Charterers look to VLCCs for WAF-UKC runs as hedge against busy Suezmax market

In International Shipping News 10/06/2015

Charterers have been making inquiries for VLCCs for WAF-UK Continent voyages over the past week, hedging against the possibility of a busy and potentially firming Suezmax market, according to shipping sources.

Traditionally West African crude cargoes are transported to the UKC on Suezmaxes, but charterers sometimes opt to use the larger VLCCs if the economics of the deal work for them, and if the discharge port is able to accommodate VLCCs.

In the past week, Total and Shell were both heard to have put VLCCs on subs for WAF-UKC voyages in the third decade of June, although the Shell deal later failed to get fully fixed.

Sources said that a heavy third decade of WAF stems could have placed strain on the WAF Suezmax list, and that transporting some cargoes on VLCCs could relieve potential upward pressure on WAF Suezmax rates.

“There have been some VLCCs fixed off forward dates for WAF-UKC at Worldscale 80 which suggests charterers see a very busy Suezmax program. It’s a hedge against a stronger Suezmax market,” said a shipbroker.

While the third decade of June is scheduled to be a heavy one for Suezmax stems, so far charterer inquiry has been slow in arriving.

“We’ve only seen eight Suezmaxes so far for the third decade. There was 22 million WAF barrels covered on VLCCs out of a total of 56 million barrels which should leave 34 Suezmax cargoes potentially. In the last couple of months though because there have been some unsold Nigerian barrels the programs have sometimes ended up being shorter than they would have seemed,” said the shipbroker.

The fact that many of the third decade cargoes have not yet been shown, and that others have gone on VLCCs has meant that Suezmax rates could actually drop slightly in the coming days.

The WAF-UK Continent route, basis 130,000 mt, was assessed unchanged at w87.5 Monday, but a ship was heard to have gone on subjects on the route on Tuesday morning at a softer w83.75.

Source: Platts

Middle East freight rates remain elevated on tight tonnage supply

In International Shipping News 10/06/2015

Freight rates for chemical tankers in the Middle East market have gone up sharply in the last two weeks amid strong demand to move chemical products ahead of Ramadan period and tight tonnage availability, according to market sources.

The Muslim fasting month of Ramadan is expected to start in the later half of June based on the sighting of the moon and ends on Eid ul Fitr holidays across Muslim countries.

Owners had limited space available for June loading cargoes as firm contract of affreightment (COA) business, coupled with an active clean petroleum (CPP) market, had filled vessel spaces.

Several ships were unable to make the laycans of their subsequent voyages as they were facing delays of five to fifteen days at some West Coast Indian (WCI) ports because of terminal congestions.

The long waiting time for ships to load and discharge in Jubail, of up to twenty-one days, had squeezed tonnage in the already tight tanker market.

Subsequently, charterers re-entered the spot market seeking replacement vessels for these cargoes and were paying higher freight rates because of the limited June tonnage.

These charterers were looking to load their cargoes ahead of the traditional slowdown at Middle Eastern ports brought on by Ramadan and the Eid al-Fitr festivities.

Traditionally, most ship owners and charterers face a lag in shipment and clearance procedures at the port terminals and plants in the Middle East during the Ramadan period as working hours of federal and state ministries, customs and other government institutions are reduced.

As a result, most charterers were keen to fix their cargoes ahead of Ramadan to avoid possible delays in loading and delivery of cargoes.

Source: ICIS

Suezmax freight rates surge on new rules for lifting Basrah Heavy crude

In International Shipping News 10/06/2015

Suezmax rates on Persian Gulf-to-West routes are rising sharply due to new rules limiting which cranes can be used in tankers loading Basrah Heavy crude and because of persistent port delays, market participants said Tuesday, June 9.

Under the rules that took effect June 1, ships’ cranes must have a safe working limit, or SWL, of at least 20 mt to operate at the single point mooring system of the Basrah Oil Terminal. But around 75% of ships in the global Suezmax fleet have cranes with 15-mt safe working limits.

Cranes perform a range of functions on oil tankers, including hoisting provisions and spare parts on board, but primarily they are for lifting floating hoses into position to connect to the oil manifolds, the connections that allow oil to be loaded and discharged.

“Ships that have cranes with higher limits are charging a premium for loading at Basrah,” said a source with a Suezmax owner.

Suezmaxes typically carry 130,000 mt-140,000 mt of cargo and are a popular mode of carrying crude from the Persian Gulf to Europe or the US.

After the new rules took effect, Suezmax rates shot past w50, from around w38 a week ago.

Market participants expect further upside potential related to the many spot cargoes that move crude each month on Suezmaxes to India from Basrah.

They said if all qualified ships get taken for loading heavy grades, it will have a spillover impact and raise rates for moving the lighter grade on the PG-East routes.

Among the latest fixtures heard, the Arctic was placed on subjects by Saras at w57.5 for June 23 loading of non-heated crude on the Basrah-to-Sarroch route, basis 140,000 mt, brokers said.

