BMTI – Trend Experts for Shipping

Bearish trends continue to bite in Handy market
Gravity has started to weigh heavier on Handy bulk at midweek with declines most notable on the long hauls into the Far East with ECSA delivery to North China losing some US$ 100-300 since Monday to settle at US$ 17,000 on modern Ultramaxes. (p. 1)

Hope remains in place for Panamax owners
Panamax shipbrokers are cautiously optimistic that market conditions will remain stable, hoping for an end-of-the-year spike. (p. 1)

Enduring dryness threatens European waterways
Continuing and historically high dry conditions across Europe have seen water levels drop such that key waterways have started to reroute traffic or stop it altogether. (p. 2)

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A number of shipping banks issued their quarterly reports in the past week. DNB of Norway said its most recent quarterly report that it had to impair US$ 31m (NOK 261m) of loans in its shipping portfolio even as it reported a general positive turn of events in the third quarter of 2018. The bank reported that its shipping loans have seen stable development in the quarter while past im­pairments have been reversed. The bank has a total US$ 7.1 billion (NOK 56 billion) in loans to the shipping industry, mostly in tankers, but also in bulk, gas and containerships as well. Nordea said this week that it has reduced its loans and provisions to shipping and offshore in Q3 by nearly EUR 1.5m vs. Q3 of 2017, leaving them at approximately EUR 8.5 billion at present, also a EUR 300m drop from Q2. The bank saw after-tax earnings EUR 684m in the quarter, albeit about 18% lower than a year ago. DZ Bank is continuing its selloff and break-up plans for DVB Bank. The plan is to first sell DVB’s aviation and land-transport divisions before finding a buyer for its core shipping finance business. Analysts spec­ulate that it may follow a path similar to Commerz­bank, which had its shipping core wound down in a series of portfolio sales, loan repackaging and amort­isation. The German bank currently holds about EUR 7.2 billion in shipping loans, which is none­theless down from the EUR 12.5 billion a year ago. German shipping banks have successfully reduced their exposure to shipping non-performing loans (NPLs) of late, says Moody’s Investors Services, not­ing that their exposure in percentage of Tier 1 capital is now around 60% compared to 100% in 2015.

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Coal freights on a 52,000 dwt Newcastle/Huangpu

A week of holidays in the Far East had a notable impact on dampening activity throughout the Pacific and Indian Ocean trade areas. Freights, however, remained miraculously solid and, in some cases, even mildly bullish with Pacific rounds fetching upwards of US$ 11,750 daily on modern Ultramax tonnage in the 58-62,000 dwt range. Such rates are as much as US$ 100-200 higher than a week ago, suggesting that charterers are willing to pay a little bit extra if only to secure employment before they rush off to the holidays. Period activity has been somewhat mixed but still present with larger Ultra­maxes of 60-64,000 dwt fetching up to US$ 15,500 daily on medium period deals for 4-6 months and 5-8 months of trading on worldwide redelivery. Indo­nesia rounds were also steady and barely shifted over the past week with the Tess 58 vessels fixing US$ 12,500-12,750 daily spot rates on trips from South China via Indonesia to EC India and as much as US$ 13,000 daily to WC India. Chartering activity is nonetheless subdued, and owners are hoping the week ahead will put an end to the dry spell as bro­kers and traders return to full business engagement. Like the larger Supramaxes and Ultramaxes, Handy­size activity was largely limited and sporadic across the eastern basin with holidays taking some of the blame. Freights were also largely unmoved in the past week with the lack of business contributing to a general holding pattern that kept the market in limbo until traders resumed their work. Freights for 28,000 dwt ships from Southeast Asia to NoPac via Australia continue to achieve about US$ 8,200 daily, just as they did at the end of September.

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Through all the ups and downs and inter-week vol­atility, it seems that Capesize freights have finally climbed to new year-to-date highs, proving that the bullishness is hardly a temporary fluke but rather a underlying feature of a newly confident spot market. With China/Brazil RVs reaching US$ 23,000 daily, the highest level this year so far, and the equivalent voyages hitting similar highs of US$ 22.6/mt, this summer is shaping up to be a very generous one for the biggest bulkers. Pacific rounds have seen even stronger improvements of US$ 1,000 at midweek, taking the assessment into the US$ 22-23,000 daily range and giving shipowners cause for celebration.

