Golden Destiny Market Report/Analysis- Week 44/14 ending November 7th

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GDGlobal Economy:

Eurozone:  The European Commission slashed its economic growth forecasts for the Eurozone this week and predicted growth of only 1.1% for 2015, down from a previous forecast of 1.7% six months ago. The commission acknowledged the EU economy was not only “particularly weak” as compared with other developed countries, but was also underperforming compared with other post-crisis recoveries. The forecasts for Germany and France, the two main engines of euro growth, were among the sharpest downward revisions. For Germany, the forecast for its GDP growth was cut from 2% in May to just 1.1% and for France to 0.7% from 1.5%.
Ireland, which emerged from its bailout last year, is expected to grow 3.6% in 2015, the fastest in the EU; similarly Greece, , is forecast to expand 2.9%.

The inflation rate In the Euro Area was picked up slightly in October at 0.40%, but remains far below the official target of 2%. Inflation Rate in the Euro Area averaged 2.17 Percent from 1991 until 2014, reaching an all time high of 5 Percent in July of 1991 and a record low of -0.70 Percent in July of 2009.

 

US:  The U.S. Treasury Department said its borrowing from October through December will be the lowest for the period in seven years as the economy gains momentum, boosting tax receipts. The Treasury plans to issue $232 billion in net marketable debt in the final three months of this year, about $45 billion more than projected three months ago and the lowest since 2007, it said and for the next quarter, the Treasury plans to borrow $209 billion, the department said.

U.S. budget deficits have been falling since 2009, and the 2014 deficit was 2.8% of gross domestic product, according to the Congressional Budget Office, which is significantly down from 9.8% of GDP in 2009. “The strengthening of economic conditions in recent years has occurred alongside a faster-than-expected reduction in the federal government budget deficit,” Karen Dynan, the Treasury’s chief economist, said in a statement. “The U.S. economic recovery continues to move solidly forward.”

China: HSBC China Manufacturing PMI indicated weaker expansion of output and new orders, while new export business expanded at the slowest pace since June. The HSBC Purchasing Managers’ Index ended at 50.4 in October, up slightly from 50.2 in September and unchanged from the earlier flash reading.   Commenting on the China Manufacturing PMI™ survey, Hongbin Qu, Chief Economist, and China & Co-Head of Asian Economic Research at HSBC said:

“The HSBC China Manufacturing PMI rose to 50.4 in the final reading for October, up from 50.2 in September, and unchanged from the flash reading released earlier. Compared to the flash readings, the new orders and new export orders sub-indices saw small downward revisions, but both remained in expansion territory. Meanwhile, the employment and inventory sub-indices saw small upward revisions. Overall, the manufacturing sector continued to stabilize in October; however the sequential momentum likely weakened. The economy still shows clear signs of insufficient effective demand. We still see uncertainties, given the property downturn as well as the slow pace of global recovery, and expect further monetary and fiscal easing measures in the months ahead.”

Compared with HSBC China Manufacturing PMI, China’s Official Manufacturing PMI dropped to 50.8 in October, from 51.1 in September, according to the China Federation of Logistics and Purchasing, which issues the data with the National Bureau of Statistics, indicating that China’s manufacturing sector continued to maintain steady growth in general.

 

 

Shipping:

Brazilian miner Vale is reviewing its investment plans for selling more of its valemax ore carriers and ordering additional newbuildings to cater Chinese iron ore shipping demand.

According to José Carlos Martins, Vale’s executive officer of ferrous and strategy the company currently has 35 vessels in operation. A transcript of a third quarter analyst call on Seeking Alpha quoted him as saying, “we are negotiating in order to sell some of them, some of them to some shipowners in China they have two agreements already in place”. He added their plan was to move “step-by-step” in this regard.In September Vale announced it was selling four VLOCs to Cosco, with long term charter back contracts, and the Chinese shipowner would also order 10 more similar vessels for charter to the Brazilian miner. Later in the same month an agreement was announced with China Merchants for it to also order 10 VLOCs for charter to Vale.

Positive news emerged this week for dry bulk segment and Chinese steel demand suggesting that China is planning a $16,3bn fund of infrastructure liking its markets to three continents. The fund, overseen by Chinese policy banks, will be used to build and expand railways, roads and pipelines in Chinese provinces that are part of the strategy to facilitate trade over land and shipping routes, according to government officials who participated in drafting the plan. More policies will be rolled out soon to encourage Chinese lenders to finance infrastructure in countries along the route connecting China to Europe, said the officials. They asked not to be identified as they weren’t authorized to speak publicly about the plans. Chinese companies will also be urged to invest in the countries and bid for contracts, the officials said.