“The crane factor is creating problems and increasing the rates,” another source with a Suezmax owner said. DELAYS OF 12-14 DAYS

Effective this month, Iraq started importing a new grade of crude, Basrah Heavy, which will be loaded only from the Single Point Moorings, No. 1 and No. 3, where the new rules of heavier cranes have been imposed, market participants said.

Earlier, Suezmaxes and ships of smaller sizes were loaded only from berths for which there was no specific crane requirements, said a shipping broker based in Kuwait.

Ships scheduled to lift Basrah Heavy will now load from the SPMs irrespective of the cargo nomination, the broker said.

Basrah Light will continue to be exported from the four berths at the port and SPM No. 2, he added.

Suezmax rates are also being supported by delays of 12-14 days in berthing from the laycan date at Basrah Oil Terminal, which increases the turnaround time for a ship before it is ready to undertake its next voyage, contributing to firm rates, said an operations executive with a Kuwait-based shipping services company.

Source: Platts

MPA: Day of the Seafarer 2015

In International Shipping News 10/06/2015

The day of the seafarer is an official United Nations international observance day held every year on the 25 June. Organised by the International Maritime Organization (IMO) with an aim to reach millions of people worldwide.

This year’s campaign aims to inspire young people to consider a career at sea. Seafaring is a viable, attractive and exciting option for those making their career or further-education decisions. However, many may not be aware of such attractive job options.

IMO’s aim of the Day of the Seafarer 2015 is to:

•Engage seafarers themselves to inform about (and s hare photos of) their life at sea and be ambassadors for their own industry.

•Promoting the materials gathered from seafarers with the aim of reaching the general global population and inspiring them to consider a career at sea

•Raising awareness of seafarers and their importance to the global

economy to the general public

The following are ways which the maritime industry can be involved:

•If you are a seafarer or working in the maritime industry, tweet using the hashtag #CareerAtSea

•If you are a considering a career at sea or enrolled in a martime programme – tweet using the hashtag #CareerAtSea or post your photo at the IMO photo wall. Website address will be announced soon.

•If you are an employer of seafarers, to show appre ciation to seafarers under your employment and also encourage seafarers under your employment to participate by bringing th is circular to their attention.

5 Examples of the above-mentioned tweets and postings can be found here

Source: MPA

Labuan to gain from stacking rigs, vessels

In Shipbuilding News 10/06/2015

Though oil prices have inched up to about US$66 (RM235.62) per barrel, they are still 17.5pc below the US$80 per barrel deemed a reasonable level at which Petroliam Nasional Bhd (Petronas) may resume drilling contract awards, especially for marginal fields.

Until then, rigs off contracts and offshore support vessels (OSVs) are making their way to the stacking grounds.

There are 29 O&G companies listed on Bursa Malaysia and many more that are related to the industry. The depressed oil prices have shaved off on average 46pc from stock prices since June last year. The industry is now facing lower corporate earnings and possible loss of jobs due to Petronas’ move to cut capital expenditure and production.

Popular stacking grounds in the region include Johor waters, the Bay of Brunei in Labuan and Batam Island in Indonesia. Sources say the number of stacked rigs and vessels in these locations has more than doubled since the turn of the year, and is steadily rising.

Market observers have warned that from 26 rigs operating in Malaysia today, a rapid decline to 10 can be expected by year-end.

With contracts few and far between, rig owners are feeling the pinchi, and forced to crunch the numbers to decide the fate of their fleets.

Rigs and vessels without a contract can be kept in an active state or ready-stacked. In this state, regular maintenance is carried out by a crew and the vessel is ready to embark on a contract, for example, in anticipation of a spot contract. Spot contracts are lucrative, high-margin contracts. Thus, it is the norm for 0&G players to idle a vessel or two in anticipants of such deals.

Most O&G players treat their stacked vessels like a closely-guarded secret. In Malaysia, rig owners include Bumi Armada and Yinson, with its fleet of Floating, Production, Storage and Offloading (FPSO) units. Others include MISC Bhd, Perisai Petroleum Teknologi Bhd, Gryphon Energy and UMW Oil and Gas Corp Bhd. Global players SapuraKencana Petroleum Bhd and Bumi Armada have a more diversified fleet operating in international markets.

Several rigs and vessels of local players are being stacked at Johor Port and Labuan, according to sources. Checks on Rigzone and Marinetraffic reveal Bumi Armada has several OSVs and a tug stacked in Labuan, while SapuraKencana has several tender rigs stacked.

The source also reveals MISC has FSO Cendor stacked in Johor waters awaiting a contract, while MOPU Dua is believed to be stacked in Sarawak waters.

It has been reported that six of UMW’s jack-up rigs are seeking new charter contracts this year, with its eighth jack-up, Naga 8, scheduled for delivery later this year. The Naga 2 is believed to be undergoing routine dry docking at Malaysia Marine and Heavy Engineering’s yard following Vietnam’s Hoang Long JOC’s move to shorten its contract. Naga 3 was released last month and UMW is seeking further work for both units in Vietnam.

Perisai Petroleum said two weeks back it was exploring the possibility of deferring taking delivery of its second jack-up rig, pending its securing of a rig contract with a shipyard. Its new-build jack-up drilling rig, Perisai Pacific 101, began operations last August.

