Tankers: Japan’s influence on the tanker market not what it used to be

In Hellenic Shipping News 27/02/2017

Japan used to be one of the most important markets for the tanker industry, as crude oil imports, mainly from the Gulf Arab region were the norm for decades. This is beginning to change these days, with shipbroker Gibson noting that “the Japanese refining industry has been experiencing challenging circumstances for a number of years, with significant rationalisation of refining capacity. Reform in the Japanese refining sector is not a particularly new story; however, in March 2017, a government directive will come into effect, forcing refiners to further boost efficiency, whilst enhancing output of higher value clean products such as diesel and jet fuel. The latest directive is not the first introduced by the government and nor would it appear to be the final phase of the industry restructuring, with further directives potentially announced later this year”.

According to Gibson, “domestic consumption of petroleum products has been falling in recent years, in part due to a contraction of industrial output, more fuel-efficient vehicles and the introduction of a mandatory blending of ethanol into transportation fuels. The Petroleum Association of Japan pegged crude oil refining capacity at 3.8 million b/d at the end of 2016, with production spread across 22 facilities. However, over the coming years it can be expected that this figure will come under increasing negative pressure. In an attempt to streamline the industry, a merger between JX Holdings and TonenGeneral, Japan’s largest and third-ranked refiners respectively has been approved for April 2017, creating the new company JXTG Holdings. TonenGeneral has also announced there will be reductions at four refineries in 2017 totalling 71,500 b/d, with capacity already reduced at the companies Kawasaki plant. In addition to this, Idemitsu Kosan Co, the country’s second-biggest refiner, had been in discussions with Showa Shell on the potential of a merger, however, this deal appears to be off the table as it has not won approval from the Idemitsu founding family”, said the shipbroker.

It added that “overall, the March directive is expected to reduce refining capacity to close to 3.57 million b/d, according to Reuters data. The introduction of a third directive, potentially later this year, will further reduce refining capacity and could also aim at reducing the number of major refiners in the country from 5 to 4 by 2020 or 2021, although this has not been confirmed. Japan’s shrinking refinery capacity has had implications for the crude tanker market. According to IEA data, crude imports into the country have been falling over the past five years, down by 300,000 b/d since 2012. Although it represents a notable drop in trade volumes, this had been more than offset by increases in China’s crude buying. Some support to crude tanker demand was also found in a temporary surge in fuel oil imports (on the back of the Fukushima Nuclear disaster in 2011)”.

Gibson says that “with further restructuring directives expected later this year, it would appear that Japan is braced for further reductions in crude oil imports. However, as it was the case in the past, oil demand in other parts of Asia continues to grow, most notably in non-OECD countries. As such, Japan’s falling demand will most likely will be absorbed by gains in other markets. What this highlights though is the declining importance of Japan in the regional crude tanker market and a growing involvement of a large Japanese fleet in international trade”, the shipbroker concluded.

Meanwhile, in the crude tanker market this week, in the Middle East, Gibson said that “despite receiving final March programmes, VLCC Charterers kept to a slow pace, encouraged by easy looking availability through the current and medium term fixing windows. Rates just about held up at the bottom end of the recent range, but there has certainly been damage done and a busier phase is likely to now accelerate the softening trend. Rates operate at down to the very low ws 30’s West and at no higher than ws 70 to the East. Suezmaxes enjoyed better early attention and rates did pick up a little to ws 85 to the East and into the high ws 40’s West, but things quietened later. Aframaxes tightened further to allow rates to edge over 80,000 by ws 115 to Singapore, but Charterers moved onto more populous forward positions in response and to limit onward potential”, the shipbroker concluded.

Nikos Roussanoglou, Hellenic Shipping News Worldwide

Charter fees and freight rates may rise as smaller lines struggle with costs of Ballast-Water Convention

In International Shipping News 27/02/2017

An international convention regulating ballast water, which ships with little or no cargo take on or discharge to maintain stability, takes effect in September. The treaty could be costly for owners of large freighters, among others, as they will have to install expensive equipment to filter out unwanted marine life.

The International Convention for the Control and Management of Ships’ Ballast Water and Sediments, which will enter into force Sept. 8, aims to establish standards and procedures to prevent the spread of aquatic organisms from one region to another. Environmentalists have long complained that the unregulated discharge of ballast water promotes the spread of invasive species, damaging ecosystems around the world.

The ballast-water treaty was adopted by the International Maritime Organization, a United Nations agency, in 2004. As of Feb. 1, 54 countries have acceded to the convention. Even vessels from nonparticipating countries are required to comply with the convention when entering the exclusive economic zones of member countries.

However, not all ship owners are required to install ballast water treatment equipment before the convention takes effect. Owners of existing vessels are required to install ballast-water treatment equipment within five years from the ship’s last regular inspection before the convention comes into force.

Although treatment equipment could cost tens or hundreds of millions of yen per vessel, shipping companies are installing equipment steadily, as “Shippers would choose vessels with equipment, even within the moratorium,” a Mitsui O.S.K. Lines representative said.