Dry Segment:  Brazilian iron ore fixture volume maintains very healthy activity, while the panamax segment is adding strength from grain and coal cargoes surfacing in the market. Overall dry bulk spot chartering activity is on increase and 128 vessels were chartered to haul dry bulk commodities in the spot market last week, 28 more than the previous week, according to Commodore Research. In addition, 13 vessels were chartered for period deals, 6 more than the previous week. 1 was for a period of a year or more. In the iron ore market, 40 vessel fixtures came to the market last week, 6 more than the previous week and 10 more than the trailing four week average. 36 of last week’s iron ore fixtures were for capesize vessels, 2 more than the previous week and 8 more than the trailing four week average.

Meanwhile, Chinese iron ore port stockpiles are on decrease and stand at approximately 100.5 million tons, 1% down from last week but up by 27% year-on-year. Chinese iron ore fixture volume shows stronger levels and last week ended with 33 vessels being chartered to haul spot iron ore cargoes to Chinese buyers, 4 more than the previous week and 7 more than the trailing four week average.  Chinese coal port stockpiles are also on decrease and stand at approximately 5.2 million tons, 7% down from the previous week. Prospects for Chinese coal demand seem less promising than iron ore as the coal import tariff and the increase in power plant coal stockpiles have impaired the levels of Chinese thermal coal fixture activity.

Capesize sentiment is expected to remain strong for the fourth quarter of the year as Brazilian iron ore exports are estimated to reach at least 104 million tons till the end of the year, which would be 11.5 million tons more than was exported during the third quarter of the year (up by 12% q-o-q). Overall for the first three quarters of the year, Brazilian iron ore exports increased by more than 6% and an overall growth of 10% in iron ore exports are expected for the full year. In Western Australia, October figures from Pilbara Ports Authority showed combined total tonnage for the two giant ports of 53.3m tonnes, of which 50.1m tonnes was iron ore exports, 29% up from the same period last year. In addition, prospects for Indian coal imports are particularly promising in the near term for capesize and panamax segments, as power plant coal stockpiles in India remain at critically low levels while thermal coal import prices remain extremely low. Also encouraging in India is that Indian iron ore imports are now expected to rise as earlier anticipated.

On Friday November 7th, BDI closed at 1437 points, up by 1% from last week’s closing and down by 8% from a similar week closing in 2013, when it was 1525 points. All dry indices closed in red, apart from the capesize segment.  BCI is up by 3% week-on-week, BPI is down by 4% week-on-week, BSI is down 1% week-on-week, BHSI is down by 3% week-on-week.

 

 

Capesizes are currently earning $26,105/day, up by $1,692/day from last week’s closing and panamaxes are earning $9,480/day, down by $103/day from last week’s closing. At similar week in 2013, capesizes were earning $19,762/day, while panamaxes were earning $12,503/day. Supramaxes are trading at $9,209/day, down by $117/day from last week’s closing, about 65% lower than capesize and 3% lower than panamax earnings. At similar week in 2013, supramaxes were getting $13,754/day, hovering at 30% lower levels than capesizes versus 65% today’s lower levels. Handysizes are trading at $6,629/day, down by $210/day from last week’s closing; when at similar week in 2013 were earning $9,708/day.

Wet Segment: Seasonal winter demand and low oil prices are boosting crude sport rates with the Caribbean aframax segment recording new highs and being benefited also from weather delays.

In the VLLC segment, rates in AG-USG showed a firm increase this week and moved up by 7 points to W 30. Rates in AG-USG reached such high levels for the first time since the beginning of March. Increasing trends are also recorded In AG-SPORE and AG-JPN routes, and rates gained 11 points from previous week and rose to W 57.5. In WAFR-USG route, rates showed an increase of 5 points to WS65 and In WAFR-China route, rates stayed moved up by 5 points to WS 57.5.

In the suezmax segment, rates in WAFR-USAC gained 10 points and concluded at WS75 last week, although there is still more need for improvement in order to reach and surpass levels of WS 100. In the aframax segment, rates in the Caribbean market accelerated to WS 165, up by 15 points from previous week fetching again the highs of mid-July.

 

Route                    Vessel Size

VLCC:    AG-USG               280,000t               WS 30      (last week WS 23)          Upward Trend

AG-JPN                                265,000t               WS 57.5   (last week WS 46.5)     Upward Trend

AG-SPORE           270,000t               WS 57.5   (last week WS 46.5)     Upward Trend

 

WAFR-USG         260,000t               WS 65      (last week WS 60)          Upward Trend

WAFR-China       260,000t               WS 57.5   (last week WS 52.5)     Upward Trend

 

Route                    Vessel Size

Suez:     WAFR-USAC       130,000t               WS 75    (last week WS 65)            Upward Trend

B.SEA-Med         130,000t               WS 77.5 (last week WS 67.5)       Upward Trend

Route                    Vessel Size

Afram: CBS-USG              70,000t                 WS 165   (last week WS 150)        Upward Trend

