Market insight
By Theodore Ntalakos,
SnP Broker
COP26, 77 countries pledged to phase out coal by 2050 but the world’s biggest names in coal including China, India, the US and Australia were not amongst them as they refused to sign on to the plan. What we have seen so far this year is the result of the inability of global seaborne supplies to respond amid several disruptions that have been key behind the surge of coal prices to record high levels, further enhanced by record high natural gas prices and strong European demand. International thermal coal prices rallied to record high levels in mid-October, before declining heavily over the past two weeks on the back of China’s policy measures. However, although China putting a cap on domestic prices creates volatility in the market by putting traders on the sidelines, it should not be confused with demand for imports. Our analyst expects China and India to continue restocking well into Q4, and as their coal inventories are picking up albeit at a slow pace – still well below their average – possibly into Q1 2022.
On the supply side, the dry bulk fleet (above 20kdwt) has increased by about 330 vessels year-on-year corresponding to a growth of about 3.0% in dwt terms, while in 2020 and 2019 growth run at 3.4% and 2.5% respectively. However real fleet expansion factoring in for congestion that has tied up a significant share of the dry bulk fleet this year has been less than 2.5% and explains the supply’s contribution to the surge in freight rates so far in 2021. We expect such limited supply to sustain well into 2022, since the orderbook scheduled to be delivered for the remaining of 2021 and the next year is about 400 vessels which is less than the respective number delivered in 2020 i.e. about 500 vessels; this number does not include slippage which is expected to increase considering full shipyard slots particularly with containers. The current dry bulk orderbook remains at about 7% of the world fleet as there has been some order replenishment in 2021 with a little over than 350 vessels during this year and now there are over 300 bulk carriers expected to be delivered 2023 onwards. On the other hand, compared to the same time last year we have a little over 7% of the fleet being above 20Y old in dwt terms, compared to 6% during the same period last year.
On the tanker segment, amid a mediocre market, the fleet grew by just over 100 vessels or below 2% almost evenly split between MR, Aframax, Suezmax and VLCC sized tankers; the LR1/Panamax sector the fleet has contracted by four vessels. Following two years of shrinking, the orderbook is currently marginally higher in dwt terms. Still the orderbook to fleet ratio is about 8.0%, while the overaged fleet of vessels over 20years old has remained stable in absolute terms representing 6.7% of the fleet in dwt terms.
So, in both dry and tanker segments all eyes are on demand and how the energy shortage will play out this winter; it may be easing for the time being from the measures taken by China, but consumption will definitely pick up during the next months, and with 87% chances of La Nina taking place for the 2nd winter in a raw (developing for 15 consecutive months now since August 2020 and expected to last until early Spring 2022) chances are that the energy inventories across the northern hemisphere will definitely be tested
Chartering (Wet:
Stable+ / Dry: Softer)
The downward correction continued for another week in the dry bulk market. The Handysize sector suffered the smallest decline compared to the other sectors, albeit not negligible. As a result, the week ended up with Handysize average T/C earnings outperforming those of the other dry bulk sizes. The BDI today (09/11/2021) closed at 2,805 down by 382 points compared to previous Tuesday’s (02/11/2021) levels. The recent activity in the crude carrier market did not present a strength outlook while owners still expect the last quarter to bring along a more meaningful positive reversal. The BDTI today (09/11/2021) closed at 835, an increase of 42 points, and the BCTI at 571, a decrease of 8 points compared to previous Tuesday’s (02/11/2021) levels.
Sale & Purchase (Wet: Firmer / Dry: Softer)
Product tankers continued to absorb most of the interest in the SnP realm while only a handful of dry bulk units changed hands last week. In the tanker sector, we had the sale of the “IRIS VICTORIA” (74,905dwt-blt ’10, Japan), which was sold to Monaco based owner, Transocean, for a price in the region of $17.75m. On the dry bulker side sector, we had the sale of the “MAJULAH HARBOURFRONT” (81,922dwt-blt ’14, China), which was sold to Far Eastern buyers, for a price in the region of $29.45m.
Newbuilding (Wet:
Stable- / Dry: Firmer)
Healthy newbuilding ordering activity was materialized last week with the bulker and LNG units gathering the biggest chunk of contracting interest. On the dry bulk front, ICBC Leasing ordered two 210,000dwt units at Cosco Yangzhou for $63.5 million each. At the same time, German owner Vogemann concluded a deal for the construction of four 82,000dwt vessels at Jiangsu New Hantong at a price of around $34.0 million each while Imabari yard secured an order for two 64,000dwt Ultramax units from Wisdom Marine at a cost of $35.0 million each. In the Tanker realm, it came to light that two conventionally fuelled 115,000dwt LR2 units were ordered by Eastmed at Daehan for a price of around $60.0 million each. As far as the LNG sector is concerned, a total of six 174,000cbm vessels were ordered last week. Qatar Petroleum has taken its first step in the massive expansion of its LNG fleet. More specifically, four units will be built at DSME yard while two more will be constructed at Samsung with prices for all six ships remaining undisclosed.
Demolition (Wet: Stable+ / Dry: Stable+)
The demolition market activity took a short break last week amid the Diwali celebrations which moved breakers to the sidelines. As a result, average scrap prices across all the major demolition markets remained unchanged. Indeed, activity in India was limited; however, prospects remain strong for the coming weeks with the positive steel demand being reflected in breakers’ appetite. Pakistani buyers’ approach was along the same line; the stabilization of PKR last week coupled with the domestic steel market improvement has helped local buyers to maintain their offers at competitive levels. Bangladesh was the most prominent market for another week, supported by the strong domestic steel demand. At the same time, the supply of fresh vintage tonnage remains limited despite the grand levels of scrap prevailing. 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.
