Despite the fact that shipyards are closing left and right on a lack of newbuilding contracting activity, while even the biggest “names” are reeling under the pressure, prices are still holding their ground. In its latest weekly report, shipbroker Allied Shipbroking said that “there is still no shift on the price front despite the ever growing pressure being placed on shipbuilders. New orders continue to be few and far between and the way the orderbook to fleet ratio is going it looks as though we will start to see ever more shipbuilders being under increasing pressure by their financiers and investors as their operations reach or even in some cases drop below minimal operational volume. What is more worrisome for shipbuilders is that without the ability to offer a substantial discount on prices compared to what they are offering today it will continue to be hard to entice new buyers and compete with the secondhand market. This will be the case even if we see notable price increases in in markets such as those of the dry bulk secondhand market”, said Allied Shipbroking.

Meanwhile, in the S&P market, ship valuations specialist VesselsValue said that in the tanker market, values have remained stable versus the past week. “Aframax tankers the British Merlin (114,800 DWT, 2003, Samsung) and British Curlew (114,800 DWT, 2004, Samsung) were sold by BP in an en bloc deal for USD 29.2 mil, VV value USD 29.53 mil causing a slight softening in values”, VV said. Similarly, on the dry bulk market, Capesize and Panamax values have remained stable over the past week. According to VV, “Capesize vessel the Bulk Singapore (177,200 DWT, 2005, Namura) was sold by Celeste Holding Pte for USD 12 mil, VV value USD 11.13 mil causing a firming in values. 6 Supramax sales took place this week causing a softening in values. The K Coral and K Amber (58,000 DWT, 2010, Dayang Shipbuilding Co) we sold by SK Shipping for USD 8.7 mil and USD 8.3 mil respectively. VV valued the vessels USD 9.58 mil and USD 9.57 mil respectively. Indigo Spera (56,100 DWT, 2011, Mitsui Ichihara) sold for USD 12.9 mil, VV value USD 13.82 mil.Jupiter (57,000 DWT, 2008, Jiangsu Hantong Ship Heavy Ind) sold for USD 6.5 mil, VV value USD 7.98 mil. RHL Catalina (53,600 DWT, 2002, Iwagi Zosen) sold USD 4.8 mil, VV value USD 5.51 mil. Handy values have seen a firming in values for older tonnage due to the sales of the Sider Caribe (32,300 DWT, 2009, Kanda) sold for USD 8.3 mil, VV value USD 8 mil. East Ambition (28,400 DWT, 2000, Naikai Setoda) sold for USD 3.8 mil, VV value USD 2.71 million, “said VV.

Finally, in the container segment, the shipping valuations expert said that values have remained relatively stable with a softening in Post Panamax values. A 7-year-old Panamax the India Rickmers (4,250 TEU, 2009 blt, Jiangsu New Yangzijiang) was sold for scrap last week, maintained VV, while Rickmers itself has denied the said claim.

Meanwhile, in a separate note on the S&P market, Allied Shipbroking said that “on the dry bulk side, activity continues firm and it looks as though the upward pressure on prices has finally started to show face. With optimism held thanks to the much improved rates being seen now and many buyers looking at 2017 with a more favorable light, the willingness to place slight premiums on last done levels is becoming more and more the typical pattern. There is still a bit more to go before we start to see significant increases being noted, especially on the more modern tonnage, however the trend is there and seems to be gaining pace. On the tanker side, things are still fairly slow on the activity front and despite the recent improvements seen in the freight market thanks to the seasonal demand increases, buyers are still not there to heavily compete on vessels circulating them market at these levels. It will take a while for confidence to recover after the big drop noted in the summer and many are waiting for OPECs final plan to action”, the shipbroker concluded.

Source: Hellenic Shipping News Worldwide

With prices down 40% since the start of the year it’s easy to lose sight of the fact that the global iron ore trade is still growing robustly.

New and significant market opportunities can still open up, even in China which already consumes more than two-thirds of the seaborne trade.

The issue of the influence of Chinese domestic supply on iron ore pricing is a vexing one. The country’s miners produce some 350 million – 400 million tonnes a year on a 62% Fe-basis, although reliable stats are lacking (this figure is calculated working backwards from pig iron production).

