Intermodal Weekly Market Report
07-05-2019

Market insight

By George Panagopoulos

Research Analyst

Over the past two weeks, the Dry Baltic Index has been on an upward trend, breaking the 1,000 point mark last week for the first time since January, and creating a positive sentiment for the upcoming weeks after Easter holidays.

With the reweighting of the BDI last year, the barometer of the market is on Capes (counting for 40% of the BDI). As we have witnessed, the first four months for the Capesize sector were dramatic, with a new historical low on the BCI (92 points in 02/04/2019), well below OPEX earnings, muted SnP activity (currently only 3 reported sales), the biggest orderbook to fleet ratio (currently at 14%) and increased demo activity (currently at 20 capes, translating to 3.8m dwt). Therefore, it is interesting to examine what affected the capesize market.

 

The VALE dam disaster in Brazil is undoubtedly one factor that has pushed Capesize earnings to lower levels during February and March.  Analysts estimated that the disaster left around 40 to 50 Capes unemployed. Moreover, China’s iron ore imports were down in April due to VALE closure and the Australian cyclone. Lastly, we do have to take into consideration the seasonality of iron ore, which is also a factor for weaker freight rates.

 

Concerning the muted SnP activity on capes the past four months, it is normal for the decreasing freight rates to cause ship-owners to have many concerns about investing in the Capesize segment. However, something that should be mentioned along with the muted SnP activity is the asset value’s resistance to decreasing. From the table below (please find attached) it can be identified that despite T/C rates having dropped 35% compared to last year, the values have only decreased by 7%.

 

With regards to demolition, activity in the segment is up by 186% compared to last year. The VALE dam disaster, the poor freight rates and the upcoming regulations next year are factors for the increased demo activity. Nevertheless, something that has also helped ship owners to consider demolition as an option is the healthier demo prices in the Indian subcontinent. When comparing a similar situation in the segment back in 2016, average prices ($/ldt) are up by 61%.

 

All in all, last week we witnessed capes covering lost ground much faster than expected. However, the following weeks will show if this correction on rates will continue. Undoubtedly China’s demand for iron ore will be critical together with the trade talks between China and United States. As far as SnP transactions and demo activity go, their future performance is definitely linked with the aforementioned.

 

 

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

The extended upside noted in the Capesize market helped the BDI cover some further ground last week, although sentiment remains shaky as volatility in earnings for the big bulkers remains substantial. The BDI today (07/05/2019) closed at 936 points, down by 49 points compared to Friday’s (03/05/2019) levels and decreased by 75 points when compared to previous Tuesday’s closing (30/05/2019). With the exception of VL rates, the crude carriers market saw a more positive week, with activity in the period market remaining healthy at the same time. The BDTI today (07/05/2019) closed at 662, increased by 28 points and the BCTI at 514, a decrease of 53 points compared to previous Tuesday’s (30/04/2019) levels.  

 

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

The ups and downs in the respective tanker and dry bulk freight markets have failed to put a break on Buyer’s appetite, with a generous number of sales reported during the past days in both sectors, while as far as bulkers are concerned , Capesize candidates remain rather unpopular at the moment. In the tanker sector we had the sale of the “HYUNDAI SAMHO S900” (158,400dwt-blt ‘20, S. Korea), which was sold to Norwegian owner, Frontline, for a price in the region of $66.0m. On the dry bulker side sector we had the sale of the “MEDI VITORIA” (76,616dwt-blt ‘04, Japan), which was sold to Chinese owner, Grand Ocean, for a price in the region of $7.7m.

 

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

Recently reported newbuilding activity has seen a small slowdown compared to the average weekly volumes we have been seeing since the beginning of the year, while focus has been exclusively on tanker and gas carrier orders last week, with another MR order reaffirming the popularity of this size this year as far as ordering is concerned. Initial data for the first four months of the year shows a slowdown of about 18% in overall contracting activity. In terms of sector specific differences, newbuilding ordering in dry bulkers is down around 60%, with tankers also showing a drop of around 36% at the same time and gas carriers looking at a decrease of around 30%, while ordering in the container sector is steady year to date. In terms of recently reported deals, Japanese owner, Meiji, placed an order for two firm MR tankers (50,000 dwt) at Hyundai Mipo, in South Korea for a price in the region of $38.0m and delivery set in 2020.   

 

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

The demolition market has seen a slowdown in activity compared to the week prior, with prices in the Indian subcontinent moving down at the end of April but managing to stabilize in the past week. The approaching monsoon season seems to be keeping the appetite of Bangladeshi buyers in check at the moment, while at the same time the ongoing elections in India have pushed buyers there on the sidelines with no imminent reason for this trend to change as the results will be known at the end of the month. The market in Pakistan also remains fairly quiet, with the recent uptick in bids coming out of the country having made almost no difference in terms of candidates secured by domestic buyers. We do expect to see a further slowdown in activity in the next couple of weeks, which will most probably negatively impact prices sooner rather than later. Average prices in the different markets this week for tankers ranged between $280-450/ldt and those for dry bulk units between $270-445/ldt.

Please click here to Open Intermodal Weekly Market Report for the week 18,2019 

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