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Capes Slip Lower As Active Market Is Overrun By Ample Tonnage Supply

Updated: Dec 11, 2020

Weekly Report 16/11/2020

Next week's predictions:

  • Capes: The larger vessels failed to deliver better returns for shipowners once again. Despite decent, but not exceptional, iron ore export volumes and with vessels in sufficient supply, charterers continued to have the upper hand during the whole week. The spot 5TC index kept on losing value as it opened on Monday at $14,848/day and closed the week today at $12,498/day. As the Q4 has shown so far to be a massive disappointment it remains to be seen whether it can deliver anything more positive in the weeks to come. We are informed that cargo volumes are high, activity is brisk, but tonnage supply is more than adequate for the weeks to come. We conclude that next week could still be negative for this sector.

  • Panamax: The Panamax market hovered from start to finish at the lower end of $9,000/day without any conviction of going anywhere soon. The 4TC index started the week at $9,289/day and closed today at $9,259/day, therefore quite uninspiring. The overall market perception this week is one of bottoming out with prices failing to go lower in both Atlantic and Pacific areas, which should trigger some more enthusiasm and give owners the feeling of improving market conditions.


Dry Bulk:

  • The announcement this week of an efficient vaccine as early as Q1 2020 gave a temporary lift to the dry bulk market. This short term optimism soon evaporated as the underlying reality of the world in which we live, and the issues that we will have to deal with in the months to come, have an overbearing negative impact on market pricing.

  • Looking back at 2020, dry bulk shipping will be hailed a year of plenty of fresh supply, not enough scrapping especially in the smaller sizes, irrational volatility created by general uncertainty, and ultimately disappointed bullish expectations.

  • Looking ahead we have the positive news of fewer deliveries in 2021, a reduced order book due to ever-changing regulations on fuel emissions amongst others, but will the demand keep up in order to provide a brighter future for shipowners.

  • With coal demand across the globe waning on a fairly consistent basis, it will be up to the agricultural sector to compensate for dry bulk shipping demand. whilst it looks pretty clear to us that it will increase over time, one will it be enough, and two can that sector actually do it on a fairly consistent basis?

  • With climate change, and consequently more erratic rainfalls and higher temperatures in the most important growing regions, will the seaborne export capacity not be curbed by the strategic requirements of countries or regions?

Spot indices and weekly FFA traded prices:

BDI 09/11: 1207 - 13/11: 1115

5TC BCI 09/11: $14,848/day - 13/11: $12,498/day

4TC BPI 09/11: $9,289/day - 13/11: $9,259

  • December FFA Cape trading range $15,500 high/ $13,000 low

  • December FFA Panamax trading range $9,750 high/$9,200 low

  • This week has been characterized by relatively lower liquidity, high volatility, and erratic pricing especially on the front months of the FFA curve.

  • This has not been particularly helped by the ongoing inaccuracies of the Baltic Panamax Indices which seems to be irritating more and more traders active in the market.

  • That particular set of indices is slow to react on the way down as Baltic panelists inherently dislike marking falling markets accurately.

  • In our estimation traders holding short positions on the Panamax, November contract could be out of pocket by about 500$/day.

  • Technically, spot Capes are heavily oversold with buying indications emerging, whilst Panamax shows no clear indications either way.

  • FFA traded volumes in 2020 should exceed 4 billion tonnes, about 1.3 x the dry bulk physical volume of 3.3 billion tonnes.

  • Increase of about 15% in trading volumes compared to 2019.

  • FFA trading volumes by main trading regions: Europe 66% /Asia 26%/US 8%

  • Growth in the Dry Bulk FFA market in 2020 is attributed to the excessive volatility caused by world events like the Pandemic and the frosty trade relationship between the US and China, and consequently by financial interest from outside the shipping community entering our markets.

Weekly traded volume and open interest:

Capes/Iron Ore/Steels:

  • Iron ore prices have risen quite strongly this week, principally on the back of continuous demand from Chinese steel mills and improving conditions in the rest of the world.

  • 62% FE Iron ore has reached a 4-week high of 121.80/tonne on the back of positive growth in China of car sales and white goods.

  • Chinese car sales are up by 18% in October and 20% YoY, hence the healthy condition of the flat steel market in China.

  • China produced 92.5 million tonnes of steel in September which is 12% higher YoY, and has exported 5% more MoM at 4 million tonnes, but 15% lower YoY.

  • HRC prices in the US have reached $700/tonne and this from a low of $430/tonne back in August 2020.