Two short years ago $120 a tonne were considered a price floor; the thinking being that any extended period below this level would drive out high cost Chinese iron ore miners struggling with grades as low as 15%.

When $120 came and went, $100 was considered the level swing producers would abandon the market. With ore hovering either side of $80 for more than a month assumptions about the market are being severely tested.

A trenchant new research report by Minerals Value Service shows small miners are not just battling the Big 4 producers (or if you count Gina Rinehart and the Roy Hill project, the Big 5) but market inefficiency in China.

While domestic Chinese iron ore miners have been able to successfully defend prices up to now, pressure is definitely building says author of the report, Nick Pickens:

A feature of the latest price slide has been the relative performance of China’s domestic concentrate when compared to iron ore imports.

According to Platts, the spread between the 66% domestic concentrate index price (ex-VAT) and the IODEX, is now at $28/t, this compares to an historic average of around $15/t and parity at the start of the year, at a time when the IODEX was trading north of $120/t. If normalized for Fe content, the contrast is even higher, with the domestic product historically at a discount compared to $22/t premium today.

We believe today’s index differential implies an additional 210 million tonnes of steel capacity can look to seaborne supply as a competitive alternative. We expect this spread will begin to close as an increasing amount of capacity is attracted by “cheaper” imports.

While the inland steel mill capacity in the market for cheaper imports translates (very) roughly to 300 million tonnes of iron ore, Pickens cautions on extrapolating too much from these numbers.

The supply could come from long term agreements and captive mines and given the close relationship between local governments, mills and miners some blast furnaces may be obliged to take ore even at a 35% premium to the spot import price.

The Chinese government may also be wary of increasing already heavy reliance on supply from Australia or Brazil and expose the steel industry – a crucial part of the country’s growth over the last decade – to even wilder import price fluctuations.

Source: Mining Weekly

The tanker market is steadily moving towards better days, as August “blues” are gradually moving away. In its latest weekly report, shipbroker Gibson said that “Suezmaxes trading out of West Africa are leading the way. In early September Shell lifted force majeure on Bonny Light exports, with loading scheduled to reach 220,000 b/d in October. The Qua Iboe exports, the biggest Nigerian crude stream (estimated at over 300,000 b/d before the force majeure) are also expected to re-start as early as late September. Finally, shipments of Forcados crude are anticipated to resume soon, with a preliminary October loading program reported at 230,000 b/d”.

According to the London-based shipbroker, “more crude from Nigeria has led to an impressive rebound in Suezmax rates in the region, with the TCE earnings for West Africa – UK Continent up from just under $5,000/day in mid-August to around $35,000/day currently. There is possibility of more barrels loading in the Mediterranean. Libya’s National Oil Company is in the process of re-opening Zueitina, Ras Lanuf and El Sider oil terminals and the company hopes to triple domestic crude output by the end of this year. So far the success has been mixed. The government officials stated that one Aframax tanker successfully loaded and departed Ras Lanuf, but loading operations have been temporarily halted due to military clashes”.

Meanwhile, as Gibson pointed out, “more evidence supports the view that crude exports out of the Black Sea will increase. CPC exports are scheduled to increase in October, with further gains planned towards the end of this year and throughout 2017 amid rising offshore and onshore production in the Caspian region. The biggest gains are expected on the back of the re-start of the giant Kashagan field and the start-up of the Filanovsky field in the Caspian Sea. The combination of higher volumes out of the Black Sea, coupled with positive sentiment, have offered further support to the tanker market. Despite firming rates and earnings in a number of regional trades in the West, the VLCC AG market remains weak, with spot earnings for Middle East – Japan barely covering fixed operating expenses. It will be interesting to see whether the latest increases in West Africa and the Mediterranean/Black Sea will have a positive effect on the VLCC market”, the shipbroker noted.

