Market insight
As we approach the end of October, we are beginning to see the seasonality in the soybean and corn trade. Over the past three years, we have seen that the two largest grain exporters, Brazil and the US, have different export windows. More specifically, Brazil’s strongest period is in the spring, while US exports have their strongest period in the last quarter of the year.
In terms of the largest trading partners for these exporting nations, China dominates the trade, importing the largest cargoes of soybeans and maize. The Asian powerhouse uses soybeans mainly for animal feed, with annual consumption ranging between 13 and 15 million tonnes. So far this year, China has already imported 96% of last year’s soybean and corn cargoes, showing strong momentum as imports so far in October (7,255 kt) are already ahead of the same month in 2021 (6,409 kt) and 2022 (5,101 kt). Average Q4 soybean and corn imports in 2021 and 2022 are 21,973 kt. Therefore, if the trend continues, around 15,000kt will need to be imported in the next two months..
As mentioned above, Q4 is the strongest period for the US and this quarter should be no exception. In addition, this year’s harvest is likely to produce a bumper corn crop, which will boost exports. In addition, the grain surplus is likely to increase stocks and lower prices, making both commodities more affordable and boosting the dry bulk trade..The majority of China’s grain imports are on Supramax and Panamax
vessels, so if this trade pattern materialises, we could expect a rise in agribulk freight rates.
Focusing on the specific trade between the US and China, despite the strong US soybean trade, corn imports have been taking a steady beating since 2021 and are currently at their lowest level since 2021, with only 70.014 kt sent to China in September and 92.57 kt in October so far.
With corn having lost almost 28% of its value since the start of the year and trading at $486/bushel, close to 3-year lows, there is an opportunity for increased exports, with importers incentivised to take advantage of the discount.Looking at the big picture, US grain exports are about to pick up speed and this will increase demand for vessels in the northern part of America. Whether it is China or other grain importers absorbing the record corn crop, demand for midsize vessels is likely to increase in Q4.
Chartering
Key oil benchmarks took a dip last Friday following the release of two American captives by the militant group Hamas in Gaza. This fueled optimism that tensions between Israel and Palestine might ease, alleviating concerns over potential disruptions in Middle Eastern oil flows. Over the week, front-month contracts witnessed an upward movement of more than 1%, marking the second consecutive weekly increase. In the United States, the primary storage facility in Cushing, Oklahoma saw its oil reserves hit their lowest point since 2014. Currently, storage tanks at this key hub for New York’s oil future contracts are only 24% full, a significant drop from the 53% recorded in June. Typically, this period witnesses an increase in stockpiles as refineries scale back operations for maintenance, but current levels are dwindling due to robust international demand. Export levels soared to 5.3 million bpd, coming close to historical highs. This surge is primarily driven by European and Asian buyers who are accumulating oil supplies. Their concerns are stoked by potential supply chain disruptions owing to conflicts in both Ukraine and the Israel-Gaza region.
The crude freight market has seen notable fluctuations in recent weeks, characterized by a general uptick since the third week of October, attributed to geopolitical tensions, although there have been subsequent declines. In the VLCC market, TD3C and TD15 remained fairly stable, propelled by anticipations of increased demand during the year-end festive season. However, it should be noted that the current rates are still not on par with the peak levels recorded at the end of 2022, a period when the market was optimistic about China easing its stringent zero-Covid policies. Additionally, the rate for a 270,000 mt US Gulf to China increased by $261k w-o-w. The Suezmax market remained buoyant, particularly in TD20, where rates reached WS 118.64 on Friday. In the Middle East, the rate for routes to the Med increased by 7.66 points over the week. Meanwhile, Aframax rates have seen an unprecedented surge, especially in the cross-med route. In the NSea, the Cross-UK Continent route rose 43.92 points.
