Wednesday, December 17, 2008
Imarex Brief 17th December 2008
Tankers
Crude
VLCC Ag/East: ws 82 ($72 k/day) same / touch softer
Suezmax Wafr/Usac: ws 140 ($55/day) softer
Turkish Straits delays: 2n / 2s steady
Vs in the AG have seen limited inquiry – allowing rates to slip a barely
noticeable point or two. Charterers are content to sit on their requirements
hoping that positions will build and they can have their choice of ships in due
course. There is some incentive for Vs to ballast from the AG to Wafr, though we
now see the Wafr Suezmax market losing steam. Most early Jan requirements have
been covered here, leaving us with a somewhat balanced market for later Jan
dates.
The cartel plans to cut 2m bpd, which is not good for tankers, but let’s see how
much they can actually cut. They all need the money (who doesn’t), so its hard
to imagine them cutting the full amount. Further, the more recent production
cuts have only seen about 75% of actual implementation. Lastly, while OPEC
announces cuts, there is nothing to prevent the other 50‐60% of global production
from pumping at max capacity (assuming they have the ability to do so). Deeds
not words.
Crude FFAs have seen moderate activity. TD3 Jan and Feb trade down about to 54
and 52. TD7 trades down 2 points to 105 for the Q4 contract. Seeking some
attention, TD11 trades up 5 points for January to 125.
Clean
37k Cont/Usac: ws 175 ($16k/day) same
38k Caribs/Usac: ws 170 ($14.5k/day) bit stronger
55kt Ag/East: ws 150 ($22k/day) slide continues
Activity continues in the Atlantic basin, though not enough to move the Cont/ta
route off its 175 perch. A steady flow Usg/Europe ULSD cgos has managed to keep
enough ships occupied to help lift the Caribs/Usac market by 5 points or so. In
the East, the stabilizing of rates has given way to more decreases. Though we are
not witnessing any sort of fire sale, we are seeing a continual erosion of
earnings. There is just not enough to demand to keep rates from falling.
Clean FFAs have been dormant as we head full speed into holiday mode. TC4 Jan
trades down 3 points to 118 while the Cal 09 trades down 1 point to 129.
EIA Estimates from Reuters:
Crude + .3
Mogas + 1.4
Dist + 1.3
Dry Bulk
BDI 836 up 8
BCI 1515 up 1
BPI 514 up 34
BSI 476 down 5
BHSI 299 down 1
>From Commodore Landsberg’s “China Weekly”:
* As of December 12, iron ore stockpiles at Chinese ports have fallen to 62.5
million tons, a decline of 3.5mt (‐5.2%) from a week ago. Stockpiles have now
fallen for seven weeks in a row.
* Throughout much of the latter half of November, Chinese iron ore importers
took the vast majority of their imports from India due to recently cut export
taxes. Iron ore shipments from India continue to make up a large amount of
Chinese imports ‐ but more Australian and even some Brazil ore have started to
come to the market in recent weeks.
Dry Bulk FFAs
Contract Close Current Diff
======================================
BDI Dec 775 760 ‐15
BDI Q1 1475 1400 ‐75
BDI Q2 1800 1725 ‐75
CS4 Q1 $14,844 $13,500 ‐$1344
CS4 Cal 09 $19,484 $18,400 ‐$1084
PM4 Q1 $9,163 $9,000 ‐$163
PM4 Cal 09 $12,236 $12,250 +$14
SM6 Q1 $8,406 $8,250 ‐$156
SM6 Cal09 $10,211 $10,200 ‐$11
Despite recent optimism from differing corners of the dry bulk universe, some
wording from physical reports on Panamxes and Handies contained the phrases
“limited inquiry”, “abundant available tonnage” and “little fresh business
reported”. Though the Capes seem to have been the guiding light of the past few
days…concerns over this market beginning to tail off are slowly emerging. There
are a lot of “unknown unknowns” that remain unresolved as we head into the
holiday season.
Equities
Last night on the Homer Simpson Show, Captain Cramer got the usual call regarding
dry bulk (GNK), and turned it once again into an NAT love fest. Fair enough. He
loves the no‐debt story, and it’s hard to blame him. The interesting part of the
call, though, came when he went on to say that since the Baltic Freight Index has
bottomed, that FRO was also a strong BUY. I am assuming he was referring to the
BDI, as he quoted to recent index increase from the 600s to the 800s, but am left
to wonder if he knows that tankers carry oil, not ore. Since his charitable
trust is worth more than mine, I will give him the benefit of the doubt here.
But I think this episode provides insight into why the shipping names can move
10‐20% in a given day for no apparent reason.
In ratings news…
‐ Anders Rosenlund maintains a SELL on FRO ($22), pointing out that reduced
overall demand for tankers will more than offset the storage issue.
Dry Bulk Commentary from Justin Yagerman at Wachovia:
Too Many Near‐Term Hurdles Remain For Dry Bulk To Get Constructive On The Group.
We believe there are too many near‐term hurdles remaining to get constructive on
the dry bulk sector, despite this week's optimism. While freight rates have shown
upside over the past week, they remain at or below breakeven levels in most
cases, which may continue to drive defaults. Asset values continue to fall, which
will likely lead to a round of credit renegotiations which may restrain cash
flows and distributions industry wide. Further, we believe a contentious round of
iron ore renegotiations remains in H1 2009, as well as the Christmas to Chinese
New Year lull, which is a seasonally slow period for cargo movements and
chartering activity.
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