On a more fundamental level, “there is a growing opinion between oil industry practitioners that oil markets are likely to remain oversupplied well into 2017. There are a number of reasons for that, including growing prospects for Nigerian, Caspian and Libyan crude production. The resilience of the US shale industry has prompted a number of leading oil consultancies to revise up their expectations for US crude oil production. The IEA has also voiced concerns of slowing demand growth in key markets, which together with anticipated increases in crude output, points to a sizable excess in supply over demand at least through the 1st half of 2017. If these forecasts are correct, the impact on the tanker market will largely be positive, at least in the short term. Tanker demand will benefit from incremental growth in crude exports, while oversupplied oil markets increase the likelihood of continued operational and forced tanker storage. Yet, as is always the case with forecasts, there are uncertainties. One of the most immediate risks is a possible crude oil production freeze deal between a number of crude exporters, with a decision expected in less than a week. The question here is whether the countries like Nigeria, Kazakhstan and Libya, where the near term prospects for production gains are the strongest, agree to participate”, Gibson concluded.

Meanwhile, in the crude tanker market this week, in the Middle East, Gibson said that “VLCCs saw more as the week progressed, but failed to shake off the holiday lethargy that had set solidly in last week. That said, a steady/busy Atlantic scene, and a widespread improvement in Suezmax fortunes, has started to harden sentiment, and perhaps a busier pre Chinese holiday week to come will start to shift the rate needle upwards somewhat over the coming period. Rates, for now, remain in the low ws 30s East, and low ws 20s West. Suezmaxes did make some upward progress to around ws 60 to the East and ws 40 West but noticeably underperformed against their peers in West Africa, and the Med. Ballasting from the region is already underway, and a finer balance may eventually work to Owners’ advantage. Aframaxes held their recent bottom line – 80,000 by ws 60 to Singapore, and Owners are seeking small premiums now for the privilege of fixing upon more forward dates…baby steps”.

Source: Hellenic Shipping News Worldwid

The price of oil in the coming months and more importantly, any potential increase could be the trigger of a renewed global recession, which could bring significant “spillover” effects in the tanker market and the shipping industry as a whole. In its latest weekly report, shipbroker Allied Shipbroking noted that “there were some big news this week on the commodities front as crude oil broke above the US$ 50 per barrel, its highest level over the past two months. This in part may well be seen as not being much but it is a reflection of the accelerated efforts being brought about to freeze production output and to slowly bring back some sort of balance in the supply and demand. The first steps towards this were being made back in February where Saudi Arabia and Russia agreed to temporarily halt any further increases in their output. This alliance with the biggest exporter outside of OPEC gave some confidence as to what could be done to end the two-year glut in supply, though till date little has been reflected in the actual market. Now with next month’s OPEC meeting in Algeria, there is talk that further agreements could be reached and crude oil production levels could be leveled off.

However, according to Allied’s George Lazaridis Head of Market Research & Asset Valuations , “all this should not be taken in with too much haste. Many traders have been very skeptical with regards to what could actual be achieved in terms of curving off excess supply. It is no surprise therefore that it wasn’t long before crude oil prices started to ease off once more. The problem being generated right now has to do with excess supply coming in from Nigeria and more importantly Iran, while there has also been a trend of cheaper inventories seeping into the market and finding their way to refineries that are trying to churn out refined products at record volume in order to curb the effect from the decreasing margins they make”.

Lazaridis added that “up until now this has been good news for the tanker market, with the cheaper supply driving renewed demand and allowing for a complete rejuvenation of the trade. Simultaneous it has also allowed for cheaper transportation costs via reduced bunker bills, something that has played a positive part not just on the tanker side but on the shipping industry as a whole. At first the industry rejoiced at the turn the market had taken, however things have now reached a more difficult and tricky point. Demand seems to have peaked for many months now, with much of the excess imports being noted as early as last year going towards excessive inventories (something that always left the question of how much could stored inventories ultimately reach?) the case of rejuvenated demand was a bit over estimated”.

According to Allied, “the truth of the matter is that oil has been facing significant obstacles towards exponential demand growth for many years now. Improvements in energy efficiency, alternative energy sources which are either cleaner or provide governments with more energy independence. This has inevitably lead to a much larger decrease in price for every excess barrel that enters the global output, and probably a lot more than most of the OPEC member countries had anticipated and hoped for. In turn it now seems to be slowly forcing their hand to reverse in part their decision to pump out an excess supply in order to secure greater market share. The side effects to this are likely going to be relatively sever if done to quickly. Too much curbing of supply could cause a sharp increase in the price of crude oil, which although would temporarily help boost the income of oil producers, but would also likely trigger a global recession given the state most of the major economies in the world are in. As such the fallout would not be only felt in the tanker market but to the shipping industry as a whole. A precarious position to be in, given all the talks of freezing output”, Lazaridis concluded.

