Today, the second half the BIMCO Shipping Market Report 2019-February edition goes out. The two reports are focused on the dry bulk and oil tanker shipping markets.
Yesterday, we published the reports on container shipping and macroeconomics affecting the shipping at large.
Wednesday is also the day for the BIMCO market analysis webinar Q1 2019. Sign up here: https://events.bimco.org/eventlist/market-analysis-022019
See you soon I hope: https://www.bimco.org/events In Tokyo, Shanghai, Rotterdam or New York.
Full reports attached – here below you will find extracts only.
As always comments and questions are welcome.
DRY BULK shipping: Uncertainty mounts against a backdrop of weaker growth in Chinese imports.
Demand drivers and freight rates
The extent of the freight rate recovery in 2018 was limited – when compared with initial expectations – by a faster-growing fleet. Q4-2018 wasn’t as strong as it often is either, but we now know that was merely the beginning of a sharp downturn. On top of that, in the first month of 2019, leading the way even further down was a massive lack of cargoes. By early February, the industry appeared to be paddling in quicksand.
The November dip in Capesize freight rates was just an ill omen of what was to come. For the whole of January, there has been no support for Supramax, Panamax or Handysize freight rates; it is as if the market has turned back the clock by two years, touching at freight rate levels last seen in early 2017.
At the levels recorded on 31 January 2019, Handysize, Supramax and Panamax all had earnings of about $6,000 per day, whereas the 180,000 DWT Capesize ships earned only a little more than $11,000 per day. All of them are operating at loss-making levels.
Preliminary data points show that 3.2m DWT was delivered in January 2019 – the highest for a single month since January 2018. January is traditionally the month that sees the highest number of launches. Just three ship demolitions did little to counter the fleet growth of 0.3%.
For the full year, BIMCO estimates a dry-bulk fleet growth of 3.1%, up from 2.9% in 2018. We predict demolition activity will remain low. Should our estimate of just 4m DWT exiting the fleet prove too low, an additional 10m DWT leaving will bring the fleet expansion down to 2%. This sensitivity shows that even a much higher level of demolition – if freight rates stay low for an extended time – may not be enough to create a turnaround. It may only make sure fleet growth stays on a par with potentially lower demand.
Calling a market turnaround to perfection is pure luck. But scouting for pillars that would support a higher level of demand makes sense. First up is the next Brazilian soya bean export season, which might come earlier this year, as harvest conditions have reportedly been favourable. As a result, we expect to see soya bean cargoes entering the market as early as the second half of February.
ANKER shipping: Geopolitics and overall fleet growth are the main drivers
Demand drivers and freight rates:
The tanker market has made the most of a solid and much needed boost that was ignited by falling oil prices, which started in early October. Prices were pushed down by all-time high Saudi Arabian crude oil production that peaked at 11.1m barrels per day in November. Earnings for all sizes of crude oil tankers touched USD 50,000 per day as they peaked in late November and early December 2018. It was quite a bounce for a dead cat, as US-Saudi politics and Chinese tradesmanship created a temporary recovery for the oil-tanker market.
Earnings for oil product tankers followed suit, peaking in December. Rates for LR2 and LR1 tankers reached USD 32,000 per day, but those for MRs disappointed because they only reached USD 20,000 per day.
After deduction of operational expenditures (OPEX), bunker cost and capital expenditures (CAPEX), all crude oil tanker spot fixtures made in Q4-2018 were profitable. Oil product tankers were only seeing profitable spot freight rates in December.
The crude oil tanker fleet grew by 0.8% in 2018, as very weak demand growth brought down freight rates and caused demolitions to hit an eight-year high. For 2019, BIMCO expects high fleet growth to become a problem again, forecasting 3.4% fleet growth for the full year.
The oil market is notoriously linked to geopolitics. Most recently, the political situation in Venezuela creates turmoil in the region and particularly affects crude oil exports. The newly set up US sanction targeting Nicolás Maduro's regime will most probably limit the imports of crude oil into US gulf refineries. In addition, some oil product imports may be affected, but BIMCO does not expect it to affect majorly the overall market.
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