Intermodal Report – Week 36 2021

Market insight 

By Apostolos Rompopoulos,

Tanker Broker

Following the oil price sell off during most of August, partly triggered by oil demand fears amid the delta COVID variant, oil prices have resumed their upward trend since August 20th.

Brent futures have been trading higher over the past couple of weeks, with hurricane Ida idling US Gulf oil production and providing support. In addition, traders saw a buying opportunity following the OSP price cuts into Asian refineries. Positive news on Covid developments and also Chinese data suggesting crude oil inventories stand at the lowest level since June 2020 are also interpreted as bullish for oil consumption and economic momentum ahead.

Numerous countries in Asia Pacific are easing certain Covid-19 restrictions, such as Thailand, New Zealand and Hong Kong, while the South African variant slowed in August according to scientists, all supporting oil demand expectations. Generally, Europe has emerged as a “center of strength” for road fuels demand as the economies opened during the summer period, where people have naturally used more road transportation vs air during the travel season. Nevertheless, according to real time traffic data, European road fuels demand dropped by around 5% or 3-400,000 bpd m/m in August that had a slow start, from the recent peak in July. However, recent news are positive for Brent as European traffic has been picking up by two percent over the past two weeks. Overall, global road traffic congestion levels continue to pick up over the past two weeks, a trend that has emerged since mid-August. Robust gasoline demand and low inventories in both sides of the Atlantic Ocean also lend support to light-sweet crude benchmarks such as Brent.

Additionally, we have noted that the Chinese crude imports rose to a five-month high of 10.5 million bpd in August, driven by state backed oil refineries. The question is whether this trend in China’s crude imports will remain upwards in the coming months. That is a difficult question to answer, as it also depends on government policies on quotas and use of strategic reserves, as per analysts’ consensus.

The Asian market seems to have the potential for an increase in crude oil imports from Middle East as OPEC+ releases production, while US crude oil production is lagging behind along with refinery activity after the recent hit of Hurricane Ida. The hurricane Nicholas following this week is yet to show its effect, but overall it looks like the oil supply tightness in the West is exacerbating, which increases the call on OPEC+ to satisfy rising crude oil demand projected through the 4th quarter of the year.

Chartering (Wet:

Stable- / Dry: Softer)

The downward correction was short-lived in the dry bulk market with Capesize enjoying a substantial boost at the end of the week and with geared sizes also maintaining a positive outlook as we move towards the last quarter of the year. The BDI today (14/09/2021) closed at 4,221 down by 514 points compared to previous Tuesday’s (07/09/2021) levels. The crude carrier sectors remained in search o silver linings, with fresh tonnage enquires unable to push rates upward for another week. The BDTI today (14/09/2021) closed at 614 points, an increase of 4 points, and the BCTI at 479, a decrease of 12 points compared to previous Tuesday’s (07/09/2021) levels.    

Sale & Purchase (Wet:

Firmer / Dry: Firmer)

Secondhand activity firmed last week, with the increased interest of buyers being evident in both the dry bulk and tanker sectors. In the tanker sector, we had the sale of the “KHK VISION” (305,749dwt-blt ’07, S. Korea), which was sold to undisclosed buyers, for a price in the region of $32.0m. On the dry bulker side sector, we had the sale of the “C H S MAGNIFICENCE” (173,541dwt-blt ’06, China), which was sold to Chinese buyers, for price in the region of $19.5m.

Newbuilding (Wet:

Softer / Dry: Firmer)

In contrast to the previous week’s activity where a total of 41 boxhsips were ordered summing the whooping number of approximately 50,500teu, the recent newbuilding activity did not include any container contract. Last week, we saw a decent number of bulker units being concluded; Norwegian owner Golden Ocean inked a deal for the construction of three dual fuelled 85,000dwt Kamsarmax units at DSIC for a price of around $34.0 million each. Furthermore, it was a very active week for Ciner Shipping; the Turkish owner concluded a deal for the construction of three conventionally fuelled 88,800dwt units at Chengxi shipyard for a price of around $34.0 million each and four 63,000 Ultramax vessels at New Dayang for an undisclosed price. In the tanker sector, we have observed another week of muted crude carrier activity. Only one order for one firm plus one optional 37,000dwt asphalt/bitumen carrier was materialized last week. The vessel will be constructed at Chgenxi yard on behalf of Vitol, its price is estimated at around $39.0 million while it will use conventional fuels as well. Lastly, four 174,000cbm LNG units were ordered by Mitsui OSK Lines at DSME yard against a time charter to Russian giant Novatek.

Demolition (Wet: Stable- / Dry: Stable-)

The overall sentiment in the demolition market remains stable as the scarcity of vintage tonnage does not grant the space for any meaningful scrap price reduction despite a quieter trade activity in both the Bangladesh and India. Indeed, Bangladeshi buyers’ conservative approach was continued during the past days with a shorter number of offers coming to light. A slower pace has also been perceived in the Indian market where steel plate prices fell w-o-w. In contrast to the approach of their neighbors, Pakistani buyers’ appetite remained robust; it seems that they are more and more determined to lead the Indian subcontinent market for the rest of the year. Having said that, breakers in the region have started to adopt the $600/ldt mark as the new benchmark for tonnage acquisition with most of the bids from the most aggressive Pakistani buyers now circulating at levels above $600. All in all, we expect scrap steel demand to remain healthy in the remaining months of the year which coupled with the shortage of candidates will retain the current high scrap levels.