Intermodal Weekly Market Report

Please find below the Intermodal market report for week 43 2022.

Intermodal Report Week 43 2022

The following text is the summary of Intermodal’s Weekly Market Report for smartphone users.

Market Insight

By Chara Georgousi,

Research Analyst

Only five weeks before western sanctions’ full effect, uncertainty over energy has markets and governments on the edge. What was initially thought to be an oil or gas crisis, turns out to be an unfolding diesel crisis, with scarce availability of the fuel and historically low inventories adding headwinds to an already tight market.

In the US, diesel inventories are hitting historically low levels. Albeit fuel shortages, especially on the East Coast, combined US exports of crude oil and products surged to 11.4m b/d in the week ending October 21st, according to EIA. But while the US government is concerned over the unfolding diesel crisis, it is draining the SPR which has zero impact on diesel production. Officials are concerned that the 1m-barrel reserve will not suffice to counter a severe disruption this winter and are mulling ways to bolster supplies. In the meantime, oil companies are facing pressure from the government to export less fuel and build domestic inventories, while Biden’s administration has not yet ruled out a possible curb on exports. US refineries’ crack margins from turning crude oil into diesel are skyrocketing. Meanwhile, diesel demand nationwide is showing signs of hitting the brakes, surging to its highest seasonal level since 2007, over the last month before dipping this past week. The fuel shortage, which is crucial for heating and trucking, will likely be exacerbated as colder weather forces consumers to increase consumption to heat up their homes.

In the meantime, two consecutive malfunctions in Europe’s biggest refinery, the Shell Pernis plant near Rotterdam, as well as refinery strikes in France have caused supply disruptions at a time when the continent can ill afford it, given the upcoming EU ban on purchases of refined petroleum from Russia that’s due to start in early February.

On the other hand, a bullish combination of recently granted fuel export quotas from the Chinese government to domestic refineries and the end of refinery maintenance work in some major Asian refineries are set to provide some relief to the current market tightness by lifting global refinery processing rates. More specifically, 290k b/d of refining capacity in South Korea will return from maintenance in November, while India’s planned maintenance procedures will resume by December. Meanwhile, China’s refiners have been utilizing the government’s export quotas and have been opting for higher prices overseas. Diesel output surged by 22% m/m to a historical high of 17m tons this month. This comes as a response to reviving diesel demand and collapsing jet fuel consumption. Chinese fuel exports are further underpinned by weak domestic demand. October loadings of clean fuels from Asia to the Americas surged to 715k tons in the week ending Oct. 31st, hitting a 3-year high. Looking forward, we expect that diesel cargoes from Asia will continue to flow toward the US East Coast, underpinned by current favorable market fundamentals.

Overall, while we should expect some support from Asian refiners to the US market, the EU’s looming sanctions on Russian oil products will once again drive the market on the edge, as Europe, which is still reliant on Russian diesel, will ultimately run short on the fuel and could possibly draw some cargoes from Asia, limiting thus supply for the US.

Chartering (Wet: Stable+ / Dry: Softer)

Limited fresh enquries against a plethora of open tonnage led to declines in rates across all sizes in the dry bulk realm. The BDI today (01/11/2022) closed at 1,377 points, down by 378 points compared to previous Tuesday’s closing (25/10/2022). Last week, the Suezmax sector outperformed the rest of its sizes, followed by steady-positive Aframax market performance while VLCC activity was subdued leading to a downward correction in rates. The BDTI today (01/11/2022) closed at 1,811, an increase of 18 points and the BCTI at 1,195, a decrease of 18 points compared to previous Tuesday’s (25/10/2022) levels.

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

The dry bulk SnP activity was considerably softer compared to the week prior while Tanker deals maintained their volumes. In the tanker sector, we had the sale of the “RS AURORA” (159,812dwt-blt ‘18, China), which was sold to Greek owner Delta Tankers, for a price in the region of $66.0m. On the dry bulker side sector, we had the sale of the “NAVIOS TAURUS” (76,596dwt-blt ‘05, Japan), which was sold to undisclosed buyers, for a price in the region of $14.0m.

Newbuilding (Wet: Softer / Dry: Softer)

Newbuilding ordering activity held firm, with a flurry of new orders surfacing during last week. As we have previously noted, owners’ insatiable hunger for LNG vessels holds steady with a healthy number of vessels ordered every week. It is worth mentioning, though, that as slots in Korean shipyards are extremely tight, Chinese yards have emerged as alternative players, offering competitive prices and reasonable delivery times. For instance, all three LNG orders surfacing last week have been placed in Chinese shipyards. Meanwhile, we have been witnessing that the number of owners making their debut in the LNG sector and investing in new vessels is still rising, with Chinese TSM investing in its first trio of newbuilding vessels last week. In the boxship sector, we notice that owners tend to invest in green technologies with methanol being preferred as a green shipping fuel. In the tanker realm, no orders have been penciled last week. In the dry sector, one bulker has been ordered, indicating a rather slow growth of tonnage. Conclusively, one order for up to ten PCTCs has been inked by Grimaldi Group. The vessels will be ammonia-ready and have been designed to carry electric vehicles.

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

Market conditions in the demolition front remain unfavorable. Subdued global steel demand coupled with increasing production costs keeps most of the steel mills on the sidelines. At the same time, breakers are facing a limited volume of offered candidates, forcing them to maintain their scrap offers at strong levels. However, with the freight market at healthy levels, owners are still avoiding to dispose of their vintage units. In India, the Diwali holidays have impelled participants to slow their operations; however, the respective market remains the most stable in terms of domestic demand. In terms of offered levels, Bangladesh continues to possess the first place among its counterparts, yet with interest being focused on small LDT units due to the ongoing LC restrictions. In Pakistan, where breakers have been out of competition for quite a long, they could see domestic demand underpinning by the commencement of post-flood disaster reconstruction across the country. Lastly, Turkey’s activity remains subdued as demand for steel products crumbles mills’ confidence.