BIMCO Shipping Market Overview & Outlook January

DRY BULK SHIPPING: Q4 provided optimism, Q1 will make sure we don’t get carried away

Demand 

Iron ore provides 30% of the demand for the dry bulk market and, during 2016, its related tonne-mile demand went up by 6%. This was the key factor behind the overall demand side growth of 2.2%.

From January to December 2016, Chinese iron ore imports went up by 7.5%. This means that, for the first time, imports (sea and land borne) exceeded 1bn tonnes in a calendar year. In 2016, all other regions except for China imported less iron ore.

This increase was influenced by Chinese steel prices, which have been on the rise since June when a tonne was priced at Yuan 2,705 (USD 390). By mid-December, the average price of hot rolled coil in China hit Yuan 4,060 (USD 585) per tonne. This has doubled in the last year, and represents a four-year high. It is due to an increase in demand for steel – coming from construction and from increased public spending on physical infrastructure works.

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Supply 

As the supply side grew by 2.25% in 2016 against a slightly weaker growing demand side (2.17%), the most recent data indicates that the market fundamentals worsened. 2016 saw 29 million DWT being scrapped, while 47 million DWT of new capacity was introduced. BIMCO’s forecast for next year is a supply growth rate of 1.6%. This is higher than the zero-supply side growth rate that BIMCO identified as necessary for market recovery in the dry bulk sector in our “road to recovery” analysis last year. It comes on the back of a continued slowdown in demolition interest – which is itself alarming. The work needed on the supply side is substantial and the low level of demolition merely postpones the recovery.

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Outlook 

The first quarter always has an overall lower level of demand than any fourth quarter due to seasonality. 2016/17 is no different in that respect. Key indicative commodities (according to SSY) in combination, indicate that demand may contract by as much as 5.4%, from Q4-2016 to Q1-2017.

But normal seasonality will also play its part, as coarse grain exports out of Argentina, soya exports out of Brazil and wheat out of Australia will go higher in Q1-2017 compared to Q4-2016.

Another noticeable seasonality is the fact that January/Q1 always shows a disproportionate amount of newbuilds delivered. During 2013-2016, January deliveries accounted for 17% of the year’s total additional DWT-capacity and Q1 deliveries were 35% of the year’s total. If this is anything to go by, 2017 will see 5.3 million DWT delivered in January and 10.9 million DWT in Q1-2017.

 

TANKER SHIPPING: A strong season lifts crude oil tankers before it is expected to hit the fan in 2017

Demand 

Seasonality has certainly been a friend of crude oil tanker owners during Q4. Since global refining crude throughput bottomed out in October due to regular annual maintenance, the demand for crude oil tankers has been high. After sliding most of the year, with suezmax earnings falling below USD 5,000 per day in August and VLCC earnings dropping to USD 15,000 per day by the second half of September, a strong comeback came as a bonus after a run of strong earnings ended. Stock piling of oil benefits the tanker market, and a reversal will certainly harm it.

For oil product tankers, the party seems over for now.

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Supply: 

It was a busy year for the tanker shipowners taking delivery of newbuild ships in 2016. For crude oil tankers, it was the busiest year since 2012, while product tankers had not seen as much DWT capacity added to the active fleet since 2010.

Owners were so busy taking delivery of new ships that they “forgot” to prepare for future market conditions and sold ships for demolition at the same time. We must go back to the late 80s to see such low level crude oil tanker capacity being sold for demolition and back to the late 90s for the oil product tankers.

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Outlook 

If the decision made by the OPEC (and some non-OPEC nations) has a constraining effect on global oil supply – potentially no longer outstripping global oil demand – refineries cannot take advantage of low and volatile crude oil prices and will not contribute to further stock building of oil.

This in turn results in drawing down stocks and poses further risks to a tanker market that is already seen to be struggling due to a high inflow of new capacity in 2017. Bloated oil product stocks especially are limiting trading activity and thus placing demand on transports to level out local imbalances.

We have said it many times before, much of the present and future oil demand growth will come from Chinese cars, as the rest of the world is not demanding as much these days. Alternative sources of energy are, in some places already cost-competitive, and therefore gaining market share at the expense of fossil fuels. Still, recent subsidies to support the purchase of cars in China have proven effective. More cars will enter the streets, not the very ‘thirsty’ ones, but they will still push Chinese oil demand higher.

That is why Chinese crude oil imports are also a factor for tanker shipping in 2017. As refined oil exports out of China are also becoming a factor, product tankers may look increasingly to China too, shying away from the traditional big oil consuming regions in the west.

In the full 12 months of 2016, China imported 381 million tonnes of crude oil – up by 13.6% from 2015.

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