Capesize

A steady build for the Capesize market saw the 5TC lift $2,696 to settle the week at $19,437. The trajectory of gains appeared more sustainable this week as pressure continued to build on charterers. Significant tail winds are thought to be coming from the smaller sizes as they have continued their charge upwards this week. Unusual fixtures continue to be heard in the market as charterers have looked to Capesize vessels for respite from their own usual vessel classes. The fixing activity was largely centred around the middle of the week with Friday rumours of it being a softer day. The Pacific West Australia to China C5 remained largely resilient to the wider market throughout the week, only lifting slightly from $9.155 to $9.327. The Brazil to China C3, however, saw fixtures across its loading window which was in strong contango. C3 rates rose $3.2 to close the week at $21.75. Dry bulk FFA’s continue to be heavily traded as this past week saw some record volumes being registered.

Panamax

A momentous week for the Panamax market, with sharp rises witnessed on all spot trading at rates not seen for many years. With the FFA market ably supporting a strong outlook, healthy levels were agreed for period on forward delivery positions as well as the nearby position. An 82,000-dwt delivery Pacific in June agreed a rate of $22,000 six to eight months whilst a scrubber fitted 82,000-dwt delivery China end March achieved $26,000 for a similar period. In the Atlantic, trading was typically grain centric with the Americas lending robust support against a shrinking tonnage supply and rates advancing daily on all routes. Asia too saw strong rate increases as trade in the region reached new highs. Strong demand from NoPac saw rates soar through the $30,000 mark a few times. Charterers with Indonesia trips to China were forced to pay a premium with rates in the $40,000’s and increasing not uncommon.

Ultramax/Supramax

Split sentiment over the last week, whilst the Asian basin remained firm there was a slight softening from areas in the Atlantic – particularly the US Gulf. Period activity remained active. A 60,000-dwt open Dalian fixing five to seven months at $26,000, whilst a new building 63,000-dwt was heard fixed ex-yard for three years at $14,000. From the Atlantic, sentiment remained firm from east coast South America for the Ultramax size, which were seeing figures in the region of $20,000 plus $1 million ballast bonus for fronthaul trips. Elsewhere, from the US Gulf, a 56,000-dwt was heard fixed at $28,000 for two to three laden legs redelivery Far East. From Asia, a 63,000-dwt open north China fixed a NoPac round at $26,000. Further south a 61,000-dwt was fixed for a coal run delivery Gresik trip via Indonesia to west coast India at $26,000. Rates remained strong from the Indian Ocean a 63,000-dwt fixing at $19,500 plus $950,000 ballast bonus for a South Africa to Far East run.

Handysize

Overall it was slightly quieter in the Atlantic this week with limited activity in the Continent and slower pace in other key areas. Despite the level remaining high, east coast South America and the US Gulf showed signs of softening and had their biggest decline of the year so far. Period fixtures include a 32,000-dwt fixing from Sfax at approximately $17,000 for short period and a 34,000-dwt fixing from Israel for a year at $17,500 with redelivery in the Atlantic. Meanwhile, in the east, the timecharter average rates on the 3 Pacific routes are three times as high as they were during the same period last year. The surge was over $1,000 within a day on each route in the mid of the week. A 28,000-dwt delivery Kashima next week was fixed for a trip to Southeast Asia with steels at $28,000 mid-week. A 32,000-dwt delivery Kaohsiung was fixed for a trip via Japan to Singapore with cement at $30,000 earlier of the week.

Source: The Baltic Briefing

The tanker market could be set for a year of two halves, with the first half a continuation of last year and the second half expected to be much improved. In its latest weekly report, shipbroker Gibson said that “2020 was a rollercoaster year, one with extreme ups and downs. Record highs and record lows. For the tanker market, in many ways it was year of two halves, with high earnings in the first half, and low returns in the second. Although the same degree of volatility is not expected this year, it is shaping up to be a year of two halves”.

