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Tankers Darkest before dawn, they say. For tanker owners it’s been black hole bleakness this February with VLCC rates in particular notching up new record low earnings repeatedly. However, is there a case to suggest that an absolute low has now been reached? Shipping analysts at Jefferies certainly think so (see chart). Likewise, Evercore is hopeful, pointing out in a recent report that the International Energy Agency estimates that OECD crude oil inventories are at seven-year lows, but after six consecutive quarters of declines the inflection point has been hit and inventories are set to increase over the next eight quarters. Evercore went back two tanker mini-cycles to early 2014, also, of note, right before OPEC started its initial efforts to put US shale out of business (unsuccessfully, of course), and although not a perfect indicator every quarter, the relationship between changes in global oil inventories and moves in VLCC spot rates (as a proxy) is “awfully tight”, Evercore stated, saying that this served as a “pretty reliable” leading indicator as to why rates will eventually start to recover this year, with more momentum likely into 2023. Another reason for optimism is the growing volume of US crude exports to Asia, something that will see tonne-mile demand improve for the hard pressed VLCC sector, according to new analysis from tanker broker Poten & Partners. In its most recent short-term energy outlook, the US Energy Information Administration forecasts that US crude oil production will rise to an average of 12m barrels per day in 2022 and 12.6m barrels per day in 2023, which would be a record on a yearly average basis. Last year, 50% of all US crude oil export cargoes were sold into Asia. “If a similar percentage of the additional 1.4 mb/d expected for 2022 and 2023 will also be transported to Asia, it will mean a major boost for VLCC ton-mile demand,” Poten suggested in a recent report. To put this in perspective, an increase in exports of 700,000 barrels per day from the US to Asia would require an additional 35 VLCCs, assuming ballast-back voyages. The same volume coming from the Middle East would require only 10 to 12 VLCCs. Near record bunker prices will have their own impact on earnings this year, something dissected this month by BRS. Data suggests that a non-scrubber-fitted VLCC voyaging on the benchmark TD3C (Middle East Gulf – China) route is currently earning a miserable $-12,800 a day while an identical scrubber-fitted VLCC performing the same voyage would be a slightly-less-miserable $6,000 a day. “If the trends indicated by current marine fuel futures curves prove correct, this suggests that the VLSFO – 380 Cst spread will average $147/mt across 2022, slightly narrower than today, but significantly above the $102/mt averaged since 1 January 2020 (basis Singapore). This suggests that, basis TD3C, the average earnings for a scrubber-equipped VLCC would average $19,500/day in 2021 compared with $11,200 for a non-scrubber-equipped unit,” BRS forecast, stressing that given today’s spreads, scrubber-equipped vessels remain desirable for both spot and time charter voyages. Putting a dampener on the darkest before dawn narrative is New York-based McQuilling Services, which has recently released its keenly read 25th anniversary edition of its tanker market outlook. Headlines from the weighty tome are that crude tankers will have to wait until 2024 before they’re profitable and asset values are set to come under even greater pressure. McQuilling is projecting spot market earnings for VLCCs to average a paltry $2,500 a day in 2022 on a non-eco, no scrubber basis and $11,000 a day for eco-designs, without scrubbers. The peak year for VLCC spot market earnings in McQuilling models has been pushed out to 2025, amid substantial supply-side support, while suezmaxes and aframaxes are projected to return healthier levels in 2022, each benefiting from increased deployment optimisation and strong inter-regional trading originating from Atlantic Basin export centres. The years 2023 and 2024 reveal improving fundamentals for crude tankers, although McQuilling is sceptical that crude tanker earnings in 2023 will rise above cash break-even levels for most tanker types. Dry Bulk In dry bulk, policy decisions out of Beijing move markets. Earlier this month, China's Ministry of Industry and Information Technology extended the timeline for peak steel industry carbon emissions from 2025 to 2030, citing the need to keep supplies of steel and other commodities stable. As a result, iron ore rallied above $150 a tonne on expectations for more infrastructure spending to soften China’s economic slowdown. “This boosted the dry bulk FFA curve for the coming years and propelled dry bulk equities to an 11% average gain,” Jefferies noted. Continued economic recovery in other parts of the world could see elevated demand for Chinese steel in 2022, Braemar ACM forecast. “With emissions limitations reduced, seaborne demand for Chinese steel may incentivise greater production in 2022 compared to the low output levels of 2H 2021,” Braemar ACM reckoned. The economic slowdown in the People’s Republic in the second half of last year was more profound than the Chinese government planned for and is comfortable with, according to a new research report from Arrow. “As such, policymakers’ focus is shifting from regulatory tightening to supporting growth again,” Arrow observed. There are early signs of it already; local government Special Bond issuances in the second half of last year was 2.5 times the amount issued in the first half. The amount raised in January alone was twice the amount raised during the first four months of last year. The sharp rise in bond issuance points to higher infrastructure spending in 2022, Arrow suggested. Containers Container shipping analysts around the world have this month been providing updates on the global port congestion picture with shippers told to brace for further hindrances going into Q2. Asia-based Linerlytica pointed out last week that while congestion has eased in most parts of Asia, it continues to escalate in North America, with both west and east coast ports reaching new record highs this month. HMM data shows continued high levels of port congestion in both Europe and North America, rendering 12.4% of the global vessel capacity unavailable. Putting this in perspective the normal, pre-pandemic state of affairs in the market is that 2% of global capacity is trapped in delays somewhere. Danish supply chain research company Sea-Intelligence has predicted that an increase in March and April in the number of vessels scheduled to deliver cargo from Asia to North America will add to port congestion for two reasons. In March and April, the number of vessels scheduled to depart Asia – and subsequently arrive on the North American west coast – will increase sharply and surpass a 40% increase compared to the pre-pandemic normality. Further, as more ships are deployed, the number of smaller ships increases. In simplified terms, it is less efficient to handle two 5,000 teu vessels than it is to handle one 10,000 teu vessel, once the time to get to and from berth is factored in. Vessel delays for ships on a full Asia – North Europe round voyage, meanwhile, are also unchanged from early November, the date of Alphaliner’s last survey of this trade. The 14,000 to 24,000 teu ships on this route still require on average 17 days more than their pro forma schedules to reach Central China for their next westbound trip.

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