By Dimitris Kourtesis
Tanker Chartering Broker
Undoubtedly, this year (ongoing) will never be forgotten because in a matter of months it has managed to severely affect and shape our day to day personal and professional lives. All industrial markets have been influenced by the coronavirus pandemic and the tanker market is no exception. The spread of COVID-19 coupled with the IMO 2020 regulations have caused noticeable fluctuations in bunker prices and trading habits. On the 6th of January, VLSFO prices in Fujairah were as high as USD 790/mt and fell to below USD 200/mt in a mere 3-month period. WTI followed a similar pattern as it hovered at just above USD 60/barrel in early January and saw “negative” rates on the 20th of April; it has never fully rebounded (to date) back to its to pre-lockdown price levels. Oil trading houses took conservative approaches in minimizing their risk exposures owing to the mounting uncertainty and investor ambiguity that had resulted from the initial COVID-19 outbreak. Many projects were paused while trading activity was kept to a minimum.
The trading lag created an environment that allowed for contango opportunities; many traders/oil majors attempted to capitalize on this by securing VLCC/Suezmax vessels for T/C periods of up to 6 months. Due to the oil surplus in the market, shore tanks were nearing their maximum storage capacities and suppliers were keen to sell at low rates to ensure the continued and sound operations of refineries. The temporary shutdown and reopening of a refinery costs millions of dollars which places a rather hefty (almost unbearable) financial burden on the respective supplier. Throughout the period of the storage craze, some of the highest freight rates of the last decade were observed. Freights were boosted by a plethora of parameters such as market sentiment, bullish owners and prolonged wait times of ships during loading/discharging owing to the profound lack of storage.
In general - with the exception of VLCC’s who have benefited from the overall increased demand for storage - crude tankers have not managed to improve their performance in the last 3 months. Aframax and Suezmax vessels are still committed to sluggish markets which are heavily affected by seasonal patterns. Historically, summer months were always depressed in terms of trading activity. However, current imminent fears of further regional/nationwide lockdowns are further weakening sentiment in the oil trade. On the clean side, we’ve seen tonnage lists with many prompt ships around loading areas with MR’s overcoming LR1’s. At the same time, LR2’s seem to be patiently waiting for MR’s to get busier, after which they expect to receive loading enquiries from charterers. On Monday we saw WTI & BRENT enter a steep fall, which may be a direct result of further country-wide imposed COVID-19 related restrictions due to the fear of another wave. On a more positive supply-side note, Libyan exports are now back on the table and are rumored to see increases of ca. 300%!
A glimpse of light is anticipated by owners as we move towards the end of the year. It is widely hoped that traders will push to complete their programs by the close of the year to meet their minimal annual objectives. Nevertheless, the uncertain atmosphere in the tanker sector is expected to project well into the fourth quarter; a potential coronavirus vaccine is the only factor which seems capable of “straightening out” the rather mixed present sentiment.
Chartering (Wet: Soft- / Dry: Stable+)
After two consecutive w-o-w disappointing performances, owners managed to put an end to the dry bulk downward momentum. Overall, average earnings for all sectors remained approximately steady compared to the previous week. The BDI today (22/09/2020) closed at 1364 points, up by 50 points compared to Monday’s (21/09/2020) levels and increased by 75 points when compared to previous Tuesday’s closing (15/09/2020). The Positive crude carrier market activity that prevailed during the previous week failed to build any momentum with notable declines materializing across every reported route. The BDTI today (22/09/2020) closed at 433, decreased by 20 points and the BCTI at 416, a decrease of 31 point compared to previous Tuesday’s (15/09/2020) levels.
Sale & Purchase (Wet: Firm+ / Dry: Firm+)
An overall healthy level of SnP activity was recorded in both dry bulk and tanker sectors. Dry bulk SnP levels were substantial and on par with last week's volumes with most transactions occurring among smaller vessels. In the tanker sector we had the sale of the “PANTARISTE” (309,287dwt-blt ‘02, Korea), which was sold to Vietnamese buyers, for a price in the region of $26.0m. On the dry bulker side sector we had the sale of the “CORONIS” (74,381dwt-blt ‘06, China), which was sold to Chinese buyers, for a price in the region of $7.1m.
Newbuilding (Wet: Soft- / Dry: Stable-)
The newbuilding sector remains subdued with no obvious signs of recovery present in any shipping market. Unlike last week’s total inactivity in dry and wet trades, week 38’s shipbuilding activity encompassed five Newcastlemax (2+3 option) and 2 MR tanker orders which are to be delivered by 2022. Moreover, an order of two option two feeder container vessels (for delivery in 2022) concluded this week’s newbuilding updates. Currently, all shipbuilding yards have seen their orderbook volumes decline substantially from the start of the year owing to the combined effect that the COVID-19 epidemic and the uncertainty regarding the imposition of the IMO regulations have had on the shipping industry. In terms of recently reported deals, Singaporean owner, Raffles Shipping, placed an order for two firm MR tankers (50,000 dwt) at Penglai Jinglu, in China, for an undisclosed price and delivery set in 2022.
Demolition (Wet: Stable+ / Dry: Stable+)
High scrap prices are still persistent in the ship breaking front, with both Pakistani and Bangladeshi cash buyers securing the majority of tonnage being offered for demolition. However, following the increased activity of the past weeks, many Pakistani plots are heavily occupied; this may lead breakers in adopting more conservative approach and therefore cause a likely reduction in scrap prices. At the same time, India is struggling with the highest w-o-w increase of COVID-19 cases. While Indian cash buyers are unable to compete with the significantly higher numbers being offered by their sub-continent counterparts, oxygen supplies shortage is adding another burden to their local demolition industry; authorities in many states have declared that oxygen units use must be prioritized for care centers and hospitals. Average prices in the different markets this week for tankers ranged between $205-360/ldt and those for dry bulk units between $200-340/ldt.
Please click here to open Intermodal's Weekly Market Report for the week 38,2020