Source: Hellenic Shipping News Worldwide

Dealing with the obvious oversupply problem in the dry bulk market is the main solution for the dry bulk market to recover sooner, rather than later, given that demand-wise, not many upticks should be expected. As such, based on data from shipbroker Intermodal, in the first half of 2016, 373 bulkers and General Cargo ships were scrapped, representing 23.8 million tons of dwt carrying capacity.

In its latest weekly report, the shipbroker noted that “comparing the first half of the year with the same period in 2015, we observe that there is an increase overall in terms of dwt and a small decrease in terms of vessels, indicating that bigger dwt vessels have been scrapped so far this year. In terms of dwt, the Capesize figure is up by 3%, the Panamax figure is up by an impressive 40% and the Handymax/Supramax and Handysize figures are up by 33% and down by 31% respectively”.

According to Intermodal’s SnP Broker, Mr. John N. Cotzias, “the higher volume of demolition activity this year has pushed down by 3 years the average demolition age of dry bulk vessels compared to that in 2015. In 2016 so far the average age is 23.5 years, compared to 2015’s 26.5 years, and 29 years witnessed back in 2014. The average demolition age for Capes is now less than 21 years and in just two years this figure has been reduced by more than 5 years for all bulker sizes”.

Cotzias added that “it is also worth noting that demolition activity in Container vessels has also firmed during this year. In the first half of 2016 the scrapping of Container Ships is up by 3 times compared to H1 2015. 79 Container vessels of 265k TEU capacity were scrapped during the first six months of the year, an overwhelming figure when compared to the 61 vessels of 136k TEU scrapped during the entire 2015. In 2016 so far 585 vessels of all types have left the active fleet, representing 29.8mil tones effectively being removed from the “chase” of cargoes. 80% of all dwt scrapped comes from Bulkers and General Cargo ships, 13% from Containers and only 4% comes from Tankers”.

He also noted that “in H1 2015 we had 636 ships of 27.9mil dwt across all sectors scrapped. 2015 ended with 988 ships of 40.5mil dwt removed. If the same pace continues and we follow a similar 2nd half trend as that of 2015, we estimate that with all other things being equal, i.e. freight rates remaining stable across all sectors and that during H2 scrapping activity usually slows down, we could well see 2016 ending with 850-900 vessels and 42-47mil tons being scrapped. Given that global demand growth appears to be static, the only way to bridge the gap between supply and demand in both the Dry bulk and the Container sectors is with increased scrapping. Let’s hope that for the sake of an improved fleet balance, scrapping activity will continue at a healthy pace during the remainder of the year”, Cotzias concluded.

Meanwhile, in the demolition market this past week, Intermodal noted that “Indian breakers were once again behind all the demolition activity that took place in the subcontinent last week, with reported prices reflecting determination on behalf of local buyers, who are still playing catch up with the competition, to regain lost market share following the past months during which both Bangladesh and Pakistan pretty much reigned over the demolition scene. As demolition activity remains much softer compared to the weekly volumes we have been witnessing during the greater part of 2016, one would expect prices to be in sync with this downward trend, as on top of a less active market, the Ramadan together with the Eid holidays and of course the quieter weeks due to the monsoon period have been considerably weighing down on sentiment. Prices in the Indian subcontinent have during the past month nonetheless settled at around $245-250/ldt for dry bulkers and around $265/ldt for tankers, which is still roughly $20/ldt higher compared to the year’s lows witnessed in the region back in February, reinforcing the sense that a price floor has been created. Prices this week for wet tonnage were at around 165-270 $/ldt and dry units received about 145-250 $/ldt”.

Source: Hellenic Shipping News Worldwide

The dry bulk market has been caught between a rock and a hard place over the course of the past couple of years, as on one hand demand has plunged, especially for coal cargoes, while supply, i.e. tonnage, has kept on increasing at a high rate. However, moving forward, these dire fortunes could be reversed, as owners are doing their best to limit supply, through newbuilding cancellations and delays and scrapping of older vessels.