According to Gibson, “the short-term signals are undoubtedly bearish. Restrictive lockdown measures remain a necessary containment measure for much of the world which will continue to limit the recovery in fuel demand for at least the first quarter. Aviation and transportation fuel demand will struggle to recover over the coming months. OPEC+ will need to carefully manage production to balance supply and demand. Floating storage is expected to continue to ease, however the pace of the stock draw will depend on the supply/demand balance. Saudi Arabia’s decision to voluntarily cut production by 1 million b/d could accelerate inventory destocking, releasing even more tonnage into the market”.

The shipbroker added that “by the second quarter, as the northern hemisphere moves into spring, the green shoots of recovery should start to be seen. Vaccinations will have been given to an everincreasing portion of the population in Europe, the United States and beyond, whereas countries in the Middle East and Asia are starting to rollout Chinese made vaccines. India has now also approved two vaccines. It will take time, but as more and more of the population, particularly those most vulnerable receive a vaccine, governments around the world will have more flexibility to avoid oppressive lockdown measures. By midsummer it is hoped, but not guaranteed that the world will be closer to normality than any point in the prior 15 months”.

Gibson added that “with hope that vaccines will bring the virus under control by mid-2021, the second half of 2021 is expected to see a strong rebound in oil demand. Pent up business and leisure travel should support transport fuel demand, whilst the impact of fiscal stimulus could support economic activity. Freight rates will be expected to find support, and the markets will see a better end to 2021 than they saw in 2020. Still, by the end of 2021, vaccinations are at the very best likely to reach 1/3rd of the global population based on the production capacity of the leading vaccines”.

“Cautious optimism should be the key phrase going forwards with vaccines, fiscal stimulus, and a gradual return to the new normal. However, several key dependencies will determine the scale of the recovery in tanker freight rates. On the fleet supply side, availability is likely to increase in the short term as vessels are released from storage, which could return to normal operational levels in early spring. Scrapping will need to increase to balance newbuilding deliveries and support tanker earnings at a time when demand is yet to return to pre-pandemic levels. Fuel consumption needs to continue to see a strong recovery all the way to the end of 2021 and for this, vaccines need to be effective and widespread by the winter of 2021 so lockdowns can be avoided again. Still, if 2020 taught us anything, it is to expect the unexpected. With a new president in the White House, elections in Iran, the fallout of covid-19 and major regulatory change on the horizon, predicting the next 12 months is anything but straight forward”, Gibson concluded.

Source: Hellenic Shipping News Worldwide

he new RCEP trade agreement could become a boon for shipping in the coming years, at least according to market delegates. In its latest weekly report, shipbroker Allied Shipbroking said that “during a week where the developments regarding the pandemic and the aftermath of the US elections have monopolized market interest, news of a fresh trade agreement signed by 15 Asian Pacific nations may not have attracted the importance it deserved. However, this massive trade deal is expected to reshape a significant part of the global trade over the coming years.

According to Mr. Yiannis Vamvakas, Research Analyst at Allied, “the Regional Comprehensive Economic Partnership (RCEP), (as the agreement was named) is a deal between the 10 members of the ASEAN nations (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam) and China, Japan, South Korea, Australia and New Zealand. In an attempt to conceive the essence of such a deal, it is insightful to examine some figures. In GDP terms, the participated countries consist of one third (around 32%) of world GDP, while the affected population reaches close to 2.2 billion people, making it the largest free trade agreement to date. Finally, according to data from the WTO, the partnership accounts for around 27% of global trade in goods and commercial services. All these figures are highlighting the impact and importance the Regional Comprehensive Economic Partnership will have on the global economy.

Source: Allied Shipbroking

Vamvakas added that “it is estimated that the RCEP will result in around US$186 billion being added to the global economy, while nations involved will see an approximate rise of 0.2% in their GDP (based on estimates from Johns Hopkins University). The agreement is likely the first step that could lead to an established trading zone in the region similar to the one in the EU, as the agreement is expected to lower tariffs amongst participating nations, limit barriers for the service sector and investments, as well as shape common trade rules and customs administration. Even more interesting is the fact that this trade liberalisation agreement is coming during a period in which the world has been moving away from globalisation and free trade”.