As of the end of March 2016, about 20% of Nippon Yusen’s vessels had installed ballast-water treatment equipment. Mitsui O.S.K. Lines has installed such equipment in a little more than 30% of its ships as of the end of January.

Smaller shipowners who are short on cash have put off installing such equipment; The U.S., which has not signed up to the convention, has more stringent standards than the convention requires. Only three equipment makers are compliant with U.S. rules. The U.S. adopted its own ballast-water regulations earlier this year.

“Ideally we want to bring our vessels into compliance with U.S. standards, but we cannot secure enough vessels from now,” said a midsize Japanese shipowner.

Cost-sharing

The new regulations may raise charter fees and freight rates for overseas bulk carriers, as a growing number of companies are expected to scrap older ships on which it is not economically feasible to install new equipment, before the convention takes effect.

In 2015, many ships were docked to qualify for the moratorium on installing ballast-water treatment equipment. As a result, charter fees and other freight charges rose in some places, due to a fall in the supply of vessels. A representative of a shipping company believes that in Asia, where there are many docks, is likely to attract more such vessels.

A key focus will be how to share the cost of installing the gear. This is usually borne by shipowners, but the shipping companies which rent vessels, say they are prepared to bear part of the cost, if necessary.

In addition to ballast-water, the shipping industry is tightening other environmental regulations, such as sulfur concentrations in fuel oil. Given that the higher costs cannot be borne by shipping companies alone, they may pass them along to their customers in the form of higher freight rates, a Nippon Yusen representative said.

Source: Nikkei

Asia Tankers-VLCC rates to slide further as cargoes dry up on Asia refinery work

In International Shipping News 27/02/2017

Freight rates for very large crude carriers (VLCCs), which fell to multi-week lows this past week, could slip further as refinery maintenance in Asia weighs on cargo volumes and chartering activity, brokers said.

“The pace of cargoes hitting the market is much slower. This time last month there were 50 VLCC fixtures from the Middle East. There are about 30 now,” said Ashok Sharma, managing director of BRS Baxi in Singapore.

“There is an unusually intensive maintenance season” in Asia this year, he said.

More than 40 facilities at refineries in Asia, including plants in China, South Korea, Taiwan and Japan, are scheduled for temporary closure due to maintenance this year. Work to around 17 is due to take place in March and April, data compiled by Reuters showed.

Rates may only recover from April for cargoes loaded in May when “refineries come out of slumber,” Sharma said.

But with time charter rates at around $32,000 per day, VLCC tanker owners are in a better position than owners of smaller Suezmax and Aframax tankers where rates are around $12,000-$14,000 a day, Sharma and ship broker Clarkson said.

“Charterers are in control of the market for sure. I think as we move through March, rates will continue to slip gradually. Rates are slowly getting lower and lower,” said a Singapore-based supertanker ship broker.

“There are plenty of ships coming into the fixing window and plenty of older tonnage” that will depress freight rates, the Singapore broker added.

That came as traders have released more than 12 million barrels of crude, equivalent to six VLCCs, that was being held on tankers used for floating storage in waters around Malaysia, Singapore and Indonesia, shipping data on the Thomson Reuters Eikon showed.

That has provided an opportunity for tanker owners as the crude cargoes are transported to refineries. Hindustan Petroleum chartered the 277,095 deadweight tonne VLCC Yangtze Star to carry a crude cargo being held on floating storage from Linggi, off Malaysia’s west coast, in February, to Visakhapatnam, India, a second Singapore broker said.

VLCC rates on the Middle East to Japan route dropped to around 69.75 on the Worldscale measure on Thursday, the lowest since Feb. 3, from around W74.25 last week.

Rates on the West Africa-to-China route fell to around W69.25, the lowest since Nov. 22, from W73 a week earlier.

Charter rates for an 80,000-dwt Aframax tanker from Southeast Asia to East Coast Australia rose to around W107 on Thursday, equivalent to $10,309 per day and the highest since Jan. 31, from W102.50 the same day last week.

Source: Reuters (Reporting by Keith Wallis; Editing by Amrutha Gayathri)

The end of the Swiss federal state guarantee for cargo vessels – a trigger for the tonnage tax?

In Shipping Law News 27/02/2017

The Swiss Federal Council decided to terminate the well-established funding instrument to facilitate the financing of Swiss owned and registered cargo vessels by issuing government guarantees. Further, the Federal Council decided not to renew existing guarantees or grant new guarantees for Swiss Ship-owners as of June 2017. The existing guarantees will continuously expire up to 2031.

Over the past years, the Swiss federal government has issued guarantees in the amount of approximately 800 Million Swiss francs in favour of a fleet of 50 vessels with a capacity of 1’812’148 DWT. In return, the Swiss federal government is entitled to seize respective vessels in case an international crisis or war situation would complicate or hamper the national economic supply.

The Federal Council justifies this decision referring to substantial risk that its guarantees will be drawn in the wake of the current crisis in the international shipping business. Fur-ther it argues that such a competence to seize and run a fleet of cargo vessels on high seas is no longer crucial for the national economic supply of Switzerland. In this context, the Swiss Government requests Swiss ship-owners to implement further measures to improve their liquidity as well as their economic efficiency.

