Intermodal Weekly Market Report
29-09-2020

Market insight

By Christopher Whitty
Director, Towage & Marine Port Services

Spot rates for Capesize bulk carriers received a significant boost last week, however, there are certain reservations in the market regarding the potential levels we will see during the last quarter of the year. When looking at the iron ore market we notice various positive fundamentals driving and supporting the long term dynamics that are in turn, having an impact on the freight levels for the commodity.

Iron ore prices have now declined after surging to their highest levels in more than six years earlier in September this year, on the back of supply disruptions in Brazil and record steel output in China. Market watchers have warned of a possible near-term slowdown in prices this month, though major financial institutions and analysts have mentioned that strong Chinese demand will most likely support prices for the rest of the year. China’s dominance in iron ore consumption gives it considerable capacity to set global prices. Chinese steel production is forecasted to drop slightly to 987 million tonnes this year, before potentially rebounding to more than 1 billion tons in 2021. China imports more than 70% of seaborne iron ore to feed its steel industry -which is the world’s most prominent.

On the supply side, Australia is dominant as it tops global annual iron ore exports. The commodity earns the country a substantial AUD100 billion in annual revenue. Sources in Australia are expecting elevated iron ore prices for the next two years. It is projected that commodity exports of the country will again thrive in the year ahead, which highlights the economic opportunity presented by the absence of a high number of coronavirus cases in Western Australia - which is responsible for the vast majority of Australia's iron ore production. Australian miners have been enjoying the strongest iron ore prices in six years on the back of record Chinese demand and supply disruptions in Brazil, where dam safety and issues caused by the pandemic have adversely affected output levels.

Also underpinning iron ore prices in the short term are constraints on Brazilian supply. Vale SA is now facing tougher regulatory requirements following the consequences of the dam disaster coupled with the current coronavirus situation which is derailing production plans. In view of the above and the overall economic fundamentals, the country’s production is not expected to return to “normal” levels until late 2022. That being said, iron ore prices rose as high as $US130 a tonne in the past two months. Analysts predicted that iron ore would hold around $US100 a tonne "over coming months" and would gradually decline to be closer to $US85 a tonne by June 2021.

Given China’s important role in the dry bulk market and in particular it’s influence on the freight levels of the Capesize segment, it is always interesting to keep an eye on its development and recovery in industrial production. China’s intensive import levels have, so far, been enough to support market fundamentals and rates. However, volatility is still there for the dry bulk market and hopefully the rest of the world will also follow suit in the recovery wave at some point soon.

Chartering (Wet: Soft- / Dry: Firm+)
Strong activity across all key trading regions improved earnings in the dry bulk market with Capesize rates exceptional increasing on the back of rising iron ore demand. The BDI today (29/09/2020) closed at 1658 points, up by 4 points compared to Monday’s (28/09/2020) levels and increased 294 points when compared to previous Tuesday’s closing (22/09/2020). Average earnings for all crude carrier sizes remained below OPEX levels for another week. Both VLCC and Suezmax sectors suffered discounts while the Aframax market noted trivial improvements. The BDTI today (29/09/2020) closed at 435, increased by 2 points and the BCTI at 372, a decrease of 40 point compared to previous Tuesday’s (22/09/2020) levels.

Sale & Purchase (Wet: Firm+ / Dry: Firm+)
Another healthy week of SnP is behind us with numerous dry bulk and tanker secondhand transactions making the headlines. A diversified mix of large, medium and small sized dry bulk vessel deals materialized with Supramax and Handysize vessels constituting the majority. All-in-all, dry bulk SnP volumes were marginally up from last week. In the tanker sector we had the sale of the “TOKITSU MARU” (305,484dwt-blt ‘11, Japan), which was sold to a Qatari owner, Aswan Shipping & Trading, for a price in the region of $45.0m. On the dry bulker side sector we had the sale of the “E.R AMERICA” (179,570dwt-blt ‘10, S. Korea), which was sold to Greek buyers, for a price in the region of $20.5m.

Newbuilding (Wet: Firm+ / Dry: Soft-)
Despite the continued weak newbuilding activity and prospects, a good number of tanker orders materialized last week – the entirety of which were crude carriers at South Korean shipyards. This came as an interesting development to the previous tanker order type preference (mainly MR product tankers were ordered during the third quarter). At the same time, dry bulk newbuilding activity remains subdued. Since the pickup in the dry bulk sector’s sentiment is very recent, it goes without saying that it will take longer for the newbuilding realm’s sentiment to follow suit... With the market operating under fundamentally weak demand, newbuilding prices are likely to further soften while the current average newbuilding asset values are below the both 2018 and 2019 average historic levels.

Demolition (Wet: Stable+ / Dry: Stable+)
Prices in the demolition market remained steady; however, the recent volume of demolition sales that took place during the past week were noticeably softer as compared to previous weeks. Pakistani breakers remain the highest bidders, however, several large VLOC units that were scrapped in Pakistan in the recent past may lead regional cash buyers to moderate their bids in the immediate future. In Bangladesh, the recent news of a dominant ship-breaking cartel which aims to be a price setter regionally has surfaced. This may very well act to counterbalance the momentum that the region had gained in the past weeks. At the same time, India kept struggling with its oxygen unit deficit owing to the surge of COVID-19 cases. Concurrently, steel prices in India have dropped by over USD18/ton week-on-week. In Turkey, a relatively soft demolition week was observed owing to weak fundamentals such as decreasing steel prices coupled with a further plummeting of the Turkish Lira (TRY). The TRY witnessed an USD/TRY exchange rate of $7.8 while steel prices decreased by around USD 4/ton.

Please click here to open Intermodal's Weekly Market Report for the week 39,2020

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