“However, it is worth mentioning that specific details have not yet been announced, and it is still questionable if it will include large tariff reductions. One of the highlights of this agreement is the milestone event that brings the three major economies of the region, China, Japan and S. Korea closer than ever before, defying the geopolitical tensions they share. In the meantime, attention is spread beyond participating members, as the agreement would be even more colossal had India not withdrawn from the talks in 2019. India’s concerns were focused on China’s dominating position, something that could lead to an influx of Chines products in the country. However, the door still remains open from RCEP members, giving the opportunity for New Delhi to join the partnership in the coming years. Meanwhile, another significant aspect, is the withdraw of the USA from the Trans-Pacific Partnership during the Trump administration, which along with RCAP, are anticipated to diminish US influence in the region further. However, it will be interesting to see what the new Joe Biden administration will do in this regard”, Vamvakas noted.

“With regards to the next steps of the agreement, it is expected that the full enforcement of the partnership will take some time, as the agreement has to be ratified from all the members within the next two years, while extra flexibility in this regard may be given to less-developed members to make all the legislative changes needed. Thus, the economic benefits may not be prompt, but in the long-term the promise in terms of trade and economic growth is still significant”, Allied’s analyst concluded.

Source: Hellenic Shipping News Worldwide

Oil demand will be marred with uncertainty for years to come, as the world gradually moves away from fossil fuels. The rate of the shift and its difference from country to country and even region to region, will constantly alter demand for tankers, in what appears to be the beginning of a rather challenging era for the wet sector.

In its latest weekly report, shipbroker Gibson said that “earlier this month the International Energy Agency (IEA) released its long-term energy outlook, demonstrating different paths for future energy market developments. Four scenarios were introduced. The Stated Policies Scenario (STEPS) is based on announced policies so far to date and assumes the pandemic is brought under control in 2021. The Delayed Recovery Scenario (DRS) is similar but assumes a prolonged pandemic. The Sustainable Development Scenario (SDS) acknowledges that today’s plans and policies for the future are insufficient to reach sustainable climate goals. It essentially works backwards from these goals, examining what actions would be necessary to achieve sustainability. Finally, the Net Zero Emissions by 2050 (NZE2050) case setsout an action plan for the next ten years to reach net zero CO2 emissions by 2050”.

According to Gibson, “the analysis shows that in absence of large changes in current policies, it is still too early to expect a rapid decline in oil demand. In the STEPS, global oil demand grows by around 5 million b/d in 2021, reaching pre-pandemic levels by 2023. Thereafter, consumption increases by around 0.7 million b/d per annum through to 2030 and then slows dramatically to just 0.1 million b/d to 2040. In advanced economies, oil demand never recovers back to 2019 levels, most notably in the EU, where it declines from 10 to 5.6 million b/d between 2019 and 2040 due to ambitious environmental policies. However, this is more than offset by rising demand in developing countries and robust demand from the petrochemical sector. In the STEPS, the IEA also expects US tight oil to return to 2019 levels by 2022. Yet, the agency acknowledges that there is great uncertainty to this path, which depends on the ability of shale producers to secure the financing required for further growth. Total North American crude production increases by 4.2 million b/d by 2030, driven by US shale, and then eases back by 1.6 million b/d by 2040. Crude production in Central and South America sees robust gains over the outlook horizon, up by 3 million b/d between 2019 and 2040. In contrast, supply in Europe, Eurasia, Africa and Asia Pacific declines by 5.7 million b/d over the same period, suggesting that there could be a growing reliance on the Middle East crude in the long term”.

“In the refining sector, more than 6 million b/d of new capacity is scheduled to come online between 2019 and 2025, while demand for oil products is projected to increase by just 2 million b/d in the STEPS and even lower in all other cases. This is expected to put huge pressure on older and less competitive refineries, with 14% of current capacity in the advanced economies being under threat. In contrast, refineries in Asia and the Middle East are likely to continue to expand and could become the largest global refining centres”, the shipbroker added.

