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Tankers Every month we comb through thousands of pages of analyst reports to fillet out the best takeaways. Analysis of tanker fortunes has unsurprisingly been making the most headlines in April. Tankers owners are by nature masters of volatility but even so no one would have experienced the stratospheric highs reached across the board this month as producers sought floating storage options en masse amid plummeting global demand thanks to the Global Lockdown. Tanker brokers Gibson summed up the situation neatly, noting owners currently hold all the cards and the two jokers for good measure. VLCCs started earning more than $200,000 a day last week for the fourth time since the start of October last year. Clarksons Research data shows that VLCC spot earnings have now averaged over $100,000 a day since Q3 last year. The great times have been enjoyed in every segment with product tankers experiencing fixtures never seen before. “Owners remain wary, these unprecedented levels won’t last forever, but remain eager to keep pushing for every cent they can – often refusing to extend on subs past the initial agreed period. And why not? With few ships open and a huge number of vessels sporting uncertain itineraries, this really is the most extreme owners market we have ever seen,” Gibson noted in its most recent weekly report. Braemar ACM pointed out that products are going into storage relatively faster than crude is. Close to 10% of the average daily CPP liftings are now in floating storage versus about 8% for crude. Oil demand is also likely to recover erratically, with demand remaining below 2019 levels till early 2021. This will keep product stock levels high and product futures price curves in a contango for up to a year ahead, Braemar ACM predicted while investment bank Evercore ISI suggested earlier this month that floating storage could grow to cover one third of the entire tanker fleet capacity as producers work out what to do with all the redundant cheap oil. As ever, however, there are some doomsayers out there amid the popping of champagne corks. Cleaves Securities warned in a report published on Monday that next year could see a record decline in oil tanker demand leading to a collapse in earnings, asset and shares prices within 12 months. “Only the lowest orderbook since 1996 is saving oil tankers from potentially the worst downcycle in many decades,” Cleaves warned. Dry Bulk Capes fought back in April, getting close to breakeven levels, as dry bulk watched closely for signs of comparative economic normality in the sector’s most important country, China. Alphabulk noted in its most recent weekly report how China’s steel industry has rebounded strongly after its coronavirus lockdown, with capacity utilisation rates in April now verging on pre-Covid-19 levels. The capacity utilisation rate of 247 steel mills tracked by Mysteel increased for the sixth consecutive week during April 10-16, rising by the end of the period to nearly 80%. That takes the utilisation rate almost back to levels seen in late January before the Chinese New Year and the outbreak of the coronavirus. Already, the country’s steel industry had showed a surprising resilience in March. Despite fears of a collapse, mills pumped out 78.9m tons during the month, a drop of just 1.6% on the previous year, and already higher than the monthly average seen in January-February combined. Meanwhile, output for the 247 mills, plus 71 electric-arcfurnace (EAF) steel producers, rose another 2.7% to 2.7m tons/day between April 11-20, as producers moved to meet strong demand from downstream industries, especially long products used by the construction industry. The positive outlook was underlined by miner BHP which predicted Chinese steel production could even rise in 2020 versus last year if the country could avoid a second wave of Covid-19. BHP reported a 6.3% rise in iron ore production in the last quarter, and said it would maintain its full-year forecast despite the virus disruption. “Chinese steel demand is on the rise, and integrated mills are responding to more requirements particularly from construction projects,” Lorentzen & Stemoco observed late last week, pointing out that stock piles of iron ore in Chinese ports stand at below 120m tons, which account for less than a month of iron ore consumption. The market is helped by China currently importing no scrap steel, effectively raising the barriers for competing electric arc furnaces which use scrap steel into the steelmaking process and have also faced difficulties accessing migrant workers stranded because of the virus. Lorentzen & Stemoco is predicting a stronger second half for China ore imports with rising freight rates underpinning time charter interest and shoring upsecondhand prices. Breakwave Advisors has been similarly bullish this month, telling clients that it expects China iron ore imports for 2020 to end up about 3% to 5% higher following last year’s flat performance, and with capesize rates currently below $10,000 a day, there is “ample room” to see a repeat of last year’s rally when rates peaked at almost $40,000 a day in September, the American dry bulk specialists claimed. “Keeping the steel mills running for the past few months has prevented catastrophe for the dry bulk market, but stoking demand in the broader Chinese economy is necessary to keep raw material imports on the right track,” Braemar ACM noted, while also pointing out that capesizes are still steaming at around 11.2 knots on average, around 0.4 knots slower than they were going on January 1 according to AIS data. Containers 2020 is now expected to see the sharpest contraction in global seaborne container trade on record according to the world’s largest broker, Clarksons Platou, who issued a sobering box report last Friday. The massive volume of blanked sailings announced in recent weeks is set to create new records in terms of the inactive containership fleet, which analysts at Alphaliner are now saying will breach the 3m teu mark for the first time meaning some 13% of the entire global box fleet will be out of work. According to Sea- Intelligence, the volume loss alone from the record number of pandemic-linked blanked sailings will cost the top 15 carriers more than $6bn in 2020, rendering the industry loss-making in 2020, reversing the $5.9bn profit the top 15 carriers managed combined last year. Sea-Intelligence warned that a failure to prevent a simultaneous rate collapse could lead to the liner industry losing a “staggering” $23.4bn in 2020.”

Analyst Abstract

April 2020

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