Market insight

By

Zisis Stylianos

SnP Broker

The coronavirus outbreak is estimated to negatively affect global economy by at least EUR400bn this year, representing around the 0.4% of global GDP. The degree to which different economies will be affected varies, with some countries looking at damages only in few industries. In that spirit, since the Greek economy is not very reliant to the Chinese one, we can assume that the sector that will suffer most will be tourism, taking into consideration the upcoming holiday cancellation domino effect from Asia based citizens.

The Chinese government announced that aggressive measures will come into effect in an effort to limit the impact of a major shock from the spread of the coronavirus outbreak to the global economy. Part of these measures will include a brave injection of 1.2 trillion yuan (EUR 156 billion) in the country’s financial system as well as tariff exemptions on US farm, medical and energy products. In an effort to assess the extent that the economic impact the virus outbreak will have, Goldman Sachs analysts estimated that only a 0.1%-0.2% of the global economy will be affected, with this cost climbing up to 0.3% of the global GDP in the most pessimistic scenario.

The tanker market was the last one feeling the impact of the virus outbreak, with demand and rates being affected fairly recently compared to other sectors, however, if the spread continues for a long time, then Chinese demand for oil may experience contraction and push rates to even lower levels. On the dirty tanker market, we have seen a fall over the last weeks due to the lifting of US sanctions on Chinese-interest ships, with almost 40 VLCC tankers having returned to the market, significantly increasing the availability of tonnage as a result. In addition, as the countries of the West gradually enter the spring season, a brake on demand for tanker vessels is also on the cards due to seasonality.

On other news that could have a negative impact in the progress of the industry, the Manila Times newspaper pointed out the systematic failure of Philippine’s Naval Schools and Academies to meet the international standards of training for a variety of reasons, including the poor naval training system, especially for low-wage crews.

According to the Philippine Maritime Industry Authority (Marina), 61 of the country’s 91 naval schools should immediately cease their operations as there is no compliance with the requirements of the STCW (International Maritime Organization Convention on Standards of Training Certification and Watchkeeping for Seafarers). A development like that, which concerns the two-thirds of naval schools in the country, will seriously affect the capacity to train seafarers and the international credibility of all graduates from the Philippine naval schools.

Chartering (Wet:

Stable+ / Dry: Stable-)

Despite the fact that the dry bulk market remained negative, rays of hope started to become visible on the back of the positive reaction in the Panamax market that has extended yesterday and today as well. The BDI today (18/02/2020) closed at 450 points, up by 16 points compared to Monday’s (17/02/2020) levels and increased by 32 points when compared to previous Tuesday’s closing (11/02/2020). Following some very disappointing weeks, the tanker market ended last week on a slightly more positive note, while sentiment remains soft, with additional discounts on the period front reflecting the overall uncertainty. The BDTI today (18/02/2020) closed at 871, increased by 31 points and the BCTI at 710, an increase of 90 points compared to previous Tuesday’s (11/02/2020) levels.    

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

The ups and downs in the respective tanker and dry bulk freight markets have failed to put a break on Buyer’s appetite last week, with a generous number of sales reported during the past days in both sectors, while as far as bulkers are concerned Capesize candidates remain rather unpopular at the moment.  In the tanker sector we had the sale of the “ERAWAN 99” (102,741dwt-blt ’99, Japan), which was sold to undisclosed buyers, for a price in the region of $7.8m. On the dry bulker side sector we had the sale of the “ALAM PADU” (87,052dwt-blt ’05, Japan), which was sold to South Korean owner, Wooyang Shipping, for a price in the region of $10.0m.

Newbuilding (Wet:

Soft- / Dry: Stable-)

The soft volumes of contracting activity being reported in the past days is reaffirming market expectations that owners’ appetite for newbuilding vessels has been slowing down since the beginning of the year in light of poor rate performance and growing uncertainty regarding the coronavirus impact. The complete lack of tanker orders in the list below is evidence of the softening momentum if one takes into account that the sector saw steady volumes of ordering in the past months and newbuilding deals concerning tankers were surfacing on a weekly basis up until recently. The negative trend in the shipbuilding industry has already filtered through to newbuilding values in 2020, with further discounts expected if slow ordering persists until the end of the quarter. In terms of recently reported deals, Chinese owner, Zhejiang Wuxing, placed an order for four firm and four optional MPP carriers (26,000 dwt) at Zhejiang Hongsheng, in China for a price in the region of $28.6m each and delivery set in 2022.       

Demolition (Wet:

Stable-/ Dry: Stable-)

The demolition market has seen another busy week with numerous sales reported, while most of these deals concerned high ldt vessels. Bangladesh held the lion’s share in recent activity, with Indian cash buyers moving to the sidelines and displaying much less appetite compared to previous weeks. Despite the plethora of bad news and the obstacles that delays in ports caused due to the coronavirus, it seems that the market has managed to sustain its activity levels, while the fact that prices have remained stable is an even bigger surprise given the generous supply of dry bulk and container demo candidates. 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 the Intermodal Report Week 7 2020 here

Source: Intermodal Shipbroking