“Despite slower growth in oil consumption, the STEPS scenario paints a positive picture for tanker demand over the next twenty years, with growing distances between key crude producers, refining hubs and countries of growing consumer demand. However, the IEA cautions that this is not a forecast, rather a possible pathway. The outlook for energy is very different in the SDS case. Here, oil demand falls by more than 11 million b/d between 2019 and 2030 and by another 19 million b/d by 2040, although the IEA admits that this is ambitious and based on assumption of an additional investment of $1 trillion a year between 2021 and 2023 directed towards achieving climate goals at a time when the world is recovering from the pandemic. Yet, there is a political will and environmental pressures will only intensify going forward. The stark differences between the two possible pathways clearly illustrate how uncertain the future is, not just for oil but for tankers as well”, Gibson concluded.

Source: Hellenic Shipping News Worldwide

With the world trade expected to heavily contract this year, it’s no surprise that the dry bulk orderbook has diminished quite heavily. In its latest weekly report, shipbroker Allied Shipbroking said that “it is undoubtedly a period in which investment sentiment across the whole spectrum of economic activity has been severely hit. A global recession for 2020 is now a certainty, with the only question and debate being as to its scale. At this point and in line with all this, global trade has posted a massive decline this year, with estimates from the WTO pointing to an annual drop of between 13% and 32%”.

According to Allied’s Research Analyst, Mr. Yiannis Vamvakas, “given these dire circumstances it is of little surprise that newbuilding appetite for dry bulkers has hit rock bottom, with the number of new contracts this year having slumped to the second lowest figure on record for the past decade. Newbuilding activity plays a key role in describing future market expectations and thus it has always been insightful to examine its trends and patterns deeper. Nowadays, interest for new orders has been limited, given the lack of confidence in the market. Putting down the numbers, as at 1st September 2020, the total dry bulk orderbook comprises of 614 vessels. This number is much lower than the respective figures for September 2019 (870 units), 2018 (863 units), 2017 (664 units) as well as 2016 (1043 units)”

Vamvakas said that “this drop is vastly justified by the demand and supply balance that has been shaped by the pandemic, but has also been in the making for some time prior to this. During the period Jan – Aug 2020, 67 units were ordered, compared to 98 placed during the same period in 2019, 141 units in 2018 and 72 units 2017. However, is the longer-term outlook for this sector in line with this decreasing trend noted in in the year so far in terms of newbuilding orders? To answer this question, we could further scrutinize the potential future demand and supply fundamentals for this sector. Beginning with the demand fundamentals, it is important to state that the majority of forecasting models available are pointing to a significant rebound in global trade from next year onwards. However, given where we are today, it is likely that this rebound will just return things to pre-pandemic levels”, Allied’s analyst said.

“On the other hand, it may well signal the beginning of a longer-term rising pattern for global trade. The average growth in total merchandise trade from 2010 to 2019 stands at 2.8%, on par with what we have seen for the average annual fleet capacity growth over the past 5 years. This shows that the two sides of this precarious balance are in a close “confrontation”. Here it is interesting to disclose another two crucial, though highly controversial points. The current orderbook to fleet ratio is at around 5.7%, its lowest point for the past decade, while the overage fleet (vessels above 20 years of age) to tal fleet ratio is currently at 9.3%”, he said.

“Finally, it is worth mentioning that the FFA market right now is pointing to a backwardation, with future BDI levels presently being below what we are seeing in the spot market. At the same time the costbenefit analysis of placing a newbuilding order is heavily depending on its price (though technical aspects also play a major role). Current newbuilding prices are at historical lows, yet when stacked up against the current second-hand prices, the investment opportunity “glimmer” quickly fades away. All in all, it is fair to note that the newbuilding market has been considered for some time now as a threat to the shipping market balance and a significantly risky investment decision. It will be interesting to see if this belief starts to shift, possibly leading to a ramp up in new orders during the final quarter of the year, or if the current slump will continue, with shipbuilders shifting their hopes on a rebound to be noted in 2021”, Vamvakas concluded.

