Intermodal Weekly Market Report
02-03-2021

Market insight  

 

By Ilias M. Lalaounis,

SnP Broker

 

Following the recent rally to multi year highs of metal-based commodities, amid an unprecedented global economic stimulus, discussions of an emerging commodity supercycle have gained traction recently.

 

Key stakeholders of our industry are debating whether this might be a beginning of a new shipping supercycle. An interesting development that could fuel further this view, is that of a potential infrastructure supercycle in the US.

 

A large part of the 2nd phase of the US fiscal stimulus scheme under the Biden administration, was planned to be invested in infrastructure. The chances of a large infrastructure bill have increased after the devasting winter storms two weeks ago, that resulted to billions dollar damages and reiterated the previous decade’s infrastructure underinvestment. As a candidate, Biden had proposed a $1.3 trillion investment towards infrastructure over the course of 10 years. However, with extended damages after the winter storms, the bill might end up much higher; with Goldman Sachs expecting it to reach $2 trillion or above. This will be the largest infrastructure stimulus after the New Deal and depending on the extent it materializes, it should create a material multiplier effect on demand for building materials. The targeted infrastructure, such as bridges and roads, points towards increased steel and cement demand, which will likely make these commodities the main beneficiaries over a 10 year cycle. USA’s cement production particularly is running close to max capacity utilization, which means that there will be a production shortfall if demand rises significantly. Cement production in the US came at 90 million tons in 2020, which is approx. 2.1% of the world production. Both demand for imports and cement production capacity will have to expand over the next years in order to cover domestic consumption. With the only sizeable cement/clinker producer being China (more than 50% of the global output), imports from the country and thus dry bulk ton-miles could increase materially.

 

The main shipping beneficiary will likely be mid-sized bulkers carrying minerals and steel, however the dominant vessel size in reality will be determined by the extent of the upward price pressure on the commodity and the need for cargo upsizing. Both steel prices (which have hit record high levels in the US recently) and cement/clinker prices, will race to the top under such stimulus multiplier and set the ceiling for international steel related commodities and thus freight higher. The last cement supercycle in the US lasted from 1990 to 2007 when cement prices had outperformed inflation; Morgan Stanley bullishly argues that “an infrastructure package could catapult building materials into a super cycle similar to the 1950s. We are 10 years into the current construction cycle, exiting a recession, and potentially facing a government-underwritten cycle of another 10 years."

 

It remains to be seen whether this infrastructure rebuild will be the trigger for another commodity and shipping supercycle.  In any case, September 2021 is expected to be the deadline towards an approval of a new infrastructure bill and the spending won’t start until a year later, thus the impact will likely show later in 2022. The extent of the impact will also depend on how China will react to the news of such package from the US, with this week’s watch on the China’s National People Congress and the release of the country’s 14th five year plan.

 

Chartering (Wet: Stable- / Dry: Firmer)

The positive performance of the geared sizes stole the spotlight last week with Supramax and Handysize T/C earnings increasing by 24.1% and 18.7% w-o-w respectively. On the other hand, subdued activity materialized for the bigger sizes, with Capes suffering the most. The BDI today (02/03/2021) closed at 1,673 points, up by 22 points compared to Monday’s (01/03/2021) levels and decreased by 54 points when compared to previous Tuesday’s closing (23/02/2021). In the crude carrier market, rates for the Aframax sectors enjoyed another positive turnaround, with the exception of the North European market where a quieter market was observed. On the other hand, both VLCC and Suezmax markets witnessed another disappointing week with losses materializing across the board. The BDTI today (02/03/2021) closed at 671, a decrease of 8 points, and the BCTI at 493, a decrease of 67 point compared to previous Tuesday’s (23/02/2021) levels.    

 

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

Secondhand activity remains firm, with a notable number of tanker deals concluding. Greek buyers monopolized the dry bulk SnP market while a healthy number of container units changed hands last week. In the tanker sector, we had sale of the “HUNTER ATLA” (300,300dwt-blt ‘19, S. Korea), which was sold to UAE based owner, ADNOC, for a price in the region of $84.5m. On the dry bulker side sector, we had the sale of the “SHANGHAI WAIGAOQIAO H1488” (210,000dwt-blt ‘20, China), which was sold to Greek owner, Maran Dry, for a price in the region of $50.0m.

 

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

The newbuilding market keeps in a good shape with steady contracting activity materializing last week. In the case of the tanker newbuilding units, it seems that investor’s interest remains alive despite the negative freight market performance. Last week, GS Energy secured an order for three firm conventionally fuelled/scrubber fitted VLCC units against a long-term T/C to HMM. All vessels will be built at Hyundai Samho facilities while the total price is estimated to reach $270.0 million. In the clean carrier sector, Greek owner Thenamaris ordered two firm plus one optional 50,000dwt units at Hyundai Vinashin for a price in the region of $35.0-36.0 million each. Thenamaris was also present in the bulk carrier sector, with two Tier II Kamsarmax units being ordered at NACKS for a price of $27.0m each. On the containership front, interest has remained, for another week. Zhonggu Logistics continued its expansion strategy by securing six firm plus two optional 4,600teu boxships at CMJL for a price in the region of $35.0m each with their orderbook currently totalling 18 Panamax boxships, with a total cost of approximately $630.0 million.

 

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

The Demolition market has seen a slowdown in activity lately, with an evident lower number of candidates being circulating in the market. Indeed, the supply of vessels destined for recycling has been limited last week amidst a strong dry bulk and container freight market. At the same time, demand for units remained strong with increased steel plate prices supporting offered scrap levels in the mid 400s as far as the Indian subcontinent yards are concerned. Chica steel plate trade activity resumption has begun, with steel prices rallying +7.8% (Rebar) and +6.1% (HRC) to pre-CNY levels pointing to a stronger steel plate demand from the subcontinent regions. The Turkish market has been witnessing an overall positive shift, with steel plate prices at an average level at mid 200s. Imported steel scrap prices increased last week while local steel plate values also saw improvements. On the other hand, the TRY/Dollar exchange rate lost some ground last week yet with no visible effects on scrap levels.

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