Intermodal Weekly Market Report
20-02-2019

Market insight

 

By Ilias M. Lalaounis

SnP Broker

Market experts mostly agree that the recent dry bulk market downtrend was caused by seasonal slowdown amid the Chinese New Year celebrations in combination with the deadly dam accident in Brazil earlier this year. The latter is a serious disruption that has already had an immediate negative impact on Capesize earnings. Brazil is the world’s second largest iron ore producer country after Australia, with approx. 70% of exports going to East Asia, and most iron ore consists of the highest quality found worldwide that does not require much processing. In addition, other production sites in Brazil are now in the public eye and currently under scrutiny when it comes down to their procedures, safety protocols and infrastructure and might not be able to increase production as desired. Hence, the imminent decrease of Brazil’s output will definitely reduce ton-mile revenue for Capes. The question now is if China is able to, and if they will respond with an increase of their domestic production from their high-cost mines, which will furthermore keep Cape revenues from rebounding to previous higher observed levels.

 

Besides the Capesize segment, the sudden drop and the swift reversal of sentiment was observed across all major trading routes and all ship sizes. This could be due to the turbulence deriving from the US-China trade war. While many reports/forecasts have been published and a lot of opinions have been heard, the only sure thing is that it adds uncertainty to the an already worrying global economy and a puzzled (amid coming regulations) shipping ecosystem. In the beginning, when the second worldwide largest economy showed signals of slowing down and seemed unable to maintain  growth figures, analysts were pointing to the trade war. Recently though, many are wondering if a Chinese structural and fundamental problem will soon surface. In my point of view, if such problem does exist, the shipping world should focus on how the Chinese administration would tackle it.  The country’s administration is currently signaling potential further stimulus measures and several are debating if such a program will have a positive impact on seaborne trade and to what degree.

 

The very slow fresh cargo supply of the past couple of months resulted in a slowdown of SnP activity, which is down 33% ytd. However, from the start of last week a more normal flow of cargo is observed and the BDI showed signs of recovering. At the same time, comparing past week’s SnP market to the start of this month we noted fresh prospective buyers coming on-board ships, while proven buyers took the opportunity to test sellers with levels depicting current market conditions and establishing new market levels.

 

Whilst some owners worry that we are entering a global bear market and are skeptical if this downturn was an indicator of a more structural issue, the BDI is now on a positive trend and others believe that we are heading towards more stable days having just experienced a short parenthesis in a market that is generally moving towards a healthy recovery and in that respect they maintain their bullish views and appetite for candidates offered at levels in line with current freight rates.  

 

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

The first positive BDI weekly closing for the year finally materialized last week, with Capes being the only negative exception in the significant rebound earnings across the rest of the sizes noted. The BDI today (19/02/2019) closed at 635 points, down by 8 points compared to Monday’s (18/02/2019) levels and increased by 37 points when compared to previous Tuesday’s closing (12/02/2019). Sentiment in the crude carriers market improved last week on the back of an impressive rebound in VLCC earnings that are expected to maintain their upbeat performance in the following days as well. The BDTI today (19/02/2019) closed at 828, increased by 38 points and the BCTI at 607, a decrease of 17 points compared to previous Tuesday’s (12/02/2019) levels.

 

Sale & Purchase (Wet: Soft- / Dry: Soft-)

SnP activity was down across all sectors compared to the week prior, with dry bulk deals showing a clear preference on vintage Supramax and Panamax candidates, while on the tanker side focus was on modern tonnage. In the tanker sector we had the sale of the “ENERGY TRIUMPH” (157,470dwt-blt ‘18, S. Korea), which was sold to Swiss buyers, for a price in the region of $62.0m. On the dry bulker side sector we had the sale of the “DIONE” (75,172dwt-blt ‘01, S. Korea), which was sold to Greek buyers, for a price in the region of $7.2m.

 

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

Right when we expected February to be a quiet month in terms of reported orders it seems that the newbuilding market is anything but quiet. The generous list of freshly inked deals is undoubtedly revealing that healthy appetite for new orders is still there. As far as the tanker sector is concerned, the four firm MR orders placed by Sinokor brings the number of 2019 reported orders in this size to fifteen, two below the respective VLCC 2019 surfacing deals, reaffirming the particular interest these two sizes have been getting this year as owners see improving fundamentals due to different reasons. On the other hand, dry bulk activity seems to be mostly inspired by pre-agreed employment more than anything, with the latest sizeable Newcastlemax order placed by COSCO on the back of a long T/C to the Aluminum Corporation of China, being a representative example of this trend. In terms of recently reported deals, Canadian owner, Valles Steamship, placed an order for one firm Aframax tanker (112,000 dwt) at Sumitomo, in Japan for a price in the region of low $50.0m and delivery set in 2020.   

 

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

Following the increase in demo prices in the beginning of the month, bids out of the Indian subcontinent seem to have stabilized for now, with interest from Pakistani cash buyers remaining muted nonetheless. Bangladesh and India remain active at the same time, with the later trying to catch up in terms of market share amidst strengthening steel prices in the country and a more stable local currency, both of which have allowed for optimism to grow in the domestic market. At the same time, fundamentals in Turkey also continue to improve, with prices moving up again last week, while if this upward trend resumes we expect that the share of demo candidates that are trading closer to the region but are currently ending up being sold in the Indian subcontinent will decrease.

Please click here to open Intermodal's Weekly Market Report for the week 7,2019

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