Source: Hellenic Shipping News Worldwide

The end of the oil storage play, together with uncertainty over crude oil demand in the months to come, are expected to exert pressure on the tanker market in the weeks to come. In its latest weekly report, shipbroker Allied Shipbroking said that “during the peak of the COVID-19 pandemic there was but one freight market to be hindered by what was going on. Market participants witnessed skyrocketing volumes being traded during the March-April period, driven by the monumental drop in oil prices which reached levels not seen since 2003. With many traders looking to get their hands on as much oil as possible and utilising all storage options, freight rates reached record highs”.

“However, since then this rally has come to an abrupt end, with the BDTI slumping to levels even below the 500bp mark. Undoubtedly, in all this freight market splendour, low oil prices were the key driver. Key importance to this has been the role of the supply glut created during this time. The collapse in discussions between OPEC and Russia over production cuts led to an excessive flow of oil reaching markets, pushing both Brent and WTI to record lows. These excesses did eventually scale back, with the OPEC+ group eventually coming to an agreement for a massive output cut program of approximately 9.7 mbpd for the period of May-June”, Allied said.

According to Allied’s Research Analyst, Mr. Yiannis Vamvakas, “this is set to be scaled back to 7.7 mbpd for the remainder of 2020 (although production cuts for August and September could end up being deeper as some countries may need to compensate for previous lack of compliance), while come January 2021 this is set to drop to 5.8 mbpd. All these gradual increased flows at any point could be met by the potential of an increase in Iranian exports, which although currently at around 150,000 bpd, could easily reach 2 million bpd at any point. US oil production has also increased by 1.2 mbpd to around 10.9 mbpd as of late, a fair level though still much lower than the 13 mbpd seen back in March. At the same time and on the side of demand, the pandemic has had considerable effects as well, having caused a severe drop in consumption from all OECD as well as a large number of major developing economies”.

Vamvakas said that “a second wave of lockdowns will definitely dampen any anticipated recovery, but the impact is not expected to be as severe. The recent news regarding a potential vaccine have helped calm down fears, with oil demand forecasts having been revised up by between 5 and 7 mbpd for next year. Meanwhile, demand data for 2020 is also improving, with OPEC estimates for the year standing at 90.72 million bpd, an increased of 0.13 million bpd compared to its previous forecast. In China, official data illustrated a significant rise in volumes coming out of domestic refineries. In particular, June data showed a volume output of 14.08 million bpd, 1 million more than in May. The respective figure back in February, at the peak of pandemic spread, was only 10 million bpd. However, this boost in China may only be temporary, with local storage capacity looking to have already peaked during previous months”, Allied’s analyst noted.

“Meanwhile, the EIA has recently stated that demand for petroleum and liquid fuels is not expected to surpass 2019 figures before August 2021, despite the recent uptick in demand. Things are pointing to a possible mild recovery in consumption during the coming months, which though may be disrupted by a second wave of lockdowns, it is unlikely to be hindered to the same extent. At the same time, the supply of oil coming to the market is expected to rise by a fair amount over the coming months, likely keeping a solid cap for now on these low oil prices. Taking everything into account, there can be a case to argue for much better freight market conditions to emerge during the latter half of the year, though surely not to the extent seen back in the March-April period”, Vamvakas concluded.

Source: Hellenic Shipping News Worldwide

With floating storage having peaked and more tonnage being gradually released, supply is on the rise in the tanker market. With predictions for oil demand growth also ominous, the tanker market could be heading for a tough second half of the year. In its latest weekly report, shipbroker Gibson said that “as we near the halfway point of 2020, it seems like an impossible task to summarize everything that has transpired over the past 6 months. Even events which were considered major at the time now seem like a distant memory. 2020 kicked off with high tensions between the US and Iran following the killing of General Soleimani. The world wondered how Iran might react, with attacks on shipping thought likely. Then, just weeks later,the US and China signed a Phase 1 trade agreement which was expected to lead to increased Chinese buying of US commodities. Seemingly connected to this deal, sanctions against COSCO Dalian were lifted, which increased tanker supply and pushed rates to lower levels, albeit briefly. Around the same time, increased conflict in Libya saw crude exports plummet, from which they have yet to recover. Whilst the World was already aware of Covid-19, in January (when these events occurred) it was largely seen as a Chinese problem. Most of the World carried on as normal”.