Ian Craven, director of Icarus Consultants, an O&G marketing and contracting services company, said multi-purpose drilling vessel Norshore Atlantic, which recently completed a top-hole drilling programme for Shell Malaysia in the Malikai field, is believed to be heading to the stacking grounds.

Talisman Malaysia Ltd has issued a termination notice to Seadrill jack-up West Vigilant, on farm-out to Shell; it will return to Talisman before being released this month. Meanwhile, Craven says Shell Malaysia will release the Ensco 105 jack-up rig next month and Carigali-Triton Operating Company Sdn Bhd (CTOC) will release the Ensco 106 in August.

Craven also reveals the Perisai 101, leased to Petronas Carigali Sdn Bhd (PCSB), is being offered on a farm-out to Hess and SapuraKencana Energy, both of whom have drilling programmes scheduled to start this year.

“PCSB is also trying to farm out the Maersk Convincer, on a contract until November which will run out of work by September. PCSB may decide to terminate the rig’s work and pay the termination fee if it cannot farm the rig out,” he says.

Most of the rigs stacked in Malaysian waters belong to international players such as Diamond Offshore, Maersk, Transocean, Noble and Ensco. Craven says the drop in oil prices has triggered a wave of rig and support vessel cold-stacking, likely to lead to the scrapping of old rigs. Given Malaysia’s fleet is young, he doubts the local market will see any scrapping activity.

Diamond Offshore and Ensco have both recently cold-stacked floaters in Labuan, according to Craven. “Over the past three months, three floaters were stacked, bringing a total of nine rigs cold stacked around the region. There were six other rigs cold-stacked in Labuan which are now to be scrapped,” he adds.

He also notes there are 24 rigs in a warm-or hot-stacked state, without contracts. He believes the number could double by year-end if no new work materialises and some of these will also be cold-stacked.

“Hercules has 11 jack-ups cold-stacked and we are likely to see more of this as rigs roll off contracts during the year, with prospects for follow-on charters receding by the day. Paragon, for example, has only three rigs cold-stacked today but has 22 rigs becoming available this year,” Craven warns, adding most of these rigs should be scrapped, not cold-stacked.

Craven, who has been in the O&G industry for about four decades, says since 2012, the 91 new jack-ups that entered the market were absorbed, with contracts readily available. However in December, for the first time two jack-ups delivered were left idle with no available immediate contracts. He believes this trend will continue this year, especially in the second half.

He adds the market is set to receive 120 new-build jack-ups scheduled for delivery between now and early 2017, of which 52 are speculative and for sale. With about 200 new rigs scheduled for delivery in the next six years, adding to the rising count of stacked rigs, the glut will affect revenue as the day-rate rig owners are able to command drops. Those with older fleets may need to consider scrapping rigs to keep revenue streams at profitable levels.

As of April, Baker Hughes Inc. one of the world’s largest oilfield services companies, reports a 50pc decline in the number of rigs drilling for O&G in the US since the industry’s high in October last year of 1,609 rigs.

Early last month, only 802 rigs were actively drilling. Historically, this should translate to a lower production.

However, due to the shale-oil boom, US production is expected to hit 9.5 million barrels per day this month, up from nine million barrels last November.

Nevertheless, experts claim the bulk of the oil production is from newer rigs built in the last two years that can support production despite lower oil prices. As wells dry up, production is expected to decline in Q3 and this could fuel a rebound in oil prices.

While the slowdown in the O&G industry has hit most players, a new others, especially those in shipcare services, are having a field day. Johor Port Bhd said it is embarking on an expansion of its Offshore, Inspection, Maintenance & Repair (OIMR) centre to cater for the growing demand for cold and warm-stacking.

Johor Port reveals the plan is to create more berthing space in the existing OIMR area. As a multi-purpose port, the expansion will also cater for the rising growth in bulk and break-bulk cargoes.

Johor Port says its capacity for stacking is 60pc, with six drill rigs cold-stacked within port limits. Several OSVs are also cold-stacked in its waters.

“For rigs, cold-stacking depends largely on the draft, the type of rig; for example, if it is jack-up or semi-submersible, as this involves anchor patters that take up more space,” it explains.

The port also notes there are several others rigs warm-stacked, with owners carrying out periodic survey and maintenance jobs as well as replenishments; in addition, some are in route to mobilisation or demobilisation.

A Labuan source says the number of stacked rigs rose to 13 in April, from a previous count of just three. These comprise jack-ups, semi-submersibles and drillships, some of which are owned by local players. The total number of vessels stacked in Labuan Port has doubled to 58, most related to the offshore O&G industry.

He explains at least 80pc of the rigs are hot-stacked, awaiting contracts. He believes several have bagged contracts and will soon move out but the short-term nature of the contracts will see these rigs and vessels back in Labuan waters before long. However, given the state of the O&G industry, he does not foresee most of the hot-stacked rigs moving out any time soon.

The source says depending on services required, rig owners who stack their rigs in Labuan could fork out anything from US$6,000 to US$30,000 per month for maintenance and stacking.