VLCC T/C earnings averaged $17,771/day, down – $4,829/day w-o-w, and closed off the week at the -$12,709/day mark. Suezmax T/C earnings averaged $49,599/day, up + $14,393/day w-o-w. On the Aframax front, T/C earnings averaged $51,269/day, up + $16,572/day w-o-w.
The BDI index exceeded the 2,000-point threshold last week, primarily due to the C5TC, which reached its highest level of $31,089 per day since the end of May 2022 on Wednesday. As the week progressed, the performance of Capesize vessels experienced a decline, falling below the $30,000 per day mark, indicating that the C5TC has reached its peak for the year 2023. On the other hand, P5TC concluded positively, supported by strong demand for minerals and grains in the Atlantic. In the Pacific region, activity was weaker, with only Indonesian coal shipments managing to compensate for the quieter NoPaC and East Australian markets.
Concerning geared vessel sizes, Supramax owners found some support in the USG market, while South Atlantic demand kept Handysize owners occupied, although activity in other regions softened in the past few daysCape 5TC averaged $ 29,881/day, up +7.13% w-o-w. The transatlantic earnings increased by $ 2,032/day with transpacific ones rose by $1,082/day, bringing transatlantic earnings premium over transpacific to $16,324/day.
Panamax 5TC averaged $ 14,417/day, up +0.48% w-o-w. The transatlantic earnings increased by $2,750/day while transpacific earnings decreased by $619/day. As a result, the transatlantic earnings premium to the transpacific widened to $4,519/day.
Supramax 10TC averaged $ 14,090/day, up +2.02% w-o-w, while the Handysize 7TC averaged $ 12,405/day, up +1.15% w-o-w.
The newbuilding market continues to be subdued with only a few orders this week. A total of 4 orders have been placed, representing 6 firm and 4 optional vessels. In the tanker sector, Belgian powerhouse Euronav placed an order for a 319,000 dwt tanker with Qingdao Behai in China. The vessel will be delivered in 2026. On the smaller tonnage side, UK-based James Fisher ordered two firm and two optional 6,000 dwt tankers from CMJL Yangzhou. The vessels will be dual-fuelled with LNG and will comply with IMO Type 2 standards for the handling of chemicals, costing $28m each. In the bulk carrier sector, Turkish owner Densay Shipping ordered an Ultramax from SUMEC Dayang in China.
The price is $32.5m and delivery is scheduled for 2026. Finally, in the offshore sector, Diana Shipping formed a joint venture called Windward Offshore, consisting of Blue Star Group, SeaRenergy Offshore Holding and SeraVerse, with the intention of ordering and operating OSVs. The JV has ordered two firm and two optional OSVs from Vard Holding in Norway. Delivery is scheduled for 2025.
After a slight increase in scrapping activity in August and September compared to last year, October this year has been slower compared to 2022, reflecting all the problems facing the main scrapping destinations. Specifically, steel prices in India are falling and this is affecting scrappers’ appetite for tonnage. In addition, we are entering a slower period where the Diwali and New Year celebrations are likely to push prices down. The outlook for the market is positive as steel demand is expected to increase next year, which could push prices up. Bangladesh is trying to find its feet in a market where prices are low and there is no interest in selling ships for scrap. The country is in the midst of many changes, with elections due in January 2024, while an agreement has been reached with the IMF. The fund will provide the country with $681m in December, just part of the $4.7bn it has pledged to the country. In Pakistan, the country’s crackdown on illegal foreign exchange has led to increased volatility, resulting in a strengthening of the local currency against the USD. As a result, local buyers are still waiting for normalisation before purchasing new tonnage. In addition, the L/C issue is still ongoing. In Turkey, the market continues to trade well below its sub-Asian peers. The Turkish lira has breached the 28 mark against the dollar and is hitting new highs every week. The local steel market appears to be somewhat better, with HRC exports in August up 60% on a monthly basis and 8% on an annual basis. The country’s main focus is on tackling inflation, with a target of 4.7% by 2028.
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