In its analysis of the dry bulk market conditions during the first quarter of 2016, ship owner Golden Ocean noted that “the rates observed were below operating costs in all segments and were the lowest rates observed for a whole quarter over the last thirty years. According to the Baltic Exchange, average earnings for the Capesize segment (CS4TC index) were $1,438 per day compared to $6,944 per day in the previous quarter and $4,595 per day in the first quarter last year. Panamax vessels experienced average rates of $3,077 per day against $4,453 per day the previous quarter and $4,831 per day in the same quarter last year. Supramax vessels earned on average $3,824 per day compared to $5,716 during the fourth quarter of 2015 and $6,455 in the same quarter in 2015. Half way into the second quarter, the rates have increased so that the average so far is more or less in line with operating costs, at between $5,000 and $6,000 for all three segments”.

Meanwhile, as Golden Ocean noted, “asset values dropped significantly on the back of the low rates observed in the first quarter and some sales around year end. There has recently been a small up tick from the values observed earlier in the quarter, following decent amount of buyers inspecting vessels held for sale, in particular quality tonnage. The poor rates observed in the first quarter are due to the seasonal spike of deliveries at the start of the year combined with low trade volumes in January and February. Trade volumes have picked up during March and April, in combination with a slow down of new deliveries and continued strong scrapping. Except for the rates observed towards the end of April in the Capesize segment, earnings are still hovering around operating cost levels despite decent demand, clearly indicating the significant oversupply that the dry bulk market is experiencing at the moment. At the same time, the prompt reaction in rates to increased demand also indicates that there will be volatility going forward”.

According to Golden Ocean “at the start of 2016, the official order book for the full year was 85.4 mill dwt. Deliveries in the first quarter totalled 18.1 mill dwt, which represents 21% of the full year order book. However, as has been observed for many years, a significant part of the order book is delivered in the first quarter of each year. In 2015, full year deliveries totalled 48.6 mill dwt of which 19.3 mill dwt was delivered in the first quarter almost 40% of full year deliveries. For 2015 the official order book was 79.9 mill dwt at the start of the year and thus had a delivery ratio of just above 60%. Based on the market we are observing at the moment owners are doing their utmost to delay and cancel newbuilding orders and delivery ratio in 2016 could come in lower than in 2015. Currently we are observing a slippage rate of around 45% implying full year deliveries below 50 mill dwt. With the current market environment there should be limited new orderings for the coming years. In addition to the market itself, owners are struggling with their existing fleets and financing has become scarce. This will over time reduce the orderbook as a percentage of the fleet”.

At the same time, “scrapping activity, which is mainly a function of the spot market, has been brisk in the first quarter of 2016. In total 12.5 mill dwt has been scrapped during the quarter and the net fleet growth during Q1 is therefore 5.5 mill dwt, representing 0.7% growth relative to the fleet at the end of 2015. For March net fleet growth was zero and in April we have observed negative fleet growth for the dry bulk fleet as a whole. Supramax (vessels between 40,000 and 65,000 dwt) is the segment with highest fleet growth year to date, while Panamax has seen negative fleet growth and Capesize is neutral up to the end of April”, the ship owner concluded.

Since the global financial crisis, when product trades declined as a result of a sudden pull-back in oil demand, the oil trades (both crude and products) have made a comeback. However, the individual products that are driving the expansion of oil demand are not all growing at the same rate. Also, product demand is growing at different rates in different regions of the world. In this week’s Tanker Opinion we want to highlight some of the recent trends in product demand and their possible implication for product flows and tanker demand.

In its latest weekly report, shipbrokers and market analysts Poten & Partners noted that the largest product groups currently in the market are gasoil/diesel, as well as gasoline. Meanwhile, in a smaller group are included products like LPG, naphtha and jet fuel/kerosene, which are also growing in market share, but at a slower pace than the former. On the other hand, residual fuel oil is the only product which has been declining in terms of demand since the early 2000’s. According to Poten, the above demand trends will remain as such for the foreseeable future, as a result of steadily improving living conditions in Asia countries, which is feeding gasoline demand at a global scale, despite the fact that modern vehicles are better at fuel efficiency. Similarly, Poten notes that the same developments are supporting demand for diesel fuel, although diesel cars’ market share in Europe is now reaching its peak, while the US market is unlikely to invest more in diesel-fuelled cars after the recent VW scandal with tampered emissions in a large part of its diesel-fuelled vehicles.

