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Friday, 11th May 2012

Seams OK

Following last week’s review on large miners’ projected iron ore capacity, this week we are covering the implementation and upgrades of coal mining facilities. Unlike iron ore demand, that relies almost entirely on steel requirements, coal benefits from a dual source of demand: the steel industry and power generation. While we forecast iron ore seaborne trade to grow healthily over the next four years, we are less bullish for seaborne coal. Reason for this lies partly in demand and supply of the soot. For the benefit of The Big Picture, we have differentiated projects between thermal and metallurgical coal.

Friday, 11th May 2012

Known Unknowns

“[T]here are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns – there are things we do not know we don't know.”

This famous quote by ex-Secretary Rumsfeld applies as much to the Iraq war as it does to the forecasting of the supply and demand dynamics of crude oil and products. With the IMF revising their economic outlook for the OECD upwards (which was promptly followed by negative industrial and employment data from the same states), it is useful to remind ourselves of the hurdles faced in regards to forecasting crude oil and product supply and demand. This week we will give a quick rundown of the top twelve known unknowns affecting crude and product supply and demand, which by extension affects wet freight markets.

Friday, 4th May 2012

Iron Boost

Through different angles, we regularly speak of the developments and trends of the coal and iron ore markets. Over the past few months, we discussed the shift in iron ore demand in India, steel production in China or Europe, the re-shuffling in coal use in Europe and Japan in view of environmental concerns, etc, etc. While we have earmarked challenges at origin and destination for both commodities, we have noted a global healthy upward trend in demand for coal and iron ore. Yet, while regulations, metamorphosis of economies and fluctuations of demand all represent major swing factors for seaborne trade, one ought to wonder whether miners can accommodate such a growth in demand, and where it will come from.

Friday, 4th May 2012

Changing China

China has been under immense geopolitical pressure from US sanctions against Iran, which is forcing China to choose between a rock and a hard place: either cut itself off from the US financial system or halt imports of Iranian crude. It would appear China has chosen the later, albeit slowly. With Q1-12 data just released for Chinese crude imports, we thought we would take a look at Chinese attempts at diversifying and whether they are yielding any kind of result.

Friday, 27th April 2012

Route to Demolition

Recycling levels may reach 34mn Dwt in 2012 (6% of the fleet as it stood at the beginning of the year) as a disappointing earnings environment compels owners to part with their vessels and in some instances earlier than desired. Despite 2011 being a record scrapping year with 23.8mn Dwt having left the fleet for the scrap yards of East and South Asia (up 245% on 2010), this year we expect even more to join them.

Friday, 27th April 2012

Cheap natural gas: an elephant in the room?

The explosive growth in natural gas production has cut natural gas prices by almost 90% since 2005. This stands in stark contrast to oil prices which have held at eye wateringly high levels since the beginning of 2011. As hydraulic fracturing and horizontal drilling technology opens up more and more cheap gas deposits all over the world, and as new oil finds become increasingly inaccessible and expensive, should tanker owners be getting worried about future demand for their ships?

Friday, 20th April 2012

Will new ECA feed product carriers?

It would be nice to believe US bunker suppliers. Come August, they say, substantial volumes of low sulphur fuel oil (LSFO) will have to be brought in from overseas to the US Gulf and US East coast to satisfy the new emissions rules of the North American ECA.

Friday, 20th April 2012

Switching the Light

E.On, a leading utility supplier in Europe, recently announced its Kingsnorth facility in the UK was to be shut next year, ahead of schedule, due to its higher than expected usage, and in accordance with the European directive on Large Combustion Plants (LCP) emissions. This brings the question of the impact of the directive on European coal-powered energy supply, and ultimately for European coal demand.

Friday, 13th April 2012

Iran’s oil: who to believe

Have Iran’s crude exports fallen by 500k b/d, as the ‘experts’ would have us believe. Or have they remained unchanged – possibly even increased, as the Iranian government, and now a growing body of oil traders maintain. If Iran’s exports are indeed still finding a way to the market, this could shed some light into the recent (and future) strength of TD3.

Friday, 13th April 2012

India's ore: Lost and Found?

We previously reported that India’s decreased iron ore exports had a negligible effect on Dwt requirements since its main export partner, China, manage to compensate by sourcing from other exporters further away. This week we take a look at the likely turn that Indian iron ore exports may take. Our base case scenario points to exports growing at a subdued pace over the next four years, with limited upside. Transport bottlenecks combined with barriers to trade imposed by the government in the form of taxes and freight charges on iron ore will constitute hurdles that will hinder exports. We expect exports to increase by 18% to slightly over 92 mn tonnes by 2015.

Thursday, 5th April 2012

The Nova Affect

Recent strength in the VLCC market cannot be explained by our models of supply and demand. These models suggest oversupply is as bad as it has ever been, and getting worse. The question is, can we quantify the missing element(s) to say something sensible about where rates are heading?