Med-Med           80,000t                 WS 120   (last week WS 80)          Upward Trend

 

Route                    Vessel Size

Clean:   AG-JPN                               75,000t                 WS 135    (last week WS 112.5)   Upward Trend

AG-JPN                                55,000t                 WS 132.5 (last week WS 127.5)   Upward Trend

 

LNG Segment:

Tight supply of LNG is expected to persist until 2016 due to outages in production trains worldwide and high winter demand. Speaking at the Gas Asia conference in Singapore yesterday, IHS Energy Insight director (global gas and LNG) Tony Taylor said, “The supply-demand balance will depend on new supply from Australia and the return of nuclear power in Japan.” After the earthquake in March 2011, serious damage at the nuclear plant in Fukushima resulted in all nuclear reactors going offline in Japan, sparking a surge in LNG demand. At the same time, LNG demand is growing in China, India and Southeast Asia. Taylor predicted, “Balance will return to the market post-2016, as new Australian LNG supply pushes volumes from the idle East and Atlantic out of the Asian markets. Over the long term, there might be competition among suppliers.” IHS Energy Insight data shows that total LNG supply could grow to over 1.1Bn tonnes post-2016 as supply from new projects in Australia, North America, Russia, and potentially East Africa, comes on stream. In the short term, however, the lack of new LNG supply and the deliveries of LNG carriers ordered speculatively post-Fukushima have depressed freight rates. At their peak, freight rates were over $125,000/day on a spot basis. Currently, freight rates have dived to $66,000/day for shipments from the Arabian Gulf to the East-of-Suez and $80,000/day to the West-of-Suez. IHS Maritime’s Sea-web data shows 35 LNG carriers would be delivered this year, taking the active fleet to 414 ships.

Container Segment: November General Rate Increases pushed up Asia-Europe box rates at remarkable levels, and the question is the sustainability of these rates till the end of the year as indications are showing slower container demand for the Christmas period.

The Shanghai Container Freight Index moved up and broke the barrier of 1,000 points after five straight weeks of sharp decline. The index showed a firm performance for the first time since week ending September 12th, due to outstanding weekly increases for Asia-Europe and Asia-Med routes. In transpacific routes, Asia-USWC route recorded significant weekly decrease.

In Asia-Europe route, rates increased to $1312/TEU, up by $615/TEU (88% w-o-w) and in Asia-Med, rates moved up by $480/TEU (51% w-o-w) and concluded at $1416/TEU. The levels in Asia-Europe route are now down by $143/TEU from the beginning of August and down by $192/TEU in Asia-Med route. Asia-Europe and Asia-Med rates touched again record highs in beginning August-March at levels of about $1,600/TEU in Asia-Europe and $2,200 in Asia-Med route.

In transpacific routes, rates moved down by $121/FEU (6% w-o-w) in Asia-USWC and down by $71/FEU (2% w-o-w) in Asia-USEC route. Rates in Asia-USWC route concluded at $1,988/FEU and $4,048/FEU in Asia-USEC route. Compared with the beginning of August, rates in Asia-USWC route are now down by $210/FEU and down by $130/FEU in Asia-USEC route. Rates in Asia-USWC fell below the barrier of $2000/FEU at the end of October and in Asia-USEC route, rates are keeping levels above $4,000 since the beginning of August.

 

 

Shipbuilding:  

China’s vessel exports fell 11.7% year on year to $18.6Bn in the first nine months, according to customs statistics. The drop widened by 1.8 percentage points during the period compared to that posted for the first eight months. China exports the majority of the newbuildings produced at its shipyards. Among the total exports, bulk carriers, tankers and container ships accounted for 62.8% with $1.2Bn. The exports of floating and semi-submersible drilling rigs and production platforms increased by 93% year-on-year to $910M in the first nine months. For imports, the figure decreased by 43.3% y/y to $830M in the first nine months. Among the total imports, old vessels and other floating structures imported for demolition decreased 53.3% y/y to $260M during the same period, due to the depressed ship breaking market in China.

Shipping Finance:

Ship financing deals: Korea Line Corporation (KLC) has secured a combined loan worth KRW230Bn ($215.6M) to build four Capesize bulk carriers from Korea Development Bank and Korea Export-Import Bank. The funds will be used to build one 180,000dwt bulk carrier and three 207,000dwt bulk carriers at South Korean yard Daehan Shipbuilding. These ships are slated for delivery from 3Q15. According to KLC, it plans to fix more loans worth $50M to build two Ultramax bulk carriers in1H15.

Seaspan announced a $220MM lease financing deal with Asian special purpose companies (SPC), securing financing for two recently delivered 10,000 TEU containerships, the MOL Bravo and MOL Brightness. Following the recent transaction, SSW still has ~$750MM of remaining unfinanced capex requirements through 2016.