Meanwhile, Poten said that “future demand for gasoil/diesel will likely receive a boost from the shipping industry as it switches from heavy fuel oil to marine diesel to comply with legislation to curb global sulphur emissions as early as 2020. This switch is the main reason for the accelerated decline in residual fuel oil demand. If we look at the import statistics for motor and aviation gasoline from the Joint Organizations Data Initiative (JODI), it shows stable global import volumes from 2008 to 2013 at around 3.4 – 3.5 million barrels per day (mbd), before picking up in 2014 (3.7 mbd) and 2015 (4.0 mbd)”. According to the analysts the largest part of this growth can be attributed to a few geographical areas, such as the Caribbean/Latin America (in particular Brazil, Mexico and Colombia), the Middle East (Saudi Arabia) and Australia. After years of declines, gasoline imports into the U.S. also picked up in 2014 and 2015.

On the other side of the trade equation, exports also picked up over the same time period. Poten said that “the main export growth took place in the Middle East (2014 & 2015), the Far East (China and Korea), the Mediterranean and the UK Continent area. Given the diversity of the gasoline tradeflows, all product tanker segments have benefited from the increased trade in this commodity. JODI data for gasoil/diesel shows continued steady growth in imports from 2008 through 2013. After a small dip in 2014, How Products Ebb And Flow growth picked up again in 2015. Europe is by far the largest import region for diesel with most of the volumes going to France, Germany, the UK and the Netherlands. Other key import areas are the Mediterranean and South East Asia, although these two regions have not shown much growth in recent years”.

Similarly, Poten noted that “some of the key import regions for diesel, like the Mediterranean and the UK Continent, are also on the list of important export areas, illustrating that there are active arbitrage trades for this commodity, in particular in the Atlantic Basin. Saudi Arabia is also a growing participant in the diesel export market, which is not surprising, given the significant growth in export-oriented refining capacity in the Kingdom. As mentioned, worldwide fuel oil demand has been in gradual decline for many years, although trade has remained strong. In 2015, total imports of Fuel Oil reached more than 3.9 mb/d, with Singapore by far the largest importer with 1.4 mb/d (35%) ending up in the largest bunkering port in the world. Another significant destination for fuel oil is the Netherlands (Rotterdam). The largest fuel oil export regions are the UK Continent and the Mediterranean. Changes in sulphur regulations for marine bunker fuel are expected to significantly reduce the demand for (and trade in) fuel oil by 2020. However, since this is a dirty petroleum product, this will mostly impact the crude oil tanker fleet rather than the product tankers”, the shipbroker concluded.

Source: Hellenic Shipping News Worldwide

China set out its new policy plan during the course of the past weekend, but it seems to have set some very ambitious goals, which could be difficult to achieve, warns a relative analysis from Allied Shipbroking. The shipbroker noted that “after this week’s meeting by Chinese policy makers and their affirmation as to their determination to bolster growth and deal with some of the underlining issues that have fostered the recent slowdown in economic growth, the market was set alight with speculation amongst investors. Iron ore futures jumped by more than anything seen since 2009, though most of this lacking the necessary backing by what the actual market fundamentals are still saying. All this has been taken as a good sign, though it should be taken with a considerable “pinch of salt”, said Allied Shipbroking.

According to Allied’s, Mr. George Lazaridis, head of Market Research &Asset Valuations, “the problems faced by the Chinese economy are deep routed within the very approach taken by the government in terms of bolstering growth and more specifically in terms of how investments were handled. The grow over investment taken in the past faltered in its goal to provide the perceived growth outcome, as most of it ended up as unfinished goals (take for example the large number of scattered semi-finished real estate projects undertaken throughout the majority of China’s mainland) which never took up their role within the actual economy in order to generate the necessary returns to their investors and more importantly generate the increased productivity and growth in employment that they were poised to do. Equally so, this has been in part the decision of the Chinese government to cut back on the overcapacity noted in steel production (something that would essentially translate into a further curbing in demand for iron ore)”.

