Market insight
2023 has been a very challenging year so far. We have seen the war in Ukraine still going on, persisting inflation, high interest rates, economic recession, oil sanctions, price caps, new tanker ton-miles, EEXI Compliance, slow steaming, China crawling back to consumption and growth, just to name a few. However, as an old Chinese saying goes, “The wise adapt with the times, and the knowledgeable adjust as the situation evolves” and there is no better example of the wise and knowledgeable than our industry, Shipping. Shipping always adapts as the situation evolves, be it in regulations, in fuels, in fuel prices, in wars or other geopolitical tensions, be it in world trade, in supply chains, you name it. This is what Shipping does; it understands the era’s developments and overcomes any boundaries and challenges from major upheavals and comes on the other side reshaped and ready for future developments.
Facts and estimates couldn’t be better for tankers. Oil consumption globally is forecast to hit new record highs in 2023 and 2024. While the new refinery capacity is affecting average sailing distances which are also increasing and according to BIMCO forecasts they estimate tonne miles growth of between 5.0% and 6.0% in 2023, and between 5.5% and 6.5% in 2024 for both crude oil and products. On the supply side, the tanker fleet grew by about 150 vessels or 2.7% over the last year, pretty much the same as the year before. Of these new vessels, most were VLCCs, around forty five ships; forty of them were Aframax/LR2 size and another forty ships were MR tankers. The Suezmax fleet remained the same. In the LR1/Panamax sector for the first time after many years the fleet grew by about twenty vessels. The orderbook for tankers has expanded since last year, just for the second time in the last five years, bringing the orderbook-to-fleet ratio to about 6.5%, while the overaged fleet of vessels over 20years old also grew and it now represents more than 13% of the fleet; these numbers versus the expected increase in oil consumption an tonmiles…good news for tankers.
On the dry bulk prospects are again more tight; there is persisting inflation, high interest rates and persisting signs of slowing economic activity in Europe and USA. Also although China still remains the driver of growth, there are concerns about the slowdown in the Chinese economy. The silver-lining however, is that the OECD indicates that the worst could be over and its in predicting that economic activity will begin to increase and the economy in the aforementioned regions could begin to grow faster than trend towards the end of the year. On the dry bulk ship supply side, the world fleet has increased by around 400 vessels year-on-year corresponding to a growth of 2.5%, while over the previous years it was about 2.9% (2022), 3.6% (2021), 3.8% (2020) and 4.0% (2019). This, despite the increased price environment, led to an order replenishment and currently the dry bulk orderbook has expanded to about 8,% of the world fleet. Also notable, we now have more than six hundred vessels over 25years old in the fleet, and all the bulk carriers older than 20 years represent close to 12% of the world dry bulk fleet; it was 12% last year and 10% the year before, an ageing fleet mainly on the smaller sizes. So, business as usual, we keep watching the needs, the regulations, the requirements and the risks of World trade and we keep adapting to exploit the opportunities that emerge.
Chartering
Last week, the recent rally in oil prices was ground to a halt, with key oil benchmarks closing the week slightly lower. This downturn was driven by a balancing act in the market, as it grappled with concerns about supply disruptions caused by Russia’s fuel export ban and apprehensions about reduced demand due to potential future rate hikes. Oil prices have recently surged to 10-month highs due to OPEC+’s significant production cuts, however, higher prices are likely to partially offset production declines. As discussions about market share resurface, additional Middle Eastern barrels may enter the market, potentially strengthening the tanker market’s recovery, especially if Chinese demand remains robust.Sentiment in the crude tanker market, especially for key VLCC routes to China, has been softer lately amidst the current oil market fundamentals. Rates on key routes to Asia were moving on a downward trajectory due to reduced exports by Saudi Arabia and Russia, prompting VLCCs to shift their routes WoS. However, recent signs of improvement have emerged, that could potentially benefit VLCCs if rising crude prices prompt a reconsideration of voluntary production cuts. Over the previous week, VLCC rates showed signs of recovery from lows seen in August amidst increased enquiry across all markets. In the meantime, Aframax and Suezmax demand for long-haul voyages from the Baltic/Black Sea ports to Asia dropped significantly due to reduced Russian volumes. More specifically, on the Suezmax front, rates softened facing headwinds from current market fundamentals. While utilisation of Suezmaxes in WoS remains healthy due to strong European demand, it cannot entirely make up for the lost demand from Russia and Saudi Arabia. Nevertheless, an anticipated increase in Saudi crude exports and a seasonal rebound in Russian volumes hold the potential to support rates through Q4. Similarly, the Aframax market continues to grapple with downward pressure, however, Cross-Med rates saw an increase last week, and rates from the Black Sea also showed a w-o-w uptick, suggesting the potential for positive movements .