Source: Daily Express

Iran set to export oil products to Iraqi Kurdistan region

In Freight News 10/06/2015

National Iranian Oil Products Distribution Company (NIOPDC) is making preparations for export of oil products to Iraqi Kurdistan region.

With the increase in Iran’s gas production and a reduction in consumption of oil products in Iranian power plants, a large amount of liquefied fuel is left for supply to the neighboring countries.

Iraq, Afghanistan, Pakistan, Tajikistan and other neighbors are regarded as new destinations for Iranian oil products.

According to the latest planning, Iran is also mulling exports of oil products to Iraqi Kurdistan region and preparatory works are underway for the purpose.

Esmaeil Hasham Firouz, a senior NIOPDC official said that this company is planning to export gas oil and kerosene to Iraqi Kurdistan province.

Source: IRNA

A New Panama Canal

In International Shipping News 10/06/2015

The canal across the Isthmus of Panama in Central America is about to be enlarged, or more accurately, a new wider and deeper channel is about to be added to the two existing channels, which will continue operations. Ships more than 48 meters wide and 15 meters deep will be able to traverse Panama, compared with the previous 32 meters and nearly 12 meters. Recall basic physics: volume rises by the cube of the linear dimension. This means that ships carrying 13,000 container boxes will be able to use the canal, up from a maximum of around 5,000 containers today.

This new canal will have major implications for China’s trade, since exports will be able to reach ports in both eastern North and South America entirely by sea, more cheaply if the Panama’s canal tolls allow, but in any case in higher volume since the existing canal operates at maximum capacity during much of the year. And West Coast ports, from which Chinese goods move east by rail, are also often congested.

Because of delays, opening the new canal, which cost US$ 6.8 billion, will not quite be in time for the centenary of the existing canal, which opened in 1914. That was a huge engineering achievement, since the route from the Pacific Ocean to the Atlantic Ocean (via the Caribbean Sea) had to cut through a range of small mountains and a lake had to be created. Some 205 million cubic meters of rock and dirt had to be removed. Six locks, three in each channel, were built to raise ships over 25 meters, then six more to lower them on the other side. The original canal took 10 years to construct – at a cost of US$ 330 million for the 1914 canal, roughly US$ 5.9 billion in today’s dollars – and cost over 5,600 lives. This compares with only six lives lost during work on the new canal, even though an additional 155 cubic meters of material had to be moved, thanks to heavy machinery, physical work has become faster, easier and much safer.

Because of the curvature of Panama, the canal is angled such that ships entering the Pacific side travel north and west to enter the Caribbean side, i.e. the sun at the canal rises over the Pacific and sets over the Atlantic!

The Panama Canal resulted in a major improvement in transport to East Asia from the U.S. East Coast and from Gulf of Mexico ports drawing on the entire basin of the Mississippi River. Before the canal, trans-shipment across Panama – off-loading on one side and reloading on the other – took place by mule or, after 1855, by rail. Or else ships had to sail by the long and challenging route around South America. This latter route involved the famous clipper ships, magnificent three-masted sailing vessels made for speed; American furs, ginseng, light manufactures and even ice exchanged for tea, silk and fine porcelain (called “china”) from China. The voyage from New York to Canton (Guangzhou) took an uncertain four months. Now the trip can be made with steamships through the Panama Canal in three weeks.

The era of the clipper ship was curtailed by the opening of the Suez Canal in 1869, greatly shortening the distance between Britain and India and China, and by completion of a railroad to San Francisco in the same year, greatly cutting the travel time between China and New York. The advent of steamships, clumsy at first but constantly improving, spelled their eventual doom.

Ferdinand de Lesseps, the French engineer who built the Suez Canal, also attempted the shorter but much more challenging one across Panama, but was defeated, mainly by debilitating and fatal tropical diseases, especially yellow fever. Success hinged on learning that this and other diseases were transmitted by mosquitos and keeping the insects under control. This discovery by an American army doctor permitted work to begin again in 1904, this time by the United States, led by its president, Theodore Roosevelt. Work on the Canal was organized and financed by the U.S. government on the condition that shipping tolls through the finished canal would only cover operating and maintenance expenses, precluding the collection of rents or profits beyond a small annual payment to Panama – an early example of provision by the United States of an international public good, to be followed by many later examples, such as basic medical research and the geo-positioning satellite system, perhaps providing a precedent for China’s New Silk Road. (Per capita GDP in China is higher today than it was in the United States in 1913.) Canal ownership was passed partially to Panama by the U.S. government in 1979 and completely in 1999. Panama raised the tolls, not only to cover increased operating expenses, but also to provide significant revenue for the government.

Even the enlarged canal will not allow passage to the largest ships, such as bulk carriers for iron ore, grain or oil, which are too large and too deep in their draft. From Argentina (soybeans), Brazil (soybeans and iron ore) and the east coast of Venezuela (oil) they reach China via southern Africa and the Indian Ocean, a very long distance, although some bulk carriers can travel through the enlarged Suez Canal. There is talk of building a new, even larger canal through Nicaragua, long seen as an alternative to Panama for an Atlantic to Pacific canal. Work on it has allegedly started, financed by a Chinese entrepreneur, but without explicit support by China’s government. Alternative short-cuts would be the Northwest Passage through Canada or route over Russia, as Arctic ice recedes. Or the building of more railroads in South America – from Brazil over the formidable Andes mountains in Peru to the Pacific, and/or from the Atlantic to the Pacific coast of Colombia – in both of which China has expressed an interest.

