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30 Sep 2011

Capesize_cargo_03_smallThe possible Greek default became again the hot news of this week as fears surrounded around the prospect of Athens not getting the next installment of bailout money ($8 billion Euro) from the European Union, International Monetary Fund and European

Central Bank due to missed fiscal targets and delays in reforms. In July, eurozone leaders announced a bailout worth 109 bn Euros on top of an 110bn Euro support granted last year with the country struggling to meet the terms of international loan package and support its existence in the eurozone. Greece’s Finance Minister was forced to deny rumours of impending bankruptcy, saying that the next two months would be "crucial for the existence" of the country. The Greek government announced that it would impose a two-year property tax to raise €2bn ($2.7bn) this year, closing a €1.7bn budget gap that the European Union and International Monetary Fund said must be resolved for proceeding to next bailout payments. Country’s prime minister reassured that the government is determined to take the difficult decisions and make the sacrifices needed in order the country to meet its deficit and economic reforms targets.
Global stocks rebounded on the statement from Germany and France to continue their support to Greece, while EU borrowed EUR 5 billion from the bond market to finance rescue loans to Portugal. In the meantime, astonishing news in the eurozone came also from Italy as the government is said to be turning to cash-rich China in the hope that Beijing will help the country’s rescue from the financial crisis by making significant purchases of Italian bonds and investments in strategic companies. Chinese premier, Wen Jiabao, speaking in the World Economic Forum in Dalian, has outlined conditions that Europe must meet before China will increase support for debt-laden Europe, in a sign of Beijing’s reluctance to be cast as a saviour for the global economy. He emphasized that China is not about to rush to the rescue of countries embroiled in debt crises of their own making. He said that European countries must take responsible fiscal and monetary policies and put their own houses in order.
In France, Moody’s cut the credit ratings by one notch of two largest banks, Societe Generale and Credit Agricole on the rumors of a possible Greek default due to their exposure to Greece’s debt, while the agency kept BNP Paribas under review stating that the bank’s profitability and capital base provides an adequate cushion for its Greek, Portuguese and Irish exposure.
In the U.S., the persistent high unemployment rate and the large increase in the poverty rate to 15.1% of U.S. population, the largest since 1993, pushed President Barack Obama to announce a $447 billion job’s package to boost economic growth and consumer spending, which accounts 70% of the economic activity. Mark Zandi, chief economist at Moody's Analytics, estimated that the president's plan would boost economic growth by 2 percentage points, add 2 million jobs and reduce unemployment by a full percentage point next year.
In emerging countries, inflation has cooled in China to 6.2% from July’s three year high inflation rate of 6.5%, whereas in India it accelerated to the highest level of 9.78% in more than a year, maintaining pressure for further interest-rate increases. Inflation in India is the highest among the so-called BRICS (Brazil-Russia-India-China-South Africa) nations and despite country’s slow economic growth borrowing costs have to be increased further to tame inflation, according to the Asian Development Bank. Policy makers have raised borrowing costs in India by 325 basis points in total since mid-March 2010, the fastest round of increases since the Reserve Bank was established in 1935, Bloomberg data show.
SHIPPING MARKET
Economic meltdown has impaired the seaborne transportation during the first half of the year. According to the Paris-based Organization for Economic Operation and Development, U.S. international seaborne trade slowed in the second quarter and ended in the first half of the year 4% down from pre-recession levels, whereas in the European Union was down 3%. The recovery in U.S. and EU volume has been led by exports to Asia, but the trade with China and Southeast Asian countries shows evidence of economic slowdown. Both sea and air exports from the U.S. to China declined between February and June 2011.
In the dry market, coking coal miners pushed their strike at BHP Billiton JV in Australia as labour talks over pay and working conditions failed disrupting operations of the three BHP Billiton Mitsubishi Alliance mines, the largest exporter of steelmaking material. Australia’s labour strife threatens now to spread across its mining industry, which may add additional pressure on the already troubled dry bulk operators who recently gained better earnings in the oversupplied capesize segment. The bolstering sentiment of the market continues, driven mainly by firmer coal and iron ore shipments from Australia to China, with the BDI posting a 43.5% rise since the end of July, reaching its highest levels from the beginning of the year as it surpassed even the 1,900 points level yesterday before falling today by 93 points due to 259
points decrease in the BCI. The BDI is still well below from the highest point level of 4,209 that the index reached on May 26th 2010. Coal imports into Japan have also increased, while the active FFA trading in recent days have also boosted the market sentiment.
