By Yiannis Parganas
The unprecedented events that have taken place since the beginning of the year have already shaped expectations for the rest of 2020. The global crisis that hit the world over the last four months will seriously shrink the world’s economic growth and damage financial stability leaving a deep negative imprint on the already disturbed shipping industry.
Starting with the energy market, the demand for such products has been exceptional soft during the past month, leading the future contract of May ’20 WTI to the historical subzero price of -37.63 $/barrel on 20th of April 2020. This rapid decline is a result of the supply glut combined with no availability of storage space. More specifically, with more than a third of the planet’s population being under self-isolation in an effort to slow the spread of the coronavirus pandemic, holders of futures WTI papers, in view of high storage expenses rushed to sell their contracts and were even willing to pay to get rid of them, which led to the shocking negative price.
While the price of June paper is trading today close to $13/barrel, the fact that on 21st of April it reached values below $10/barrel indicates the very pessimistic feeling regarding the future energy product demand. As far as the tanker market is concerned, freights enjoyed strong momentum with VLCC rates reaching close to $200,000/day, while some owners found profitable opportunities in floating storage. However, it seems that the boost on rates is likely to evaporate in the next quarter as the OPEC+ agreement to cut off production by 9.7 million/bpd will shrink supply and consequently leave a huge negative mark on the tanker freight market.
The WTI price was not the only one that fell below zero for the first time in history. In the dry bulk market, the BCI dropped at -20 points on 31st of January. It was not before the 31st of March that the index became positive again after having reached -372 points (the new record low). This rapid decline was mainly forced by the dampened Chinese demand amidst the Corona virus crisis during the first quarter of this year. While we can agree that it is not the first time that the dry bulk freight market suffers great loses during recent years, the macro-economic fundamentals appear very unpromising, leaving very small room for a decent rebound in the rest of 2020.
With demand for commodities suffering as a result of the global lockdown and depressed growth estimations, supply seems to be pointing to the same direction. Russia, the world’s biggest wheat exporter, announced that will cease grain exports until July 1 once its export quota is exhausted and it seems that Ukraine considers following the same pattern. On the other side of the Atlantic, Vale announced revised cut-rate projections for its 2020 output due to delays in some facilities reopening.
Without knowing when theCovid-19 crisis will be over, the substantial economic instability will increase uncertainly due to the immeasurable possible future restrictions on demand and supply having an unpleasant effect on the shipping industry.
Chartering (Wet: Firm+/ Dry: Soft-)
As Capesize rates started losing ground, sentiment in the dry bulk market lost the only positive support left and losses were recorded across the board as the week came to an end. The BDI today (28/04/2020) closed at 655 points, down by 6 points compared to Monday’s (27/04/2020) levels and decreased by 73 points when compared to previous Tuesday’s closing (21/04/2020). The rally in the tanker market extended for yet another week, with some very impressive numbers being reported on the period front as well. The BDTI today (28/04/2020) closed at 1,503, increased by 126 points and the BCTI at 2111, an increase of 744 points compared to previous Tuesday’s (21/04/2020) levels.
Sale & Purchase (Wet: Firm+/ Dry: Stable+)
SnP activity started to pick up during the past week, with Sellers in the tanker sector feeling encouraged by the strong freight market and therefore able to achieve substantial - in some cases - premiums over last done levels, while in total contrast, it is still a Buyer’s market when it comes to dry bulk candidates. In the tanker sector we had the sale of the “TAKASAKI” (300,390dwt-blt ‘05, Japan), which was sold to Greek owner, Dynacom, for a price in the region of $37.8m. On the dry bulker side sector we had the sale of the “PAGANINI” (75,118dwt-blt ‘08, China), which was sold to Greek owner, Modion Maritime, for a price in the region of $8.1m.
Newbuilding (Wet: Stable+/ Dry: Stable-)
After a few weeks of very little movement as far as contracting is concerned, a more generous number of orders surfaced in the past days across a number of sectors and while this level of activity could be otherwise considered as healthy, it is certainly not indicative of the actual appetite for newbuildings at the moment, which admittedly remains limited overall. Having said that, there are a few owners on the shipbuilding front that have been warming up to the idea of investing in tankers following the phenomenal freight market of the past months, with softening newbuilding prices across the board further supporting their argument for placing an order given that the sector has seen second-hand values of modern tonnage firming up recently. In terms of recently reported deals, Japanese owner, NYK Line, placed an order for one firm VLCC crude carrier (310,000 dwt) at NACKS, in China for a price in the region of $90.0m and delivery set in 2021.
Demolition (Wet: Soft-/ Dry: Soft-)
Very little has changed in the demolition market since our last report, as the main shipbreaking destinations in the Indian subcontinent remain closed for new business until the beginning of next month, while given that this deadline was set following an extension of the lockdown measures originally imposed in the region, everyone now anxiously awaits to see whether this date will be pushed back once again. The Indian government is already reported to be receiving intense pressure from certain members of its administration to further extend restrictive measures in place, while on the positive side it is being reported that cutting operations concerning tonnage already bought and imported in the country have been slowly resuming. The degree to which the pandemic spread within all shipbreaking countries is restricted will obviously dictate when respective operations will fully resume, while it is now widely expected that this won’t happen before the start of the summer season.
Please click here to open Intermodal's Weekly Market Report for the week 17,2020