Even as the Pacific Panamaxes lag behind, improve­ments have been strong enough in the West to add to the BPI reaching its highest level in four months and owners looking for upgrades where they would not have dared just two weeks ago. Robust demand for coal to India, in the midst of monsoon season no less, has contributed to tightening tonnage in the Indian Ocean even as it hasn’t been enough to close the gap on available tonnage yet and drive rates up­ward. Indo rounds are still fetching US$ 11-12,000 daily on HK delivery to ECI on Kamsarmax tonnage.

Handysizes have been rebounding in the Atlantic basin with average trans-Atlantic freights on 28,000 dwt tonnage reaching the five-digit range of the low-middle US$ 10,000s on ECSA trips to the Continent and up to US$ 12,000 on the same run with 38-42,000 dwt vessels. Handysizes from the USG have been securing high US$9,000s on NCSA redel while the rest of the Atlantic is more hit or miss. Front hauls ex-Black Sea to the Far East have revived of late with US$ 18,500 daily now doable on a Tess 58.

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Black Sea grain producers have been showing mixed results so far this year. An ongoing dry period throughout the region could adversely impact the harvest in 2018 with experts saying it may affect Ukraine’s harvest by as much as 50%. Russia recently revealed that its exports over the past 12-month period amounted to 51.2 Mt, a 48% increase from the previous season. Russia conversely expects to see lower results this year with domestic agriculture agencies estimating the crop will be as much as 15% lower this year than last year due to poor weather conditions. Last year’s 134 Mt harvest was an all-time record and unlikely to be bested in the near term. Reductions in volume this year may be even lower than previously expected with analysts Sov­Ekon having reduced their estimates for the year from 200 Mt to 124 Mt. IKAR reduced its estimates for the Russian grain crop from 117 Mt to 114 Mt.

Strong consumption of coal in Asia has boosted de­mand for Australian thermal coal this year, this week pushing the spot price for prices at Newcastle to US$ 120/mt FOB, the highest they’ve been in six years. Demand has been brisk to China, which con­tinues to burn coal for power and industry, as well as Japan, which buys 40% of Australia’s total thermal coal exports for its own utilities. The price surge has been further exacerbated by limited supply from mines, many of which have closed or wound down operations in recent years, even as the summer months are demanding more power consumption due to rising cooling requirements around the globe.

The EU is to make a ruling on whether to lift anti-dumping duties on Russian ammonium nitrate following the results of two interim revives on AN duties on Russian exported product last year. The results are expected in early-mid August. At issue is a current duty on Russian AN, which is considered significantly cheaper than European AN, with duties ranging from EUR 24/mt to EUR 47/mt, depend­ing on trade conditions. One argument for lifting the duties would be providing cheaper fertilizer costs for European farmers. The first AN anti-dumping meas­ures were issued in 1995 and have been intermit­tently reinstated at different periods ever since.

Prices for Turkish scrap imports remained largely stable in the past week after a period of increasing in the last weeks of June. There are reports, however, that at least one buyer of auto bundle scrap increased its buy price to about US$ 331/mt FOB last week.

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[27 JUNE 2018] With both European holidays and sluggish summer industrial trends setting in, pressure continues to grow on rates in the northern short sea markets even as owners manage to keep discounts limited. Oper­ating costs, as always the basement level for rates to fall, have themselves taken a hit in recent weeks with bunker prices having progressively fallen, giving owners one fewer negotiating tool in keeping rates steady, if not higher. Freights in the high teens of EUR 17-18/mt on the Baltic westward routes from Balticum to ARAG (based on 3,000mt general cargo parcels) have moved slowly but surely into the mid teens of EUR 15-16/mt on the same run, brokers report. ECUK cargoes of 5,000mt are still securing around EUR 10-12/mt, depending on terms, to ARAG. Southbound spot freights remain relatively more attractive as southern European trade regions continue to attract higher activity and firmer rates than their northern counterparts. Agri-prods with stowage of 44-48′ are seen fetching EUR 24-26/mt, traders report, on business from the Upper Baltic to the French Mediterranean, more or less unchanged from rates on the same run since late May. Similar rates are reported as concluded on WCUK/Marmara business. Northbound rates from the Spanish Med to ARAG are fetching high teens of EUR 16-18/mt on mid-size parcels of 5,000mt while the same to the Upper Baltic is getting as high as EUR 22/mt. Upper Baltic to Ireland is still in the lower EUR 20s/mt, we are told, with owners keeping charterers at bay with EUR 21/mt as the lowest offer accepted.