Chinese iron ore imports increased 8.3% to 59.09 million tons, their highest level since March (59.5 million tons), according to China’s General Administration of Customs, while the average price of iron ore rose 2.5% in August to $177.45/ton due to strong demand. The recent pickup in iron ore imports is one of the main drivers for the remarkable rise in Capesize spot rates, up 163% from the end of July. On the other hand, China imported 16.13 million tons of coal in August, 1.4mt (-8%) less than the record 17.53mt imported in July but 2.87mt (22%) more than was imported in August 2010. However, the glut of vessels is still an issue for the dry bulk owners and the uncertainty regarding the stability of the recent recovery remains as the global economy is under severe debt crisis. There is a market belief that the rally of last days is not the start up of a rebound, but it is just a technical correction caused by a short term reduction of vessels’ availability in specific loading zones. The ongoing surge in
capesize rates is likely to ease off once spot Chinese iron ore demand declines and return to reduced levels seen at the beginning of August. Chinese iron ore port stockpiles remain robust and a large amount of iron ore will soon be delivered from vessels chartered during the second half of August. Iron ore inventories held at Chinese ports increased 27% this year to 98,6 million tons till Sept.2, according to data from Shanghai Steelhome information. Indian iron ore exports continue to suffer from the partial mining bans in Karnataka and Goa, which is a comforting factor for the revival in the capesize market. In terms of thermal coal, it is anticipated that Chinese coal demand will remain strong and thermal coal fixtures activity is likely to surge by the beginning of October due to low Qinhuangdao stockpiles and upcoming maintenance to China's coal dedicated Daqin Railway.
The BDI closed today at 1,814 points, down by 1.3% from last week’s closing and down by 32.2 % from a similar week closing in 2010 when it was 2,676 points. The BCI is down 5.5%w-o-w, BPI up 3.6% w-ow, BSI up 0.5% w-o-w and BHSI up 0.8% w-o-w.
Capesizes are currently earning $24,739/day, a decrease of $1,724/day from a week ago, while panamaxes are earning $14,014/day, an increase of $480/day. At similar week in 2010, capesizes were earning $33,812/day, up by 36.6% from current earnings and panamaxes were earning $23,525/day, up by 67.8% from today’s levels. Supramaxes are still trading at 38.8% lower levels than capesizes by earning $15,125/day, up by $476/day from last week’s closing, but are still 7.9% higher than panama earnings. At similar week in 2010, supramaxes were getting $21,041/day, hovering at discounted levels from capesize and panamax earnings. Handysizes are trading at $ 10,070/day; down by $69/day from last week, when at similar week in 2010 were earning $15,964/day.
In the wet market, the oversupply of VLCCs continues to push the market downwards and the options of super slow steaming, idling of tonnage and scrapping are considered seriously for the rebalance between supply and demand. The CEO of Frontline Mr. Jens Martin Jensen urges shipwoners to scrap around 50 double hull VLCCs that are 15yrs and even older now that the asset values are sliding and scrap prices are still firm. He also emphasizes that in order this scrapping activity to have a direct positive impact on the market the vessels have to be removed quickly. The main deficiency of the market is that the fleet grows at a faster pace than the demand. The number of VLCCs in service worldwide expanded 3.6 percent to 550 vessels this year, according to data from IHS Fairplay, whereas International Energy Agency forecasts that global oil demand will expand 1.2 % to 89.3 million barrels a day this year, cutting its previous forecast of 1.4%. In addition, JP Morgan has lowered its global oil demand outlook by 250,000 barrels/day to 88,9 million barrels/day for 2011, but its keeps its position for high oil prices as key producers rein in supplies.
