“This Week’s Snapshot on the economic and shipping environment” Golden Destiny Market Report/Analysis- Week 43/14 ending October 31st

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GDGlobal Economy:

US shale oil output surged to the highest level since 1980s. Output rose 0.4% to 8.97 million barrels a day, according to weekly Energy Information Administration estimates that began in January 1983. The EIA’s monthly data, which goes back to 1920 and is based on data collected by state and federal agencies, shows production at the highest since 1986. The combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies from shale formations in the central U.S., including the Bakken in North Dakota and the Eagle Ford in Texas. The surge in production has helped push oil prices down 16 percent this year to a two-year low on Oct. 27.

Eurozone:  Twenty five of the Eurozone’s largest banks failed the Comprehensive Assessment made by the European Central Bank for testing the health of the region’s financial system by exposing a 25bn euro ($31.7 bn) shortfall in their books. However, 12 of the 25 banks have already covered at some levels their capital shortfall and the other 13 banks have to submit a plan to the ECB for bolstering their capital and bridge the financial gab. Of the 13 banks, Italy appeared to be facing the biggest challenge with nine of its backs on the blacklist. Other than Italy, banks in Greece, Cyprus, Belgium, Slovenia, France, Austria, Germany, Ireland and Portugal also need to raise money in the next two weeks.

US:  The world’s largest economy surprised for one more quarter as fresh estimates suggest that the US economy expanded at an annualized rate of 3.5% in the third quarter of 2014 supporting the US Federal Reserve’s decision to end its third round of quantitative easing on Wednesday.
“What’s hurting the American people is that two stronger quarters in a row isn’t making up for the anaemic 2.3 per cent economic growth over the past year and 2.3 per cent annual rate for the entire disappointing Obama recovery,” he said.

Japan:  Industrial production rose 2.7% on month, above expectations for a 2.2% rise and up from a 1.9 percent decline in August, marking the fastest expansion since January. Following the release the Japanese government said that industrial production is “seesawing.” “[This trend of seesawing] is clearly what we see, but today’s data is strong… Overall on a month-on-month basis, retailers and producers are up. We’re seeing now that production is picking up as well,” said Martin Schulz, Senior Economist at Fujitsu Research Institute.

Japanese manufacturers see October output down 0.1% month on month, slightly better than their previous forecast for a 0.2% decline, according to the Ministry of Economy, Trade and Industry, while  output is expected to rise  1.0% month on month in November. Meanwhile, the Bank of Japan unexpectedly announced this week additional stimulus measures and bolstered its asset purchases for the time in over and a half year as its 2% inflation target seems unreachable. The Japanese central bank said it would step up its asset purchases so that the monetary base expanded at an annual pace of Y80tn ($724bn), rather than Y60-70tn as in the past.

China: Financial Times reported that the world’s second largest economy is going to invest £105bn in UK infrastructure by 2025, with energy, property and transport being the biggest recipients.
The world’s second-biggest economy has already invested £11.7bn in Britain between 2005 and 2013, including a 10 per cent stake in Thames Water, Britain’s biggest water utility, held by the China Investment Corporation, the sovereign wealth fund.

Shipping:

Moore Stephens estimated an increase in vessel operating costs for the next two years:

Vessel operating costs are expected to rise by almost three per cent in both 2014 and 2015, according to a new survey by international accountant and shipping consultant Moore Stephens. The survey is based on responses from key players in the international shipping industry, predominantly shipowners and managers in Europe and Asia. Those responses revealed that vessel operating costs are expected to increase by 2.9 per cent in both 2014 and 2015, with crew wages and repairs & maintenance the cost categories likely to increase most significantly.

Crew wages are expected to increase by 2.4 per cent in 2014 and by 2.6 per cent in 2015, with other crew costs thought likely to go up by 1.9 per cent and 2.1 per cent respectively for the years under review. The cost of repairs & maintenance, meanwhile, is expected to escalate by 2.3 per cent in 2014 and by 2.4 per cent in 2015.