VLCC T/C earnings averaged $1,422/day, up + $12,474/day w-o-w, and closed off the week at the -$7,249/day mark.
Suezmax T/C earnings averaged $11,743/day, down – $3,050/day w-o-w. On the Aframax front, T/C earnings averaged $10,061/day, up + $2,905/day w-o-w.
The dry bulk market had another favorable week, surpassing the 1500-point mark due to improved rates in all sectors. Capesize rates set a positive tone by increasing by 30% week-on-week. In the Pacific market, the shipment of coal from Australia to China bolstered sentiment in the region, although rates softened as the week progressed. In the Atlantic, robust inquiries from both the East Coast of South America and West Africa drove rates upward. The week began positively for Panamax owners, with both ECSA and USG cargoes emerging in the Atlantic market, and healthy demand for tonnage in the North Pacific also lifted rates.
However, both regions saw a decrease in momentum as the week concluded. Regarding geared vessel sizes, there was overall strength in both the Atlantic and Pacific regions. Strong demand was observed in the USG and Mediterranean regions, while sufficient Indonesian coal shipments maintained a positive sentiment in the Pacific market.
Cape 5TC averaged $ 16,334/day, up +37.09% w-o-w. The transatlantic earnings increased by $ 5,056/day with transpacific ones rising by $2,873/day, bringing transpacific earnings premium over transatlantic to $373/day.
Panamax 5TC averaged $ 15,204/day, up +5.52% w-o-w. The transatlantic earnings increased by $1,035/day while transpacific earnings declined by $179/day. As a result, the transatlantic earnings premium to the transpacific widened to $1,626/day.
Supramax 10TC averaged $ 14,422/day, up +13.21% w-o-w, while the Handysize 7TC averaged $ 11,871/day, up +9.14% w-o-w .
Bulk carriers were in demand last week, with a total of 12 newbuilding contracts agreed, all Ultramaxes. Despite the growing tanker orderbook, orders continued to come in with larger sizes being popular.
Overall, the newbuilding market is proving to be robust, with different orders coming to light each week, demonstrating the positive sentiment among shipowners. In particular, Japanese owner Kambara Kisen has ordered a 66kdwt methanol dual fuel bulker from Tsuneishi Japan. The ship is expected to be delivered in 2027 and is already contracted to TC to MOL. Another Japanese owner, Shoei Kisen, ordered four 64kdwt bulkers from JMU in Japan, all tied to TC to Ultrabulk. In the tanker sector, China’s CMES ordered a 306kdwt tanker from Dalian Shipbuilding, China, for delivery in 2025. Lastly, Korean container owner CK Line ordered a pair of 2,700 teu ships for a decent $37m, compared to previous similar orders of around $41m. The pair will be built by Huangpu Wenchong in China and are expected to be delivered between 2025 and 2026.
The recycling market remains healthy, although all major markets are growing. Market leader India is experiencing relatively stable steel prices and increased demand for steel, leading to optimism among tonnage buyers. In terms of local fundamentals, the local currency has risen towards 83 against the US dollar, while various investments expected in the coming months will push the rupee even lower. In addition, local banks decided last week to make the issuance of Letters of Credit a little more difficult, so that only some buyers are now able to participate in the market. In Pakistan, LC issuance is improving as local banks are willing to issue more. This comes after the announcement of elections in January, an expectation of political stability. The local currency is also falling from early September highs against the US dollar, another positive development for local buyers. The local steel market has seen softer prices and this, combined with an even stronger PKR in the future, is causing buyers to delay purchases. In Bangladesh, the local scrap market remains closed as efforts continue to support prices.
As a result, local recyclers are not participating in the market as there is virtually no demand for scrap. The issue of new LCs continues, which is another problem for the market. The future looks positive for the country, with inflation expected to fall to 6.6%, exports and local demand also expected to rise, resulting in a 0.5% increase in GDP. In Turkey, the local market is showing the first signs of a possible upturn, with prices rising slightly. Nevertheless, no sales have been completed. In terms of fundamentals, the Central Bank of the Republic of Turkey raised its key interest rate by 5% to 30% in the hope of tackling high inflation of 60%.
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Source : capital link