Source: Caixin

Sino-Global Receives First Payment under Two-Year Time Charter Agreement

In International Shipping News 10/06/2015

Sino-Global Shipping America, Ltd, a Virginia company engaged in shipping, chartering and related services, announced that it received the first payment under a previously reported time charter agreement, in the amount of $113,500 covering the 15-day period starting May 20, 2015.

Mr. Lei Cao, Chief Executive Office of Sino-Global said, “This payment is a significant milestone for Sino-Global as we believe it tangibly demonstrates a new phase in the growth and expansion of Sino-Global as we expand and transition our business from strictly being a service provider in the shipping industry to an asset owner with an integrated, scalable service platform in the shipping industry. We believe as a result of the two-year time charter agreements, our shipping and chartering services will begin to make a significant contribution to our revenue growth going forward.”

On April 10, 2015, Sino-Global signed an asset purchase agreement to acquire the Rong Zhou (the “Purchase Agreement”), an 8,818 gross tonnage oil/chemical transportation tanker (the “Vessel”), from Rong Yao International Shipping Limited, a Hong Kong company (the “Vessel Seller”) for $10.5 million.

To help facilitate a smooth transition of the management and operation of the Vessel to Sino-Global, the Vessel Seller time-chartered the Vessel to Sino-Global for a two-year period, and Sino-Global, in turn, time-chartered the Vessel to a third-party charterer for the same two-year period both of which two-year periods commenced May 20, 2015. Under the terms of such chartering agreements, the third-party charterer will pay Sino-Global a chartering fee of $7,500 per day, and in turn, the Company will pay the Vessel Seller a chartering fee of $3,500 per day. The Company believes, based on current expectations and information, that during the two-year period of the charter agreements, the time charter agreements will generate revenues and net profit to Sino-Global of approximately $5 million and $1.8 million, respectively.

Under the terms of the Purchase Agreement, the Company issued to the Vessel Seller 1.2 million shares of its restricted common stock representing $2.22 million of the $10.5 million purchase price for the Vessel. The Company and the Vessel Seller agreed that each of the 1.2 million restricted shares issued to the Vessel Seller was valued at $1.85. The Company registered for resale on a registration statement on Form S-1, the Vessel Seller’s 1,200,000 shares. Although the Company believes its acquisition of the Vessel will close on or about June 30, 2015, no assurances can be given when such closing will occur.

Pursuant to the terms of the Purchase Agreement, Sino-Global on closing, will pay the Vessel Seller an additional $5.5 million in the form of cash, or, in Sino-Global’s discretion, cash and/or shares of its restricted common stock valued at a price per share of $1.85 (approximately 2,162,000 restricted shares). The issuance of any such additional shares of the Company’s common stock to the Vessel Seller in connection with the Company’s acquisition of the Vessel, is subject to approval by a majority of the Company’s shareholders. The Company’s shareholders will vote on such additional issuances at the Company’s 2015 Annual Shareholders’ meeting scheduled to occur on June 11, 2015.

The remaining $2.78 million balance of the Vessel purchase price (which is subject to adjustments as provided in the Purchase agreement for any defects in the Vessel discovered during the Company’s inspection and trial run of the Vessel and during the 12 months following the closing of the Vessel acquisition), is payable in cash, additional shares of Sino-Global’s restricted common stock and/or a combination thereof, as agreed to by the parties.

To help ensure that the Company has the technical expertise and ability to manage the Vessel, the Company’s Board of Directors approved and Sino-Global entered into agreements with three separate independent consultants to provide ship management advisory services to the Company (including, but not limited to, crew management and vessel maintenance) for an 18-month period. In exchange for these services, Sino-Global issued a total of 500,000 shares of its common stock to these consultants on May 27, 2015.

Such 500,000 shares are covered by the Company’s Registration Statement on Form S-8. The related non-cash charge of $794,950 will be ratably charged to the Company’s income over the term of the agreements.

Sino-Global recently filed its Quarterly Report on Form 10-Q for its fiscal year 2015 third quarter (the “10-Q”). Among the highlights in the 10-Q are:

Total revenues for the three months ended March 31, 2015 increased 20.8% to $2,526,762 with revenues from inland transportation management services grew 49.5% to a record level of $1,295,580.

Operating margin increased to 9.4% for the three months ended March 31, 2015 from 3.4% for the same period of 2014.

Basic and diluted EPS of $0.05 for the three months ended March 31, 2015 marked the seventh consecutive quarter of net profit for the Company.

Source: Sino-Global Shipping America

CIMB Research cuts container shipping sector underweight

In International Shipping News 10/06/2015

CIMB Research had downgraded the regional container shipping sector from neutral to underweight on the back of a wasted bunker windfall.