According to Gibson, “however, the rapid spread of the infection across the World soon became the dominant force in the oil and shipping markets. Just as the spread of Covid-19 was starting to have a major impact on global oil demand, a fallout within OPEC+ led to a rapid increase in crude production from March until a new OPEC+ deal was signed in April. Rapid increases in crude exports from the Middle East pushed VLCC earnings to a 15 year high (on a monthly average basis)”.

Meanwhile, “at times during April and May, more than 4 billion people were under some form of lockdown, causing transportation fuel demand to evaporate and total demand down by 17.8mbd year on year (YOY) during Q2. Demand in April alone fell by 21.8mbd YOY – the single largest contraction ever witnessed. This record collapse in consumption occurred ahead of any reductions in oil supply, forcing the emergence of a super contango, making floating storage inevitable”.

It added that “it was not just crude tankers which felt the impact. Product tankers saw record freight rates. In Europe, a lack of storage caused significant discharging delays, which led to previous records being obliterated; MR cargoes trading from Europe to the United States reached $64/tonne vs. a previous record of $39/tonne. Likewise, in the East, significant increases in exports from India, the Middle East and China pushed freight costs to unimaginable levels. LR2s, which had also benefitted from vessels switching to dirty trade earlier in the year, saw freight rates on the Middle East – Japan route reach $124/tonne, almost twice the previous record. Demand was not the driver, instead it was supply as refiners and traders sought to push refined products to any home they could find, whilst also exploiting a contango structure. However, as refinery runs were cut steeply to balance supply with demand, product tankers in particular came under heavy pressure. Crude tankers kept the party alive for slightly longer as oil production cuts took longer to implement, but eventually moved to a weaker position as refinery intake and crude exports adjusted to lower levels”, Gibson said.

Source: Hellenic Shipping News Worldwide

With shipping having to cope with extraordinary circumstances and challenges, due to the COVID-19, demolition of older ships have taken a back seat of late. In its latest weekly report, shipbroker Clarkson Platou Hellas said that “to avoid confusion – market remains in lockown! Despite media interpretations and misleading reports this week, we feel the need to highlight again that the three Indian Sub-continent destinations remain in complete lockdown”.

According to Clarkson Platou Hellas, “to reiterate, the lockdown period for India is until May 3rd, Bangladesh extended further this week until May 5th and Pakistan remains at 30th April. It does appear that all three destinations appear to be looking towards each other for guidance as they seem to be taking the same direction once one area has made any decision. One thing for certain, their Governments will need to see a sustained period of falling virus rates before they can feel comfortable easing the strict measures currently in place. There has been a glimmer of hope however this week with news emanating from India that local authorities are allowing some limited cutting of those units that are already on the recycling yards. As aforementioned, the destinations remain in lockdown in relation to new arrivals, new custom inward clearances being given and new beachings being allowed, however we understand that 80 pct of the workforce are now being allowed onto those yards with tonnage already beached to start the cutting process. There does remain travel restrictions in place as the Interstate travel is restricted to essential travel only, however they are allowing a small movement of inventory to the local steel mills in the Gujarat state only. But the reports suggest that there is very little demand for the mills to acquire new steel for the time being as they have sufficient stock on site for the time being. As we have also now entered the holy period of Ramadan, the lack of activity and threats of further extensions to the lockdowns look set to result in the lacklustre atmosphere to continue into May”, the shipbroker concluded.