The International Energy Agency (IEA) and OPEC revised down world oil demand growth to 1.0m-1.1m barrels per day for 2011 and 1.3m-1.4m barrels per day for 2012 due to weaker-than-expected driving season in the US, downward revisions in economic growth expectations and weaker-than-expected Chinese oil demand. Given the current oversupply of tonnage in the tanker market, and continued fleet growth in 2012 crude tanker rates is believed that could remain below cash breakeven levels for the next 12-18 months, as substantial ton-mile growth is need to bring the market in balance with the fleet supply. IEA stated that oil demand grew slower in the first half of 2011 amidst supply disruptions from Libya and non-OPEC production outages, but the recent market tightening could ease in the near term provided supply disruptions are resolved.
Encouraging news on the demand side is that the Organization of Petroleum Exporting Countries will increase its crude shipments by the most in almost two months to make up from the halt of exports from Libya as it won’t ask from its members to use their stockpiles again. According to Oil Movements estimates, exports from Middle Eastern producers, including non OPEC members Oman and Yemen, will be 1.6% higher at 17,36 million barrels a day in the four weeks to September 24th and crude on board tankers will average 467,79 million barrels in the four week period, up 0.3% from 466,25 million in the period to August 27th.
In the gas market, Japan's 10 utilities consumed a record 4.8m tonnes of liquefied natural gas (LNG) in August, up 15.4% from a year earlier, industry data showed, as they burned more gas to offset a fall in nuclear power generation.
In the container market, the SCFI closed last week at 1,057 points down by 1.5%, with rates for European bound cargoes down 1.4% and USWC container rates off 1.7%. Despite being in the middle of peak shipping season, partial surcharge implementation continues as ship utilization remains at lower. Maersk Line, the world's biggest container shipping company, challenges its rivals by introducing a more streamlined and frequent service without a premium surcharge on its key Asia-Europe routes.
Under the current weak freight market environment, Maesk’s move is an aggressive response to the high capacity routes by avoiding slashing rates. Major liner operators continue to refuse to lay-up tonnage for fear of giving up market share as they try to push out competitors with smaller tonnage.
According to Lloyds List Intelligence data, a total of 102 vessels / 1,3 million TEU are in operation today in the size range of 10,000-15,999 TEU. The top three operators, Maersk, MSC and CMA CGM control 78 vessels / 1 million TEU, 77% in terms of TEU capacity of these vessels, while COSCO, Hanjin, China Shipping, ZIM and USAC holds the rest of the post panamax fleet.
In the shipbuilding industry, the outlook of China’s shipbuilding segment is cloudy due to an
increasing squeeze on working capital and credit facilities, according to a Report by Shanghai
International Shipping Institute. Newbuilding prices have fallen significantly from the 2008 year’s highs, whereas shipbuilding costs have risen due to the appreciation of the Chinese yuan, higher interest rates, rising raw material and labor costs. The depreciation of the US dollar has a major effect on country’s shipbuilding sector as Chinese shipbuilding enterprises rely heavily on export business and they grasp orders priced in US dollars. The report comments that some yards may be forced to declare bankruptcy, if the value of US dollar plunges further in near term. A leading Chinese shipyard boss of Jiangsu based New Century and New Times Shipbuilding stated that time is running out for the owners, if they want to order cheap newbuilding units. He said that many yards are operating at cost levels and predicted that in the next 12 months, yards will be forced to refuse business as they cannot survive by offering such low prices.
In the shipping finance, STX Pan Ocean Co., South Korea’s largest commodities shipping company, sealed a $510 million loan with Export-Import Bank, China Development Bank Corp., ABN Amro Bank NV, DnB NOR Bank ASA, Deutsche Schiffsbank AG, BNP Paribas SA, ING Bank NV, Standard Chartered Bank Plc and Credit Industriel et Commercial, STX Pan Ocean. The funds will be used by the company to pay for 16 of the 20 vessels that will be deployed for service, starting next year, under a 25-year contract with Fibria Celulose SA (FIBR3) of Brazil. The company said it expects to secure financing for the remaining ships.
Source: Maria Bertzeletou – Golden Destiny S.A Research department

Sources:  www.Shipid.com

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