“Fear is now the dominant emotion as carriers give away the benefits of lower bunker prices by way of aggressive capacity injections and rate competition,” the report said.

Core earnings per share (EPS) forecasts were reduced for all companies on the back of the weaker-than-expected freight rates, and target prices were also reduced.

CIMB also reduced their rating on SITC International Holding Company shares from Add to Hold, and on Orient Overseas International (OOIL) shares from Add to Reduce.

“Neptune Orient Lines (NOL) remains a Hold, while China Shipping Container Lines (CSCL) is our top Reduce,” the research house said.

Source: The Edge Markets

Showdown sets trading records in Singapore’s fuel oil market

In International Shipping News 09/06/2015

Major commodity houses are betting against each other on the direction of fuel oil in Singapore, the world’s largest market for shipping fuel, in a clash that has led to a record price swing and is set to smash monthly trading levels.

More than $750 million of physical cargoes have been traded in the first week of June during an end-of-day pricing window, accounting for about 60 percent of Singapore’s average monthly sales of the fuel and creating logistics challenges at the port.

Strong buying has been led by Swiss-based Glencore and Mercuria, China’s PetroChina, and oil major BP, daily trade data shows. Russian major Lukoil, Swiss-based traders Gunvor and Vitol, and French oil major Total are the main sellers.

Buyers are so far on top, flipping the benchmark 380-cst fuel oil differential FO380-SIN-DIF from a discount of $6.33 a tonne to Singapore spot quotes to a $7 a tonne premium in just 10 trading days, the biggest two-week gain on record.

“This time round it’s a serious play,” said a Singapore-based veteran oil trader with at least 10 years of experience in the industry.

Gunvor, Vitol, Mercuria, Lukoil and Glencore declined comment. The other companies did not immediately respond to Reuters queries.

The unprecedented trading volumes have been sparked by the Middle East summer, one of three seasonal events that can affect the demand-supply balance for fuel oil, along with Chinese New Year and the northern hemisphere winter.

A hot summer in the Middle East means more demand for fuel oil to run air conditioners, limiting exports to Asia and driving up prices, while a cool summer keeps Asian prices lower.

These seasonal events inject a level of unpredictability into the market and give traders an opportunity to take a position that can reap big profits through related derivatives trading.

Singapore’s half-hour Market on Close (MOC) pricing process determines the settlement price used for derivatives trading on both the U.S. Chicago Mercantile Exchange (CME) and the UK Intercontinental exchange (ICE).

With profit and loss stakes at more than tens of millions, market sources said emotions in the market are riding high.

A record 3.175 million tonnes of 380-centistoke (cst) fuel oil was traded in October 2013, which is likely to be surpassed this week if an average daily trade volume of 500,000 tonnes holds.

Yet traders caution that the recent surge of buying that has pushed up prices could face pressure from a potential release of stocks as individual companies face storage shortages.

Data from trade group IE Singapore showed onshore fuel oil stocks across 13 refinery and commercial terminals have swelled to their highest at 27.6 million barrels, or about 4.25 million tonnes, since at least 1999, when Reuters started tracking the data.

TESTING LOGISTICS

Managing large volumes within a short period of time can also be challenging logistically, and complaints against counterparties for non-performance are not uncommon.

“Jetties’ schedules in Singapore are already very tight, any incremental volumes will strain logistics very badly,” said a Singapore-based oil terminal representative.

Singapore’s oil terminals are concentrated around the western tip of Jurong, and the loading and discharging of fuel oil could overcrowd the limited space.

Energy and metals information group Platts, which operates the MOC pricing process, did not respond to a request for comment on how it would ensure that all the cargoes traded on screen will be carried out.

Last week’s high levels of activity were anticipated by a build-up in open interest in June-related fuel oil swaps, a measure of outstanding contracts that have yet to be squared off.

Open interest for June 380-cst fuel oil derivatives reached almost 13 million tonnes by the end of May, according to ICE and CME data, more than double the typical monthly average. Traders said the level was higher than the last major showdown in October 2013.

Source: Reuters (Editing by Henning Gloystein and Richard Pullin)

Indian shipowners want 50% of country’s cargoes reserved for Indian tonnage

In International Shipping News 09/06/2015

In an effort to garner a favorable share of India’s burgeoning freight market, the country’s shipowners are lobbying hard with the government to make it mandatory for state-owned companies to allocate 50% of its cargo volumes for Indian-flagged ships, a top shipping company official told a freight forum Friday.

The Indian National Shipowners’ Association, the body representing the interest of Indian shipping companies, has put up a proposal to the Indian government on this matter, said Sunil Thapar, Shipping Corporation of India’s director for bulk and container division, at the India Dry Bulk Cargo Summit 2015.

A cabinet note is now being moved by India’s shipping ministry to get support from the Indian public sector undertakings to allocate 50% of their seaborne exports and imports to India-flagged vessels, he said.

With only 10% of India’s inbound and outbound cargoes being handled by the Indian-flagged vessels, Thapar said the Indian shipping sector is still in its nascent stages and needed support from the government.

In 2004, the Indian government introduced a “tonnage tax” of between 2% and 3% by cutting down the then-existing tax liability of around 35% to help the bottom lines of Indian shipping companies.

