Please find below the Intermodal market report for week 19 2020.
By Dimitris Kourtesis
Tanker Chartering Broker
Almost halfway through May, we see that most countries have slowly started to relax lockdown measures, which means that economies are jump starting again despite the fact that everyday life is different now compared to what it was before entering the quarantine. In Beijing and Shanghai, people avoid taking the subway and use private means of transport. According to Bloomberg, the subway ridership remains below 50% in Beijing and below 30% in Shanghai.
Crude oil storage is still a very popular subject. India’s crude oil reserves for example will be nearly full by mid-May. The country’s administration is currently under discussions to draft the appropriate lockdown exit plan and with no specifics revealed yet, it is only natural that demand for crude and its products remains low. China’s crude inventories hit a record high on 17th of April. On that date the country was reported having about 940mb in its storage facilities, approximately 70mb more compared to a year ago. Chinese inventories have gradually started to shrink since then on the back of refineries drawing oil and increasing their output for gasoil/gasoline and oil products. When China’s crude inventories hit a record high, inventories in the US stood at 518mb, about 14% up from a year ago. In view of restricted travelling, US demand for jet fuel has been hit substantially, with supply year to date estimated at approximately 66% down as a result.
The latest OPEC+ agreement that took effect on May 1st included generous cuts, while Saudi Arabia has also committed to increase these cuts by an extra million barrels per day during June. About a week after the agreement, we understand that the US had already started to cut production at a more aggressive pace, with reports suggesting that the additional cuts were in the region of 1.7mbd up until May 6th. Since the last week of April, when oil prices plunged to historical low levels, this is now the second week in a row that oil markets show signs of improvement.
When looking at tanker rates, it is obvious that the freight market is still moving within healthy levels despite the fact that the past couple of weeks have brought about corrections across all sizes/routes. It is worth pointing out that the VLCCs that were chartered as storage units are now slowly being delivered to their respective charterers and taking into account that recent enquiry for such employment was usually between 3 to 6 months, this means that most charterers believe that the contango market will have played out by that time. Additionally, we have been seeing many owners that were trading DPP deciding to clean their ships in order to make the most of the good CPP market, while a similar trend was also witnessed during the last months of 2019 when about 40 LR2 units switched from CPP to DPP to take advantage of the fuel play that was kicking off at the time. As countries around the world start to ease restrictions, it seems – and widely hoped – that this will be a U shaped recovery that will allow for a smooth transition to normality.
Chartering (Wet: Soft-/ Dry: Soft-)
Following the performance of dry bulk earnings during the past days, it is clear that the market lacks any meaningful support at the time being, while the substantial losses on the Capesize front are expected to keep weighing down overall sentiment this current week as well. The BDI today (12/05/2020) closed at 433 points, down by 41 points compared to Monday’s (11/05/2020) levels and decreased by 142 points when compared to previous Tuesday’s closing (05/05/2020). Crude carrier earnings witnessed substantial discounts for a second week in a row on the back of softer enquiry out of all key trading regions. The BDTI today (12/05/2020) closed at 870, decreased by 35 points and the BCTI at 964, a decrease of 375 points compared to previous Tuesday’s (05/05/2020) levels.
Sale & Purchase (Wet: Soft-/ Dry: Soft-)
SnP activity appears to have slowed down considerably in the past days, while as interest for tanker candidates remains healthy, we expect that the sector will see more deals being confirmed in the coming days. In the tanker sector we had the sale of the “PREM” (36,032dwt-blt ‘01, S. Korea), which was sold to undisclosed buyers, for a price in the region of $6.0m. On the dry bulker side sector we had the sale of the “MATUMBA” (53,591dwt-blt ‘05, China), which was sold to Chinese buyers, for a price in the region of $6.2m.
Newbuilding (Wet: Stable+/ Dry: Stable-)
The shipbuilding market remained a very quiet place for yet another week, while as most owners still try to unravel the negative effects of the pandemic outbreak on demand for commodities, it is only natural that they decide to abstain from the newbuilding arena. Even from the very little contracting activity that was reported in the past days it becomes obvious that bigger deadweight tankers are still relatively popular, while with the exception of orders that are placed on the back of pre-agreed employment, dry bulk newbuilding activity remains almost non-existent. The effects of the extended lack of appetite for ordering in the sector has proven to be particularly hurtful for private Chinese yards, with rumors that many of them are dealing with mounting losses surfacing in the past weeks. In terms of recently reported deals, Greek owner, Nereus Shipping, placed an order for two firm and two optional Suezmax crude carriers (158,000 dwt) at Hyundai HI, in South Korea for a price in the region of $61.0m each and delivery set in 2022.
Demolition (Wet: Soft-/ Dry: Soft-)
With the usual shipbreaking destination countries still under lockdown, there is little to report from the demolition market that remained overall quiet for yet another week. Having said that, there have been a few sales surfacing since the beginning of this month that have provided a more clear indication in regards to average prices offered by cash buyers ahead of the full re-opening of the market. As expected, the up to date prices are substantially reduced when compared to the last levels reported back in mid-March and just before the respective national lockdowns crippled any shipbreaking activity. The steep discounts in the Indian subcontinent countries are estimated at around $45-50/ldt and around $50/ldt as far as Turkey is concerned, while given that operations have yet to resume completely and that sentiment remains particularly soft, we expect the downward price trend to extend further. Average prices in the different markets last week ranged for tankers between $160-320/ldt and those for dry bulk units between $150-310/ldt.