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Very little in the way of trend or market movement was sensed at the start of the week for Capesize rates with traders playing hard to get on both sides of the fence. Given the utter lack of tangible activity, rate assessments wasted no time in slipping with nearly all rates trending either sideways or down. Perhaps most decreased were the front haul freights from the UKC, losing US$ 200 day-on-day to US$ 33,500. Panamaxes were arguably the busiest bulker sector at the start of the week, thanks in no small part to overflow from last week’s watershed activity, but even so there was little for the market to hang its hat on looking ahead. Trans-Atlantic RVs have become a victim of the current indecisiveness, dropping more than US$ 300 on average rates to close in the US$ 11-11,500 daily range on shipments of 72-76,000 dwt from the Continent. The Indonesia rounds have been hovering in the US$ 13-14,000 daily range. A group of countries—Malaysia, Philippines, Thai­land, Vietnam and Pakistan—will pick up the slack in lost coal demand in the next few years, says Drewry, with Malaysia and Thailand increasingly dependent on imports for coal usage. Philippines and Vietnam are likely to see slow growth in domestic coal output, meaning increased imports in the near term. As such, Southeast Asia will con­tinue to draw the focus of Pacific coal transport growth away from China.

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The summer market has begun in earnest and is turning rather quiet in June after a relatively robust May. Brokers and owners note that even with the modest slump in the past few weeks, rates have enjoyed a solid year-on-year improvement thanks in part to a ‘fantastic’ winter period that was far better than historically the norm. The fertilizer season is over in the north, for all intents and purposes, giving less urgency to agri-prod markets and the Baltic Sea and North Sea markets at large. More vessels are spot than in weeks past and charterers are starting to feel their negotiating power grow. With the bottom yet to be reached (perhaps getting closer by end-June), bunker prices are the new ‘red line’ deciding just how far owners will be willing to compromise on rates yet still cover their operating costs. With a growing upside on oil prices, due to supply concerns from Iran, and the fact that bunkers are now up some 25% from March, rising bunker prices would be the one countering factor owners may have in their arsenal to offset unlimited rate erosion.

Rates are down by some EUR 3/mt on average compared to the winter and there is a growing possibility that they will start falling more sharply if June remains as quiet as it seems to be now. On the plus side, we are told that more charterers are looking for time charter period contracts, which is already unusual for the European market, but also indicates that charterers feel as if the market could very well start improving after the summer and remains in a modest bullish mode in the current supercycle. The persistent lack of tonnage in the European short sea market, thanks to a nearly nonexistent newbuilding programme, ensures that freights will likely bounce back as soon as the slightest uptick in transport demand is per­ceived. For the moment, however, bearish trends are likely to gain force. Barley cargoes of 3,000mt have been reported from Denmark to Rotterdam at EUR 15.75/mt. Peas of 3,800mt have been secured from the Upper Baltic to Rouen at EUR 24/mt. General cargoes, as per BMTI’s benchmark westward route implies, are getting high teens of EUR 17-18/mt on 3,000mt parcels from Klaipeda to ARAG. Fertilizers of 2,000mt have secured very strong rates of EUR 39-41/mt from St. Petersburg to Koper. Traders wonder if this is an exceptional rate or a new bench­mark. SCUK general cargoes are fixing around EUR 11-12/mt on 3,000mt to ARAG. Owners are ready to dig in for the summer, hoping last-done rates stay as the lowest bar for new freights going forward.

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A few indications of cargo rumblings in the UKC-Med on front hauls to the Far East are not enough to keep Capesize assessments from sliding to new lows of US$24,500 daily, losing almost US$ 3,000 on the first day of the week. Other rate losses aren’t quite as severe, but corrections have been coming hard and fast for owners who have little recourse but to accept terms that charterers are offering. Period charters are being more actively discussed with long term TCs going for mid-high teens of US$ 15-16,000 daily.

