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02-02-2019

Asia Pacific Panamax, Supramax TCEs nosedive on China slowdown

Kamsarmax and Supramax vessels, the dry bulk freight market’s two prominent carriers of raw commodities, have seen rates plummet sharply on the back of a turbulent start to the year.

The freight rates to move dry materials such as coal, grains and limestone on these vessels fell steeply in January with the time charter equivalent, or TCE, rates, assessed by S&P Global Platts, averaging only slightly higher than levels last seen in June 2017.

The TCE rate for a Kamsarmax vessel, opening for a new employment in south China, to do a trip loaded with coal via Indonesia to east coast India averaged at $7,717/day in January, down 44.4% from October’s average of $13,881/day.

Similarly, the TCE rate for a Supramax vessel, opening around Singapore, averaged at $7,901/day, which is down 39.9% from October’s average of $13,147/day.

In fact, the TCEs for all other Kamsarmax and Supramax routes assessed by Platts have collapsed by 30% to 45% in January compared with last October.
BEARISH OUTLOOK HURTING

A multitude of bearish news has trickled into the market, which has culled hopes of a recovery in the near term.

“It has been the perfect storm — uncertainties around Brexit, the US government shutdown, the US-China trade war, lack of grain demand in the Pacific, the drop in futures and stock market valuations — all of which have really affected the Pacific markets,” a ship-operating source said.

A second ship-operating source noted that the weakness in the market was evident from the fact that freight rates across the Kamsarmax and Supramax segments have trended lower this month despite a spike in bunker prices.

While a section of the market expects the rates to improve after the Lunar New Year holidays, many feel that the fundamentals are lacking any lift off on the freight levels.

“Usually coal consumption increases in China post-Lunar New Year as industries get back to operating at a better run rate. But given the decent amount of coal stocks available and the freight rates that we are currently at, it is difficult to see how much and how quickly the rates can improve,” a third ship-operating source said.

The coal stockpiles at major power plants as well as ports in China are higher by about 50% as compared with the previous year, according to sources tracking inventory data. A warmer than usual winter in China has reduced the demand for heating.

Any possibility of an upside in China’s coal imports this year looks subdued at the moment with Beijing placing a cap on monthly import volumes instead of putting a limit on the annual intake.

“There has been quite some opportunistic coal buying from India over the past month and quite a few shipments have been concluded. But this has done little to improve the rates,” the second ship-operator said.

GRAIN DRAIN STARVING BULKERS

Fewer grain cargoes for loading over January and February out of the US and east coast South America, and quick drop on the trans-Atlantic routes have further compounded the weakness seen in the Asia Pacific. Vessels found little impetus to ballast out of the region due to firming bunker prices and lower returns in the Atlantic Basin.

Adding further to the woes is the plunge in China’s soybeans imports during the opening weeks of January compared with recent years, which is increasing the unemployment of vessels and creating surplus tonnage supply.

One of the reasons for China’s dwindling soybeans imports, a main source of animal feed, was the swine flu outbreak during August, which saw authorities culling close to a million pigs. Market watchers expect soybeans demand to stay anemic at least until Q2 of this year.

“The rates in Atlantic basin have dropped lower brutally. Having a Supramax ship in the Persian Gulf is paying similar to US Gulf Coast,” a fourth ship-operating source said.

Many market participants have expressed concerns over the current state of affairs, where it is becoming very difficult to find employability for ships.

“It has never been like this before. There was always a place to [reposition the ships into],” a Singapore-based ship-operator said. “Period ships are being re-delivered to owners in the Atlantic as they are big time out of money even to do front hauls,” the source added.

A spate of economic indicators from China such as tottering industrial activity and slowing factory price growth expansion are bad news for the dry freight market. Drop in industrial demand would reflect sluggish consumption of raw materials that are primarily moved in dry bulk vessels.
GROWING VESSEL SUPPLY

The supply of bulkers grew by about 3.2% in 2018 despite new deliveries hitting a decade low at 23.3 million dwt as demolition volume stayed at 4 million dwt.

“Based on our current assumptions, the dry bulk fleet could grow around 3%-4% in 2019,” a report by shipbrokers Banchero Costa said.

“In 2019, dry bulk deliveries are expected to increase to 37-38 million dwt. Demolitions could see an increase this year after hitting a bottom in 2018, especially if complying with the Ballast Water Management Convention and upcoming IMO 2020 sulfur cap prove too costly,” the report added.
Source: Platts

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