Intermodal Weekly Market Report

Market insight
By Costas Hardalis
SnP Broker

On the 4th of September the Baltic Dry Index marked its highest level for 2019, reaching 2,518 points, while the rest of the dry indices also recorded year-high levels that week with the daily average for Capesize reaching $38,014, for Panamax 76k $ 18,116 and for Supramax $15,233.

Healthy earnings like that was exactly what was needed as the 1st half of 2019 was really bad but the SnP market failed to see increased interest for inspections of available ships and activity was kept rather low compared to what someone would expect given the spot rates at the time.

Instead of accepting offers below their expectations, most Sellers were thinking that it would be better to keep the ship and fix on period instead. And it was a valid argument since fixing on period really made sense as rates back then could cover opex, bank repayments and still allow for a good profit. As appetite for second-hand tonnage was limited, it failed to ignite competition among prospective Buyers and restricted asset values from appreciating as a result.

So the reason why we didn’t see SnP prices going up was because Buyers were reluctant to become bullish for the long run. The fact that the market was coming from a very bad 1st half of 2019 together with the low levels (far below September’s highs) FFAs for q1 –q2 2020 were indicating, scared off many Buyers and consequently denied premiums on values.

Something that no-one could predict back then was what would the effect of IMO 2020 bunkers regulation would be. The regulation that was enforced on 1st of January drove at some point the price of the new fuel to double the old fuel price (350usd/tone Vs 700usd/ton). This was at a time when the market had already corrected from the highs of September 2019 down to the 976 points (2nd of January 2020) and with the Chinese holidays just around the corner, sentiment for the first quarter of the year was already soft as soon as January kicked off and without the coronavirus dramatic spread news having hit headlines yet at that point.

Capes were the ones affected the most, with the Baltic Capesize Index turning negative for the first time ever, pushing the BDI to the lowest point for 2020 on 10th of February (411 points).

The SnP market inevitably has been affected with relatively few sales reported for ships less than 10 years old. In the Kamsarmax sector, the M/V OLYMPIC GALAXY (81K 2009 Japan)-BWTS fitted) was sold last week for USD 13,5m to Greek buyers, which represents a discount from the USD 15,65m that the M/V KM TOKYO (83K 2010 Japan) fetched in November 2019. Furthermore the M/V MEDI HONG KONG (82K 2006 Japan) was sold to Qatari buyers for USD 9,25m, whereas in September 2019 the M/V YASA NESLIHAN (82K 2005 Japan) was sold for USD 11,5m.

Despite the discounts recorded, there are not so many candidates available for sale at levels showing that Owners are willing to face last dones, with many Sellers anticipating that the market will recover sooner rather than later. Indeed, we have been seeing a positive correction for Panamax/Kamsarmax rates lately, while it remains to be seen if and when the Capesize market, which still witnesses a negative BCI, will recover.

Chartering (Wet: Stable- / Dry: Stable+)
With the exception of Capes, rates for which remain at disappointing levels, the rest of the dry bulk market has moved at considerably healthier levels in the past days. The BDI today (10/03/2020) closed at 627 points, up by 11 points compared to Monday’s (09/03/2020) levels and increased by 78 points when compared to previous Tuesday’s closing (03/03/2020). A big cloud of uncertainty kept hovering above the tanker market last week, while demand concerns together with reports that S. Arabia and Russia will pump up their production send oil prices plunging on Sunday. The BDTI today (10/03/2020) closed at 848, increased by 52 points and the BCTI at 743, an increase of 97 points compared to previous Tuesday’s (03/03/2020) levels.

Sale & Purchase (Wet: Stable+/ Dry: Stable+)
Momentum in the SnP market remained positive, with buyer’s focusing mainly on the bigger sizes in both the tanker and dry bulk sector, while interest for container candidates seems to be picking up in the past weeks as well. In the tanker sector we had the sale of the “MILTIADIS JUNIOR” (320,926dwt-blt ‘14, China), which was sold to European buyers, for a price in the region of $69.0m. On the dry bulker side sector we had the sale of the “LUZERN” (50,363dwt-blt ‘02, Japan), which was sold to Middle Eastern buyers, for a price in the region of $5.6m.

Newbuilding (Wet: Firm+ / Dry: Soft-)
Amidst the strong tanker contracting activity surfacing last week, Greathorse Tiger’s mega containership deal still manages to stand out given the very slow ordering the sector has seen this year. Despite the healthier numbers of contracting reported below, the overall sentiment surrounding the shipbuilding industry in the Far East remains under extreme pressure amidst the coronavirus spread. Arrangements for a brave injection of funds are already being made within the severely affected Chinese shipyard sector in an effort to limit as much as possible the damage incurred by the virus outbreak. China State Shipbuilding Corp was reported to have raised more than USD 700 million in its latest bond issuance that will help provide the short-term liquidity needed for the group’s companies to control and further prevent the virus spread in order to resume operations faster. In terms of recently reported deals, Dutch owner, Shell, placed an order for eight firm Aframax tankers (120,000 dwt) at Guangzhou, in China for a price in the region of $54.0m and delivery set in 2022.

Demolition (Wet: Soft-/ Dry: Soft-)
Despite the fact that activity in the demolition market remains generous, prices seem to be caught in a downward spiral that kicked off at the beginning of last month and has yet to end, while given the extended issues and delays the virus spread is causing, silver linings for a positive market reversal in the short term are particularly hard to spot. Amidst substantial declines in local scrap steel prices, Indian cash buyers, who remain the most active at the moment, have been lowering their bids during the past weeks and while doing so they have been also setting the negative trend across the entire region. The fact that the dry bulk freight market has started to improve could provide some support to prices going forward as, if recovery is sustained, the supply of demo candidates will have to slow down. Average prices in the different markets this week for tankers ranged between $240-380/ldt and those for dry bulk units between $230-370/ldt.

Please click here to open Intermodal's Weekly Market Report for the wekk 10.2020