Market insight

By Stelios Kollintzas

Tanker Chartering Broker

The recent Coronavirus outbreak in China has led to a global health emergency by World Health Organization and it is yet to be seen how long the phenomenon will last compared also to the SARS outbreak in 2002. By now it is evident that the spread of the virus has been much more rapid, with more than 40,000 incidents and 1,000 deaths officially reported across 25 countries to date, while these figures are expected to keep going up.

The current situation has affected various businesses and industries around the globe and especially the shipping industry. The outbreak has knocked what was a positive sentiment during the start of the year across all sectors and disturbed the markets worldwide. The markets that are deeply dependent to China’s trade have been heavily affected, while the outbreak came to a period concurrent with the Chinese New Year holidays. The extended period of China’s shutdown has shrunk trade volumes worldwide and freight rates across all sectors have plummeted. It is safe to say that the economic distress will affect the China’s economic growth for the first quarter of 2020 and the annual GDP growth as well.

The central location of Wuhan, where the virus originated, which is strategically located on the Yangtze River, is one of the globe’s busiest waterways. More than two billion tonnes of cargo are transported through ports on the mainstream of the river every year. Likewise, more than 80% of China’s inland marine traffic moves on the Yangtze River, while Wuhan itself handles close to 1.5 mill containers a year. Seven out of the ten container ports are located in China and seems that the container industry will be the first to feel the turmoil from the virus effect.

Through Wuhan thousands of tons of coal, steel and crude oil are supplied. Therefore, any major situation that grounds for prolonged disruption on the supply chain from these regions results to great effects for both China and every shareholder that is in business with China and imports goods from there.  Moreover, the factories shutdown has resulted in a slowdown of manufacturing and industrial production. As discussed the intra-Asian container shipping market is the first to feel the effect from the Coronavirus and it is expected that the long-haul trades to North America and Europe will be affected. The extended holidays and emergency measures to tackle the virus are estimated to reduce cargo volumes at Chinese ports including Hong Kong by over 6 million TEUs (20 foot equivalent units) in the first quarter of 2020 and forecast global container throughput growth would fall by at least 0.7% in 2020.

Looking forward, the industry widely believes this dynamic will be short – lived. As it was the case with SARS in the past, the supply chains should hopefully resume, resulting in a demand surge, increased trade volumes and even higher than before the virus outbreak freight rates.

Chartering (Wet: Soft-/ Dry: Soft-)

With back to back daily negative closings last week the dry bulk market remained in search of silver linings, while the Capesize index kept moving in negative territory. The BDI today (11/02/2020) closed at 418 points, up by 7 points compared to Monday’s (10/02/2020) levels and decreased by 35 points when compared to previous Tuesday’s closing (04/02/2020). Pressure kept mounting in the crude carriers market last week, with slow demand from the East succumbing owners’ resistance. The BDTI today (11/02/2020) closed at 840, increased by 37 points and the BCTI at 620, an increase of 19 points compared to previous Tuesday’s (04/02/2020) levels.

Sale & Purchase (Wet: Firm+ / Dry: Stable-)

Despite the fact that tanker earnings have been also feeling increased heat from the coronavirus outbreak, appetite for second-hand candidates remains healthy in the sector, with Buyers focusing on smaller sizes. In the tanker sector we had the sale of the “SKS SALUDA” (159,437dwt-blt ‘03, S. Korea), which was sold to undisclosed buyers, for a price in the region of $21.5m. On the dry bulker side sector we had the sale of the “SHINYO ALLIANCE” (176,269dwt-blt ‘05, Japan), which was sold to South Korean buyers, for a price in the region of $14.0m.

Newbuilding (Wet: Stable+ / Dry: Soft-)

The number of recently surfacing orders has softened compared to the week priors, with tanker orders still holding on to the lion’s share among the very few deals that came to light, while contracting activity remained muted on the dry bulk side. With significant discounts being noted across freight rates for most sectors and with uncertainty in regards to future demand still growing, we expect this slowdown in ordering to persist in the short term and most probably throughout the second quarter as well, while the healthier activity reported during the first weeks of January could be translated as the residual spillovers of last year’s positive momentum brought into 2020. In terms of recently reported deals, Norwegian owner, Knutsen, placed an order for two firm shuttle tankers (124,000 dwt) at DSME, in South Korea for a price in the region of $141.8m each and delivery set in 2022.

Demolition (Wet: Stable-/ Dry: Stable-)

The number of reported sales below is definitely predisposing readers for improved momentum in the demolition market and while activity seemed to be gaining traction indeed in the past days, sentiment is not nearly as firm as someone would expect given the appetite displayed by cash buyers in the Indian subcontinent. The new historical lows of the Capesize index has been pushing the number of demo candidates higher and higher, a development that is bound to have a negative effect on demo prices as well. Additionally, as India and Bangladesh are not currently allowing Chinese crew to disembark at their respective facilities, it will be hard for both activity and appetite to be maintained at current levels, which will put further pressure on prices. Average prices in the different markets this week for tankers ranged between $240-390/ldt and those for dry bulk units between $230-380/ldt.

Download here the Intermodal Report Week 6 2020