Wednesday, November 26, 2008
Imarex Brief 26th November 2008
Tankers
Crude
VLCC Ag/East: ws 65 ($51 k/day) same, slightly up
Suezmax Wafr/Usac: ws 92.5 ($32k/day) same, maybe bottomed
Turkish Straits Delays: 4-5 n / 4-5 s about the same
We have about 40 fixtures done for December dates yet rates remain at the sub 70 level. Brutus the
Buckeye tells me that DH availability is not excessive – implying Owners should be able to prevent further
rate slippage. There appears to be a plethora of the thin skinned class – telling us that SH rates may not
yet have bottomed. Strangely enough, I actually encountered the word “plethora” on my SATs. With that
said, there is a paucity of optimism in the sector.
On the macro front…Platt’s is reporting that Japanese refiners are likely to maintains current refinery run
cuts of about 10% for Q1 next year…a Toyota downgrade to AA (from AAA) by Fitch does not bode
well…the world’s two largest container shipping alliances announced major service reductions…US GDP
figures have been revised downward for Q3 – which is now reported to have shrunk at 0.5% rather than a
slightly more benign 0.3%. Crude oil is up about $1.50 to $52.25, as OPEC calls on non-OPEC members
to cut production as well. The more contentious members of the cartel are reportedly concerned about
“price stability”, something that apparently applies only while prices fall – but not when prices shoot to
$147. Keep pumping boys…
TD3 has seen good, maybe very good, activity today – though prices have come off. Dec trades down 4
points to 54 while the Q1 trades down 3 points to 37. Keep in mind – the ws 37 for Q1 includes a 38%
flat rate increase – so please don’t read this that the market is falling off a cliff. It is not. It is soft – as
there is a dearth of hope, but we need keep apples/apples in mind. TD7 Dec trades down 5 points to
130.
Clean
37k Cont/Usac: ws 175-180 ($16k/day) same
38k Caribs/Usac: ws 165 ($13.5k/day) mildly better
55kt Ag/East: ws 210 ($34k/day) down a touch, again
Some Atlantic basin fixing has prevented Cont/Usac rates from a potential give-back, and has actually
managed to bring 5 points back to the anemic Caribs/Usac market. It ain’t much, but we’ll take it. With
global markets in a perpetual state of Code Red, the fact that this market has lived to fight another day in
a non-bad sign. Poor demand in Asia continues to nudge rates lower on some routes. Though other
routes may be holding steady for a day or two – we are not seeing any routes turn up on occasion. It’s
been all softening in one form or another.
Thin trading in clean FFAs today. TC2 Dec trades down 5 points in Dec – telling us the last sliver of hope
for a Q4 rally has become an even thinner sliver. TC4 Dec trades down 5 points to 174, as the physical
market continues its measured decline. TD5 Dec trades flat at 195 – about 15 points below spot.
EIA average Estimates from Dow Jones
Crude + .6
Mogas + .3
Dist - 1.1
Dry Bulk
BDI 763 down 41
BCI 883 down 49
BPI 719 down 85
BSI 637 down 4
BHSI 318 down 3
Commodore Landsberg: “(Expletive deleted). This thing of ours is getting out of hand. Capesize day
rates have fallen below the $3,000 mark. At the $2,773/day - and with a moderate portion of the fleet
idling – the situation for Capes looks very grim. Scrap prices have been holding steady in the low
$200/ldt range, however, so expect to see additional scrapping in the coming weeks. Cash-rich China
has increased their presence in the scrapping market which should make it easier for owners for find
scrap buyers and about 20% of the Capesize fleet is twenty-years old or older. For anyone looking for
positive news with Capes, this is the best we’re going to get.
Panamax rates have also taken a significant nose dive, falling 10.5% in one day to $5,809. It is likely
more Panamax cargo will go to bargain-basement Capes but the overall demand situation still looks
scary. The Chinese government has just cut interest rates by 108 basis points to prop up domestic
consumption - a very bold / positive move, but also one which makes it seem the Chinese government is
as scared as we are. Supramaxes owners have the most to be happy with at the moment. Supramax
vessels are commanding the most lucrative chartering rates at $6,659/day and additional iron ore
continues to be taken from India.”
Comments on asset prices from Natasha Boyden at Cantor (as part of her EXM note): Finally, the
sales and purchase market remains illiquid and opaque, but the few sales that have been concluded are
starting to provide clarity as to the magnitude of the fall in asset values. Based on the limited data so far,
it appears asset values for modern secondhand ships have fallen in the range of 50-60% from levels seen
in the summer.
Dry Bulk FFAs
Contract Close Current Diff
======================================
BDI Dec 1175 1150 -25
BDI Q1 1525 1375 -150
BDI Q2 2225 2025 -200
CS4 Q1 $9,828 $8,500 -$1328
CS4 Cal 09 $16,813 $15,000 -$1813
PM4 Q1 $9,635 $8,500 -$1135
PM4 Cal 09 $12,753 $11,500 -$1253
SM6 Q1 $7,925 $7,000 -$925
SM6 Cal09 $10,683 $10,000 -$683
Thin volumes…but, the price drop is concernable. Recently we had seen prices drift, mostly down, but
they seemed to occasionally offer a glimmer of hope, or better said – they offered a glimmer of hope that
there might be a glimmer of hope at some point in the future. Today we see “another leg down”. The
frying pan is no longer there to protect us from the fire. WSJ page B2 has an article on the Chinese steel
industry, though I didn’t see anything in it that surprised me.
Equities
The NAT/FRO spread closed only 1.5%. Not bad – though for this trade to become profitable,
George Glass needs another 3-4% points. He is tired of lying to his kids that Christmas only
happens in odd numbered years.
In ratings news…
- Natasha Boyden downgrades EXM to SELL and suspends price target, citing a lot of things, including:
unfixed 2009 days, highly leveraged balanced sheet and covenant issues that could lead to elimination of
the dividend.
- Natasha Boyden maintains a BUY on GNK though lowers target to $23 (from $45), citing lower forward
estimates based on “significant uncertainty and volatility” in the sector.
Starbulk – 3 BUYS and 1 HOLD (including yesterday’s notes)
- Natasha Boyden maintains a BUY on SBLK, though lowers target to $5 (from $9) on lower spot rate
assumptions going forward.
- Kevin Sterling maintains an OVERWEIGHT on SBLK ($9). Though he lowers forward estimates, he
sees their low leverage and high contracted charter coverage as plusses.
- Charles Rupinski maintains a BUY on SBLK, though lowers target to $9 (from $11).
Golar: 2 BUYS and 1 HOLD
- Glenn Lodden maintains a BUY on Golar with price target under revision.
- Anders Rosenlund maintains a BUY on Golar ($10).
- Forde Morkedal maintains a HOLD on Golar.
Other
- George Glass downgrades EXM, citing problems that include "breaking ranks while in formation,
felonious assault, indiscriminate behavior, mopery, high treason, provoking, being a smart-guy, listening
to classical music, and so on."
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