“It is currently a non-level playing field for Indian owners versus foreign owners. When tonnage tax was introduced, expectation was that about 2%-3% tax will be paid, but with a lot of other taxes, it comes up to about 12%-14% of a shipowner’s earnings,” Thapar said.

Meanwhile, there is skepticism whether this proposal will pay any dividends given that the Indian shipowners control only about 1% of the global shipping tonnage, of which SCI’s share is 37%, according to a shipping executive.

“I think it might not be feasible at the moment [for Indian shipowners to get 50% of the country’s cargoes]. Even most of the Indian coastal cargoes are carried by foreign vessels. India is stronger on the cargo side and not on the tonnage,” an Indian dry bulk shipbroker said, adding that 60% to 70% of the coastal trade is concluded on foreign vessels.

According to one official close to the matter, the cabinet note is still only being discussed and not seen much progress.

“There is a lot of chance that it [the cabinet note] might not go through. Other ministries might oppose this,” the official said.

In the meantime, Indian shipowners like SCI are doing their bit to support Indian companies on the commercial business side by giving Indian shipbrokers a lead time of two hours on vessels that are opening for new employment.

SCI usually circulates its vessel opening positions Tuesday.

It has 17 India-based shipbrokers, who get to know of the vessels’ opening positions at 12.30 pm India time (0700 GMT) while brokers based outside of India are made aware of the positions only at about 2.30 pm India time.

Source: Platts

India: Centre may set up an SPV to fund shipping infrastructure

In International Shipping News 09/06/2015

The Union government may set up a dedicated company by pooling the future income of the 12 ports it directly owns, which will then borrow Rs. 1 trillion abroad at interest rates as low 3%.

The money will help the shipping ministry, which floated the proposal, help finance port and maritime-related infrastructure projects. Only the 12 Union government owned ports—so-called major ports—will be considered under the plan.

Under the proposal, the company set up specifically for this purpose—a special purpose vehicle or SPV—will leverage the pooled income of the dollar receivables of the 12 ports to borrow from overseas insurance and pension funds which seek good returns for their capital.

The SPV will not need to hedge against exchange rate volatility, Union transport and shipping minister Nitin Gadkari said.

“Hedging cost makes dollar loans unattractive, but since income of the ports is in dollars, there would be no need of hedging and this will be help us raise around Rs.1 lakh crore worth of loans in dollars for the development of new ports and port-related infrastructure in the country at just 3% rate of interest,” Gadkari said on Friday.

Normally, firms borrowing abroad for cheaper funds must spend extra to hedge against exchange-rate volatility, since their loans are in dollars but incomes are in rupees. To be sure, the final call on the proposal will be taken by the finance ministry, which is discussing the matter with the shipping ministry. “We will soon form an SPV in which income of all government-run ports will be pooled in and this income is around $1.5-2 billion,” Gadkari said.

There are 12 major ports directly owned by the Union government—six each on the west and the east coasts. Additionally, India has about 200 minor ports along its 7,000km-plus coastline. About 95% by volume and 70% by value of the country’s international trade goes through these ports. India’s latest foreign trade policy for 2015-20 has set a goods and services export target of $900 billion, almost double the $465.9 billion achieved during 2013-14. Greater overseas trade means greater revenues for India’s ports.

In January, Gadkari had said his ministry was in talks with the finance ministry for providing dollar loans to shipping firms to ease their borrowing costs. Gadkari, at an event in Mumbai, had hinted that he will facilitate shipping companies to raise dollar loans as they earn in dollars.

“The idea is to avail of cheaper loans to fund port and port-related projects. If a port is going to tap the loan market in India, it will end up securing funds attracting interest anywhere between 11% to 13%. But if there is a common pool with dollar receivables, they can fetch loans at cheaper terms,” said a person close to the development. Various foreign funds, including pension and insurance funds, are keen to take part in India’s infrastructure development, he said. “It is a win-win situation for Indian ports and international funds,” he said.

“The proposed idea of pooling dollar incomes of major ports is a kind of financial engineering. It can work in India. But it depends on the structure of SPV,” said a former banker, who did not want to be named.

“This is perhaps an alternate way for the ministry of shipping to raise debt for the sector, as the proposed corporatisation of ports may be facing some hurdles,” said Sameer Bhatia, president, Crisil Risk and Infrastructure Solutions Ltd. “Ports would be in a better position to raise funds if they were allowed to function under corporate structure. The idea of the government to pool dollar incomes of the major ports to raise debt is a different route to avail cheaper sources of finance to fund infrastructure projects,” Bhatia said. He added, however, that a credible legal vehicle and a robust mechanism would need to be structured for the pooling.

On 9 March, minister of state for shipping Pon Radhakrishnan told the Lok Sabha that the handling capacity of major ports in the nation is sufficient to match trade demands. “The capacity of all major ports as on 31 March 2014 was 800.52 million metric tonnes (mmt) against cargo traffic of 555.54 mmt handled in 2013-14. Thus, the capacity utilization is around 70% and as per internationally accepted norms the gap between the traffic and the capacity is usually around 30%,” the minister had said.

