Intermodal Weekly Market Report
12-09-2018

Market insight

 

By Theodore Ntalakos

SnP Broker

 

A recovery in the shipping market since last year has buoyed optimism amongst the people in the industry. Yet if you are to ask most ship-owners if they are happy with the market, you will get a reply “mmmh... not really...”. The market hike seems to have hit a ceiling the past months and whilst the ship earnings have doubled or tripled compared to two years ago, they still seem to be  just a touch (?) away from their break-even.  Also, opposite to the common belief, during the past few months instead of further improvement we have seen a lot of volatility and a resistance to get to higher levels.

 

On the ship supply side, the world fleet has increased by 181 vessels since last year corresponding to a marginal growth of just below 2%. This moderate fleet increase versus four percent global growth has no doubt been a major driver of the recovery. Looking forward, there has been some order replenishment and in fact the orderbook is today bigger than what it was a year ago; about half of the new orders are Kamsarmaxes, generating some concerns on over ordering and affecting an already fragile market. On the other hand we can easily argue that the environmental regulations that are coming into force over the next couple of years, will call on owners to make substantial investments in their assets and we don't expect them to upgrade their older vessels. Current orderbook – not including slippage/cancellations – stands at 8.5% of the world fleet and with 9% of the fleet being over 20 years old you have a good release valve to balance the new deliveries.

  

On the other side of the equation there still is a growing demand for seaborne transportation. The population continues to expand, emerging countries continue to absorb shipping goods and raw materials, so - still being the most fuel efficient and environment friendly form of commercial transport – seaborne trade will continue to grow; this is a fact. On the other hand, shipping is inherently correlated to the world economy, so the trade contraction from trade wars, may translate into reduction in demand for shipping, and although China is no longer growing at eight or ten percent annually, it's still leading the demand for tonne miles. To put it simply, the demand is under short term shakedown from president Trump. Up until today, the markets have been on wait-and-see mode whether the threats are valid and how far the confrontation will go. The US president's tariffs have been met with Chinese retaliation and Beijing administration confident that they can cope with full scale trade war.

 

So, although we don't see a ceiling, since there seem to be strong fundamentals for the market to improve further, we are now on a kind of a plateau whereby there are economic as well as political reasons that are preventing markets to improve further. For shipping we believe that this will work in its favour in the longer term as, although it's a good entry point for investments and the upside is there, it makes the ship-owners more careful, patient and they avoid overreactions. This situation should also remind everybody that shipping is an infinite game and the objective of the players – both know and unknown - is to perpetuate the game.

 

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

Losses for the dry bulk index resumed during the past week on the back of extended pressure on the Capesize market, while the rest of the sizes - including Panamaxes during the past days - continue to display healthier performance. The BDI today (11/09/2018) closed at 1,439 points, down by 43 points compared to Monday’s (10/09/2018) levels and decreased by 74 points when compared to previous Tuesday’s closing (04/09/2018). The crude carriers kept moving sideways last week, taking a slightly more positive twist compared to the week prior, while the period continues to see healthy activity and stable rates. The BDTI today (11/09/2018) closed at 774, increased by 2 points and the BCTI at 520, an increase of 4 points compared to previous Tuesday’s (04/09/2018) levels.

 

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

Interest in the tanker SnP markets seems to be picking up with buyers looking to secure tonnage before the last quarter of the year, which is when most people expect to see an improved freight market. On the tanker side sector we had the sale of the “KAI-EI” (299,997dwt-blt ‘04, Japan), which was sold to Greek owner, Aeolos, for a price in the region of $23.75m. On the dry bulker side sector we had the sale of the “TALIA” (92,000dwt-blt ‘11, China), which was sold to Greek buyers, for a price in the region of $17.0m.

 

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

Looking at preliminary data for the first eight months of the year for the newbuilding market, the increase in dry bulk orders is probably the most notable change compared to the same period last year, with contracting in the sector up a striking 60%. Across the different dry bulk sizes, the biggest increases are witnessed in Ultramax orders that have more than tripled, with Capesize/VLOC orders, up 41%, in second place. The number of year to date Handysize orders is the only figure revealing a slowdown compared to 2017, although the decrease is rather insignificant. If one compares the respective SnP activity in each of these sizes though, Handysize vessels are the only ones looking at increased interest compared to last year, fact partly explained by the appreciation bigger sizes have seen in  second-hand values, which among other things is also driven by the aforementioned increase in ordering and the consequent jump in newbuilding prices. In terms of recently reported deals, Turkish owner, Arkas Group, placed an order for one firm and one optional Handysize bulker (38,000 dwt) at Imabari, in  Japan for a price in the region of $24.5m and delivery set in 2020.

 

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

Following a few rather unexpected positive weeks in the demolition market, it seems that a pullback has been taking place during the past days and although we have yet to see a substantial volume of sales taking place at lower prices, average bids from cash breakers in the Indian subcontinent have indeed retracted. The drop of the Indian Rupee together with falling scrap steel prices in the country appear to have set the negative tone in the market last week, with competitors in both Bangladesh and Pakistan quickly adjusting their own levels accordingly to those now offered by their counterparts in India. We do expect to see the recent positive momentum to further slowdown in the following days, with a positive reversal probably once the currency in India stabilizes again. Average prices this week for tankers were at around $180-440/ldt and dry bulk units received about $170-430/ldt.

 Please find here Intermodal's Market Report for the week 36,2018 

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