Derivatives traders note that Panamax FFAs for the Cal 19 contract are ‘technically bullish’ with levels approaching US$ 11,445, which would be over the 55-period average. Q3, meanwhile, is stuck in the US$11,615-11,880 range with little pressure on the top or the bottom budging levels. This is not dis­similar with what the physical market is doing at the moment, trending sideways amid very little market support, with traders mostly happy to agree to last-done levels when the odd offer arrives. Indonesia rounds remain prominent, at any rate, with Kamsar­maxes fixing over US$14,000 for Malaysia/S. China.

Handysize freights seem to be holding steady in the Atlantic despite a general lack of cargo demand and an over-tonnaged USG. Trips from the Continent to ECSA or USG and back, however, are still producing around US$ 7,500-8,000 daily on modern 28,000 dwt vessels, which is not great, but also not terrible for a functionally stagnant market. APS freights from the USG to UKC-Med via ECSA are fetching around US$ 12,000-12,500 daily on 42-46,000 dwt ships, but charterers are still applying pressure if possible.

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May Day holidays across much of the western world have taken a significant toll on the bulk carrier trade with meagre four fixtures have been available to report at midweek as market players take a break from the day-to-day bulker business. Capesizes, for their part, continue to trend downward, if the Baltic Exchange’s assessments are any indication. Conti­nental front hauls are possibly the most bearish run at the moment with more than US$ 500 off the assessment, following a few previous days of similar losses, threatening the UKC/CJK run with a level of US$ 31,000 daily before the week is through. TARV rates, meanwhile, slip to US$ 19,000 daily amid talk that US$ 18,000 daily has already been done. But who knows? Perhaps activity will bounce back yet this week when traders get back to business today.

Apart from a handful of Atlantic-based long hauls, Panamax business has stalled along with the rest of the bulker sector, leaving some of the positive mo­mentum gathered last week to fade slightly in the East. UKC-Med trips to South America and back are getting rates in the US$ 10,000 vicinity on Kamsar­max ships. Pacific-based sentiment is still moving in a positive direction, albeit very slowly. Pacific rounds are rumoured to have concluded US$ 11,000 daily.

Trends are solidly in place for the smaller bulkers as little in the way of change is perceived in the East or West as the month of May begins with anticipation. Indo rounds from South China to ECI are still mo­destly buoyant as US$ 11,000 daily is reached on the assessment for Tess 58 ships. Negative pressure, soft it may be, remains on the USG front hauls, which drift in the US$ 21-22,000 daily range on Ultramax ships with South China redel. Pacific rounds are fix­ing up to US$ 12,000 via Australia, but charterers have been having some luck with the US$ 11,000s.

Louis Dreyfus made headlines this week, announc­ing they would be exiting the Capesize market due to its excessive volatility and control by mining groups to the detriment of owners. And it’s hard to argue with their rationale. With major trades in iron ore and coal increasingly dominated by mining in­terests in South America and Australia, owners see their influence waning apace. China’s consolidation of the global steel and iron trade will also centralize Capesize interests even further. As we have seen in recent years, Cape rates are continuous roller coaster of precipitous ups and downs that seemingly never stabilize into a solid trend. The bulk carrier market is nonetheless looking a bit rosier going forward. Louis Dreyfus will continue to trade in the smaller bulker sizes of Panamax on down, where global trade re­mains diversified and subject to outside market for­ces, including owners. As if to highlight this tone of volatility, Continental front hauls leapt more than US$ 2,000 at midweek, settling in low US$ 20,000s daily on ships of 180,000 dwt on Far East redelivery.

Enthusiasm about the Panamaxes seems to have been short-lived with the steam already having left the spot market and Pacific round voyages coming under renewed pressure with cargo activity again somewhat sluggish. Standard rounds in the eastern basin are again hovering just above or below the US$ 10,000 daily line, which shipowners find borderline unacceptable. Atlantic-based freight rates are looking comparatively more stable, but also besieged by overtonnage with the owners now relenting to APS deals more often than they would like to. UKC front hauls are somewhat steady in the US$ 18-19,000 daily range, owners of 76,000 dwt vessels report.