P&I insurance costs are expected to go up by 2.0 per cent in 2014 and by 2.2 per cent in 2015, this compared to the increases of 1.6 and 1.8 per cent respectively predicted in respect of the cost of hull & machinery insurance. Drydocking costs are expected to rise by 2.1 per cent in 2014 and by 2.2 per cent in 2015, while expenditure on spares is expected to increase by 2.1 per cent and by 2.2 per cent over the same period. Meanwhile, respondents anticipate increases of 1.7 per cent and 2.0 per cent respectively in the cost of lubricants in the two years under review. The cost of stores is expected to increase by 1.7 per cent and 1.9 per cent respectively for 2014 and 2015. In last, management fees are deemed likely to produce the lowest level of increases in both 2014 and 2015, at 1.2 per cent and 1.5 per cent respectively.

Dry Segment:  A surge in Brazilian iron ore fixture activity bolstered the capesize segment and Baltic Dry Index last week. In the panamax segment, a large amount of coal and grain is benefiting the market, but charter rates remain at extremely low levels. According to Commodore Research, 100 vessels were chartered to haul dry bulk commodities in the spot market last week, 15 less than the previous week. In addition, 7 vessels were chartered for period deals, 3 more than the previous week.

In the iron ore market, 34 more fixtures came to the market (29 iron ore vessel fixtures to China), 5 more than the previous week and 7 more than the trailing four week average. All 34 of last week’s iron ore fixtures were for capesize vessels, 8 more than the previous week and 9 more than the trailing four week average. Chinese iron ore port stockpiles are in a decreasing trend and stand at approximately 101.1 million tons of iron ore, but remain at near record levels – up by 30% year-on-year.

Positive development for the capesize segment and the performance of BDI is recent news suggesting that Indian iron ore imports are now tending to increase at a high pace. Last week, JSW announced that Indian imports are now set to rise to as much as 900,000 tons per month as a domestic iron ore shortage remains ongoing in India and iron ore import prices are very attractive. In addition, prospects for Indian coal imports are also very promising in the near term, as power plant coal stockpiles in India remain at critically low levels while thermal coal import prices remain extremely low. Furthermore, Anglo American Minas Rio iron ore production announced that it has begun exporting iron ore mined at its new Minas Rio mine that will bring more shipments for November and December shipments and further demand for spot capesize vessels.

 

On Friday October 31st, BDI closed at 1428 points, up by 20% from last week’s closing and down by 6% from a similar week closing in 2013, when it was 1525 points. Capesize and panamax dry indices closed in green; the largest weekly increase is recorded in the capesize segment.  BCI is up by 47% week-on-week, BPI is up by 10% week-on-week, BSI is down 1% week-on-week, BHSI is down by 4% week-on-week.

 

 

Capesizes are currently earning $24,413/day, up by $8,302/day from last week’s closing and panamaxes are earning $9,883/day, up by $912/day from last week’s closing. At similar week in 2013, capesizes were earning $17,978/day, whilepanamaxes were earning $13,031/day. Supramaxes are trading at $9,326/day, down by $86/day from last week’s closing, about 62% lower than capesize and 6% lower than panamax earnings. At similar week in 2013, supramaxes were getting $13,307/day, hovering at 26% lower levels than capesizes versus 62% today’s lower levels. Handysizes are trading at $6,839/day, down by $314/day from last week’s closing; when at similar week in 2013 were earning $9,439/day.

Wet Segment: Seasonal winter demand seems to support crude freight rates with the Caribbean aframax segment recording a very firm performance.

In the VLLC segment, rates in AG-USG keep a soft upward picture and moved up slightly for a second week, only by 0.5 points to W 23. Softness in the increasing trend is also recorded In AG-SPORE and AG-JPN routes, rates gained 1.5 points from previous week and rose to WS46.5. In WAFR-USG route, rates showed no change and stayed at WS60 and In WAFR-China route, rates stayed moved up by 2.5 points to WS 52.5.

In the suezmax segment, rates in WAFR-USAC lost 12.5 points and concluded at WS65 last week, although European demand from the plunge in benchmark brent crude prices led to stronger fixture activity. In the aframax segment, rates in the Caribbean market recorded a remarkable weekly increase for a second straight week and rose to WS150, up by 17.5 points from previous week.

