Friday, October 31, 2008
Imarex Daily Brief - Imarex Inc 31st October 2008
Tankers
Crude
VLCC Ag/East: ws 70 ($46k)
Suezmax Wafr/Usac: ws 185 ($75k)
Turkish Straits Delays: 1.5 north / 1 south
Though we have seen about 57 cgos fixed ex AG for November dates, we can’t yet be sure where this
stands in terms of “usual percentages”…as today’s markets (all of them) are anything but “usual”.
Regardless – the fact that rates came off throughout the fixing cycle is a less-than-good sign. If the usual
110 cgos do develop, then rates will have fallen in the face of a normal fixing period. If we see that only
95 cgos or so are fixed, this might also be a bad sign, in that it could signal lower demand going forward.
The Suezmaxes in the Atlantic basin have gotten some mojo going, though we may be looking at a
topped market. Market cargos are beginning to see more offers – and the Nigerian gov’t has stated they
would be cutting exports in Nov and Dec by 5%.
According to the ATS Report, August crude demand in the US was 19.27m bpd, down 1.76mm bdp from
August 2007. And this was before phrases like “great depression”, “absolute disaster” and “does this
mean I can’t afford to go to Starbucks everyday” were being freely tossed around like voter applications at
an ACORN rally. One more very salient point raised in the ATS report is that non-OPEC production in Q4
is expected to rise 2.1m bpd above Q3 levels. Look out below!
Another quiet day in crude FFAs. TD3 Nov trades down 5 points to 65. With Dec priced at about 68 –
the curve appears largely flat. Lower bunker prices of course help Owner’s TCE, but the search for the
Q4 rally is looking grim. TD5 Dec trades down 8 points to 120.
Clean
37kt Cont/Usac: ws200 ($17k)
55kt Ag/East: ws 285 ($47.5k)
Cont/ta has settled down to the Mendoza line on limited demand. The Caribs/Usac route remains
unchanged – and soft – at about 165 ($11k). Eastern clean continues to show underbelly. Though the
region from Spore to Skorea seems to be holding steady, rates from the AG to the East are still under
pressure. The soft naphtha price is not helping.
Clean FFAs have seen good volumes. TC2, however, is showing weakness as Dec drops 20 points to
180. The Asian routes are also trading down. TC4 Nov loses 6 points to 236, while TC5 Nov loses 13
points to 205. New kid on the block TC6 has seen good volumes as well, though prices have moved
south. Nov loses 10 points to 210 and Dec loses 16 points to 215.
Dry Bulk
BDI 851 down 34
BCI 1265 down 42
BPI 677 down20
BSI 583 down 34
BHSI 329 down 17
The drumbeat of negativism continues, though one report has mentioned that imported ore volumes into
China have increased and that some plants intend to resume steel production (source: Mysteel Daily).
This seems like a positive sign, but let’s see how it plays out – and let’s be sure it’s not a small drop in a
larger bucket. Back to the less-than-good news…Omar Nokta at Dahlman Rose has reported that Vale
announced production cutbacks in ore, among other products. We don’t need this.
Dry Bulk FFAs
Contract Close Current Diff
======================================
BDI Nov-Dec 1195 1170 - 25
BDI Q1 1700 1700 - 0
BDI Q2 2275 2150 -25
CS4 Q4 $11,926 $11,875 - $51
CS4 Q1 $14,281 $13,750 - $531
CS4 Cal 09 $19,922 $19,000 - $922
PM4 Q4 $8,607 $8,500 - $107
PM4 Q1 $10,500 $10,000 - $500
PM4 Cal 09 $13,728 $13,125 - $603
SM6 Q4 $9,357 $10,000 + $643
SM6 Q1 $9,719 $9,500 - $219
SM6 Cal09 $11,563 $11,500 -$63
Volumes have been thin as prices drift to the downside. A few dollars up – a few dollars down….doesn’t
mean a thing. We are looking for a sign – any kind of sign – that might point to a way out of this mess.
For today – the futures show nothing. You could, if you really wanted to – look to the equities – and you
might find hope. Recently they have shown an occasional burst of energy. There are many reasons to
think that the equities will indeed make the first move north before the futures and the physical make the
same move. Fair enough. Though my thought here is that many people have their finger on the BUY
button – waiting to catch the front edge of any positive move in dry bulk. We are all aware that these
names could double in a week or so should, all of a sudden – this market turn for the better and show
sustainability. This includes many reasonable investors – as well maybe some looking for that home run
ball to help salvage an otherwise calamitous year. Point being – we may see more than a few false starts
here. When everyone wants a seat on the last flight of the evening, people get jumpy.
Equities
George Glass’s pairs trade came home in the money once again – as the G Team and OSG rallied while
FRO couldn’t budge the sled. Anyone else get in on the GNK spread versus NM and EXM? It reached
about 22% at one point. George Glass got in at 20% - and closed most of those trades at a profitable 12-
16% differential. Aside from the usual pairs trading advice offered here over the past year or so, I will
today add that your minimum spread on tankers needs to be at least 7% and for dry bulk almost 20%, all
else equal. Remember that Friday’s are the roughest. Intra-day differentials can go on for what seems
like forever.
In ratings news…
- Charles Rupinski maintains a BUY on GNK, though he lowers his price target to $34 (from $74). He
lowers EPS estimates but feels the company could be revalued in a better dry bulk environment.
- Anders Rosenlund maintains a SELL on GNK and lowers his target price to $8 (from $10). He cites
concerns over falling asset prices, increasing counter party risks and financial leverage.
- Natasha Boyden maintains a BUY on GNK ($45). She cites strong contract coverage, a strong
balance sheet and experienced management, among other items.
- Greg Lewis maintains a NEUTRAL on GNK ($45). Though he lowers his earnings estimates, he feels
that their solid contract coverage should insulate them in the short term.
- Scott Burk maintains an OUTPERFORM on GNK ($22), citing management’s opinion that the
downside is overdone and his own opinion that their charter coverage is strong. “People still need to
eat.”
- Scott Burk maintains a PERFORM on GMR, citing a risk/reward balance that leans to the upside after
the recent price decline. He does mention concern over the economic backdrop and the still-to-be-seen
impact of OPEC cuts.
- Charles Rupinski maintains a HOLD on GMR, citing expectations for continued tanker strength in Q4,
yet placing 2009 in the “wildcard” category.
- Omar Nokta maintains a HOLD on OSG, awaiting the earnings conference call.
- Glenn Lodden maintains a BUY on OSG ($85), citing a positive view on earnings valuation and general
outlook for crude tankers.
- Justin Yagerman maintains an OUTPEFORM on SSW ($21-24)
- Greg Lewis maintains an OUTPERFORM on SSW, though he lowers his price target to $19 (from $33).
- Omar Nokta maintains a BUY on SSW, though he lowers his price target to $16 (from $29).
- Charles Rupinski maintains a BUY on SSW ($40).
- Charles Rupinski maintains a BUY on Kirby (KEX) with a $67 price target.
- Natasha Boyden maintains a BUY on Kirby (KEX) with a $58 price target.
- Alexander Brand maintains an OVERWEIGHT on Kirby (KEX) with a $47 price target.
- Glenn Lodden maintains a BUY on Belships (NOK 15).
- Anders Rosenlund maintains a HOLD on Belships ($1).
- Glen Lodden UPGRADES Wilh Wilhemsen to a BUY (NOK 130).
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