In a separate note, GMS, the world’s leading cash buyer said that “as the number of Covid-19 cases continues to rise across the globe, the expected / enforced lockdowns across all subcontinent markets have been further extended until May 4th at least. However, there have reportedly been some small concessions made in India this week, as a select number of local recycling yards that have been actively practicing social distancing and ensuring protective gear is being provided to yard workers, are now being permitted to commence cutting activities slowly and responsibly. This does not mean that India is open by a long shot as all flights are still grounded, foreigners are denied entry, and any vessels arriving Alang for recycling are not being permitted into port limits, with no boardings, beachings, and deliveries taking place yet. The expectation is that things are going to move at a slow and methodical pace (until the virus is brought under control) across all subcontinent locations & Turkey and lockdown measures could well be extended further, as with many parts of Europe and Asia, where shutdown / quarantine measures have been extended until June 1st. Finally, with the onset of Ramadan, countries celebrating the religious month are expected to remain out of the game for the most part, which may come hand-in-hand with the ongoing global quarantine and lack of any workable tonnage presently in the market”, GMS concluded.

Allied Shipbroking added that “with the Indian Sub-Continent market still firmly closed, it is of little surprise that activity remained limited in the ship recycling market. During the last two weeks we saw some fresh transactions taking place, while the bulker M/V “HBIS SUNRISE” was agreed to be sent to Bangladesh for demolition under very strict conditions, including the retention of crew members on board. Things are not expected to change very soon, as lockdown measure are set to still hold in both Bangladesh and India, the two key demolition destinations, at least until 4th of May. It is worth mentioning though that few selected scrapyards in India are allowed to re-open under strict conditions, but without this meaning that we will have significant activity levels taking shape anytime soon. In Pakistan, activity and interest from cash-buyers were subdued even before the pandemic outburst, a fact that leaves little room for optimism under the current prevailing conditions. Finally, the fact that Ramadan period is approaching is another bearish factor for the demolition industry that should further dampen interest amongst breakers for a fair while”, the shipbroker concluded.

Source: Hellenic Shipping News Worldwide

Oil prices could remain low for a number of months, a scenario which could alter tanker demand and shift trade routes. In its latest weekly report, shipbroker Intermodal said that “there is no doubt that the Covid-19 pandemic crisis is a world-shattering event that will change the world as we know it. Societies are facing challenging moments, markets have been violently disrupted and it will become even more visible later on that governments around the world will experience major shifts in their respective political and economic power. As we have already witnessed, Brent prices are experiencing their lowest levels in 17 years, closing at $27.2 per barrel last Friday, whereas West Texas Intermediate crude (WTI) closed at $23 per barrel. According to Goldman Sachs analysts, the price of Brent, which is the international benchmark, “could dip as low as $20 per barrel and test operational stress levels”.

The shipbroker added that “a week ago, Bank of America warned that the US is close to a new major recession due to the worldwide spread of the Covid-19. Simultaneously, oil producing countries keep on increasing their production at record levels amidst a price war between Russia and Saudi Arabia, after OPEC+ (OPEC and Russia) failed to come to a consensus over additional production cuts. Official selling prices lowered by as much as 20% have been also used as “weapons” in this price war”.

According to Intermodal’s Tanker Chartering Broker, Mr. Apostolos Rompopoulos said that “at the moment, global demand for oil hovers around 100 million barrels per day. Yet, as consumption is gradually decreasing due to the tremendous economic shake of the COVID-19 and the subsequent containment measures, demand could possibly plunge an additional 20% according to some first estimations. The final outcome of this crisis still remains unknown; however, certain analysts reassure that some more optimistic scenarios are possible to play out. According to Andreas de Vries, advisor at Saudi Aramco, the successful containment policies against the Covid-19 pandemic and the implementation of stimulus packages could stem the secondary and tertiary effects on the economy”.

Rompopoulos added that “the oil market status quo calls for an a pragmatic resolution aiming to terminate the price war. Nevertheless, a termination of the price war will not be able to push prices back to $60 plus per barrel, with levels around $40 seeming more realistic if major producers come to an agreement. As de Vries highlights, even in the best-case scenario, the average crude price will still remain considerably below what most producing countries need in order to successfully balance their respective budgets. Indeed, the extent of the virus containment measures that are currently being implemented will affect to a massive degree a number of sectors that are heavyweights for the economies of many of the producing nations, like tourism for example”.