This is a turning point for cargo vessels sailing under the Swiss flag. The state guarantee facilitated the financing of vessels substantially and was most likely the main reason to have cargo vessels registered in Switzerland. It is therefore not only crucial but also an opportunity for Switzerland to now intensively work on a state of the art legal framework to establish Switzerland as a competitive and attractive flag state. A first step in this direction would be the implementation of a tonnage tax.

This new approach by the Swiss Federal Council forces Swiss ship-owners to restructure the financing of their cargo vessels.

Source: MME

Vessel Losses: Is Shipping Resuscitating Its Record?

In International Shipping News 27/02/2017

Safety at sea has improved significantly in the past twenty years, with losses of large merchant vessels becoming a relatively rare event. Whilst casualties appear to be more common among older and smaller vessels, total losses seem to be on a downward trajectory. Even as the world fleet reached its greatest ever size, last year marked the fewest number of vessel losses on record.

Examining The Vital Signs

Although major accidents will always hit the headlines, merchant ships have in recent times been an extremely low risk form of transport. Total ‘losses’, when vessels are permanently lost from the fleet due to sinkings, groundings or other incidents, have been on a downward trend over the long-term despite the growing fleet. This has been supported by improvements in ship design, an increasing number of port state control inspections and a decline in the proportion of vessels above 25 years old. In 2016, reported losses reached a historically low level of 54 vessels and 0.2m GT, equivalent to just 0.02% of the start year fleet in GT terms.

Bulkers Critical?

Looking at the statistics across the major vessel types, losses have typically been greatest in the bulkcarrier sector. From 1996 to 2016 a total of 160 bulkers of 3.7m GT were reported as casualties, accounting for 36% of the total in tonnage terms. On average, bulker losses each year were equivalent to 0.09% of start year bulkcarrier tonnage. In comparison, the total volume of tanker and containership tonnage reported as losses in the same period represented 9% and 5% respectively of total losses (totalling 143 tankers and 49 boxships). Average annual tanker and boxship losses in GT were equivalent to 0.02% and 0.03% of the start year fleets in each sector. In the bulkcarrier sector, losses of larger ships have been more common, with an average vessel size of 23,247 GT, against 6,181 GT for tankers. This is likely to have been supported by stricter regulation on tanker designs since the 1990s as well as improved vetting procedures.

Smaller Ships In The ER?

Sectors with a large number of smaller units represent the majority of losses in numerical terms. In general, smaller ships account for a larger proportion of casualties, with the average size of losses peaking at around 7,600 GT in 2000. 1,033 general cargo ships were reported as losses from 1996 to 2016, making up 50% of the total in numerical terms. Meanwhile, 184 vessels were recorded as losses in the same period in the passenger and ro-ro sectors. Aside from a number of high profile larger vessels such as the “Costa Concordia” and “Sewol”, the majority of these casualties were small passenger ferries, predominantly in South East Asian waters.

The long-term trend of declining vessel losses appears to have continued over the last few years. However, there is still a significant degree of variation between sectors, with older and smaller vessels also much more likely to become casualties. Whilst risk very much remains a part of shipping, the last few years appear to show that merchant shipping is still improving its safety record, with the number of vessel losses continuing to fall.

Source: Clarksons

Cyprus: ‘Shipping is back on the map’

In International Shipping News 27/02/2017

Despite the troubles at Limassol port, with the slow transition to a private operator and management, the authorities are confident that the shipping sector will continue to grow, prompting the island’s largest lender, Bank of Cyprus, to launch a dedicated shipping finance unit.

Already accounting for about 7% of economic output, Transport Minister Marios Demetriades has reiterated the administration intent to boost that to about 8.5% of GDP.

Cyprus has a very strong ship-management sector, offers services to almost 5% of the world’s fleet and has around 22-25% of independent third party ship-management, Demetriades told the “Shipping Forecast Summit 2017” in Limassol organised by the Bank of Cyprus.

“During the past couple of years we have been attracting more companies in Cyprus and actually our effort is to attract shipowners,” the Minister said, adding that the more shipowners you have the more other activities you attract. Moreover, “the Turkish embargo affects the growth of our fleet and this is something everyone recognises,” he said, adding that this is one of the reasons that “if we have a solution to the Cyprus problem and lifting of the embargo, this will help our registry a lot.”

Parliament has before it legislation pending approval that will establish three Under-Secretariats reporting directly to the President. These will be for tourism, development and shipping, with the latter eventually replacing and upgrading the Department of Merchant Shipping (DMS).

The Minister noted that the new shipping strategy, aiming to further enhance and develop the maritime sector, is based on five pillars, the development and implementation of a national shipping promotion strategy, the cooperation enhancement within the Cyprus maritime cluster, the establishment of shipping incentive schemes, the fine tuning of the shop registry pricing policy, and the development of the one-stop shipping shop.

