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Weekly Briefing: Tankers ‘Groundhog day’ | Dry eyes higher earnings | Backlogs and burning boxes fail to hold back rates

Lloyd’s List’s weekly headline view of the stories shaping the key shipping markets

Chinese policy, strikes, port delays and expectations for higher iron ore exports out of Brazil makes short-term predictions tough for dry bulk, but as key global economies recover from lockdown conditions, strong demand for dry bulk commodities will likely translate into higher earnings. Similarly in containers it seems nothing can hold back the sky-high earnings. No such luck for the energy shippers. In the tanker sector the optimists are talking a good game, but the needle has barely moved for crude and product tanker rates

American Petroleum tanker's deck. Credit Brian Gauvin / Alamy Stock Photo

Tankers

The oil price is at a two-year high, crude and refined product inventories are drawing, and the US summer driving season looks like it will surpass pre-pandemic levels, but the needle has barely moved for crude and product tanker rates.

The vaccine-led rebound means the moribund and unprofitable tanker market has probably touched bottom, but it’s hardly smooth sailing from now on.

During the recent round of first-quarter result  investor calls chief executives of listed tanker companies did their best to put lipstick on the pig.

Executives cited as positives better oil demand and rising tanker secondhand and newbuilding values on the back of soaring steel prices.

They also reminded investors how finely balanced the tanker market could become, with the slightest uptick in demand disproportionately lifting rates. And finally, bereft of other positives, repeated hopefully that an upturn was coming in the final half of the year.

Given that the fourth quarter is normally a seasonal high as refineries need extra crude to produce gasoil and kerosene for northern hemisphere heating, this was hardly unsurprising.

But last year the anticipated fourth quarter rebound didn’t happen as tankers deployed for floating storage were released back into the market at the same time, killing off demand.

That won’t happen again — or will it?

A ‘Groundhog Day’ scenario is quietly brewing in Vienna, where Iran is in talks with the US via Europe intermediaries. It’s looking like it’s a question of not “if” but “when” US sanctions are lifted against Iran.  

That means that oil stored on the 50 or so Iranian-flagged tankers will be sold and the ships available for trading.

So, along with India, Iran is lurking in the geopolitical shadows when it comes to tanker demand, while China and the US are doing all the heavy lifting as their economies rebound from the pandemic.

Tanker owners can take comfort from Tuesday’s optimistic pronouncements by Saudi’s oil minister of “clear signs of improvement”.  The extent to which this will translate to better spot rates is not clear-cut.

Last week Euronav chief executive Hugo de Stoop described the Netherlands court ruling that Royal Dutch Shell further reduce its CO2 emissions by 2030 as “wishful thinking” and “simply impossible”.

Turns out this was incredibly respectful judging by Saudi standards. The kingdom’s oil minister described as like the film “La La Land” an International Energy Association report that suggested that climate change targets could only be met if there were no further oil or gas projects approved.

As if a pandemic and decarbonisation dilemma wasn’t enough, the climate change backlash has also arrived.

 

Dry Bulk

Iron ore mining Belo Horizonte, Brazil Credit: Dylan News Images / Alamy Stock Photo

The price of steelmaking ingredient iron ore fell sharply after China signalled it would focus on efforts to cool soaring prices, warning of “excessive speculation” amid mounting concerns over rapid growth in inflation.

And as dry bulk freight rates are at the mercy of China, the decline in shipping activity saw capesize rates fall to the lowest level since the past two months.

The Pacific market seems to have found a bottom, while the rush to cover cargoes prior to the fiscal year-end for some Australian miners could potentially push the market higher for the capes, albeit short term.

In the Atlantic, the balance looks fuzzier, as a combination of strikes, port delays and expectations for higher iron ore exports out of Brazil makes short term predictions tougher.

But not all is gloomy.

As key global economies recover from lockdown conditions, a continuation of strong demand for dry bulk commodities will translate into higher earnings for owners of bulk carriers, according to BIMCO.

The shipping association’s chief shipping analyst Peter Sand noted that the strong start to this year has padded dry bulk owners’ and operators’ bottom lines, and with continued strong demand for many of the major dry bulk goods, this year looks set to be one to remember.

The first four months of the year had record-breaking volumes, with demand reaching 1.69bn tonnes, an increase of 6.1% compared with the year-earlier period. That is the highest-ever start to a year, although it is slightly lower than the 1.72bn tonnes shipped in the final four months of 2020.

Meanwhile, tensions between US and China seems to be back on the trans-pacific agenda although trade has not been featured in any meaningful way in the disagreements since US President Joe Biden was inaugurated — a space to watch out for in the coming days.

 

Containers

X-Press Pearl fire off Colombo

The container shipping sector has been dominated this week by the same events that led the agenda last week: the fire on board X-Press Pearl and the pandemic-related movement constraints at China’s Yantian.

The fire on the 2,7000 teu, 2021-built X-Press Pearl (IMO: 9875343) was finally brought under control after a week, but largely because it had burned itself out.

According to Lloyd’s List Intelligence’s casualty reporting service the vessel is facing an “imminent risk” of sinking, despite the best efforts of salvors, who have attempted to tow the vessel away from Sri Lanka’s coastline.

Even if the vessel can kept afloat and towed offshore, the environmental damage by cargo that fell overboard during fire has been significant. Tonnes of micro-plastic granules are said to have flooded the island country’s beaches, forcing a fishing ban and raising concerns of ecological devastation.

X-Press Feeders, which operates the vessel, now faces legal action from the Sri Lankan Marine Environment Protection Authority, and insurers are bracing for a constructive total loss on the hull as well as a hefty pollution pay out.

Meanwhile, in China more than 40 fully cellular containerships are at anchor near the Yantian Port as the southern Chinese export hub struggles with severe congestion.

The situation comes as Yantian, a key gateway port linking China with Europe and the US, started to take in ladened containers again on Monday, after nearly six days of suspension of the service partly caused by the health crisis.

Around 20,000 loaded containers remain in the port’s backlog, which is not expected to be cleared until later this week, a port statement said.

Meanwhile, in a week where the future of fossil fuels in shipping came under close scrutiny, CMA CGM chief executive Rodolphe Saadé made a spirited defence of his decision to invest heavily in liquified natural gas as a transition fuel.

In an online debate, Mr Saadé maintained that while LNG was not the perfect solution, it was the solution that was available now to reduce CO2 emissions.

True zero-carbon fuels were still five to 10 years away and the industry needed to do what it could to cut emissions incrementally, he said.

As shipping emissions come under ever-closer examination, only time will tell if Mr Saadé’s expensive bet on an interim measure will play out favourably.

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