By Katerina Resti
With the IMO 2020 approaching, it becomes challenging for the market to accurately explore the run-up to the deadline given that marine fuel-oil of 0.5% sulphur content does not yet exist physically nor financially. Thus, there is technical and financial planning to be involved and as reported the current global crude streams enable the production of about 15mill bl/d of final 0.5% sulphur content marine fuel if refineries maximize output. The market is currently using Gasoil 0.1% sulphur content price as a proxy for the upcoming 0.5%S MFO. Accordingly, it is estimated that between 2020 and 2022 it will trade at USD 90/ton discount to the Gasoil 0.1% price. Later, it is projected that the 0.5% MFO price will settle closer to the HFO 3.5% price, at a USD 90/ton premium to HFO 3.5%.
As seen, many ship-owners have rushed to order scrubbers and as reported in 2020 there will be more than 1600 scrubbers installed and on order. It is projected that between 2021 and 2022 demand will be much higher always subject to the order books. As discussed in 2020, the global bunker oil consumption will be mainly MFO of 0.5% sulphur content and almost 95% of vessels will not have scrubbers fitted. Unavoidably, in order for refineries to produce MFO of 0.5% sulphur content there will be a great availability of HFO 3.5% fuel. This is because high sulphur residue fuel is a by product in the production of MFO 0.5%. Rationally HFO 3.5% will be available in larger ports and most probably will be utilized by container vessels in certain routes or product carriers that will trade between refineries. Therefore, for these routes and specific trade, scrubber installation will certainly advance. In general, it is forecasted that more than 2.0m bl/d of HFO 3.5% surplus will be produced in 2020 and the question remains where and how this amount of fuel will be stored. The increased inventory will lead to HFO 3.5% prices being low for some time until the supply/demand balances and thus prices will be restored in the later years.
Furthermore, as the new fuel is yet unknown there is a discussion by ship-owners whether blending MFO 0.5% from various suppliers will be stable and not likely to damage engines. Overall, most shippers are installing scrubbers to part of their fleet to build up step by step knowledge. Scrubber installation has led many to believe that “early movers will make a scrubber profit” while “late movers will make a scrubber saving”. Last but not least, many ship-owners that have their vessels on long time charters have considered the option to include a clause in their charter parties, for Charterers requesting a scrubber vessel, to pay for it through hire agreement.
The next couple of years will not be short of interesting developments for sure. The second half of 2019 and closer to 2020 will lead to more confident conclusions towards the MFO 0.5%, Gasoil 0.1% and HFO 3.5% price spreads with the maritime industry’s bunker fuel shift. It is expected that concerns related to volatility of the MFO 0.5% product will progressively dissolve as more users will be able to test it during 2019 leading to the understanding that it will not be a gasoil-based product but instead a fuel-based bunker. Finally, it is expected that scrubber installation for bigger vessels will be hurried while for fleets with smaller vessels it will take longer. The main question to be answered is whether scrubber installation will generate profits or just savings.
Chartering (Wet: Stable+ / Dry: Stable-)
With the exception of Capesize rates that have only today managed to move positively, earnings for the rest of the sizes in the dry bulk market remained on an upward path during last week as well. The BDI today (26/02/2019) closed at 649 points, up by 12 points compared to Monday’s (25/02/2019) levels and increased by 14 points when compared to previous Tuesday’s closing (19/02/2019). With extended help from VLCC performance, sentiment in the crude carriers market keeps improving, with premiums evident in the period market as well last week. The BDTI today (26/02/2019) closed at 799, decreased by 29 points and the BCTI at 583, a decrease of 24 points compared to previous Tuesday’s (19/02/2019) levels.
Sale & Purchase (Wet: Stable+ / Dry: Stable+)
Stabilizing freight markets for both bulkers and tankers gave a small boost to SnP activity in the past days, with MR candidates gathering most of the interest as far as tankers are concerned and Dry Bulk buyers focusing almost exclusively on modern tonnage. In the tanker sector we had the sale of the “HIGH STRENGTH” (46,592dwt-blt ‘09, Japan), which was sold to Monaco based owner, Transocean Maritime, for a price in the region of $16.4m. On the dry bulker side sector we had the sale of the “GLOVIS DONGHAE” (97,045dwt-blt ‘04, Japan), which was sold to Qatari owner, Aswan Trading & Contracting, for a price in the region of $11.2m.
Newbuilding (Wet: Stable+ / Dry: Stable+)
Despite the smaller list of freshly inked deals surfacing compared to the week prior, contracting activity in both the dry bulk and tanker sector remains healthy indeed, with the pair of Kamsarmax units ordered by Foremost Group bringing the number of firm 2019 reported orders in this size to thirteen. This translates to an admittedly impressive 30% increase for Kamsarmax orders year to date, which comes as additional confirmation that newbuilding activity continues to find inspiration much more on expectations of a stronger market in the next couple of years and less on the performance of the freight market in the year so far, which on its own has been anything but inspirational for additional ordering. In terms of recently reported deals, Greek owner, Maran Tankers, placed an order for one firm Suezmax tanker (157,000 dwt) at Daehan, in South Korea for a price in the region of $61.5m and delivery set in 2020.
Demolition (Wet: Stable+ / Dry: Stable+)
Prices in the demolition market have been moving positively during the past days, with the upbeat sentiment in the Indian subcontinent market still fueled mostly by Bangladesh and Indian cash buyers, while Pakistan has yet to show any serious appetite for tonnage even though bids coming out of the country remain stable for now. Having said that, the healthy supply of dry bulk demo candidates in the market, which has been mostly “inspired” by the disappointing performance of freight rates for the sector since beginning of the year could soon show softening signs as earnings stabilize. This could well lead to restricted supply of tonnage and eventually higher competition and prices, while as levels in Turkey keep firming this might offer an additional layer of support to demolition prices sooner rather than later. Average prices in the different markets this week for tankers ranged between $280-440/ldt and those for dry bulk units between $270-430/ldt.
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