Although September was a weak month for Capesize trade, the steel production in China helped by Chinese government’s decision to not impose blanket curb on steel output, the commencement of coal restocking programme ahead of the winter months and the robust minor bulk trade are expected to provide employment opportunities for dry bulk vessels. However, we expect flatter growth in iron ore trade, and thus, a slower recovery for Capesizes because of increasing inventories at Chinese ports and efficiency of high grade iron ore. Further, we believe the impending IMO regulations will lead to the scrapping of many aged vessels in second-half 2019.
Vessel earnings in tanker shipping should improve gradually over the next two years after bottoming out in 2018. The surge in demolitions over 9M18 has offset the impact of newbuilding deliveries which is a positive sign.
The product tanker market has been hit by high oil prices and the corresponding weakness in refinery margins. However, the damage could be counterbalanced by the declining orderbook. As freight rates are likely to trend higher in the closing months of 2018, with the approaching winter, earnings of product tanker companies should firm up.
Bright prospects of LNG shipping in the next two years, given the current pipeline of liquefaction projects, and strong demand from Asian countries will help vessel demand to marginally outpace supply. The spot charter rates should continue to improve and will likely reach USD 200,000pd in the impending winter.
In the LPG shipping space, the Baltic LPG Index closed at USD 48.29 per tonne on 10 October 2018, the highest since March 2016. The index has however declined in the second half of October as a result of ample availability of ships. The trade war has had negligible impact on freight rates as the US has managed to direct propane to other Asian buyers and China has turned to the Middle East for supplies. On the supply side, the orderbook-to-fleet ratio for the VLGC segment, at 16.8%, remains the highest.
The intensifying trade war between the US and China led the IMF to recently downgrade its global economic growth estimates. This will mean more uncertainty around freight rates, which together with elevated bunker prices, might spell more trouble for the already depressed stocks. Meanwhile, some shippers looking to front load their cargoes from China to the US – in anticipation of fresh tariffs on Chinese goods from January 2019 – could boost volume and freight rates in the short run.
The ports sector remains under continued duress from the decline in throughput amid plateaued growth. The trade outlook remains weak with Drewry revising down its 2018 estimates. Escalating US-China trade war over tariffs cautioned financial markets about looming throughput decline and earnings growth.
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