Thursday, 5th April 2012

Soy Ahoy

A resurgence of Panamax freight rates in the Atlantic, albeit limited, has been the talk of the town in recent weeks. Much of this revival was borne from a spike in transatlantic grain cargoes, as we noted last week. Coal still represents the main commodity transported by Panamax vessels, ahead of grain. Yet, by virtue of their seasonal sway and exposure to weather conditions, grains are clearly the dominant swing commodity for this asset class. Soybeans in particular have particularly grown in importance over the past decade.

Friday, 30th March 2012

Will he won’t he?

There has been talk of a potential SPR release by USA, UK and France to help ease the high oil prices. In our previous report (24th Jun 11) we discussed how an SPR (strategic petroleum reserve) release could potentially wipe out a month’s worth of WAF-US Suezmax fixtures (although other opportunities may mitigate any loss of US bound tonnage demand).

Friday, 30th March 2012

Imbalanced Basins

The Panamax market’s slow revival on the back of grain exports has raised rates in the Atlantic by more than $3,500 since the beginning of March. However it won’t be long until ballasters from the weaker Pacific market start showing up and push rates down again. But the rebalancing of tonnage between the two basins will prevent much revival in the short run. In the long run however it seems more and more tonnage will be available in the Pacific because of a shift in trading patterns.

Friday, 23rd March 2012

$16k per day in 2013?

The paper market is gearing up to tackle its first TD3 trade for the full year 2013. Assuming cargo size will be 265kt (not yet confirmed by the Baltic Exchange – could even be 270kt) it looks likely to kick off at around $13.5/tonne. In the Baltic Exchange’s TCE calculator this generates a return of $16,000/day at today’s forward bunker prices. Would you be a buyer or seller at this level?

Friday, 23rd March 2012

The picture of a storm

Bulkers have come across much headwinds since the economic meltdown at the end of 2008. Capes, in particular, have seen their earnings follow a rollercoaster ride where demand and supply have pulled in all sorts of directions. Last week we looked (Protracted January Blues – 16th March 2012) at how a flurry of delivery, coupled with a faltering demand, led to a collapse in Cape utilization rates and consequently in earnings. A large part of the lack of cargo was also due to adverse weather conditions in Brazil and Australia, rather than low demand from overseas.

Friday, 16th March 2012

Reasons to be cheerful

We have something positive to say about all segments of the crude tanker market this week. Aframaxes are rallying in the Med; Suezmaxes are doing better out of West Africa and VLCCs are doing well at all major load ports. It won’t last long, but that doesn’t matter: a thawing of the global economy and an easing of fleet growth will see spikes return more frequently from here on in.

Friday, 16th March 2012

Protracted January blues

The Capesize market continues to drag its feet as it has for the last two and a half months as fleet utilization is at its lowest since late 2008. We estimate that fleet employment is at around 69% for the Capesize fleet as a rapidly expanding fleet and cargo demand refuse to meet each other.

Friday, 9th March 2012

Eco-Ships: friend or foe?

Eco-ships might be attracting a fresh wave of newbuilding investment, but they will also accelerate the scrapping of older tankers, we are told. It is a repeat of the single hull tanker phase out story of the late 2000s, enthused one publically-listed tanker operator this week. Actually it couldn’t be more different. Unlike the single-hull ban, the advent of electronic timing in the engines that propel the new generation of tanker newbuildings is thoroughly bad news for all spot freight markets.

Friday, 9th March 2012

Scrap it

Friday, 2nd March 2012

A chink of light for LRs

The surplus of LRs in the AG (about 20 ships for March) is about as bad as it has ever been. Spot earnings for LR1s, which averaged over $34,000 / day in 2008, are down to a pitiful $1,500/day. The forward curve might well be in mild contango, as you would expect at these spot levels, but neither spot nor forward prices have shifted in months. What has gone wrong?

Friday, 2nd March 2012

Super-max : Sell short, buy long

An examination of how Supramaxes, the 'workhorse' of bulk carriers, will evolve over the coming year. We take a look at their supply and demand picture.

Friday, 24th February 2012

Volatile cape on the horizon

The rot in Capes earning since early December, borne from a combined low demand and a surge in deliveries, seems to have finally reached a floor. From a peak of 3,725 points on December 12th, the Baltic Cape Index has since fallen 61%. This downturn contributed to dragging the Baltic Dry Index down to a 26-year low in early February. Since mid-January however, the Cape index has been hovering around the 1,500-mark as if it had finally found the floor below which it cannot fall.

Friday, 24th February 2012

Forgotten Aframaxes

Hidden away amid the deathly gloom of crude carrier markets, could the Aframax sector be stumbling unwittingly into a recovery?