Capital Market:

Scorpio Tankers Inc. announced that it plans to offer senior unsecured notes due 2017 (the “Notes”) in a registered public offering. The Company intends to use the net proceeds from the offering for general corporate purposes and working capital, which may include the acquisition of additional new or secondhand vessels.

DryShips Inc. announced that it closed the previously announced offering of 250,000,000 shares of its common stock (the “Offered Shares”). The Company also recently announced the pricing of the Offered Shares at $1.40 per share. RS Platou Markets, Inc. and Pareto Securities Inc. acted as joint lead managers, joint bookrunners and placement agents in the offering. ABN AMRO Securities (USA) LLC acted as joint lead manager and placement agent. DVB Capital Markets LLC acted as co-manager and placement agent. RS Platou Markets AS and Pareto Securities AS acted as placement agents. The total net proceeds to the Company from the offering, after deducting offering fees and expenses, were approximately $333.7 million. The Company intends to use the net proceeds from the offering to repurchase a portion of its $700.0 million principal amount of indebtedness under the 5.0% Convertible Senior Notes maturing on December 1, 2014.

Navios Maritime Midstream Partners L.P. (“Navios Midstream”), a recently formed wholly-owned subsidiary of Navios Maritime Acquisition Corporation (“Navios Acquisition”) an owner and operator of tanker vessels, announced that it has commenced an initial public offering of 8,100,000 common units representing limited partner interests in Navios Midstream pursuant to a registration statement on Form F-1 filed with the U.S. Securities and Exchange Commission (the “SEC”). Navios Midstream expects to grant the underwriters a 30-day option to purchase up to an additional 1,215,000 common units. The initial public offering price is currently expected to be between $19.00 and $21.00 per common unit. The common units have been cleared for listing on the New York Stock Exchange under the symbol “NAP.” The proceeds from the offering will be used primarily to fund a portion of the purchase price of the capital stock in the subsidiaries of Navios Acquisition that own vessels that will comprise Navios Midstream’s initial fleet of very large crude carriers, or VLCCs.

Companies News:

Container shipping player Seaspan is eyeing on the construction of ultra large containerships in the range of 18,000 TEU to 20,000 TEU. During the company’s third quarter earnings call Seaspan cfo Sai Chu said, “we’re also looking at the larger size which is the 18,000 to 20,000 teu we’ll see what happens over the next three to six months and I think is no secret we are actually looking at that class as well”. Chu compared the 18,000 teu plus class ship to the Airbus A380 in the civil aviation sector and that there would be a limited number of charterers and a limited number of routes it could serve. “But we’re looking at that asset class as well, because there are also limited operator and owners to be able to put their hands on such technologically advanced and larger vessels.” “As we progress through the remainder of 2014, we are pleased to have signed all of our newbuildings to fixed-rate time charters, increasing our total committed revenue to $6.6bn. With a strong balance sheet and capital structure, we remain well positioned to further solidify our position as the largest containership supplier,” said Gerry Wang ceo of Seaspan.

MITSUI OSK Lines has confirmed it is in advanced talks to charter containerships of 18,000 teu or larger from Seaspan or Japanese lessors as part of the G6 alliance’s drive to reduce unit cost to compete with other alliances. Among container alliances, the group of MOL, Hapag-Lloyd, NYK Line, OOCL, APL and Hyundai Merchant Marine has the smallest average vessel size, so some member lines have been talks about larger containerships for months. In an exclusive interview with Lloyd’s List, MOL managing executive officer Masahiro Tanabe said his company is “ready to place those biggest containerships in certain trades to stay cost competitive… sooner than later,” while suggesting a firm decision will be made by the end of the year.

Maritime Piracy:

Seven crewmen from Asphalt Venture held for four years in Somalia have been released and are safe in Kenya, according to the Maritime Piracy Humanitarian Response Programme (MPHRP). Somali pirates continue holding 30 seamen some of them captive for more than four and a half years. The 1991-built 3,883-dwt asphalt tanker was hijacked off Somalia in September 2010 with 15 people crew.

After what the MPHRP describes as “lengthy negotiations” the remaining crew were released last night and arrived in Kenya this morning, reported Lloyd’s List, adding that the pirates had only received money to pay their fares to safety. It appears that in this case the pirates realised that there was little chance that continuing to hold the crew would secure a large ransom, said the Lloyd’s List report.

“After more than four years in captivity we are delighted for them and their families after the terrible ordeal and hardship that they have suffered,” said MPHRP chairman Peter Swift. “The tremendous efforts and generous support of all those who helped to secure their release and safe return are greatly appreciated, including the team at Holman Fenwick Willan [London law firm] who stepped in on a pro bono basis to help make this happen,” he said.

 

Maria Bertzeletou
Shipping Analyst