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Tankers When OPEC+ announced at the start of this month that it would trim an additional 1.16m barrels per day of crude oil production from May 1, tanker owners were, unsurprisingly, disappointed, reports brokers Braemar. OPEC’s decision was described this week by Jefferies as a “headwind” for tankers. “We thought the world needed more crude from OPEC, not less,” analysts at Braemar noted in a new report this week. “The cut would mean a swift end to a freight-supportive stock-build in consumer countries, and potentially a demand-choking rise in oil prices, we thought. But the pain was expected to be short-lived. OPEC was sure to lift production before stocks reached critical levels, and the Chinese economic engine would brush off the inflationary hiccup. Now, the tanker market is not so sure.” Explaining the rationale for the cuts, Lorentzen & Co noted: “Chances are that OPEC+ had an inkling of what is about to happen, fearing demand destruction in the West and thus pre-empted developments.” What worries owners now, according to Braemar, is that, after an $8 per barrel rally to $88 per barrel on the back of OPEC’s announced cut, Brent is already back to $83 a barrel. “The fear is that it could be an indication of lower demand - a possible sign that higher interest rates and a troubled banking system are finally coming home to roost,” Braemar warned. To statistically measure the OPEC+ policy impact on crude tanker demand, analysts at McQuilling converted the potential export reduction of 385,000 barrels per day from the Middle East into equivalent vessel demand for the highest impact segments, VLCCs and suezmaxes. McQuilling views the OPEC cuts as having a “moderately negative” impact on VLCC tanker demand, emerging more so in the second half. The reduced tanker demand should be mitigated to approximately six VLCCs and between three and four suezmaxes. Dry Bulk As has been the case with China in recent years, there’s many conflicting signals for dry bulk owners to try and decipher. On the one hand, there’s plenty of evidence that commodity buying is back up, while other reports point to continued concerns in the property sector. Steel output in China grew 7% year-on-year in March and cement output increased 10% on strong demand recovery expectations. However, the downstream property industry showed some weakness with new floor area starts falling 29% year-on-year. “China's steel recovery appears to have lost momentum in recent weeks,” analysts at Jefferies warned yesterday.Chinese rebar prices had been on a gradual rise higher from the lows of $500 a ton in November to a peak of $650 a ton in mid-March; prices have since fallen to $550 a ton. China steel output reached a very high 95.7m tons in March, according to the World Steel Association, up from the 80m tons produced on average during the prior six months. “The direction of steel prices implies too much steel was produced and there continues to be unconfirmed market discussion of Chinese regulators announcing a cap on steel output for the year to match that of 2022,” Jefferies cautioned. On a brighter note, HSBC is forecasting an incremental improvement in demand for construction materials in the second half of the year, reflecting policy changes in the property sector since late last year and the ongoing infrastructure boost. Containers There is a growing consensus that container shipping has bottomed out with many indicators on the way back up after nine months of decline. Laden container exports at China's top eight ports totalled 5.2m teu in March, up 42% on February’s total, according to Drewry. This breaks a seven-month period of year-on-year decreases in laden container exports.In Drewry's opinion, the latest data from China indicates that April import port volumes due to be reported by US and European ports will be much better than in March, reinforcing Drewry’s opinion that Q1 this year marked the lowest point in demand and that traffic will now rise. Charter rates have firmed further, enquiries for secondhand tonnage remain strong, while Drewry’s composite World Container Index (WCI) increased last week by 4% to $1,773.58 per feu – the first increase in 15 weeks. “The weekly Drewry WCI index is now showing signs that the market has possibly reached a bottom and is slowly beginning to rebound on the major head-haul trades,” commented Lars Jensen, the founder of consultancy Vespucci Maritime, via LinkedIn. “We expect shipping lines to look to firm up the spot market to sustain higher contract rates in the summer,” HSBC stated in a recent report. Keen to drive business, liners are getting their ships back into action. In the first half of April, the inactive container ship fleet shrank for the third consecutive fortnightly review period, according to Alphaliner.

Analyst Abstract

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