Thursday, January 22, 2009
Imarex Brief 22nd January 2009
Tankers
Crude
VLCC AG/East 57.5 (TCE $57k/day) softer
Suezmax Wafr/Usac 82.5 (TCE $42k/day) slightly firmer on strong activity
Turkish Straits Delays 2n / 2 s same
V rates continue to slide, step by step, as supply outweighs demand. Most indicators are
bearish: cargo allotments are sliding on reduced OPEC production, Eastern holidays have
arrived, global oil demand is falling, the delivery schedule calls for 68 Vs to be delivered this
year…and…the contango/storage trade is losing its appeal. That said – earnings are still
“good”…and the Atlantic basin continues to show some strength. Taking a bearish view of the
market is not unreasonable – but you can never take your eyes off this market, as it doesn’t take
much for rates to reverse course in a hurry. For today, the trend in the AG is down. For further
tanker reading, Jon Chappell has issued his 2009 Outlook (see below).
If you are looking for optimism, Charles Rupinski at Maxim provides some here: “While we
believe that some weakening is possible for rates in the 2Q09-3Q09 period, we remain
constructive on the tanker sector given the looming IMO (International Maritime Organization)
double hull phase out.”
TD3 FFAs have seen moderate activity and trade flat: Feb 48, March 40, Q2 38. After
yesterday’s decline, prices are holding as traders wait to see the effects of the flattening oil curve.
Clean
37kt Cont/Usac 125 ($14.5k/day) same
38kt Caribs/Usac 110 ($11k/day) same
55kt AG/East 80-85 ($14.5k/day) softer
Atlantic basin clean remains about the same after the recent surge on Cont/ta. Prompt tonnage in
the Cont-Med region may limit further upside. In the East – the overall trend remains soft on
limited demand.
Clean paper has been active. T2 Feb trades up 4 points to 145 – 20 points above the current spot
market. Seems there is optimism out there somewhere. In the East, FFA prices have increased
on some routes. TC4 Feb has gained 4 points to 118, while March adds 3 points to 122. TC5
Feb trades flat at 114.
*** EIA stats at 11am EST. Reuters estimates as follows:
Crude + 1.4
Mogas +1.9
Dist - .5
Dry Bulk
Baltic Indices
BDI 945 up 45
BCI 1939 up 139
BPI 513 up 9
BSI 436 up 4
BHSI 281 down 1
From Commodore Landsberg: Is dry bulk back? Capesize day rates jumping an impressive
11.6% overnight is definitely a welcomed sign but it is far too early to pop the champagne.
Panamax freight rates, up another 2% today, are still stuck in gutter earning only $4,000 a day;
and things are still - for lack of a better word - out of whack. The Cape Panamax ratio has
increased to 4.07 to 1. This ratio normally fluctuates at around 2 to 1 due to Capesize carrying
capacity roughly twice as large as Panamaxes. To further add to market bizarreness, Handysize
vessels (more than two times smaller than Panamaxes) are averaging about $150 per day more
than Panamaxes. So while freight rates and FFAs are the rise the dry bulk market still has
several kinks to work out.
In more welcomed, straight forward news, Chinese steel statistics were released today – China
produced 37.79 million tons of steel in December, a 7.4% increase from November. Here’s
hoping this is sign of the Chinese steel machine returning to form. Definitely far too early to tell
what China has in store for us - but right now the positive news is not hurting the market.
Dry Bulk FFAs
Contract Close Current Diff
======================================
BDI Jan 900 915 +15
BDI Q1 1125 1175 +50
BDI Q2 1575 1675 +100
CS4 Q1 $17,076 $17,500 +$424
CS4 Cal 09 $21,668 $21,750 +$82
PM4 Q1 $6,772 $6,850 +$78
PM4 Cal 09 $11,291 $11,500 +$209
SM6 Q1 $6,139 $6,250 +$111
SM6 Cal09 $8,948 $9,000 +$52
Volumes have been fair today, though prices have been a touch volatile. More from Charles
Rupinski: “On the dry bulk side, spot rates continue their Capesize-driven rally, and we are
hearing about various coal and ore cargoes from Colombia and Australia, on top of some
previously fixed ore cargoes out of Brazil. Ore levels in China continue to be under 60 million
tons, which is a positive for demand. Short term, however, we are getting reports that ore levels
in China have blipped up a bit, and we believe that the rate environment may be volatile going
forward, given the early Chinese New Year on January 29, 2009.”
Equities
- Urs Dur maintains a HOLD on FRO. He has lowered his 2009 spot assumptions for Vs and
Suezmaxes, but believes FRO has “top fleet, top management and a long track record as a leader
in the chartering of spot crude tankers, and a history of substantial dividends.
- George Glass agrees with Urs Dur: “No one kicks ass like the Alpha Male.”
- Natasha Boyden maintains a SELL on EXM as she lowers 2009 EPS estimates on the
announcement of the canceled vessel purchase.
- Scott Burk maintains an OUTPERFORM on ESEA, “…one of the safest dry bulk plays due to
is low leverage and strong liquidity.”
Suggested reading – Jon Chappell and Darren Hicks at JP Morgan - Oil Tanker Industry:
2009 Outlook: Can Oil Tankers Remain the "Teflon" Industry for 2009? We Don't Think
So
“Supply/demand outlook for 2009 continues to deteriorate . . . . A vicious cycle will likely
continue to hurt tanker demand this year, as slowing global economic activity translates to falling
oil demand and an associated decline in oil prices. OPEC has responded by announcing 4.2
million barrels per day (mbd) of production cuts since last fall (OPEC production has the
strongest correlation with tanker rates of any macro factor we have examined). We estimate that
each 1 mbd of production cuts removes demand for 30 VLCCs, thus even if OPEC only
complies with half of its stated cuts, which appears unlikely as oil prices continue to plummet,
tanker demand would be lowered by 60 VLCCs. Meanwhile, the orderbook calls for another 68
VLCCs to enter the fleet in ’09.”
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