Market insight

By

George Iliopoulos

SnP Broker

As it was expected, the whole world has been focusing on the spread of the Coronavirus, with the fast outbreak being primarily a massive humanitarian concern and unavoidably a concern about the course of the world economic growth. Our European neighbor, Italy, has been taking extremely strict measures in order to deal with the epidemic that went out of control quickly in the country and has already shaped the daily life there with cinematic scenes taking place as people tried to stock both on food and medical supplies in fear of a future shortage of such products.

 Financial markets around the world have been also getting a lot of pressure, while the impact on the shipping industry has been substantial so far as well, a development expected given the many ways shipping is interlinked with China and therefore affected by what goes around there. 

Despite the extended problems in China we have been recently noticing slightly increased activity in shipyards. Indeed, contrary to the previous weeks during which most local yards were closed and many ships could not complete their dry-dockings, slowly but steadily operations have been resuming despite the reduced personnel. Another sign of the gradual return to normality is the improved SnP activity as far as Chinese owners are concerned. After muted buying appetite due to the Chinese New Year and the outbreak of the virus, it seems that even while many of them are still restricted at their homes, Chinese owners have started getting their hands on dry bulk candidates again.

What is fairly interesting even at this stage is the extent to which the shipping industry as well as global markets in general will recover once the epidemic is contained.  We have seen in the past that after the spread of a virus, a strong rebound follows, which was also the case following the containment of the SARS and Zika viruses. Many believe that after the relaxation of the strict measures that coincided with the end of the Chinese New Year, we will see a fast rebound of the market. This would also explain why among others, Greek and Chinese owners are particularly active nowadays. Indeed, during February, which was an extremely bad month for the shipping market due to the above mentioned reasons, we saw more than 45 vessels (Handysize up to Capesize) changing hands.

Another notable point that is related to the activity in the second-hand dry bulk market of the past couple of months is that asset values during this environment of exceptionally – in some cases – low freight rates have not declined as much as someone would expect and compared to previous times that the market had gone through similar shocks. This is not to say that we haven’t seen discounts compared to the end of last year but there was certainly no collapse. Surprisingly enough it was Handysize values that seemed to have received the biggest discounts despite the fact that rates for the size showed the most resistance during these very bad months and that during previous market downturns this was the size that saw less pressure in terms of asset prices.

Chartering (Wet:

Stable+ / Dry: Stable+)

The improvements in the dry bulk market were once again tainted by the extended drop in Capesize earnings, while as bunker prices continue to normalize owners become a tad more hopeful that the second quarter of the year will bring about much healthier levels. The BDI today (03/03/2020) closed at 549 points, up by 10 points compared to Monday’s (02/03/2020) levels and increased by 41 points when compared to previous Tuesday’s closing (25/02/2020). A more positive market was seen for crude carriers last week, with improved VLCC demand out of Middle East supporting sentiment. The BDTI today (03/03/2020) closed at 796, decreased by 54 points and the BCTI at 646, unchanged compared to previous Tuesday’s (25/02/2020) levels.    

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

SnP activity resumed at generous volumes last week with most notable the increased interest for dry bulk candidates, among which Ultramax vessels appeared to be the most popular. In the tanker sector we had the sale of the “RIDGEBURY PURPOSE” (306,307dwt-blt ’00, S.Korea), which was sold to undisclosed buyers, for a price in the region of $21.0m. On the dry bulker side sector we had the sale of the “OLYMPIC GALAXY” (81,383dwt-blt ’09, Japan), which was sold to Greek buyers, for a price in the region of $13.50m.

Newbuilding (Wet:

Stable- / Dry: Soft-)

Surfacing contracting activity remained limited, with a very small amount of orders being reported during the past days, while both of them concerned tanker vessels. The growing uncertainty in regards to how will shipping markets react going forward and once the coronavirus is finally contained will almost certainly keep appetite for newbuildings restricted. The negative trend is expected to resume at least throughout the second quarter of the year as well, while the discounts that most asset classes have already seen in their respective newbuilding value since the beginning of the year has hardly made ordering at this stage more attractive, which means that we are most probably in for further discounts in newbuilding prices going forward. In terms of recently reported deals, undisclosed buyer placed an order for one firm one optional MR tanker (50,000 dwt) at Hyundai Mipo, in South Korea for a price in the region of $37.50m and delivery set in 2021        

Demolition (Wet:

Soft-/ Dry: Soft-)

The demolition market has witnessed softening sentiment during the past week and despite the fact that some of the recently reported sales are not reflecting the downward trend, average demolition prices across the Indian subcontinent market have been moving down, with additional discounts most probably on the way. The relatively few cash buyers that still display healthy appetite for tonnage in the Indian subcontinent region will have almost no reason to sustain higher bids in the coming days given how market fundamentals are currently shaping. On one hand local currency and steel prices in India keep seeing further discounts and setting the negative tone across the board as a result and as if that wasn’t enough there is still a 15 days of quarantine for vessels arriving from China or other areas that have the virus. Average prices in the different markets this week for tankers ranged between $240-385/ldt and those for dry bulk units between $230-375/ldt.

Source: Intermodal Shipbrokers