Market insight

By

Zisis Stylianos

SnP Broker

The World Bank estimates that the global economy will fall by 5.2% this year, underlining that the Covid-19 pandemic has had rapid and massive consequences despite the implementation of unprecedented programs to support local economies.

In its report on the Global Economic Outlook the World Bank points out that in the developed economies the decline will be in the order of 7%, while in emerging ones 2.5%. This is the deepest recession the planet has known since World War II, and 70 to 100 million people may find themselves below the poverty line. This revised forecast shows that the damage to the global economy will be worse than estimated in April by the International Monetary Fund that estimated a global contraction of 3% for 2020. China has announced it will not set a growth target for 2020, as the country will focus on stabilizing employment and ensuring the living standards of its citizens.

While addressing the 13th National People’s Congress, China’s Prime Minister, Li Keqiang, said the decision not to set a development goal was related to the uncertainty caused by the Covid-19 pandemic. According to the report shared at the conference, China will focus on maintaining security in the financial sector, foreign trade, foreign investment and domestic investment. The report also listed six areas the world’s second-largest economy should focus on, namely; job security, basic living needs, the functioning of market bodies, food and energy safety, stable industrial and supply chains and the normal functioning of first-level functions.

In the oil sector, the U.S. government is seeking to put an end to oil exports, Venezuela’s main source of revenue, in order to weaken President Nicolas Maduro government. It may even extend its sanctions to a dozen more tankers. So many oil companies are reviewing their plans to charter tankers found in Venezuela over the past twelve months. According to Reuters, Chinese oil companies may soon cease chartering any tanker that arrived in Venezuela during the last year. The aim is to avoid blacklisting if the US decides to impose sanctions on more ships that engage in commercial activities with Caracas.

As far as the dry bulk sector is concerned, we are witnessing a very impressive increase in the BDI index in the past two weeks, with the strong momentum pushing the index above the 1500 points barrier. It is worth noting that on June 1st the BDI closed at 520 points and the Capesize index at 82 points with average daily earnings for the big bulkers at $ 3,648/day. Within 15 days both the BDI and BCI increased by more 139% 2,893% respectively, while the average daily fare of Capes went up by 448.9%. Based on the positive market sentiment and the momentum that is inspiring it, the recovery of the ground lost in the past months appears to be even closer now.

Chartering (Wet:

Soft-/ Dry: Firm+)

Following the phenomenal performance of the Capesize market, the dry bulk sector has taken a much needed breath, while positive expectations for the remainder of the summer kept growing. The BDI today (23/06/2020) closed at 1617 points, up by 59 points compared to Monday’s (22/06/2020) levels and increased by 563 points when compared to previous Tuesday’s closing (16/06/2020). Opposite to dry bulkers, tanker rates faced further reductions last week, with activity out of key trading regions insufficient to support owners’ ideas. The BDTI today (23/06/2020) closed at 473, decreased by 57 points and the BCTI at 412, a decrease of 10 points compared to previous Tuesday’s (16/06/2020) levels. 

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

Buyers have been once again showing particular interest for dry bulk candidates with optimism widening further amidst the recent impressive improvement in the freight market, while on the tanker front, it seems that uncertainty has restricted buyers’ appetite for the time being. In the tanker sector we had the sale of the “SEADANCE” (105,477dwt-blt ’99, S. Korean), which was sold to Middle Eastern buyers, for a price in the region of excess $9.0m. On the dry bulker side sector we had the sale of the “ALPHA ERA” (170,387dwt-blt ’00, Japan), which was sold to Chinese buyers, for a price in the region of $7.8m.

Newbuilding (Wet:

Stable+/ Dry: Stable+)

Reported shipbuilding volumes remain low, with less than a handful of recently inked deals surfacing in the past week, while among them tankers and bulkers were holding the lion’s share.  The softer activity trend witnessed during the first half of the year that affected newbuilding prices will most probably extend in the short term, as even in sectors like dry bulk where sentiment is strengthening fast, appetite for newbuildings is expected to remain soft until the freight market remains healthy for an extensive period of time. On the asset values front, tanker newbuilding prices appear to have stabilized for now, while bulker prices on the other hand remain on a downward course. In terms of recently reported deals, Saudi Arabian owner, Bahri, placed an order for 6 firm and 4 optional product tankers (50,000 dwt) at Hyundai Mipo, in South Korea for a price in the region of $35.0m each and delivery set in 2022.   

Demolition (Wet:

Stable-/ Dry: Stable-)

Cash buyers in the Indian subcontinent region kept facing contrasting fortunes last week, with the Indian market sinking deeper into the doldrums stimulated by the continuously weakening currency and Bangladesh together with Pakistan remaining particularly encouraged by the favorable budget announcements in both countries that seem to have restored the appetite lost during the past months. There have been some firmer prices reported last week but given that India seems to be out of competition for now, we doubt that bids will keep strengthening for much longer purely based on increasing demand, with the drop in the number of demo candidates being the only meaningful possible support that the market could see going forward. Average prices in the different markets last week ranged for tankers between $180-300/ldt and those for dry bulk units between $170-290/ldt.