Intermodal’s analyst concluded that “at the same time there is a growing number of voices that warns for a series of major economic consequences, with the worst-case scenario being a global economy devastated by a wave of continuous bankruptcies. We are seeing significant economic stimulus announced around the world, with the U.S. expected to reach soon a deal on a $2 trillion coronavirus aid, but the effectiveness of the implementation of these packages remains uncertain at this stage. A failure of these stimulus measures to support vital sectors of the economies around the world will lead to a prolonged crisis that could prove worse than the big downturn of 2008, but for now let’s remain reservedly optimistic and hope it doesn’t come to that”, Rompopoulos concluded.

Source: Hellenic Shipping News Worldwide

The shipping industry is in front of a monumental shift in its way of doing business, as the risk assessment tools of the past no longer apply, when it comes to making informed investment decisions. In its latest weekly report, shipbroker Allied said that “under such poorly performing market circumstances, many usually take the historical approach, in order to better understand and further analyze the present state of the market. However, to what degree is this a “fair” comparison to undertake right now?”

According to Allied’s analysis, “the freight collapse of 2016 in the dry bulk sector has been a reference case for every discussion when the market has undergone any severe downward pressure. However, despite its excessive impact, it was a “known” situation, or to put it more bluntly, it was ‘an accident waiting to happen’. The excess tonnage capacity was the result of the massive new order activity that had taken place in years prior, as well as, the disconnected relationship of demand and supply fundamentals, eventually pushing freight earnings to their perceived absolute bottom. After that, the market started to adapt to this new market reality, with more modest orderbook activity and, for a time, massive scrapping activity. This “rebalancing” phase helped translate over to a 2-year period of ever-improving freight market conditions (with some minor corrections here and there), coupled by a more stable market with lower volatility.

Allied’s Research Analyst, Mr. Thomas Chasapis said that “suddenly though, from the later part of 2018 the picture was promptly altered. This high-risk environment is not something new for the shipping industry, nor are the periodical exaggerations and asymmetries in realized earnings. However, having experienced a series of single shock events in such a short period of time, it comes naturally to question the robustness of the different business models. Tail risks and “black swans”, won’t be just catch phrases, but a change in investment attitude while we enter a new “era” of how we quantify different kinds of market risks (and their likelihood of being fulfilled)”.

Chasapis added that “the COVID-19 outbreak has disrupted most business activities worldwide, with the possible outcomes being numerous and presenting multiple decision directions to practitioners. In other words, we are in a genuine situation, where an absolute comparison to previously noted similar excessive negative pressures would be, to say the least, misleading. Prior to the beginning of this year, the discussion revolved around the potential of a two-tier market unfolding, depending on what type of fuel each vessel would burn. As it turns out and from all that has transpired, we may be experiencing a multi-tier freight market”.

Allied’s analyst noted that “the Pacific market is in sharp negative territory in terms of earnings, while in the Atlantic, things are relatively more promising (even if not particularly good). Moreover, especially for scrubbers-fitted units, freight rates are following a completely different orbit than what is presented by the quoted Baltic freight indices. The asymmetrical freight market is one of the many bizarre things happening right now. With a certain time-lag, asset prices are likely to follow this steep downward correction (this has not fully materialized yet)”.

“With the market in disarray, where uncertainty is the prevailing sentiment, the mispricing of different asset classes is the obvious outcome. The bargain attitude, as well as, the short-term unpredictable outlook has created an excessive “bid-ask spread”, indicating a market in distress, unable to properly price both the future risks and trends involved. 2020 has already shown to be a challenging year. Even with a very weak short-term outlook, the market may well absorb most of the negative side effects and eventually return to an upward track much sooner than many expect. Despite this however, the longer-term macroeconomic trends are still troubling. China is already facing the possibility of losing around 0.5% points from its projected growth for this year, something that would translate over to a significant step back in global seaborne trade”, Chasapis concluded .

Source: Hellenic Shipping News Worldwide