 

Route                    Vessel Size

VLCC:    AG-USG               280,000t               WS 23      (last week WS 22.5)      Upward Trend

AG-JPN                                265,000t               WS 46.5   (last week WS 45)         Upward Trend

AG-SPORE           270,000t               WS 46.5   (last week WS 45)         Upward Trend

 

WAFR-USG         260,000t               WS 60      (last week WS 60)          Steady

WAFR-China       260,000t               WS 52.5   (last week WS 50)         upward trend

 

Route                    Vessel Size

Suez:     WAFR-USAC       130,000t               WS 65    (last week WS 77.5)        Downward Trend

B.SEA-Med         130,000t               WS 67.5 (last week WS 87.5)       Downward Trend

Route                    Vessel Size

Afram: CBS-USG              70,000t                 WS 150   (last week WS 132.5)    Upward Trend

Med-Med           80,000t                 WS 85     (last week WS 100)        Downward Trend

 

Route                    Vessel Size

Clean:   AG-JPN                               75,000t                 WS 112.5 (last week WS 110)      Upward Trend

AG-JPN                                55,000t                 WS 127.5 (last week WS 125)      Upward Trend

 

After the firm recent slide in the benchmark brent crude oil price at levels of less than $80/barrel, crude oil Barclays has revised down the price forecasts for the first half of 2015. Barclays lowered its Q1 and Q2 brent crude forecasts to $88 (previous: $95) and $87 (previous $92) respectively.

LPG Segment: LPG spot rates keep levels above $100 per ton -$92,000/day in the benchmark route Middle East to Asia despite a slowdown in fixture activity and a moderate availability of open vessels in the Middle East region for early November. A recent noteworthy last done fixture was for M/T “G SYMPHONY” taken by Indian Oil Corp for a Ras Laffan to west coast India east coast India voyage between November 11-12 for the remarkable rate of $130/ton.

Container Segment:

HONG KONG’s Orient Overseas Container Line (OOCL) has announced in a notice to trade that it will withdraw Loop 6 on Week 48 (ETA Kaohsiung on 23 November) on the Asia-North Europe service.

The company said it was doing this in view of the expected low demand during the Christmas period, adding that further information, could be secure though the company’s local representatives.

The Shanghai Container Freight Index remains below the barrier of 1,000 points for five straight weeks, with downward pressure in all main routes. However, the index showed a very soft increase of only 5 points, due to upward momentum in secondary trading routes, in the previous week and moved up to 967 with rates in Asia-Europe falling below $700/TEU for the first time since October 2013.

In Asia-Europe route, rates now dropped to  $697/TEU, down by $8/TEU (1% w-o-w) and in Asia-Med, rates moved down by $29/TEU (3% w-o-w) and concluded at $936/TEU. The levels in Asia-Europe route are now down by $758/TEU from the beginning of August and down by $672/TEU in Asia-Med route. Asia-Europe and Asia-Med rates touched again bottom lows in Mid-March at levels of less than $900/TEU.

In transpacific routes, rates moved down by $30/FEU (1% w-o-w) in Asia-USWC and down by $27/FEU (1% w-o-w) in Asia-USEC route. Rates in Asia-USWC route concluded at $2,109/FEU and $4,119/FEU in Asia-USEC route. Compared with the beginning of August, rates in Asia-USWC route are now down by $89/FEU and down by $68/FEU in Asia-USEC route. Rates in Asia-USWC remained above the barrier of $2000/FEU from last week and in Asia-USEC route, rates are keeping levels above $4,100/FEU in the last two weeks.

 

Shipbuilding:  The merger of Samsung Heavy Industries and its affiliate Samsung Engineering has been approved, following extraordinary general meetings the two units held. The merged entity will be officially launched on 1 December. SHI, the world’s second-biggest shipbuilder, officially announced plans to acquire Samsung Engineering in a KRW2.5Trn ($2.5Bn) deal during a board meeting on 1 September, aiming to create a world-class solutions provider for shipbuilding and onshore and offshore services.

In China, Jiangxi Jiangzhou United Shipbuilding, a subsidiary of Hong Kong-listed China Ocean Shipbuilding Industry Group, has teamed up with compatriot Jianglian HI (JHI) to develop liquefied natural gas carriers in the Jiangxi Province, China. According to a non-binding framework agreement, JHI may rent facilities and yards from Jiangxi Jiangzhou United to produce single containment LNG tanks and large-sized non-standard containers. The parties will jointly develop LNG carriers, LNG fuelling stations, carriers adapted for ship-to-ship LNG transfer and modification of dual-fuel LNG carriers.