Pointing out that the shipping sector “is a very important sector for our economy,” Demetriades said that “as a government we are truly committed and we have taken a number of measures, which have been successful so far. Actually one of the indications is the number of events we have this year about shipping. This is an indication that Cyprus shipping is back on the map.”

One of the new things the ministry did, he explained, was to hire a private company in London to promote Cyprus shipping. He said that this was important “because we needed the input of the private sector and we can get more input from the private sector in promoting shipping.”

Demetriades expressed satisfaction with the fact that banks get into shipping finance end expressed hope that this will be successful “as this is a risky sector but it can be also beneficial as well.” In addition to Bank of Cyprus, Hellenic Bank also has a shipping unit.

On his part, Bank of Cyprus CEO John Hourican said that “the facts today suggest that this business area has the potential to be a sensible, profitable and indeed long-term business for the Bank of Cyprus. We will of course need to ensure that we hire well, that we engage in great risk management and develop the necessary embedded expertise to build a valuable business for our shareholders but also in partnership with our customers.”

He noted that “Cyprus is a major flag carrier and is the number 1 shipping management centre in the European Union” and that shipping represents about 4% of Cyprus’ GDP and near 8% of the economy.

“It is a very important part of this economy and has real potentials, despite the challenges facing it. Greek and Cypriot ship-owners account for about 17% of the world tonnage and Cyprus is a great place to domicile much of this fleet and build long-term businesses of substance,” Hourican underlined.

He noted that the Bank of Cyprus does wish to serve the national market through careful customer selection, through careful asset selection and through being there over the long-term for this market.

“We aim to become, hopefully by choice, a trusted banking partner for a select and progressive group of ship-owners and services. We will build our capability very carefully and we will endeavour not to disappoint you along the way,” Hourican concluded.

Source: Financial Mirror

Westports: Container growth seen contained

In Port News 27/02/2017

Westports Holdings Bhd is projecting a conservative container growth outlook of between 1% and 5% this year due to the uncertainty of the shift in key shipping alliances, according to its chief executive officer Ruben Emir Gnanalingam.

For comparison, Westports recorded a 10% volume growth to 9.95 million twenty-foot equivalent units (TEUs) in 2016 but for this year it will be a game changer for the terminal located in Port Klang as two of its major customers, namely French liner CMA CGM and United Arab Shipping Company (UASC), are members of a new alliance.

The Ocean Alliance of CMA CGM, China Cosco Shipping, Evergreen, and Orient Overseas Container Line, beginning April 1 this year, will operate 20 weekly services between Asia and North America.

It was also reported that CMA CGM, one of the four members of the alliance, could potentially shift some of its shipping traffic from Westports to Singapore following its takeover of Singapore shipper Neptune Orient Lines (NOL) in order to expand its presence in trans-Pacific routes.

Meanwhile, UASC is merging with Hapag-Lloyd, which is a member of the alliance alongside other members, namely K Line, Mitsui OSK Lines, Nippon Yusen Kaisha and Yang Ming, which will also start its services in April this year.

The alliance will cover over 75 ports in Asia, norther Europe, the Mediterranean, North America and the Middle East.

As of last year, CMA CGM and UASC contributed about 3.5 million TEUs and one million TEUs respectively to Westports’ total container volume of 9.95 million TEUs.

“As for CMA CGM, we expect some volume to go to Singapore but Westports is still going to be one its hubs in the region.

“And for UASC, we are still somewhat unsure how it is going to affect us until we obtain more clarity pending the completion of its merger with Hapag-Lloyd,” says Ruben.

Kenanga Research’s estimates are also not too far away from the conservative container volume growth for Westports.

“We are comfortable and maintain volume growth estimates of 4.5% in FY17 and modest FY18 growth of 3% pending further updates on shipping alliances strategies, especially for UASC, while Westports expects similar port calls from existing clients of the Ocean Alliance,” says Kenanga.

Meanwhile, CIMB Research says, Westports’ hopes of other carriers making up for the loss of CMA CGM’s traffic is not unwarranted as it was proven that the Cosco and China Shipping Container Lines merger increased the volume of intra-Asia boxes handled at Westports in 2016.

“We believe the remaining carriers of the Ocean Alliance will retain most of their long-haul services at Westports, as Westports is likely to be one of the cheapest ports in Asean.

“We think Westports will easily deliver 5.5% volume growth this year, especially with the onset of ad-hoc movements in second quarter of 2017 when the Ocean Alliance and the Alliance take effect,” it says.

Ruben says the environment would be a lot clearer starting from the third quarter of this year after the first few months when the new alliances take effect.

“From my experience, when a new shipping alliance start its services, it will take about 15 months to re-allign and sort of predict the exact gain or loss of volume.

“Clearly there will be some winners and losers but it is at this juncture it is too early to tell. Nevertheless, we will continue to focus on to render efficient service to our customers,” says Ruben.

In terms of expansion, Ruben explains these changes in shipping alliances will not affect what Westports had already planned in terms of increasing its capacity.

