouraging enough to keep fuelling newbuilding appetite. In terms of recently reported deals, Chinese owner, Foremost Group, placed an order for four firm Newcastlemax bulkers (210,000 dwt) at SWS, in China for a price in the region of $49.0m and delivery set in 2020.

Demolition (Wet: Stable- / Dry: Stable- )
Demolition prices seem to be resisting – at least for now – a further drop following the substantial correction that took place during the last days of January. That being said, the reluctance among most cash buyers in the region to commit themselves at current levels is more than obvious and the very soft activity of the past days is additional evidence of that. The very small number of recent demo sales also means that in order to assess the true levels of the market we will probably have to wait until healthier volumes of activity are reached. In the meantime, speculation around the re-opening of the market in Pakistan for tankers has been increasing in the past days and with prices offered by buyers in the country still way above competition it will be interesting to see what effect such development will have in the demolition market as a whole. Average prices this week for tankers were at around $230-450/ldt and dry bulk units received about $220-440/ldt.

Please find Intermodal's Market Report for the week 5, 2018 here