Lazaridis added that “what needs to be taking from all of this is hidden in the details, as well placed efforts within Chinese next stimulus plan could be used to bring about a quicker rebalancing of markets and in turn making a quick shift of the market trajectory back into high growth levels. After all some of the latest consumer data coming out of China paints a much better picture of how there are still well performing drivers in the market that could be utilised to generate growth. The main point though here is that this new round of stimulus has mounting pressure to be well targeted and seen through till the end so as to properly achieve the goals of the program. This will be a tough job, as in part the government has lost some of its credibility in regards to managing to guide the market properly, while at the same time it is taking up the challenge during a period were most of its manufacturing indices are pointing to a continual loss of steam”.

Allied’s analyst added that “in terms of this recent rally in iron ore, most expect it to be short lived, in part because there is still a considerable growth in iron ore supply over the next quarters of 2016, while at the same time demand for steel has yet to catch up. With a notable correction being seen in real estate prices in Chinese cities, we should start to see some of this feeding into the real economy, with the normal relationship between the raw material and demand for the manufactured product driving the next round of supply increases rather than speculative investments and non-materialised expectations of demand which have driven the steel market in the recent past”, Lazaridis concluded.

Source: Hellenic Shipping News Worldwide

Floating storage of WTI became feasible following the recent liberalizing of US crude exports. However, this hasn’t been translated into actual contracts and as it turns out this won’t be the case anytime soon. According to shipbroker Charles R. Weber, “in a theoretical floating storage contango analysis, we examined the profitability associated with storage on a non‐US flagged VLCC loaded via shore‐to‐ ship transfers on lightering tankers due the inability of VLCCs to directly call at the US Gulf Coast’s terminals which have been adapted to process export cargoes. Once factoring for the lightering costs, VLCC time charter costs for the relevant period, bunker costs, carry/capital costs, insurance and operational expenditures, we find that the WTI contango structure is sufficiently steep to maintain profitability through at least 12‐months from the front month, though profits peak at three months from the front month.

According to CR Weber, “despite the seemingly attractive value proposition implied, a number of key factors are likely to prevent such plays from materializing. Firstly, Jones Act restrictions prevent US crude stored or handled by non‐Jones Act compliant vessels to be redelivered to the US. One notable exception would be if the cargo is redelivered into the precise manifold at the same terminal from which it was loaded – in which case the floating storage itself would be considered as auxiliary or tertiary storage, rather than a movement between US ports. This method, however, would limit the ability to unwind the crude to buyers with direct reverse‐pipeline access to that manifold. Secondly, as WTI is cleared at Cushing, from which there are several distribution options to domestic refiners and storage facilities as well as export terminals, WTI crude purchased and held at sea would – due to the prior point – have essentially only foreign buyers in play to buy the cargo as its being unwound from storage, potentially rendering it significantly disadvantaged to WTI cargo settled at Cushing”, noted the shipbroker.

It went on to note that “for Brent crude, high VLCC rates and related floating storage costs wipe out any profitability for floating storage given an insufficient contango curve – and whilst oscillating futures curves have sporadically made floating storage profitable since 2H14, the extent thereof has consistently been insufficient to stoke significant interest. Usual risks and liabilities inherent to floating have been compounded by the commercial risk of volatile differentials between West African crude (a likely floating storage target) and the benchmark Brent prices they trade against”, CR Weber said.

VLCC

Meanwhile, in the crude tanker markets this week, “VLCC demand in the Middle East and West Africa markets was stronger on a w/w basis but gains in the Middle East failed to meet market expectations, given the passing of last week’s holidays in Asia and Latin America and industry events in London and their corresponding lull in demand. The Middle East market observed 25 reported fixtures (+92% w/w) while the West Africa market observed 7 (+17% w/w). Though Saudi stem confirmations materialized, those from the UAE were still being awaited. For its part, the West Africa market remained elevated and drew on Middle East positions, preventing negative pressure on rates from materializing. Additionally, participants expect that next week will be accompanied by further demand gains while vessel supply levels could prove tighter than they presently appear given rising discharging delays in China due to weather and ullage issues – and thus increasingly uncertain itineraries”.