“We will still go on with our expansion plan up to the development of container terminal nine (CT9) that will see our yearly container handling capacity increase up to 16 million TEUs,” he says.

Expansion of the CT8 phase two wharf construction is on schedule, and the 300m facility is expected to be completed by mid-2017.

Expansion at CT9 will commence due to the record volume and high utilisation of existing container terminal facilities at Westports, and these additional facilities are expected to be completed by the end of next year.

On future competition from the recently mooted RM200bil industrial port development in Pulau Carey which is also in Port Klang area, Ruben says there are more current pressing matters now to be attended to as the Pulau Carey port will only be completed in 2035.

“But as far as expansion is concerned beyond CT9, there are still adjacent land available but we have to ask the government,” he says.

Early this year, it was reported that Port Klang Authority (PKA) proposed to build a giant port on Pulau Carey.

Pulau Carey, measuring at 13,000 ha, is about 25 times the size of Singapore’s Sentosa Island.

As Sime Darby Bhd owns most of Pulau Carey, it will also have to be involved.

Some analysts question the need for a new port, especially one intended to compete with Singapore.

Last year, Port Klang – the world’s 12th busiest container port – handled container cargo totalling 13.2 million TEUs, a rise of 10.8% over 2015.

Its maximum capacity is 16 million.

Westports accounted for 76% of the total containers that were handled at Port Klang in 2016.

In comparison, the Port of Singapore handled 30.9 million TEUs in 2015.

Source: The Star

Big data professionals needed, shipping leaders warn

In International Shipping News 27/02/2017

The maritime industry is facing a severe skills shortage in analysing and harnessing big data, which could hinder the reinvention of the struggling industry, according to a survey by a maritime exhibition and conference organiser.

The survey released by Sea Asia found 63 per cent of industry leaders – comprised of CEOs, chairmen and directors of maritime and offshore companies – believed that lack of access to big data was “holding back their ability to utilise it”.

Twelve per cent said they were taking advantage of big data.

Half of those surveyed believed there was a need for more skilled big data professionals.

“Only with a competent set of professionals can the opportunities provided by big data be leveraged effectively,” Oh Bee Lock, head of group technology at PSA International – one of the world’s largest port operators – said.

“We need to look into developing the skills of our current workforce to ensure that there are professionals who are trained to collect and use the large amounts of data in the industry and make it more interesting for big data professionals to join the industry.”

Hong Kong’s port seeks new role amid mainland China competition and decline in container throughput

The industry has been struggling worldwide due to the global economic slowdown.

In Hong Kong, the decline has been apparent with port throughput declining, knocking the city from top spot as the busiest container port in the world in 2004, to fifth in 2015.

As the world moves towards “smarter” technologies, the maritime industry cannot be caught playing catch-up or those within the industry could be eclipsed by new entrants to the market, according to industry leaders.

“Big data has the potential to change and disrupt the maritime sector, changing the way services are offered and allowing new players with new and different skills sets to enter the market,” vice-president of marine innovation at Rolls-Royce Oskar Levander said.

“The evolution of technology means that the competitive landscape for the maritime industry is also changing quickly.”

With the advent of social media, cloud computing and cheap data storage, companies have been able to store mountains of data they collect.

The vast amount of data is then analysed and processed to achieve cost reduction, increased productivity or the development of “smart” programmes or devices.

Some in Hong Kong’s shipping industry admit they have not taken advantage of big data, and put the blame squarely on a lack of qualified people to sift through the data and find ways of implementing its results.

A spokesman for shipper Wah Kwong agreed the firm was “lacking skills for big data analytics”.

“We probably need more platforms to share information and cultivate such culture to share data,” he said.

Wah Kwong currently collects data on ship operations, vessel performance and market dynamics, but needs big data specialists to analyse and utilise it.

However, Hong Kong-based container shipping and logistics service giant Orient Overseas Container Line (OOCL) is ahead of the curve.

“OOCL has spent much time and effort training our IT specialists while also working with the best in the field, including those from Silicon Valley,” an OOCL spokesman said.

The firm said it had been collecting data from a wide range of sources, including over 7,000 vessels, route patterns, sailing schedules and shipment milestones. The resulting big data is moved into a “transportation data repository” which the company than analyses for monitoring, predictive capabilities and prevention and timely recovery.

The city’s largest port operator is one step ahead of competitors, with Hongkong International Terminals (HIT) setting up a data management system to comb through mountains of data it has collected.

A spokeswoman for HIT said the company had already used big data to create “smart shipping” solutions, such as real-time radio-frequency identification tracking, predictive maintenance strategies and real time communication with those along the supply chain.

The Hong Kong Maritime and Port Board – set up by the government in 2016 to coordinate with and help the industry – has not focused on the big data issue, but it is a “subject to be considered”, according to a spokesman.