Volatility appears to be the province of the US Gulf with Supramax rates recovering there as fast as they declined just a few weeks ago. USG front hauls are already getting low-middle US$ 20,000s daily while trans-Atlantic trips to the UKC-Med are said to be fixing upwards of US$ 17,500 daily at US$ 2,000 higher than the assessment itself, which is already in the high US$ 15,000s. Pacific rates, meanwhile, are trending sideways, better than most markets can say, with Indonesia rounds routinely fixing in excess of US$ 11,000 daily on modern Ultramax tonnage.

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Losses have been rather substantial in the eastern Handy bulk trades in the past week as the monthly switchover and widespread holidays gave charterers all the excuse they needed to get rates reduced to­ward their preferences. In the event, Supra NoPac rounds lost US$ 500 week-on-week to settle in the lower US$ 11,000s after trading high US$ 11,000s just a week earlier. Indonesia rounds, meanwhile, shed some US$ 300-500 over the week, putting the South China delivery and redelivery round in the high US$ 10,000s of about US$ 10,750 daily on tonnage of 58,000 dwt. Period chartering has been done, though intermittently, with short periods of six months getting US$ 13,000 daily on Handymax tonnage of 54-56,000 dwt from Southeast Asia.

Nickel ore business has remained fairly steady with 28,000 dwt ships getting up to US$ 12,000 daily on Indo rounds from CJK to China, brokers report. Grain rounds via NoPac have been securing around US$ 10,500-10,750 daily on ships of 38-42,000 dwt, we are told, with CJK delivery in mid-April. Handysize rates have had a bearish week, but not as harsh as among the Supras, with some US$ 100-150 down on average rates week-on-week, leaving No­Pac rounds at about US$ 9,250 daily on 36,000 dwt.

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From the Desk of a Continental Broker: The solidity of the markets’ performance is unques­tionable. Panamaxes are leading the way. Encourag­ingly, charterers continue to take tonnage from the East with a most recent peak of US$ 17,000 daily done from Mumbai area via ECSA to the East. Capers are less fortunate with rates declining. But talking in more general terms, sentiment remains unclouded. Off the Continent, scrap charterers were bidding a rate of US$ 14,500 daily for a 57,000 dwt on a trip to the East, which isn’t great, whilst ice-classed tonnage of 56-58,000 dwt vessel was being bid US$ 15,000 daily from Gibraltar via the Russian Baltic back to the Med, which is better. A Rouen/Algeria voyage for 30,000mt was rumoured as done at US$ 19/mt and equates to around US$ 10,500 daily in­cluding 450 miles of ballast to the loading port.

The Black Sea is short of Ultra-Supra vessels willing going east of Suez. But the rate structure is hardly affected with Supra tonnage worth around US$ 18-19,000 daily whilst Ultramaxes are worth around US$ 21-22,000 daily. The US Gulf is in a bit of a downward spiral. After a front haul trip on Ultramax tonnage was done at US$ 23,000 daily thence US$ 22,000 daily and US$ 20,500 daily respectively and now US$ 19,500 daily—which seems to have failed, however. A 58,000 dwt was booked at US$ 21,000 daily to WCSA, not good at all in comparison with earlier fixtures done. In line with it, Handies have also been dragged down with 32-34,000 dwt worth just about US$ 13-13,500 daily for a trip across the Atlantic or US$ 14,500 for the larger 36-38,000 dwt vessels, respectively Further, a trip to the West Coast pays around US$ 16-17,000 daily, depending on the vessel or whether charterers are jitterbugs.

In the ECSA, Ultramax tonnage has been in the limelight with Raffles surpassing everyone by book­ing an Ultra at US$ 15,750 daily plus US$ 575,000 BB to load sugar to the East. T/A rates for Supra tonnage are hovering at around US$ 17,500 daily whilst for front haul a rate of US$ 14,000 daily plus US$ 400,000 BB seems to have been agreed. In contrast, it has been very quiet on the Handy front. There appears to be no let up in the East where the owners of 28,000 dwt tonnage want US$ 10,500 for a trip from north China to India, or coal charterers rating a 37,000 dwt at US$ 10,000 daily for a quick 15-20 day employment ending Japan-Korea range.

The Red Sea has developed into the most intriguing market where every charterer risks to take a beating. Casillo has now increased its cargo size to 40-45,000mt, suiting an Ultramax-Supramax, but with the lack of tonnage in the area, the headaches to co­ver this cargo are unlikely to disappear soon.

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