Wednesday, January 21, 2009
Imarex Brief 21st January 2008
Tankers
Crude
VLCC AG/East 62.5 (TCE $63k/day) softer
Suezmax Wafr/Usac 80 (TCE $39k/day) same
Turkish Straits Delays 2n / 2 s same
Feb is up to 20 fixtures completed or so – and it appears the current requirements list is thin.
Could be that the pre holiday fixing rush has run its course – or it could be a temporary lull in
the usual ebb and flow of fixing patterns. Rates have come off as the position list seems to be a
bit longer than it was a few days ago. With this in mind, it appears the supply/demand balance
allows for a softer rate atmosphere. Seeing relet tonnage from some of the Oil Majors tends to
confirm the possibility of softening. Along these same lines, the economics of the
contango/storage trade have become less favorable – as the curve has flattened a bit.
Crude FFAs have been quiet while prices sit close to yesterday’s levels. TD3 Jan, Feb, March
currently priced at 61, 54, 46 – though sentiment appears softer due to a reduced requirement list
and lower numbers being reported on the physical. As I hit send, TD3 Feb trades down 5
points to 48.50.
Clean
37kt Cont/Usac 125 ($14.5k/day) much firmer
38kt Caribs/Usac 110 ($11k/day) same
55kt AG/East 87.5 ($16k/day) about same
Increased demand has allowed Cont/ta rates to make a significant jump to the 125 level. Though
the Caribs/Usac remains about the same, rates here may indeed move up if demand off the Cont
can be sustained. Industry sources mention that the Mogas arb from Europe to the AG and
further East has thinned out tonnage in the Atlantic basin – helping Owners push rates up.
TC2 has seen fair trading volumes as the physical mkt pushes up. Feb trades up 6 points to 140
while March adds two points to 140. In the East, volumes are also fair, with TC5 Jan up 2 points
to 94, Feb up 6 points to 115 and March up 3 points to 121.
*** EIA stats will be released 11am EST tomorrow.
Dry Bulk
Baltic Indices
BDI 900 up 28
BCI 1800 up 81
BPI 504 up 10
BSI 432 up 5
BHSI 282 down 1
From Commodore Landsberg: The dry bulk market has received a solid boost today on the
strength of increasing Capesize rates. A couple of the big ships were fixed to take Colombian
thermal coal to Europe, and several others were fixed by Rio Tinto to haul Australian iron ore to
China. Panamax rates are also on the rise, although the spot ratio between Capes and Pana’s is
still a lofty 3.72 to 1.
With Chinese iron ore port stockpiles rebounding to 58.7 million tons and a good deal of
additional ore already traveling by sea and en route to China, it is possible iron ore fixtures will
decrease in the near future. In addition, it is also possible that industrial activity and dry bulk
chartering will decrease as the Chinese begin celebrating Lunar New Year on Monday. With any
luck, the Year of the Ox will end up looking more like the first half of the Year of the Rat, rather
than the second. So far it is too early to tell which half we’ll get - but as of now at least dry bulk
freight rates are going up.
Dry Bulk FFAs
Contract Close Current Diff
======================================
BDI Jan 875 885 +10
BDI Q2 1050 1100 +50
BDI Q3 1450 1525 +75
CS4 Q1 $14,996 $15,625 +$629
CS4 Cal 09 $19,878 $21,125 +$1247
PM4 Q1 $6,309 $6,375 +$66
PM4 Cal 09 $10,838 $11,000 +$162
SM6 Q1 $6,092 $6,375 +$283
SM6 Cal09 $8,840 $9,250 +$410
Volumes remain thin - though mild optimism has pushed FFA prices up a touch. Atlantic basin
physical activity remains better than that in the Pacific.
Equities
- Scott Burk maintains a PERFORM on EXM after their cancellation of a vessel purchase.
- Goldman Sachs has upgraded FRO to NEUTRAL (from sell) and has increased target to NOK
184 (from NOK 144).
Suggested Reading - Omar Nokta at Dahlman Rose: Crude Oil Contango and Impact on
Tanker Market (released yesterday) -
“We remain cautious on tanker equities during the next few months as we expect reduced
long-haul trade to have a negative impact on rates. Frontline (FRO), Overseas Shipholding
(OSG), Nordic American (NAT) and Teekay Corp (TK) are most exposed to declining spot rates
and accordingly we maintain our Hold ratings on FRO and OSG and downgrade NAT and TK
from Buy to Hold. We believe the next 6-9 months could be troublesome for the tanker market,
but we expect a stronger 4Q09—when global inventory levels are expected to reach levels more
supportive of oil prices.”
+++
Mad Money Cramer gets the first ever Ton Mile Trader “Jackass” award for uttering this gem
yesterday, “Who cares about moral hazard!” If Kid Booyah wants to make the point that now is
not the time to worry about moral hazard, then that is a different concept – and needs to be
phrased accordingly. Or maybe, he woulda/coulda/shoulda said something like, “Hey listen,
moral hazard is a real concern – but you know what? With the state of today’s market, we’re
going to have to put out one fire at a time – and disregard concerns over moral hazard until we
get this fixed.” That would represent responsible rhetoric. But to cast off concerns of moral
hazard as belonging only to kooks, ideologues and morons – I think Cramer does himself a
disservice. There are many people who I consider not-unreasonable who would propose that
moral hazard is what got us into this mess in the first place (you can look back to the Mexico
bailout – or more recently, the mispriced risk taken on by Fannie/Freddie). And if we are not to
be concerned with the trivia of moral hazard in today’s market – should we disregard it forever?
Are there circumstances where it might apply? Does Larry Flynt get the bailout money he was
seeking? What about pattern day traders? Which line should George Glass stand in? Cramer is
a very smart man….but his comment from yesterday would not provide you with evidence of
this.
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