Source: South China Morning Post

Tankers could see higher ton-mile cargoes this year says shipbroker

in Hellenic Shipping News 10/02/2017

While oversupply is always a concern, tanker owners could be in for a pleasant surprise during 2017, as a number of factors are coming into play at the market, leading to higher ton-mile usage. In a recent weekly report, shipbroker Gibson noted that “when OPEC began planning for the now implemented supply cuts, one of the messages resonating was the need to protect Asia (the biggest buyer of OPEC crude) from production cuts and protect market share in the region. However, this raises the prospect that protecting this level of market share could impact negatively on any price recovery output cuts could have stimulated. Initially the areas expected to be most impacted by production cuts were US and European refineries. January’s allocation from Saudi Arabia, Kuwait and the UAE to western refineries was tabled as an initial area where production cuts would be felt”.

According to Gibson, “in late December several refineries in Japan, China and South Korea expressed confidence in maintaining supply levels, announcing that they had not received any reduction notices from Middle East suppliers. One of the main purposes of OPEC’s cuts is to help stabilise prices on the back of the lows reached during 2016. Although it is still very early to ascertain the full impact of production cuts, in terms of pricing some success has been achieved. The Dubai crude benchmark has risen from close to $42/barrel in early November to $54/barrel at the time of writing. This has understandably not gone unnoticed by buyers in Asia”.

The shipbroker noted that “the tentative signs of increases in oil prices have come at a time when Asia is bracing itself for declining oil production. Largest crude producers East of Singapore are China, Indonesia and Malaysia; however, a lot of fields are mature and require increasingly expensive techniques to extract oil. Coupled with upstream Capex cuts during previous years of low prices and with most of new exploration being in gas fields, the region appears braced to rely on further imports in the coming years just to offset the decline in domestic output. Furthermore, oil demand East of Singapore is expected to continue to increase, with the IEA suggesting that the consumption could grow by as much as 600,000 b/d in 2017 alone”.

“Apart from growing consumption, refining capacity is anticipated to increase in at least 3 countries this year. China, Taiwan and Vietnam will add more refining capacity helping to balance out closures in Japan. Wood Mackenzie expects net refinery capacity additions of 430,000 b/day in 2017; however, it is worth noting that a large amount of this is taken up by the new inland refinery in China’s Yunnan province supplied by pipeline through Myanmar”, said Gibson.

According to the London-based shipbroker, ‘”as prices have climbed in recent months, eastbound shipments from sources like Azerbaijan, Alaska and the North Sea have increased. Supply cuts have increased the relative value of Middle East oil, allowing other suppliers to compete into the Asian market. Early trade data shows that January’s North Sea exports are on track to be noticeably higher than previous years, indicating a 3 million bbls increase on January 2016 levels. In a further sign of diversifying supply, BP shipped their first cargo of US crude to Asia in October. The reduction in Middle East crude availability could also prompt Asian refiners to source more Caribbean & Central American barrels. The resulting increase in these long-haul developments could provide a boost to tanker owners this year; however, it is also important to note that this supply diversion will be heavily price dependent”.

He concluded by noting that “as the major importers in Asia have long standing relationships with OPEC’s Middle East suppliers, a fundamental change in buying patterns may prove hard to push through, despite some refiners’ eagerness to diversify supply. Prior to the November meeting the tanker market witnessed OPEC’s efforts to protect market share, the question now is whether members will be prepared to potentially lose market share in 2017 in attempt to raise prices further?”

Nikos Roussanoglou, Hellenic Shipping News Worldwide

Capesize market could soon reach “bull” mode says freight derivatives specialist

In Dry Bulk Market,International Shipping News 10/02/2017

Continued weakness in the Capesize Index has seen us trading below the more important US$ 6,570 support level. This has created a new low and puts us into bearish territory once again. Support can be found at US$ 5,354 as this is the low from May 2016. A close below this level could push the index back to the March 2016 lows of 2016 at around US$ 2,000.

It’s not all bleak for the index as the weekly stochastic is now showing a bullish divergence, although not a buy signal it does suggest that the downside momentum is starting to weaken. A close on the weekly chart above US$ 4,911 would be above the weekly pivot point and suggest that buyers are willing to support the index, and a close back above the previous low of US$ 6,570 would have potential bullish implications going forward. Note the last two previous corrections have lasted 6 weeks. We are currently on week 6 of this correction, which in conjunction with the bullish divergence could suggest that the current downward move could soon exhaust.

Capesize Cal 18 5 TC futures are now approaching a key level of resistance at US$ 11,990 and this will be a key level going forward as above this level will put the Cal 18 into bullish territory for the first time from a weekly perspective. Secondary resistance can be found at US$ 13,013 as this is the low dating back to May 2015. With the stochastic a t 94 and in overbought territory we would expect the first of the two resistance levels to hold in the short term. For the support levels we look to the daily chart which has already started to turn lower on price and the stochastic. A close below the low of US$ 11,614 will create the first lower low (and lower high) since 9-12-16 and this will be significant as it suggests technical weakness in the market. Secondary support can be found at US$ 11,232 and we should expect this to be tested if the primary support is broken.