  • Puzzling stats: Chinese iron ore inventories are rising to 128 million tonnes and seaborne supply is steady to strong, but iron ore price is rising. How come?

  • Visible iron ore inventories in China are in fact relatively low with about 5 to 6 weeks of consumption, therefore there is apparently plenty of scope for increased restocking in the coming weeks.

  • Why restocking now? Main reasons: fear of seasonal disruptions due to COVID-19/La Nina /Blast furnaces keep on working over CNY/ Steel margins still good with rebar margins at about $30/tonne and HRC margins at $40/tonne.

  • Japan is forecasting a 12% quarterly increase in steel production in Q4 2020.

  • Brazilian mining company Vale is cautious in raising its iron ore export capacity between 2021 and 2025 to 450 million tonnes. It may not use its full capacity if the expected increase in demand, especially from Asia, does not materialize.

  • This is quite ironic as they have consistently failed in 2020 to live up to their export targets and are presently struggling to reach the lower end of their revised export numbers.

  • Week 46 iron ore export volumes: Australia exported 19.94 million tonnes, +19.6% WoW and +5.4% YoY. Brazil exported 6.28 million tonnes, +7.9 % WoW and -18.2% YoY.

  • Week 46 iron ore arrivals in China: 27.67 million tonnes, + 20.2% wow and + 18.5% YoY.

  • Cape physical freight prices were extremely volatile this week. The major iron ore route C3 rose in the early part to reach $14.50/tonne, to drop quite sharply by Friday to $13.50/tonne.

  • Tonnage supply in both ponds is sufficient to plentiful and the major iron ore trades are ticking over in volumes, although not at the levels seen in September.

  • 46 Capes or larger have now been scrapped in 2020, bringing the total dwt removed from the fleet to 10.8 million dwt and represents about 80% of all dry bulk scrapped tonnage this year so far.


Panamax/Kamsarmax/Grains:

  • The latest monthly USDA report shows a tightening of the grain supply and demand picture due to the drop in the US and Ukrainian crops and a large increase in US corn exports to China. Global corn exporters' stocks are down compared to 2019 but are counteracted by a global projected increase in plantings.

  • US corn exports in the present marketing year: China 10.7 million tonnes /Mexico: 6.8 million tonnes /Japan: 4.5 million tonnes / Others: 5.2 million tonnes.

  • The next US corn crop is projected to be the 3rd largest ever at 368 million tonnes, with China being the main game-changer as it will purchase more US-based grain products.

  • The next 3 months will be key for US corn and soybean exports before the Brazilian and Argentinian crops come to market.

  • Argentine soybean plantings reaching close to 20%, whilst corn plantings are at 32%, both somewhat behind on the pace of 2019 plantings. Initial plantings were hampered by dry soil conditions but have lately improved and will continue to do so as new rainfalls are expected.

  • Expectations are that the US export pace will have to increase quite substantially to about a weekly pace of 1.6 million tonnes for the balance of the marketing year.

  • URGARA, the union representing Argentina’s grain receivers went into strike action after salary negotiations with the port owners broke down.

  • Brazil's monthly corn shipments in October reached 4.2 million tonnes which is 24% lower versus October 2019, whilst January to October 2020 stood at 24.3 million tonnes and 25% lower YoY and YTD exports are 55% higher compared to the equivalent period in 2018.

  • On the physical side, the US Gulf grain chartering activity took center-stage but without really affecting market levels, which in turn gave the Pacific Basin some fresh hopes of improvement in the weeks to come.



 

DISCLAIMER: The information contained in this message and any attachments is for information purposes only and should not be regarded as advice in relation to investment products nor constitute any recommendation or solicitation of an offer to buy or to sell, any security, product, derivative or instrument in any jurisdiction where such an offer or solicitation would be in violation of any local laws. The information content does not take into account any investment objectives, financial situation or knowledge and experience, or needs of specific investors. Any price or data contained herein is indicative only and does not represent a determination of the underlying value of any particular instrument. This information may be changed at any time without notice or obligation to update. Neither Consortium Maritime Trading Limited or Consortium Capital Limited accept any liability for any loss (whether direct, indirect or consequential) that may arise from any use of the information contained herein or derived therefrom.

Consortium Maritime Trading Limited is a private limited company, incorporated and registered in England and Wales and is registered with the Financial Conduct Authority as a small UK AIFM.

Consortium Capital Limited is a private limited company, incorporated and registered in England and Wales and is authorised and regulated by the FCA Financial Conduct Authority.

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