Intermodal Weekly Market Report

Market insight  


By George Kallianiotis,

Valuation Department


Shipping market players are familiar with the inverse correlation between the freight market and demolition activity i.e. when the market picks up we usually observe demolition activity declining and vice versa, while the level of scrapping eventually contributes to a new market equilibrium.


In order for demolition activity to be impacted in either direction, market expectations for the medium term have to be aligned with actual freight market conditions and thus demolition activity reacts with some time lag to the current freight market environment. The decision to sell a vessel for scrap is not only driven by the state of the market cycle and expectations, but to a great extent by the offered scrap price at the time vs the price fetched at the 2nd hand market.


As we stand, owners of vintage tonnage are obviously trying to exploit the current sound performance across all Dry Bulk & Container segments and prefer to keep their vessels for further trading rather than turning to beach yards. Despite positive market conditions in these two segments, possible demolition candidates could be those old units that have to be docked for surveys and their Owners are not in favor of bearing this cost, or the parties that are looking for a fleet renewal. Still, in order to make the demolition decision tempting for them, scrap prices should rise further. Already, scrap prices have risen more than 10% since the beginning of the year, and are up more than 29% compared to last year.


So far during Q1 2021, the freight market and expectations in the Dry Bulk & containers segment have been extremely optimistic, whilst the wet market is still to recover from the severe downturn experienced as a result of oil supply cuts and soft demand amid the ongoing COVID-19 pandemic. YTD dry bulk scrapping rate in dwt terms is estimated -21% below the same period last year, while tankers scrapping is estimated +91.1% y-o-y.


However, taking a closer look at the tankers sold for scrap, we would expect that the current market conditions (with VLCC rates suppressed since the beginning of the year and recently turning negative) would favor the larger crude carriers towards scrap yards. Instead, since the beginning of the year, about 11 vessels were confirmed to be scrapped with half of them being Handysize or MR tankers, while the rest consist mainly of Aframax, two shuttle tankers and no VLCCs.


We could argue that maybe owners of the larger crude tankers have enough buffer from last year’s stellar earnings amid floating storage economics skyrocketing and thus can sustain adverse market conditions, but also expect that the market will turn a corner should OPEC+ reverses oil supply cuts in the next months. We could also argue that owners prefer to sell their vessels in the 2nd hand market, as the premium they are currently getting over selling them for scrap is quite substantial.


While scrap prices are expected to rise further during the 2H of the year amid increased demand for scrap restocking, it remains to be seen how all of the above factors will impact demolition activity across the different shipping segments, with expectations for tanker scrapping activity increasing nonetheless coming in higher.


Chartering (Wet: Stable- / Dry: Firmer)

The dry bulk market witnessed impressive rate gains for another week with Capesize sector following the upward trend of the geared sizes. The BDI today (16/03/2021) closed at 2,017 points, up by 34 points compared to Monday’s (15/03/2021) levels and increased by 116 points when compared to previous Tuesday’s closing (09/03/2021). With the exception of the Aframax market which displayed a positive picture last week, rates for the rest of the sizes are still not oozing confidence that a positive turnaround is close. The BDTI today (16/03/2021) closed at 742, an increase of 46 points, and the BCTI at 553, an increase of 50 point compared to previous Tuesday’s (09/03/2021) levels.    


Sale & Purchase (Wet: Softer / Dry: Firmer)

The secondhand market displayed a healthy activity as far as the dry bulk units are concerned with a plethora of deals materializing last week. In the tanker front, activity was subdued with only four deals coming to light while all of them referred to MR units. In the tanker sector, we had sale of the “OCEAN MERCURY” (50,353dwt-blt ‘08, S. Korea), which was sold to undisclosed buyers, for a price in the region of $10.9m. On the dry bulker side sector, we had the sale of the “NEW EXPEDITION” (176,387dwt-blt ‘13, Japan), which was sold to Singaporean owner, Berge Bulk, for a price in the region of $27.75m.


Newbuilding (Wet: Firmer / Dry: Stable-)

The momentum in the newbuilding market remains strong with an impressive number of VLCC orders materializing last week completely ignoring the outlook of the crude carriers freight market. Last week, Central Group added another four 300,000dwt units at Hyundai Hi. This order doubles the owner’s order book at the respective yard to eight VLCCs with the price of the new units being estimated at around 90.0 million each. At the same time, on the back of a long term T/C to Shell, Advantage Tankers, AET and International Seaways concluded an order of a total of ten VLCC vessels at DSME in South Korea. The price for each vessel remains undisclosed. In the product carrier sector, it came to light that E4C Shipping exercised an option for three more 50,000dwt units at Hyundai Mipo in South Korea at a price of around $35.0 million each. Bulker orders still pop up on a weekly basis; Japanese owner Santoku Shipping inked an order for two Newcastlemax vessels at Shanghai Waigaoqiao at a price of $52.0 million each. Lastly, containership units still gathering a notable share of the existing ordering interest; last week, HK based owner Cido Shipping secured an order for two scrubber fitted firm plus two optional 15,900teu box ships at Hyundai Hi for a price of $126.0 million each.  


Demolition (Wet: Firmer / Dry: Firmer)

With the exception of the Pakistani market where prices started to wind down, scrap values across the rest of the Indian subcontinent regions kept moving up. Bangladeshi breakers are moving full steam ahead, with local steel plate prices witnessing an impressive jump last week. In India, average levels have also improved w-o-w; with both Pakistani and Bangladeshi breakers attracting most of the interest, an increase was more or less expected if Indian cash buyers want a share of the larger non-HKC vintage units. Pakistani average scrap prices remained steady w-o-w and are now positioned behind their Bangladeshi competitors. At the same time, the supply of demo candidates remained weak; with surfaced deals at low numbers for another week, it would not be a surprise if cash buyers maintain their improved levels for the time being. Average scrap prices in the different markets this week for tankers ranged between 255-470/ldt and those for dry bulk units between $250-460/ldt.   

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