Taal selectie

Shipping

Out of the doldrums

The shipping index (covering all types of vessels) rose 1.5% in June. The major bulkers gained an average 15.5% (on an unweighted basis), on the back of a more-than-tripling of the freight rate index (BDI). The major tanker companies lost an average 22.1% (also unweighted), with crude oil carriers dropping 18.9% and petroleum product tankers 24.5%.

BDIY Index Source : Bloomberg

June saw the US and EU take their first steps back towards a normal life, with Covid-19 containment measures being gradually lifted. The Chinese economy, meanwhile, was already operating at full speed, boosted also by public infrastructure spending. This had a material impact on iron ore imports. Indeed, the combination of very strong steel production and still low iron ore inventories in the Chinese ports created an unexpectedly strong demand for Capesize vessels (the main transporters of iron ore). Freight rates on the main routes (Brazil-China, Australia-China and South Africa-China) rose to a very healthy USD 30,000 /day. One-year time charter rates did not, however, increase as much, moving up from ca. USD 12,000 /day in May to only ca. USD 16,000 /day in June. This suggests that charterers and shipowners do not expect the currently high single voyage rates to endure. For Panamax vessels, one-year time charter rates rose only USD 1,000 /day on average (to between USD 9,000 and USD 11,000 /day, according to vessel size and age). While demand for iron ore should remain strong, demand for coal transport (the other main cargo transported by Capesize vessels) remains lacklustre due to shutdown measures in India (one of the largest coal importers, behind China). Also, India recently auctioned 41 new coal mines for exploitation. These mining sites being already fully explored, they could move quite rapidly into production, reducing future needs for coal imports. Still, the unexpected June pick-up in freight rates reduced the financial strain on bulker companies – a very welcome development following several months of cash drain. If all goes well on the Covid-19 front, the market for dry bulk transport could be very good during the second half of the year, despite expectations of ca. 2.5% fleet growth (unless scrapping of older vessels resumes).

Turning to the tanker market, with the global economy slowly getting back on track, oil demand seems slightly better than feared at the worst of the crisis. Demand has dropped by 8.1 million barrels/day, rather than the estimated 9.3 million (source: IEA). The same goes for petroleum products, with a 5.4 million barrels/day year-on-year drop in refinery throughput instead of the estimated 7.2 million (source: IEA). With OPEC+ production currently below demand, crude oil inventories are receding and large tankers that were used as floating storage (for up to 140 million barrels at one point), because of lack of land-based capacity, are being discharged and gradually reintegrating the available fleet. The same goes for petroleum product tankers, on which up to 80 million barrels of clean products had been stored.

This sooner-than-expected release of “storage” tankers is creating an oversupply of available ships earlier than foreseen, in what is already the weakest season of the year for oil transport. Tanker freight rates have thus collapsed and are nearing cashflow breakeven levels. After historically strong earnings in the second quarter, we will now have to wait to see better times. This could take several months and will depend on how fast oil consumption returns to pre corona-crisis levels and on shipowners’ willingness to scrap their older vessels. Shipyard orderbooks for new tankers, meanwhile, remain very much under control due to environmental issues/uncertainties.

Update : 07/2020

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