By Panos Makrinos
With 2018 over, we can definitely say that last year met the positive expectations everyone had after four years of continuous challenges for the offshore market, which witnessed a number of structural changes throughout this rather extended period.
The fact that an increasing number of offshore projects materialized during 2018, allowed the re-activation of more than a few laid up offshore units. Additionally, the commitment of OPEC and non-OPEC producers to support prices through production caps has also supported expectations for steadier oil prices going forward as well, giving more confidence to the materialization of similar projects as a result.
Expectations for the next years remain fairly positive for the offshore market. Analysts are giving emphasis to oil & gas production in regions like Asia Pacific and South Africa where intense exploration activity was witnessed compared to previous years. The expansion of renewable energy sectors like wind farms, where big investment have been taking place already is also significant. At the same time Europe remains an important market for offshore projects and OSV demand consequently.
As far as the sale and purchase market of offshore units is concerned, we have seen very notable interest in assets built after 2000, with most of these units being laid-up. This made sense given that discounts for such vessels compared to non-laid up assets ranged from 20-25% up to scrap levels basis ''as is where is'' or basis delivery at breaker's yard. In fact we saw more than a few times fairly modern AHTS or PSV units being reported sold for demolition in India or Chittagong.
Market participants obviously wonder whether 2019 will be an equally positive year for the offshore industry. Expectations for weaker global growth, the trade war between the U.S. and China and the slowdown in Chinese growth are some of the key events the development of which will affect oil prices and consequently the offshore industry.
In addition, it will be interesting to see how US sanctions on Venezuela’s oil industry will pan out, with most seeing support to oil prices from such development as well as a squeeze on US refineries that take a big portion of Venezuelan oil.
Despite the fact that we are still at the beginning of 2019, it seems that this will be an interesting and possibly challenging year. This doesn’t mean that there are no positive prospects for the coming months. In fact, we expect to see a number of offshore projects coming on line and activity in both the UAE and West Africa is anticipated to remain healthy/firm at the same time. As far as the second-hand market is concerned, we also expect an increase in demolition activity of offshore units and old drilling rigs in particular.
Chartering (Wet: Stable-/ Dry: Soft- )
Disappointment prevails in the dry bulk market that has witnessed quickly escalating pressure on rates in the past days, while expectations remain grim up until the end of the Chinese New Year. The BDI today (29/01/2019) closed at 797 points, down by 55 points compared to Monday’s (28/01/2019) levels and decreased by 239 points when compared to previous Tuesday’s closing (22/01/2019). Despite positive expectations, crude carriers earnings witnessed an off week, with sentiment remaining unscathed though despite the fact that the market has yet to regain its stability. The BDTI today (29/01/2019) closed at 872, increased by 4 points and the BCTI at 667, an increase of 3 points compared to previous Tuesday’s (22/01/2019) levels.
Sale & Purchase (Wet: Stable+ / Dry: Soft-)
The disappointing performance of the dry bulk market in the past days has impacted SnP activity in the sector. Interest for second-hand bulkers is still there but as falling freight rates are passing more control over to Buyers, Sellers’ ideas consequently become unrealistic in a number of cases, impacting SnP activity as a result. In the tanker sector we had the sale of the “MAERSK PROSPER” (109,326dwt-blt ‘01, China), which was sold to Greek buyers, for a price in the region of $10.5m. On the dry bulker side sector we had the sale of the “A NAVIGATION” (93,236dwt-blt ‘10, China), which was sold to Chinese buyers, for a price in the region of $14.9m.
Newbuilding (Wet: Stable+ / Dry: Stable-)
Recently reported newbuilding activity has been below the weekly average levels seen in the past months, while it is notable that orders of more conventional vessel types like tankers or bulkers are missing from the list below. Both sectors have seen appetite for newbuildings remaining unaffected by developments in the respective freight markets during the past months, with upcoming regulations being a good enough reason for owners with access to finance to place an order. Although we still expect healthy activity in tanker contracting to resume at least in the short term, we do see a slowdown in dry bulk orders at least throughout the first half of the year. After all, the discounts that have already been noted in dry bulk second-hand values since November together with the simultaneous increase of newbuilding prices, have increased the price gap between the two, making the former a more attractive investment as a result. In terms of recently reported deals, Japanese owner, Mitsui OSK Lines, placed an order for two firm LNG carriers (174,000 cbm) at DSME, in South Korea for an undisclosed price and delivery set in 2021.
Demolition (Wet: Stable- / Dry: Stable-)
It has been an overall positive week in the demolition market that has seen a rather unexpected increase in activity. The announcement of the latest budget in Pakistan that didn’t bring any significant changes has restored confidence in the local market that is expected to show more appetite in the coming weeks. At the same time, cash buyers in Bangladesh made a strong come back in the past days showing increased appetite for high ldt candidates and once again managing to secure the biggest market share without having to increase their bids as their competitors in the region still offer lower prices.
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