The Q2 5 TC has recently found support on the 50 period MA and is currently testing the 34 period EMA at US$ 8,209. A close above this level would suggest that we could look to test the US$ 8,675 resistance. However the stochastic at 35 is not yet in oversold territory implying there is potential room for further downside. It is worth noting that the stochastic is pulling back further than the price and this would imply that even on an upward move there is weakness in the market Q2 futures. A close below US$ 7,960 creates a fresh low, and will also be below the 50 period MA which would indicate further weakness in the short term, with US$ 7,555 being the next logical target.

The Panamax Index remains in bearish territory, as the shorter term moves are currently making fresh lows. The daily stochastic is now in oversold territory at a time the weekly stochastic has started to turn bullish suggesting that we could soon look to find support in the index. Technical resistance can be found at US$ 7,768, a close above this level should attract technical buying in to the market and likely to push the index up the US$ 8,312 resistance. Near term support can be found at the recent low of US$ 7,374. A close below this level would signal further downside weakness with the longer term trend support as the target of US$ 6,880. Technically we are still in bearish territory until we trade, and close above US$ 7,768.

Cal 18 futures remain in bullish territory, and are now approaching the Fibonacci resistance zone between US$ 8,850 and US$ 8,905 at a time that the stochastic is beginning to look overbought at 97. Further resistance can be found at the US$ 9,539 Fibonacci level. The recent low of US$ 8,830 will be the first support level. A close below here would be the first low break since the 14-12-16 and would suggest either a corrective phase, or a market retracement is beginning. Further support can be found at US$ 8,273. Technically bullish, a close below US$ 8,830 would suggest some form of market retracement.

Momentum on the March futures is now starting to weaken with the stochastic showing a bearish cross as we pull back from the recent high of US$ 8,698. This will be the first point of resistance going forward, with secondary resistance at US$ 9,012 as this is the upper end of the recent channel. Support has been found on the recent high of US$ 8,115 and this will be significant as the recent low has closed below the support level, creating a wave overlap. From a purist point of view this would suggest that we could be entering into a consolidation formation (it could be more) with the potential to test the lower channel support at US$ 7,718.

This would be supported by the bearish cross in the stochastic. The corrective phase in the Supramax index continues with price action remaining in the support zone with US$ 6,680 being the next key level. A close below here could push the index as low as US$ 5,797. Momentum continues to remain in an oversold environment with technical resistance at US$ 7,553 and US$ 8,406. At this point any upward move is likely to fail as we are below previous market lows and more likely to create selling opportunities into any upward move. March futures remain range bound between US$ 7,705 and US$ 7,250. A directional breakout is now needed and should set the next technical directional move.

The stochastic is currently overbought and this would suggest that there is a higher probability of it breaking to the downside at this point. A close below US$ 7,510 would be below the recent low and increase the probability of the US$ 7,250 support being tested. Cal 18 futures remain bullish with the stochastic crossing to the buy side once again on the weekly chart. However higher highs are not being replicated by the stochastic, creating a bearish divergence and implying a weakening momentum. We have now entered a resistance zone between US$ 7,396 and US$ 7,850. A rejection of this resistance would suggest a corrective phase should be entered.

However, a close above this zone would imply further upside momentum and override the bearish divergence. Support can be found at US$ 8,310 which is the weekly pivot and below the most recent low on the daily chart. A close below this level would probably mean a corrective move to US$ 8,110. The daily stochastic is now turning bearish bringing more emphasis to the US$ 8,310 support.

Source: Freight Investor Services (FIS)

Improving demand to ease oversupply in dry bulk shipping

in International Shipping News 10/02/2017

With contraction in vessel supply and healthy demand growth, the dry bulk shipping market is expected to recover from 2017 onwards, according to the latest edition of the Dry Bulk Forecaster, published by global shipping consultancy Drewry.

An impressive outlook for dry bulk demand coupled with a small orderbook of newbuilds as a percentage of the total fleet capacity will ensure a sustained recovery in the dry bulk market. Earnings in the dry bulk market are expected to improve from 2017 with a narrowing supply-demand gap. Demand is projected to grow at a healthy pace of 3% while supply is expected to grow by about 1% from 2017, making the dry bulk segment an interesting market to invest in.

The growth in demand originates from a rise in iron ore and thermal coal trade. Coal demand is expected to rise mainly from developing Asian countries including Vietnam, South Korea, Taiwan and China. The rise in Chinese domestic steel consumption will provide employment to VLOCs and Capesize vessels carrying iron ore in the market. On the other hand, Vale’s new project S11D has become the most cost effective iron ore mining project and will increase iron ore supply from Brazil increasing total tonne miles; this will help demand for bigger vessels in the long term.

The supply side is projected to grow by just 1% from 2017 because of high scrapping and a thin orderbook. The environmental regulations on Ballast Water Treatment System (BWTS) will become effective in September 2017 and IMO’s regulation on use of low sulphur fuel oil in 2020 which will result in high scrapping of old tonnages. Shipowners will prefer to scrap their old tonnage, with low earnings potential, than incur additional cost on scrubber and Ballast Water Treatment Systems. On the other hand, a contracting orderbook and low future new orderings due to limited financing availability are keeping a check on future deliveries. At this point in time, the orderbook as a percentage of the total fleet, which is a strong indicator of future deliveries currently stands at a decade low.