The person close to the development cited earlier said the government has taken measures to enhance capacity at major ports and a number of these projects are under implementation.

The government-owned Kolkata Port Trust along with the West Bengal government is setting up a new port at Sagar Island in South 24 Parganas district through a joint venture between the two, at an estimated cost of Rs.11,900 crore. This will be the first port to be built by the Union government in 14 years. The last major port to be constructed was the Kamarajar port at Ennore in Tamil Nadu in 2001.

Major ports are also taking up several projects including construction of terminals, dredging of shipping channels and additional berths.

Source: LiveMint

Denmark’s the 8th-largest shipping nation

In International Shipping News 09/06/2015

Danish Shipowners Association has just published the biannual publication ”Shipping in numbers” which shows the development in the Danish merchant fleet. Danish shipping companies came out of 2014 better than expected despite very difficult market conditions. Denmark is the 8th-largest shipping nation measured by tonnage operated.

The low rates have meant that Danish shipping companies in a number of cases have not renewed or terminated time chartered agreements of vessels. Therefore, in the past year there has been a decline in the total tonnage operations in Denmark. Nevertheless, Denmark is still in 8th place among the largest shipping measured by operating tonnage and controls 4,11 percent of the total commercial fleet across segments.

Compared to Norway and Sweden, the Danish merchant fleet has developed very positively in relative terms. This is caused by the net pay scheme in DIS, ensuring that Danish shipping companies have some competitive environment in an international perspective.

Foreign exchange earnings set a new record in 2014, consisting of 205 billion kroner, an increase of approximately two percent compared to the year before. Foreign exchange earnings are affected by three factors: cargo volumes, freight rates and the dollar rate. The strong dollar rate was very good news for Danish shipping companies, as most shipments are settled in dollars. The high dollar rate really came through in the second half of 2014, but has brought momentum with it for 2015, when the companies are expected to benefit from this all year.

Furthermore, IMF predicts growth in international trade of 3,7 percent in 2015, which bodes well for the Danish foreign currency earnings in 2015.

2015 may have begun with the worst rates ever and massive overcapacity in many segments, but there are also positive economic trends in Europe, which is the Danish shipping companies’ largest trading area.

Source: Danish Shipowners Association / Maritime Denmark

China Commodity Appetite Weakens as Growth Seen at Risk

In Freight News 09/06/2015

China’s imports of oil, copper and iron ore slid last month amid a broader slowdown in trade that highlights the country’s weakening economy and threatens growth targets.

Inbound shipments of oil dropped to the lowest in 15 months, overseas copper purchases retreated from the highest in a year and iron ore cargoes slid for a second month, data from the country’s General Administration of Customs showed Monday.

Weakening imports of raw materials will add to speculation that domestic demand in the world’s biggest consumer of energy, metals and grains is faltering. The Bloomberg Commodity Index of 23 commodities is extending its biggest slide since the 2008 global financial crisis amid concern the nation will fail to contain a slowdown.

“The macro economy is still weak,” Li Li, an analyst with Shanghai-based commodities researcher ICIS-China, said by phone. “Demand from the downstream heavy industrial sector, including transportation and property, have shown no signs of recovery.”

The country’s total imports shrank by the most since February while exports fell for a third month. That coincides with a slump in investment growth that’s putting Premier Li Keqiang’s 2015 expansion target of about 7 percent at risk.

The government is seeking to shift the country away from investment-led growth to a consumption-driven economy, prompting a slowdown in construction. As much as half of the country’s copper use and about 35 percent of its steel demand is related to housing and real estate, according to Goldman Sachs Group Inc.

Copper Output

Copper imports slid as the economy cools and domestic output rises, according to Yang Changhua, a senior analyst at Beijing Antaike Information Development Co. Lower demand for the metal in financing deals also reduced demand, Yang said.

The country’s production of refined copper has risen almost 12 percent to 2.4 million metric tons in the first four months of the year, according to the latest data from the National Bureau of Statistics.

The downturn in construction is also hurting domestic steel demand and the need for iron ore. Steel exports surged to a four-month high as exporters sought overseas buyers for the country’s surplus. A sharp downturn in construction activity linked to a weak Chinese property sector has hurt domestic steel consumption, pulling prices down 16 percent this year.

Crude oil imports declined from a record 7.4 million barrels a day in April amid increased refinery maintenance and as port storage facilities filled up, according to ICIS China, a Shanghai-based commodities researcher.

Top Spot

“The fall in single-month imports may be a result of peak refinery shutdown,” Amy Sun, an ICIS analyst, said by phone from Guangzhou. “Crude oil trading ports, especially Dalian, are also pretty full after the buying spree in April, leaving limited space for more stockpiles.”

The nation gave up its spot as the world’s biggest oil importer after overtaking the U.S. in April. It may resume purchases to take advantage of low prices and ample supply to fill emergency stockpiles, according to ICIS.

The Bloomberg Commodity Index rose 0.1 percent to 100.368 on Monday, trimming this year’s loss to 3.8 percent. The gauge slumped 17 percent in 2014.

Source: Bloomberg