The Houthi attacks in the Bab Al Mandeb strait and the subsequent rerouting around the Capes have supported all the different shipping markets to varying degrees. The highly unpredictable nature of the Houthis creates a lot of uncertainty, as a sudden cessation of attacks carries a lot of downside risk for shipping, while a long-term extension of the attacks carries significant upside risks. Here’s a summary of how this uncertainty could play out across tankers, bulkers, containers, and gas industries based on our forecast data.
Tankers
Rate volatility is likely to persist due to fluctuations in oil prices, developments in Russian production, the ongoing situation in the Red Sea, OPEC+ decisions, and the compliance of member states, as well as China’s ability to sustain economic growth, high crude import levels, and refinery runs.
We maintain that while Russian exports of both crude oil and products may decline, sourcing supplies to Europe from other suppliers (MEG, US, Latin America) will continue to uphold ton-mile demand and support rates going forward.
Despite high new building prices, activity in the first quarter of 2024 had the highest volume of ordering in DWT terms since Q4 2015 at 16 mil DWT. The second quarter to date is more muted and will come in at about 6 mil DWT, which is about half of what was ordered in Q2 2023. The total Tanker orderbook to fleet ratio, currently at 10%, has been increasing through 2023 and into 2024.
We expect an increase in scrapping; the overall market balance is set to remain tight in the years to come but supply growth may well outpace demand growth post 2025.
Bulkers
The Chinese government has issued several stimulus measures to support the struggling real estate sector. However, these measures have yet to affect the property sector. As prices are falling, real estate investment is declining and confidence in the real estate market remains low. Going forward, we expect a deceleration in the decline of the real estate sector, rather than a strong rebound, and this will weigh down the Chinese steel production.
As China emerges as the largest producer of green energy components, such as electric vehicles, windmills, and solar panels, we expect to see an increase in steel demand to support this sector.
The opening of the Simandou iron ore mine in Guinea, scheduled for 2025, is likely to increase ton-mile demand due to the longer sailing distances.
Increased bauxite imports to China from Guinea as part of the green transition also continue to support the Bulker market and it is a trend that we expect to continue as part of the ongoing green transition.
The current canal disruptions and the consequent rerouting are adding a layer of upside in the near term as the ton-miles are significantly affected. We estimate that rerouting could increase the total Bulker ton-mile demand by about 1.2% in 2024.
Containers
Demand growth in the first quarter of 2024 is positive for all major routes with the most growth in the trans-Pacific eastbound trade at 22.4%, followed by trans-Pacific westbound with 8% demand growth. Our current analysis points to total TEU demand growth of 3.5% yearly average over the period 2024-2027, with a forecasted growth for 2024 of 5.7%
With the current conflict in the Red Sea, freight rates have increased sharply and are expected to stay at high levels throughout 2024. Longer sailing distances, congestion at ports, and an earlier-than-expected peak season have increased demand for goods, and supply has not managed to keep up with this pace.
Improved macroeconomic outlooks and interest rate cuts will be positive for demand in our forecast period, in addition to continuing growth in emerging markets. However, the effective supply growth was recorded at 6.4% in 2023 which we expect will rise at an average pace of 7.5% between 2024-2027.
The order book is still significant at ~25% of the fleet at the beginning of 2Q24. With almost 9 mil TEUs entering the market over the next couple of years, we expect a supply surplus.
Gas
Market players are still ordering VLAC and the order book has reached 43 vessels with several vessels expected to be delivered in 2026 and 2027. Net fleet growth for VLGC/VLAC is expected to grow 10.8% in 2024. With the current ordering activity in the past year, we expect supply growth to put pressure on earnings at the end of our forecast period.
Earnings are expected to average around 51,000 USD/Day in 2024 as US production growth is expected to be modest and domestic consumption is likely to increase.
Despite the pressure on transits through the Panama Canal due to the recent drought in the Gatun Lakes last year, we still expect some increase in daily transits for 2024 as the water level projections are improving, according to the Panama Canal Authority.
LPG demand in Asia is expected to grow in 2024 for PDH plants and domestic consumption. The PDH capacity in China is expected to increase by 7 million tons this year, but with muted operating rates, we do not expect full utilization. We forecast a continuation of the current trade pattern in CBM mile demand.
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Source: VesselsValue