“The outlook for the dry bulk shipping market continues to be positive as the supply and demand gap continues to narrow. Charter rates are expected to improve for most of the dry bulk segments in 2017 with the steepest recovery expected in Capesize segment. Average charter rates are expected to rise from $8,000 per day in 2016 to $12,800 per day level in 2017 and will further improve from 2018,” commented Rahul Sharan, Drewry’s lead analyst for dry bulk shipping.

Source: Drewry

South Korea’s Biggest Sea Carrier Attempts Recovery After Hanjin Disaster

In International Shipping News 10/02/2017

Hyundai Merchant Marine Co., South Korea’s biggest sea carrier, said it will post losses through the first half of 2018 as the container-shipping industry attempts to recover from Hanjin Shipping Co.’s bankruptcy and years of excess capacity.

As a hedge against adverse conditions plaguing shipping, Hyundai Merchant has initiated talks to invest in box terminals in Southeast Asia, Chief Executive Officer Yoo Chang-keun, 64, said in an interview Monday. Once the company begins to turn around to profit, Hyundai Merchant plans to order new ships to meet new emission rules scheduled to take effect at the end of the decade.

“This year will be the year to strengthen our financials,” Yoo said in his office in Seoul. “We are targeting to make an operating profit in the third quarter of next year. By early next year, we expect much of the overcapacity in the market will be resolved.”

Hyundai Merchant, whose accumulated operating losses have exceeded $2 billion since 2011, is counting on a recovery in freight rates as a spate of mergers globally helps pare capacity and prevents rivals from undercutting each other. The company agreed to a tie-up with the world’s biggest shipping alliance led by A.P. Moeller-Maersk A/S in December and is buying overseas terminal assets, filling a gap left by Hanjin, which is set to be declared bankrupt next week by a Seoul court.

“There appears to be a consensus that the industry won’t be able to sustain with the level of freight rates we saw last year,” Yoo said. “We are cautiously expecting rates this year to recover.”

Shares of the company fell 1.2 percent to 7,990 won on Tuesday in Seoul, the biggest drop in two weeks. They have declined 53 percent in the past year, compared with an 11 percent gain in the benchmark Kospi index.

While Hanjin collapsed last year after credit stopped flowing, Hyundai Merchant managed to stay afloat by revamping its debt, selling assets, adjusting charter rates on leased vessels and extending the maturity of bonds. The measures won financial support from state-owned Korea Development Bank, which is now its biggest shareholder with a stake of 14 percent.

Following the restructuring, Hyundai Merchant’s debt-to-equity ratio is about 186 percent, down from as high as 5,000 percent, Yoo said, adding the company will take advantage of the government’s 6.5 trillion won ($5.7 billion) financial package designed to help Korean shipping companies tide over the crisis.

As part of the aid program, the government said in October that it plans to double the size of a fund to help companies order vessels — bulk carriers, tankers and box carriers — to $2.4 billion.

Hyundai Merchant, which counts Samsung Electronics Co., LG Electronics Inc., Best Buy Co., Wal-Mart Stores Inc. and Target Corp. among its customers, posted an operating loss of 647.3 billion won in the first nine months of last year, widening from 145.9 billion won a year earlier.

While Hanjin’s bankruptcy has instilled fear among others and promises to buoy freight rates, the risk of a trade war may pose challenges to any recovery, according to Drewry Financial Research Services Ltd.

“We continue to look for negative surprises,” Drewry said in a report last month. “The challenge is continued anti-trade sentiment and rhetoric stemming out from the U.S., and a resultant escalation into a full-blown trade war.”

While there are some concerns over trade protectionism, a shift in manufacturing won’t happen overnight, though there could be some impact on shipping, Yoo said.

Terminal Stakes

Investing in terminals will help cut the cost of moving cargo at ports, which makes up for about 30 percent of total expenses, said Yoo, adding last year was the worst he’s seen in his shipping career spanning three decades.

Hyundai Merchant bought a 20 percent stake in Total Terminals International LLC, which operates in Long Beach, California, for $15.6 million from Mediterranean Shipping Co. The Korean company is also in talks to firm up the terms to buy a terminal in Spain, of which 25 percent is owned by Hanjin Shipping, after being selected as the preferred bidder.

Hyundai Merchant plans to order new vessels that will comply with stricter sulfur emissions rule expected to take effect around 2020, Yoo said. While the company hasn’t finalized on how many it plans to order, Yoo said that typically five to six ships are needed for the service loop between Asia and the U.S., and about 10 for Asia-Europe trade.

In the meantime, Hyundai Merchant plans to order small- to medium-sized container vessels this year to replace aging ones currently used within Asia, Yoo said. That will be the first since its last order in 2011. The company is also considering as many as five tankers. As of Jan. 31, Hyundai Merchant operated 114 ships, including 63 container vessels.

Source: Bloomberg