Friday, December 12, 2008
Imarex Brief 11th December 2008
Tankers
Crude
VLCC Ag/East: ws 85 ($72 k/day) same
Suezmax Wafr/Usac: ws 130 ($50/day) mildly softer
Turkish Straits delays 3.5 n / 2.5 s same
We are up to 96 fixtures for December – so those who are into averages can expect about another 10
cgos or so to hit the wires. Predicting the precise number of fixtures in a given month is just short of
alchemy – though even if we do see a few more cgos than expected, the position list looks ready to
handle it. In Wafr – the December program is just about exhausted, leaving enough positions to cover
any remaining requirements. Rates there are estimated a touch softer. The Med is holding up on the
back of the Lavera strike and mild weather delays. It is worth repeating that rates are still good in the
tanker world. They may be coming off a touch – and may not be where we had hoped they would be in
Q4, but Owners are still making decent returns.
Crude is up again to about $45 on expectations of a meaningful OPEC cut as well as news that the
Saudis intend to follow through with these reductions. The ATS Report mentions that Chinese crude
imports have hit their lowest level this year and that overall demand in Japan might be down by as much
as 9% from a year ago.
Crude FFAs have seen limited trading thus far today. Balancing OPEC cuts (due to falling demand)
against the VLCC as storage tank issue has created some uncertainty. We are also in the winter months
in the Northern Hemisphere – and of course are dealing with a market with at least 9 lives. The TD3 Dec
contract sits at about 80, just below spot and in line with the MTD value. Not much to read into there.
Clean
37k Cont/Usac: ws 190 ($18k/day) same
38k Caribs/Usac: ws 165 ($14k/day) a touch better
55kt Ag/East: ws 165 ($26k/day) down a touch
Stable fixing has led to stable rates in the Atlantic basin, though the Caribs/Usac route may have gained a
few points on the back of a light position list. The trend in the East is the same, where we see a
soft/steady market – with a given route losing a few points here and there. And again, it is the LRs on
AG/East that give back another 2.5 points today. Naphtha prices are recovering in the East to some
extent – though fundamentals are still soft.
Clean FFAs are slow today. TC2 Dec trades down 2 points to 178. With the month-to-date and the spot
both in the high 180s, those with crystal balls seem to be calling for a rate decrease to the low 170s in the
near future. FFAs in the East have again been more active than in the Atlantic basin. TC5 Jan trades
down 5 points to 124 while March trades down 2 points to 117. Further down the TC5 curve, Q2 and Q3
trade flat at 121 and 122.5. Little known TC6 (30kt cross-Med) trades up 3 points in Q1 to 165.
Dry Bulk
BDI 711 up 20
BCI 1142 up 84
BPI 442 down 8
BSI 498 down 13
BHSI 302 up 2
The Commodore asks for your vote: While captains of industry wage war to reach the top of a very
entertaining (vote for the Commodore) Ton Mile Trader poll, the dry bulk market continues to fight for
respectability. Capes have reclaimed their place atop all other vessel classes with rates now averaging
$6,029/day, an increase of 20% from yesterday. Although this 20% rise is a step in the right direction, an
estimated 15-20% of the Capesize fleet remains idle - which has caused some in the market to suggest
surging Capesize rates, FFA values, and dry bulk equity prices may soon find a ceiling. Others remain
more hopeful. Vessel deliveries seem to be getting canceled on a now daily basis, various Chinese steel
mills have started up again, scrap prices are increasing, and there is a good deal of speculation that iron
ore contract negotiations will conclude sooner than expected - with the start of the pricing year possibly
being shifted from April 1 to January 1. This would allow long-haul Brazilian iron ore to return to the
market and give Capes and the rest of the market a much needed boost. So, perhaps the current rise in
all things dry bulk is warranted. What’s more dubious in my opinion is the current position of Commodore
Landsberg in the polls.
Dry Bulk FFAs
Contract Close Current Diff
======================================
BDI Dec 800 810 +10
BDI Q1 1550 1725 +175
BDI Q2 1925 2025 +100
CS4 Q1 $13,344 $15,800 +$2456
CS4 Cal 09 $18,352 $19,750 +$1398
PM4 Q1 $9,818 $10,750 -$932
PM4 Cal 09 $12,622 $13,350 +$728
SM6 Q1 $8,844 $9,000 +$156
SM6 Cal09 $10,594 $10,600 +$6
Prices continue their uptrend. Volumes have been good relative to the past few weeks, though still fairly
light in absolute terms. Increased Cape fixtures have provided some optimism for the sector, though
Panamaxes are still stuck in the mud. Sentiment has moved from “brother can you spare a dime?” to “are
these price increases real?” Still a lot of wood to chop – but all eyes are very focused on any emerging
signals that may provide clues to a rebound…or not.
Some optimism from Urs Dur at Lazard:
We remain bullish on the dry bulk names, but this week’s run may be eye of the storm. Even after this
week’s strong run-up in share prices, we believe that DSX, EGLE, GNK, and NM are attractively valued.
We have seen hints of fundamental improvement in the dry bulk sector, and positives outweigh negatives
over the long term. However, we note that some of the negatives (such as loan covenant defaults) have
yet to officially manifest themselves. Thus we believe that this week’s surge in the dry bulk names, while
well founded if one has a long-term view, may be but the eye of the storm, and we expect severe volatility
to be the norm until we see a concerted fundamental upturn.
Equities
In ratings news…
- Urs Dur reiterates BUYS on DSX ($14) , NM ($5), EGLE ($12) and GNK ($25).
- Urs Dur reiterates BUYS on TK ($57) and OSG ($89).
DRYS – 2 HOLDS and 1 SELL
- Anders Rosenlund maintains a SELL on DRYS and cuts target to $5 (from$10), citing yesterday’s
transaction cancellation as “not attractive for shareholders” as well as the firm’s potential difficulties in
financing its newbuilding commitments. “It seems that DRYS has managed to get out of one poor deal
only to enter into another.”
- Natasha Boyden maintains a HOLD on DRYS and lowers target to $15 (from $19), citing the terms of
the deal cancellation as punitive – and that it raises questions about future financing ability
- Scott Burk maintains a PERFORM on DRYS. He reduces estimates, citing concerns about lack of NAV
support and potential further dilution as the company funds its obligations.
Other
- Scott Burk maintains an OUTPERFORM on ESEA ($6.00), citing low leverage, high dividend yield and
strong liquidity.
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