By Timos Papadimitriou,
November is here and soon the all time seasonal favorite “all I want or Christmas is you” by Mariah Carey will be played in radio stations around the world repeatedly. Now the shipping question is, “will the tanker segment get what it wants this Christmas”?
For gas, dry and container Christmas has arrived very early in 2021 with earnings reaching levels not seen for more than a decade putting an overdue smile on ship owners faces.
So has the time come eventually for the tankers as well? There have been a few false alarms this year. One in early 2021 and one just before the summer. The activity on the SnP was mainly for Aframax and VLCCs and was purely driven by speculation or otherwise put “counter-cyclical” investment behavior, while the actual freight market remained subdued. That resulted into tanker asset values increasing especially on the Aframax size. And shortly after that we saw the same ships sold less than a month ago to be again for sale in an asset play attempt to flip them for a short profit.
We think that now is the time to buy. Compared to the dry bulk and container markets where the upcycle is mainly driven by demand, tankers on the other hand are mainly oil and products supply depended. As product tanker earnings seem to be taking the lead in the tankers recovery and hopefully soon the crude tankers will follow with late Q4 being the inflection point for an upward market reversal. The oil products destocking cycle is expected to come to an end during Q4, when winter restocking demand for middle distillates products will be at its peak, and refineries are expected to accelerate their runs to cover the energy deficit. Refineries are set to benefit from the increase in diesel and jet fuel prices a trend that should unfold through Q1 2022. The market seems well positioned for rising heating oil/ diesel consumption in the Atlantic, as well as jet fuel, and thus East to West middle distillates trade is expected to pick up. Naphtha trade is also expected to pick up in the short term, as naphtha has become cheaper than propane as a feedstock in the petrochemical industry benefiting the West/Med to East naphtha trade. Gasoline exports from Europe to the U.S. are also expected to rise on open arbitrage North West Europe- USAC on the forward curve and low inventories in the US. Gasoline flows from East of Suez into West Africa are expected to decline by the end of the year, as Asia is seeking to keep supplies to serve domestic demand, which is likely to lead to an increase in demand for European gasoline supplies from West Africa and US East Coast simultaneously.
Based on what we see and anticipate as stated above the increase of product prices and the need to refill the inventories will be key to the extent of the market recovery over the next year.
This could be a good timing to buy product carriers. We are starting to see increased SnP activity mainly for 12-14 year old MRs and 10 to 5 year old LR2s. Strange mix but this is where the majority of buyers are concentrating. MR1s are not yet of interest and on the LR1s buyers are reacting mostly to units less than 10 years old but there are not a lot for sale, at least not yet. Values have remained stable over the past two months but we do not expect them to stay put. It’s a small window to invest now where the market is still in favor of the buyers.
Firmer / Dry: Softer)
A downward spiral across all dry bulk sizes was materialized during the previous week. The BDI today (02/01/2021) closed at 3,187 down by 621 points compared to previous Tuesday’s (26/10/2021) levels. Expectations for a stronger end to the last quarter have now started to build in the crude carrier markets. The BDTI today (02/01/2021) closed at 793, and the BCTI at 579, an increase of 10 points compared to previous Tuesday’s (26/10/2021) levels.
Sale & Purchase (Wet:
Firmer / Dry: Softer)
Appetite for product carrier units was evident in the SnP realm with a healthy number of vessels changing hands. On the other hand, only four dry bulk deals came to light last week. In the tanker sector, we had the sale of the “STAR EAGLE” (51,202dwt-blt ’07, S. Korea), which was sold to undisclosed buyers, for a price in the region of $11.75m. On the dry bulker side sector, we had the sale of the “KEY DISCOVERY” (82,152dwt-blt ’10, Japan), which was sold to Greek owner, Swissmarine, for a price in the region of $24.75m.
Stable- / Dry: Stable+)
The newbuilding market activity was in line with the course that we have been witnessing since the start of the year. Crude carrier units were missing for another week while LNG and container deals were present as always despite the increasing newbuilding prices. In addition, two deals consisting of four handymax and five Kamsarmax bulker units were materialized last week. More specifically, German owner Oldendorff inked a deal for the construction of five firm plus seven optional 82,000dwt units at Jiangsu Hantong yard, while Navibulgar ordered four 45,000dwt vessels at Yangzijiang for a price of $33.0 million each. As far as the Gas sector is concerned, Samsung secured a deal from Global Meridian Holdings for the construction of four 174,000cbm LNG units at a price of $206.5 million each, while Japanese owner K Line declared an option for one more 79,960cbm unit at Hudong Zhonghua against a 12-yrs T/C to Petronas. Lastly, South Korean owner Namsung Shipping ordered two 2,500teu boxships at Hyundai Mipo yard for a price of $41.0 million each.
Demolition (Wet: Firmer / Dry: Firmer)
The recent scrap prices offered by the Indian-subcontinent buyers have improved w-o-w amidst an apparent lack of vintage tonnage and a steady increase in demand for steel. With both dry bulk and Container freight markets remaining at astonishing healthy levels, tanker and offshore units are the main if not the only source of supply for the demolition market. At the same time, infrastructure activities continue at a strong pace, supporting the rise in steel demand. Bangladeshi breakers were the top bidder for another week; domestic steel demand coupled with more available space in yards have led buyers to increase their offers amid intense competition in the subcontinent region. Indeed, both Pakistani and Indian offers have also improved and are being reported a stone’s throw from their Bangladeshi counterparts. The currencies of both countries followed an upward pattern during the previous days which supported owners’ confidence to push for a bigger market share. Lastly, in Turkey the imported scrap prices lost some ground last week, however, breakers’ interest remains firm for the time being. Average scrap prices in the different markets this week for tankers ranged between 300-620/ldt and those for dry bulk units between $290-615/ldt.