Intermodal Weekly Market Report
15-05-2019

Market insight

By Theodore Ntalakos

SnP Broker

Modern warfare - Trade wars & sanctions

As of May 1st, the U.S. has ended waivers to the sanctions that had allowed the top buyers of Iranian oil to continue their imports. China is the world's No1 oil importer and a major buyer of Iranian Oil. The May 1 deadline coincided with the US trade representatives traveling to Beijing and while in April Trump was tweeting that whilst there are still differences, the two sides are closer to a trade deal; the move of eliminating the waivers could be linked to the trade talks and most probably even served as an irritant between Beijing and Washington. Making China's energy imports challenging and subject to U.S. Jurisdiction is not something that can be easily digested and   its timing is rather unusual, in one of the supposed final rounds of trade negotiations.

 

So, right when everybody thought that the trade war might be winding down, the trade frictions have suddenly worsened last week when Trump vented about China renegotiating agreed positions, and announced a 25% tariff on $200b worth of Chinese products. Additionally the US administration said it will impose 25% tariff on all remaining imports from China, $300b, or so.  

 

China has retaliated by announcing that they will increase the tariffs on about $60b in U.S. exports, including hundreds of agricultural, mining, and manufactured products, threatening jobs and profits at companies in and around the United States. The Chinese tariffs of 25% will fall mostly on products that China has a surplus or self-reliance, such as steel, chemicals or textiles while goods that they don't produce will be taxed with 5%.

 

China depends on the U.S. mostly for high-end products, such as electronics, machinery, precision equipment, aircraft and parts, vehicles and parts, and oil and gas and the Chinese government looks like they have handpicked the goods where the tax will be increased to 25%. One U.S. industry that will be heavily affected is the LNG exports which will face a 25% tariff. LNG shipping firms have also seen their share prices dip. While China, who is already the second largest importer of LNG, will increase their LNG imports by 50% by 2025, the price will be the most decisive factors for the amount and origin of imports. This will only become more important with the startup of the gas pipeline between China and Russia. President Trump knows that and has pushed China to sign deals to import LNG.

 

The next few weeks will be critical. The worst case - no deal – scenario, or even if coming to an agreement gets anywhere close to 2020, will be a game changer. Tariffs on all trades between US and China plus other administrative actions will lead to a slowdown in investment, rising costs and business uncertainty that will probably lead in a recession in the US and given the weakness in the European economy, Europe would suffer as well with the negative effects spreading across other economies eventually.

 

On the other hand, negotiations have come a long way. President Trump and Chinese president Xi Jinping will attend the G20 meetings in Osaka at the end of June, so there is hope that the two sides will make amends by then. The challenges to a trade deal would probably grow if the two administrations can’t reach an agreement, so most probably things will get worse before they get better.

 

 

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

Volatility in the Capesize market extended last week, with the wild ups and downs that rates for the big bulkers experienced extending the uncertainty across the entire dry bulk market. The BDI today (14/05/2019) closed at 1,043 points, up by 17 points compared to Monday’s (13/05/2019) levels and increased by 107 points when compared to previous Tuesday’s closing (07/05/2019). A busy Middle East VLCC market together with positive rate performance in  most routes for the rest of the market have been giving crude carriers market. The BDTI today (14/05/2019) closed at 704, increased by 42 points and the BCTI at 505, a decrease of 9 points compared to previous Tuesday’s (07/05/2019) levels.  

 

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

SnP activity remained healthy for another week, with MR candidates being the most popular ones as far as the tanker sector is concerned, while in terms of year to date sales the size is actually looking at an impressive increase of around 115%. In the tanker sector we had the sale of the “VALDAOSTA” (25,527dwt-blt ‘02, S. Korea), which was sold to Nigerian buyers, for a price in the region of $7.2m. On the dry bulker side sector we had the sale of the “NORD GALAXY” (76,629dwt-blt ‘06, Japan), which was sold to Greek buyers, for a price in the region of $10.7m.

 

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

Bulker and tanker orders have almost monopolized newbuilding activity reported last week, reaffirming that appetite for orders is still present despite softer contracting activity so far in 2019 compared to 2018 and challenges in the freight market for both sectors year to date. As far as reported prices are concerned, it seems that average newbuilding levels have somewhat stabilized at the moment following the positive trend of the first quarter, while it is notable to see that recent dry bulk orders concern bigger sized vessels for which pre-agreed employment exist. Similarly to the SnP market where only five sales of vessels above 170,000dwt have taken place since January, the bigger bulkers have seen a considerable slowdown in ordering as well, while despite this decrease, orders on the back of COAs continue to pop up here and there. In terms of recently reported deals, Greek owner, Chartworld, placed an order for two firm and two optional Aframax tankers (110,000 dwt) at New Times, in China for a price in the region of $46.5m and delivery set in 2021.   

 

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

The generous number of sales reported last week is definitely not representative of the current state of the demolition market, with most of these concerning slightly older deals, while even in terms of prices, average levels across the Indian subcontinent have been already moving down. The fact that both the local currency and steel prices in India have been witnessing further discounts and cash buyers in Pakistan are still not actively competing for tonnage, has led to discount in bids coming out of Bangladesh as well, while we do expect to see further decreases as the monsoon season and domestic budget announcement approach. Average prices in the different markets this week for tankers ranged between $275-450/ldt and those for dry bulk units between $265-440/ldt.

Please click here to open Intermodal's Weekly Market report for the week 19,2019

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