According to CR Weber, “to‐date, 31 fixtures have been reported for March loading with all but one of these for first‐decade cargoes. A small number of additional first‐decade cargoes are expected to materialize while charterers are likely to progress more aggressively into second decade dates during the upcoming week. We project that in light of delays and with the West Africa market having been more active than previously anticipated, the number of surplus units at the conclusion of the first decade will likely tally at just 5 units. The relative tightness implied and with positions thereafter somewhat uncertain due to delayed China discharges, the combination of these factors with an active demand pace should support a stronger rate environment. This week, the AG‐FEAST route rose by 1.5 points to conclude at ws63”, the shipbroker concluded.

Just when you would think that the dry bulk market is reaching its bottom, even as it has long surpassed all-time lows, each day that passes by at the start of 2016, brings about more bad news. Yesterday, the industry’s benchmark, the Baltic Dry Index (BDI) reached new lows, plunging by 22 points to a mere 445 points. As it turns out, things will most likely turn worse, before they get better.

In its latest weekly report, commenting on the Capesize market, shipbroker Fearnley’s noted that “as expected rates have been under pressure the first week of the new year. West Australia / China rates are up from sub 3 pmt levels during Christmas to approx USD 3,30 with a slightly further improvement expected. Fronthaul cargoes remain scarce. Some period activity with short period fixtures beeing concluded around the USD 4,500 a day for 175,000 dwts”, said the shipbroker.

Meanwhile, in the Panamax market, Fearnleys said that “activity in the Atlantic seems to increase a bit after X-mas and new year, especially grain from USG and ECSA to far east absorbing tonnage. Transatlantic roundvoyages paying arnd 4000 USD depending delivery, duration and redelivery. Cold weather and more ice can make Baltic and North Atlantic tight, if iceclassed tonnage needed. Sofar rates steady. Rates moving up for fronthaul and 10.000 + 150 bb reported fixed from USG to feast. ECSA to feast paying mid 7 k + 220 k bb. Grain from ECSA to continent paying mid 6k for a good Kamsarmax. Nopac rounds paying 4000 USD + 100 k bb. Pacific rounds hovering around low/mid USD 3000. Period market slow butwe believe modern tonnage get arnd USD 5500 for 1 year”, the shipbroker noted.

Finally, in the Handy markets, Fearnleys said that “after a quiet holiday period, the market has slowly awakened from its slumber. Rates are not running away but the market looks like it is finding a bottom. Averages for a Surpa are now around mid USD 4000’s and only marginally down from pre Christmas levels. 2016 has started with a couple of period fixtures reported at low USD 6000’s for Ultramaxes. Thus by default Supras will only be worth something in the USD 5’s for a 12 month deal”, it concluded.

In a note this week, BIMCO said that in 2016, it expects the supply-side to grow by around 2% (2.6% in 2015E) – and that this will be helped by a new record level of scrapping. On the demand-side, growth is forecast to remain level. Challenging market conditions in China will be likely to affect the level of risk.

According to the organization’s review of 2015, “the dry bulk market experienced a troublesome 2015 as the ongoing decline in Chinese coal imports was not countered by any significant upswing elsewhere. Whereas iron ore imports were on a par with 2014, steel export from China reached a new high, benefitting mid-sized ships. For 2016, much depends on what Chinese steel mills will do. Will they continue production above domestic consumption – or substitute domestically mined ore with imported ore? The jury is still out.

At the end of November, the Baltic Dry Index hit 498, a new all-time low. For most of the year, the majority of ships have traded below OPEX levels, resulting in financial losses for many companies. The horrific first half of 2015 brought around a new half-year record for scrapping. Improvements in the freight market during Q3 regrettably cooled down demolition market activities. Nevertheless, fleet growth recorded a twelve-year low.

Meanwhile, in the newbuilding market, Fearnleys noted that “only six days into the new year, most of the contracts in the below table were reported in the latter part of December. On the tanker side aframaxes were in focus as Tsuneishi secured an order for 8 vessels of which four went to their “in-house” owners Kambara Kisen. Ship Finance went to Daehan (Korea) for two option two LR2 type product carriers to be delivered in the second part of 2017. The contract was done in combination with a 7+2 years charter to US based Energy Company. At the doorstep of a new year we expect yards to compete strongly for new contractcs in a market with diminishing demand and prices under continous pressure”, the shipbroker concluded.