Intermodal Weekly Market Report for week 34 2020

Market insight

By Nassos Soulakis, SnP Broker

A step back from the intense everyday transactional reality of the SnP market is necessary from time to time to analyze and capture how fundamentals are influencing the dry bulk sector.

The Handysize sector has the healthiest newbuilding (NB) tonnage supply levels among dry bulkers; their newbuilding orderbook (OB) to fleet ratio is small (5.2%) compared to 20-plus year-old vessels which constitute approximately 15% of the existing fleet. The Handy OB is even below the 25-plus year-old vessels to fleet fraction; this further strengthens our low tonnage supply hypothesis for the sector. Despite the high probability of exceeding subdued 2018 and 2019 figures, the overall Handy fleet’s supply equilibrium is not drastically depleted by the current year-to-date demolition percentage of just 0.71%. Currently, the average Handy vessel demo candidate is built in Japan or China (with equal likelihood) and has a lower than 30K dwt carrying capacity. Approximately 80% of the current Handy orderbook is comprised of vessels with capacities of [37-45]K dwt built in Japan and China on a 70:30 basis. The above-mentioned phenomena have established a 1:3 small to large Handy ratio which is projected to widen significantly.

Supramax/Ultramax vessels portray similar overall trends and are governed by a low NB tonnage supply (4.5%) coupled with a high number of vessels aged greater than 20 years of age (12%). Scrapping activity is analogous to that of Handysize vessels; demo levels are low compared to historic benchmarks. The average Supra/Handymax (Sx/Hx) demo candidate is a Japanese (in its majority) built Handymax which ranges in size from [42-48] K dwt. The Sx/Hx population is still double the Ultramax one. This gap is projected to decrease at an increasing rate with more Ultramax orders being recorded. Currently, 47%, 20% and 33% of orders are from Japanese, Japanese-affiliated and Chinese yards respectively. Ultramax orders are 6-fold the respective Supramax order figure.

Panamax/Kamsarmax (Px/Kx) orderbook to existing fleet ratio is 0.52 which is less than half the recent 5-year historic average (1.11). Despite the overall positive Px/Kx outlook, the sector has a higher NB supply relative to plus-20-year-old Handy and Supra/Ultra to fleet ratios (0.35). Scrapping activity is scarce with only a handful of Panamax demolitions recorded. The number of Kx vessels is projected to exceed that of Px ships in the next 1-2 years for the first time; approximately 20 Kx orders are placed for every Px order.

Capesize (Cs) figures seem the least appealing of all sectors; the 8.4% OB to fleet is significantly higher than in smaller sizes. However, the current Cs OB is at a 5-year low and almost one-third less than the historic 5-year average (12.2%). Scrapping activity is already at 2019 and 2017 levels and double 2018 levels. Yearly Cs scrapping activity (always greater than 1%) has consistently consumed a sizeable portion of the low plus-20 and 25-year-old vessel portions of the Cs fleet. 

In conclusion, the aggressive transition towards larger vessels is imminent among all dry bulk sectors. This trajectory is even more profound when analyzing the dry bulk sector’s dynamic dwt distribution shift.  Should no further unforeseen circumstances commence, NB and demo rates are projected to remain relatively steady in the years ahead. The current status quo has established a fruitful groundwork upon which a profitable future in the SnP realm may very well be realized.

Chartering (Wet:

Soft- / Dry: Soft- )

All in all, the dry bulk market failed to sustain its gains from the previous week with rates for bigger sizes recording substantial discounts over the past days. The BDI today (25/08) closed at 1518 points, up by 27 points compared to Monday’s (24/08/2020) levels and decreased by 338 points when compared to previous Tuesday’s closing (18/08/2020). Rates in the crude carrier market were hovering below sustainable levels for another week with owners across all sectors being unable to reverse the uninspiring activity in most key trading regions. The BDTI today (25/08/2020) closed at 477, decreased by 13 points and the BCTI at 483, an increase of 76 points compared to previous Tuesday’s (18/08/2020) levels.    

Sale & Purchase (Wet:

Soft- / Dry: Firm+)

This week’s secondhand activity was almost solely dominated by dry bulk vessel transactions whereas tanker SnP deal volumes were bearish with a rather small number of tanker deals being recorded. In the tanker sector we had the sale of the “SUPER LADY” (105,528dwt-blt ’00, Japan) which were sold to Middle Eastern buyers, for a price in the region of $11.0m. On the dry bulker side sector we had the sale of the “LOWLANDS ERICA” (176,862dwt-blt ’07, Japan), which was sold to Greek owner, Alberta Shipmanagement, for a price in the region of $14.8m.

Newbuilding (Wet:

Stable+ / Dry: Stable-)

Recent Newbuilding contracting activity revealed an appetite for new orders within the tanker sector with the 10 MR vessels ordered by Bahri Navigation making the headlines. While the dry bulk sector newbuilding activity remained soft, taking a closer look at secondhand deals, it is evident that many owners are focusing on modern candidates and are aiming to exploit the relatively low current secondhand values. At the same time, despite the dampened newbuilding prices it seems that owners are not keen to exercise the newbuilding option with interest remaining timid among the potential investors. It remains now to be seen whether the increased competition among shipbuilders will make prices even more attractive to owners which could potentially lure them towards investing in new buildings. In terms of recently reported deals, South Korean owner, Pan Ocean, placed an order for one firm VLCC vessel (300,000 dwt) at DSME, in South Korea for a price in the region of $90.0m and delivery set in 2022.                

Demolition (Wet: Firm+ /

Dry: Firm+)

It has been another good week in the demolition market with prices moving up across all Indian subcontinent markets. Pakistani cash buyers remain the dominant players displaying increased appetite and plenty resources followed by India and Bangladesh in respective order. While the latter market has been quiet compared to its counterparts, the traditional Bangladeshi cash buyer’s appetite for bigger sizes could lead to a sudden rebound in the coming weeks. On a more pessimistic note, the upsurge on Covid-19 cases in India coupled with a decrease in steel prices may lead to a correction of sort on scrap prices ahead. In contrast to the Indian subcontinent market, Turkish buyers are showing a reduced appetite for attracting new demo candidates while Turkish Lira has kept its downward trajectory for another week. Average prices in the different markets this week for tankers ranged between $200-355/ldt and those for dry bulk units between $195-340/ldt.