Market insight
By Theodore Ntalakos SnP Broker
Happy New Year and all the best for IMO 2020 !!
The early days of IMO 2020 coming into force have certainly had an impact on the industry, but so far it seems that those who feared of major problems for global shipping have not been verified and it looks like we have avoided the destructive consequences. Lack of availability of the VLSFO, massive breakdowns of main engines from poor blends, detentions from non-compliance where just some of the warnings and the possible problems that many were expecting, and none of it has happened so far, at least to a widespread extent. It hasn’t been smooth, but fortunately there hasn’t been any disruption of the world trade.
Unavailability of the fuel which was for a long time the biggest concern does not seem to be an issue; compliant fuels are available and supply will only improve. Also, although it may be too soon to spot a pattern from the incompatibility from the fuel blends, so far there have been no major events.
From the world fleet of thousands of vessels, we have the first reported cases of breaches of compliance with the IMO2020, as the Chinese authorities have caught two vessels for low sulphur fuel violations. There can be fines or detentions but I would guess that it is still too early and the authorities are still a bit lenient on imposing strict penalties.
The biggest problem is the price of the fuel, which is very similar to MGO and very close to the highest levels that the shipowners have ever paid for heavy fuel. This is not entirely an IMO2020 effect, the high oil prices are mostly courtesy of the trade wars, torpedo attacks, air strikes, missile strikes and the other events that sent the oil price to the recent highs. However, the spread between the compliant fuels and the HFO, which is currently getting cheaper, has peaked from $280/mt up to more than $400/mt in some major bunkering ports and the fact is that most owners are experiencing high and uncertain heavy fuel oil price levels.
So this is good news for those owners who rushed to install scrubbers, invested millions and suffered 60 days or more of lost earnings. It’s payback time for them as they get better charter rates and see their investment’s payback time to get shorter and shorter.
We expect the 0.5% compliant fuel to get increasingly cheaper as more of the product becomes available, refinery inventory builds up, and as more companies and tankers/barges start delivering it. Furthermore, according to news agency Reuters, China has approved a long-awaited tax waiver on exports of the compliant fuel, paving the way for Chinese refiners to boost production of the 0.5%. Although initially shipments will focus on the coastal marine fuel market, this tax waiver will definitely impact both the supply and the price of the VLSFO.
Global shipping is a beast, an enormous organism, that at first seems to be very slow to react, but in fact once again it has proven to be very flexible and relatively quick in adapting. Most shipowners have been operationally well prepared in making the transition smooth and are now ready to focus in the commercial side of things and the shipping market itself.
Chartering (Wet:
Firm+ / Dry: Soft-)
Losses in the dry bulk market kept mounting last week as well, with owners looking well beyond the end of the Chinese New Year for an improvement of freights. The BDI today (14/01/2020) closed at 763 points, down by 2 points compared to Monday’s (13/01/2019) levels and decreased by 28 points when compared to previous Tuesday’s closing (07/01/2020). Despite the fact that the market slowed down as the week came to a close, rates for crude carriers are still at admittedly very firm levels, with healthy demand and tensions in the Middle East both offering support to rates in the past days. The BDTI today (14/01/2020) closed at 1,396, decreased by 113 points and the BCTI at 779, a decrease of 98 points compared to previous Tuesday’s (7/01/2020) levels.
Sale & Purchase (Wet: Firm+ / Dry: Stable+)
The second week of the year witnessed firm interest in the second-hand tanker market, with crude carriers remaining the most sought after, while on the dry bulk side the majority of buyers focused on Handysize up to Ultramax candidates. In the tanker sector we had the sale of the “RIDGEBURY PRIDE” (305,994dwt-blt ’00, S. Korea), which was sold to Greek buyers, for a price in the region of $25.0m. On the dry bulker side sector we had the sale of the “MAJESTIC SKY” (81,949dwt-blt ’14, Japan), which was sold to Japanese owner, Sanko, for a price in the region of $21.3m.
Newbuilding (Wet:
Stable+ / Dry: Stable+)
Newbuilding activity sustained the positive momentum of the last weeks of 2019 in both the dry bulk and tanker sector. At the same time, last month’s rumors about a sizeable China Merchants Energy order concerning VLCC and VLOC vessels was confirmed during the past days, with the size of the total investment reported at a whopping $517m. Going forward we expect the new IMO regulations to keep shaping the dynamics in the industry, with eco-friendly designs remaining in focus across all of the most typical shipbuilding destinations, while in the same spirit, S. Korea’s trade ministry has recently stressed its continuous to support to the development of shipyards focusing on building such vessels. In terms of recently reported deals, Russian owner, Sovcomflot, placed an order for three firm MR tankers (50,000 dwt) at Hyundai Mipo, in South Korea for a price in the region of $50.0m and delivery set in 2022-2023.
Demolition (Wet:
Firm+/ Dry: Firm+)
The demolition market stayed very much upbeat during the last weeks of the year, with appetite across all of the demo destinations in the Indian subcontinent anything but slowing down. Bangladesh and India are still the busiest markets, with average bids out of the former very recently surpassing those offered by Bangladeshi buyers as both local currency and scrap steel prices out of Alang remained very bullish throughout the past weeks. The market in Pakistan has also seen increased interest but this has yet to translate to solid activity as offered prices are still well behind competition. The performance of the dry bulk market over the next weeks could potentially boost activity, with owners of vintage tonnage taking advantage of the improved demolition prices while freight rates fail to make a good case for further operating their respective vessel/s. Average prices in the different markets this week for tankers ranged between $240-380/ldt and those for dry bulk units between $230-380/ldt.
Source: Intermodal Shipbrokers Co
