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Geopolitical developments favor fare prices

By Anastasia Vamvaka

The dry bulk market has seen its freight rates lose strength in recent days with the main index ending the week below 2,000 points, a level previously reached in February. The market index (02/08/2022) closed at 1,817 points, down 244 points compared to last Tuesday’s close. Crude sectors saw their rates decline across most routes, however with average profits remaining at significantly healthy levels, especially for the smaller sizes.

Fare increase=new ship orders

The continued rise in the dry bulk freight market – despite the current week’s bearish trend – and the recent rise in tanker rates is also driving vessel trading upwards. The Greeks are the protagonists in a fierce competition with the Chinese.

July closed with a total of 59 vessels added to the current order book. Understandably, LNG carriers have taken the lion’s share of July’s contract activity, with a total of 16 vessels ordered during the month, followed by 14 tankers, 11 bulkers, 8 containerships, 6 PCTCs and 4 MPPs.

From the beginning of 2022 until the end of July, a total of 1,155 ships with a total value of 24.8 billion have been purchased worldwide. Of these, 441 are trucks (38.1% rate) and 388 are tankers (33.5% rate). These two categories of ships make up a total of 71.6% of sales.

The value of trucks amounts to 8.4 billion and tankers to 7.9 billion.

The Greeks have bought 85 of the 441 cargo ships (a 19.2 percent share) and have provided $1.9 billion, or 7.6 percent of the total capital spent on cargo ships so far.

They have also invested in 87 tankers out of a total of 388, a rate of 22.4%. The Chinese are next with 1.5 billion for 92 trucks and 1.8 billion for 25 tankers.

According to the figures of Allied Shipping Research, until July 31, 2022, the Greeks have taken out of their coffers a total of 3.786 billion dollars for the acquisition of 178 ships. Of these, 85 are trucks, 87 are tankers, worth $1.8 billion, three are container ships costing $55 million, two tankers worth $9.1 million, while the rest are of other categories. The Chinese have invested 2.3 billion for a total of 139 ships.

Of the total of 1,155 ships that have been purchased in 2022, 441 are trucks, 388 tankers, 137 containers, 54 oil tankers, while the rest are of other categories.

Ukraine and grain

The agreement signed on July 22 between Ukraine and Russia to resume grain exports creates a “joint coordination center” in Istanbul, staffed by the warring parties as well as Turkey and the UN, to inspect ships traveling from and to Ukrainian ports to ensure they do not carry weapons.

Seaborne grain trade is about 4% of total seaborne trade, and Ukraine’s seaborne grain exports were about 10% of total seaborne grain exports in 2021. This means that even if Ukraine exports the same amount of grain as in 2021, this will only represent 0.4% of total seaborne trade, but actual exports will be 70%-80% of 2021 at best, so this will actually represent less than 0.3% of total seaborne trade

Although Ukraine also uses alternative routes, via rail and road networks and barges on the Danube, they cannot replace Black Sea ports and maritime trade. The purpose of the agreement is to facilitate the safe navigation of the export of grain and related food products and fertilizers, from Odessa, Chornomorsk and Yuzhny.

“For the dry bulk market, this is definitely good news. Finally, the bulkers that have been stuck in Ukrainian ports since February 24th will be able to sail again, probably loaded, and sea trade will resume again,” points out Dimitris Roumeliotis , analyst at Xclusiv Shipbrokers:

“Charges on the Black Sea routes will probably move upwards mainly due to war risks and insurance complications, as there are still many mines strewn in the Black Sea and additional guarantees are required for the safety of ships. But this will probably have a small positive effect or even no effect on the bigger picture of dry freight rates”.

China’s exports of lead and zinc rose in the first half of 2022 as the West runs short of these commodities, according to Asia analysis.

China became an exporter of refined zinc in April-June for the first time since 2014, with refined lead exports at their highest level since 2007. After two years of muted trade activity, China’s refined lead exports began to accelerate in the third quarter of 2021. The country exported 95,000 tonnes to the rest of the world last year and has already exported another 88,000 tonnes this year, including 15,000 tonnes to Turkey in January and 30,000 tonnes to the United States in June.

On the other hand, iron ore imports from China are expected to decline significantly as housing turmoil continues. Unlike the April meeting, where leaders discussed “supporting local authorities to improve real estate policy,” the recent meeting focused on “stabilizing the real estate market,” without mentioning specific measures. Iron ore, after a weekly gain of 20% to reach levels close to USD 120/tonne, ended the week lower at around USD 117/tonne.

Considering the above, China’s real estate market will likely not significantly impact the dry bulk market in the coming months as the Chinese economy is still trying to find its momentum.

In the tanker charter market, it is yet to be seen how the ban on Russian oil in the E.U. will take effect in December and whether there will be more sanctions against Russian oil trading. In the US oil reserves are not being “rebuilt” – despite record “disbursements” from the government’s strategic reserve. After nearly two years of significant crude underproduction, inventory levels have remained broadly stable over the past 8-10 weeks, suggesting that production and consumption are nearing a balance, but there is no sign that they are starting to climb to a more comfortable level. flat. On the other hand, Iraq is struggling to increase its oil production and exports.

The tricky LNG equation

Amid Europe’s effort to reduce its dependence on Russian gas, LNG has become the most important geopolitical fuel today. Meanwhile, Germany’s electricity prices have soared to €370/MWh, while a year ago they were trading below the €60/MWh benchmark, marking a 617% year-on-year increase.

The rise in prices translates into increasing pressure on the E.U. to look for alternative power supplies to keep the industry going through the coming winter. Otherwise and in case of emergency, the leaders of the E.U. agreed on a mandatory reduction of natural gas consumption by 15%.

Apart from the current main EU suppliers, namely the US (accounting for 47% of EU imports in 1H22) and Qatar (accounting for 15% of EU imports in 1H22), some secondary suppliers are expected to increase their exports to the EU. thereby diversifying the bloc’s alternative LNG sources. With the expectation that the Trans Niger pipeline will reopen after August ’22, the E.U. will be able to increase its imports from the country. The pipeline, which is currently closed due to the country’s ongoing problems with theft and vandalism, is expected to double exports to the EU. The E.U. it now sources 14% of its natural gas from the country. Meanwhile, on July 11, the E.E. signed a new agreement with Azerbaijan, amid fears of a possible complete cutoff of natural gas from Russia. The country, which supplied 8.1 billion cbm to the E.U. in 2021, it is expected to deliver around 12 billion cbm in 2022 through the Trans Adriatic Pipeline, while the agreement implies that by 2027 the country will deliver at least 20 billion cbm per year.

On July 25, the EU’s natural gas storage was about 67% of capacity, which is in line with the 5-year average gas storage for this time of year. However, in a research note on August 1, BofA highlighted that the EU’s natural gas stocks for the winter they are likely to prove insufficient, while he estimated that natural gas prices will jump even higher. Concerns about a possible recession in the E.U. and how energy prices will affect the EU economy. are intensifying, adding further pressure to the euro, which has plummeted to $1.02 at the time of writing. A possible disruption of Russian natural gas supplies to the E.U. could lead to a GDP contraction of up to 1.5% amid a cold winter and the bloc’s failure to save energy.

Under current conditions, with rising gas and energy prices in the EU region, the chances are that the coming winter will push the supply/demand balance to its limits, posing threats to the operation of the industry. Up to 17% of industrial demand for natural gas could be destroyed during the winter, and many companies may have to shut down their facilities altogether.

Source: Capital

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