Shipping Finance: German ship lender HSH Nordbank is reported to have passed a stress test by the European Central Bank as 10 billion euros ($12.7bn) state guarantees are secured from the troubled maritime industry. “The replenishment of the guarantee from 7 to 10 billion euros by the federal states of Hamburg and Schleswig-Holstein in summer 2013 made a substantial contribution” to HSH passing the ECB test, the bank said in a statement. Only one of the 24 German banks failed the stress test: Muenchener Hypothekenbank eG. German shipping lenders Commerzbank AG (CBK) and Norddeutsche Landesbank Girozentrale also passed the health test and boosted further the shipping confidence in the German banking system after almost 6 years of serious financial turmoil.

Ship financing deals:

With reference to company announcement no. 15 dated 29 September 2014, TORM has recently entered into an agreement with a group of its current lenders, representing 61% of TORM’s ship financing, and Oaktree Capital Management (Oaktree) regarding a possible restructuring of TORM. The final terms of the proposed transactions to implement a restructuring of TORM will be subject to further negotiations between the relevant parties. At this stage, the restructuring is expected to stipulate that the lenders will initially write down the debt to the current asset values in exchange for warrants and may elect to convert part of the remaining debt into new equity in the Company. Oaktree would contribute product tanker vessels in exchange for a controlling equity stake in the combined Company, which will reinforce TORM’s position as one of the largest owners in the product tanker segment. The agreement also envisages a new working capital facility.

Capital Market:

Ridgebury Crude Tankers LLC listed its first bond issue on Nordic ABM this week. Ridgebury Tankers has a fleet of modern crude and product tankers.  The Westport, Connecticut company continues to acquire vessels with primary focus on medium range (MR) refined product carriers and Suezmax crude carriers. The bond loan  is an issue of USD 210 million with a coupon rate of 7.625 % p.a., with maturity in March 2017. DNB Markets is the managers for the issue. The Norwegian bond market is growing strongly, and an increasing number of companies are raising loan capital on the Oslo Børs fixed income marketplaces. Companies with bonds and certificates listed on Oslo Børs and Nordic ABM marketplaces have raised more new loan capital this year than ever before.

Maritime Piracy:

 

 

A tanker of 3,200-dwt Srikandi 515 (built 2013) has been hijacked by pirates at it was heading to Gresik from Kalimantan with 3,100 tonnes of palm oil. The vessel left on 8 October, port officials told Skala News, but by 17 October it had not reached its destination. The captain and 10 crew aged between 24 and 45 were later picked up by Malaysian fishermen safe and well after having been dumped into lifeboats by the attackers. They had been held captive for 13 days, they said.

While pirate attacks on the world’s seas have fallen for the third consecutive year, small tanker hijacks by armed gangs are escalating in Southeast Asia, reveals the International Chamber of Commerce (ICC) International Maritime Bureau (IMB) in its latest piracy report.

IMB’s 2014 third quarter global piracy report notes a total of 178 incidents so far this year, down from 352 for same period in 2011. In the first nine months of 2014, pirates killed three crew, kidnapped five from their vessels and took 369 seafarers hostage. A total of 17 vessels were hijacked, 124 were boarded and 10 were fired upon. There were 27 further reports of attempted attacks.

“It’s encouraging to see the huge decrease in maritime piracy and armed robbery over the last few years, thanks mainly to international navies deterring pirates off East Africa, and improved onboard security,” said IMB Director, Pottengal Mukundan. “However, there has been a worrying new rise in attacks against small coastal tankers in Southeast Asia. We advise small tankers in particular to remain vigilant in these waters and report all attacks and suspicious small craft to the IMB’s Piracy Reporting Centre.” (Source: IMB)

wk 43 wk43. This Week$s Snapshot on the Economic & Shipping Environment 31_10_2014 I special edition_jan-sept review nb (PER VESSEL TYPE AND COUNTRY BUILT) II special edition_jan-sept review nb (PER VESSEL TYPE AND SIZE)