ECONOMIC ENVIRONMENT
The
downward revision in Chinese manufacturing Purshasing Managers Index
seems to persist and for the second month of the year. The HSBC Flash
China Manufacturing Purchasing Managers Index fell at seven month low of
48.3 in February, from 49.5 in January with new export orders and
business conditions following slower rate of expansion. The final
February reading for China's PMI will be released on March 3rd, 2014, which may show better outcome for the world's second largest economy.
Commenting
on the Flash China Manufacturing PMI survey, Hongbin Qu, Chief
Economist, China & Co- Head of Asian Economic Research at HSBC said:
"February's flash reading
of the HSBC China Manufacturing PMI moderated further as new orders and
production contracted, reflecting the renewed destocking activities. The
building-up of disinflationary pressures implies that the underlying
momentum for manufacturing growth could be weakening. We believe Beijing
policy makers should and can fine-tune policy to keep growth at a
steady pace in the coming year."
The
declining trend in China's PMI intensifies economists' fears predicting
slower economic expansion than last year- at 7.4%, which is the lowest
since 1990. However, China surprised economists for the first month of
the year and posted a large increase in lending. Chinese
banks posted a large increase in lending during January and surprised
economists. Chinese banks issued 1.32 trillion yuan ($218 billion) in
loans in January, 837billion yuan (173%) more than was issued in
December and 250 billion yuan (23%) more than was issued in January
2013. Bank
lending usually surges in January as financial institutions receive new
quotas and offer credit at the start of the year to earn more interest,
according to economists at ANZ, Citigroup Inc. and Mizuho Securities
Asia Ltd.
In
the Eurozone, the PMI signals robust recovery as new orders show
largest rise since mid- 2011. The flash estimate of the Markit Eurozone
PMI Composite Output Index fell slightly to 52.7 in February, but
remained close to January's 31 month high of 52.9. The PMI is now
holding levels of above 50 for eight successive months, signaling a
continuous expansion of business activity since last July. Commenting on the flash PMI data, Chris Williamson, Chief Economist at Markit said:
"Looking at the latest two months as a whole, the PMI suggests the
region is on course to see GDP expand by up to 0.5% in the first
quarter, which would be the strongest growth for three years. France,
where malaise in the domestic economy is offsetting better export
performance and suggests there is a risk of the French economy
contracting again in the first quarter. Germany, on the other hand, is
likely to see GDP increase by as much as 0.7%."
For
the final quarter of last year, euro area recovery gathered strong pace
and grew by 0.3%, from 0.1% growth in the previous quarter, which is
the third quarterly growth since the end of an 18 month recession.
Economic growth in Germany and France, the euro's two largest economies,
marginally exceeded expectations in the fourth quarter and offered hope
for a better 2014. German growth accelerated to 0.4% in the last
quarter from a rise in exports and capital investment, up from 0.3% in
the previous three months. The French economy expanded by 0.3% and the
statistics office revised up the third quarter growth from -0.1% to
flat. The Germany Economy Ministry said that it expects GDP growth of
1.8% in 2014, more than four times faster than in 2013 as a whole. In
Italy, its economy expanded marginally by 0.1%, while Spain reported
0.3% fourth quarter growth, which is the second successive quarter of
expansion.
In
Japan, trade deficit hit a record high and widened to an unprecedented
Y2.79 trillion ($27.4 bn) in January, more than Y1trillion larger than
the previous record, according to the official announcement from the
finance ministry. The previous record of Japanese trade deficit was back
in January 2013 of Y1.63 trillion. Japanese high spending in oil
imports and gas, since the Fukushima nuclear accident, has exceeded the
value of its exports since 2011 and combined with the sharp decline in
yen from late 2012 have led to high numbers of trade deficit.
For
January 2014, Japanese export volume declined for the first time in
four months as the Chinese Lunar New Year brought lower demand from
China. The position of Japanese trade deficit is reflected in the weak
economic data that the economy shows for its GDP growth. According to
preliminary estimates, from the Cabinet office, for quarterly gross
domestic product data, Japan's GDP growth disappointed for the last
three months of 2013 and increased by 0.3% in October-December quarter,
of 1% on annualized terms, less than the median projection of 2.8% in a
Bloomberg News survey of economists. The small increase in the value of
exports, at 0.4%, was not enough to balance a 3.5% surge in imports.
However, Japan's GDP growth was at 1.6% for the whole 2013, which is the
highest expansion recorded since 2010. Under the current economic
fundamentals, the Bank of Japan doubled its lending program to 7
trillion yen ($68 billion) and said individual banks could borrow twice
as much low interest money as previously under a second facility. It
left unchanged a pledge to expand monetary base by 60 to 70 trillion yen
per year.
In
U.S., manufacturing performance rebounded strongly in February and hit
the highest level for almost four years. The Markit Flash US
Manufacturing Purchasing Managers Index rose to 56.7 in February, from
53.7 in January, which is the fastest overall improvement in US
manufacturing business conditions since May 2010.
Commenting on the flash US PMI data, Chris Williamson, Chief Economist at Markit said: "The
flash manufacturing PMI provides the first indications that production
has rebounded from the weather-related slowdown seen in January. Having
slumped to a three-month low in January the PMI surged to its highest
for almost four years in February, as companies reported business
returning to normal after freezing temperatures and snow disrupted
operations and supply chains. "Hiring also picked up to the fastest
since last March, with the survey signalling approximately 15,000 jobs
being created in February. "While the strong PMI reading in part
represents a rebound from the temporary weakness seen at the start of
the year, further growth looks likely in coming months, suggesting the
underlying health of the economy remains robust. In particular, February
saw the largest rise in backlogs of work seen since prior to the
financial crisis, as well as a further steep fall in inventories of
finished goods. Both point to ongoing growth of production and hiring in
March."
SHIPPING
The
Chinese Ministry of Transportation and Communications announced new
port regulations for very large ore capsizes berthing. It said that it
will allow ships with capacity of up to 250,000dwt tons to berth at its
ports from July 1, as it keeps a ban on Brazilian miner Vale's very
large ore capsizes since January 2012. The
ministry stated in the revised regulations that dry bulk carriers of
more than 250,000 dwt in capacity must not be fully loaded if they wish
to berth at Chinese ports. The ministry pointed out that the ruling
would have minimal impact as most vessels calling at the ports are below
250,000 dwt in size.
In the dry market, chartering
activity is gaining momentum after Lunar New Year with a large amount
of iron ore, coal and grain cargoes surfacing in the spot market.
According to Commodore Research, 116 vessels were chartered to haul dry
bulk commodities in the spot market last week, 31 more than the previous
week. Capesize is still under pressure, but expectations remain firm
for an early rebound. Supramax vessel category seems to have found the
greatest support, while panamax spot rates are hovering in close
proximity to the handy and supramax segment. New global grain export
forecast from USDA fuels further hopes for firmness in the supramax
segment due in part to better expectations for coarse grain and wheat
exports from the United States. The United States Department of
Agriculture now predicts that 346 million tons of grain will be exported
during 2013/2014, 4.3 million tons (1%) more than it predicted in its
previous forecast released in January, while overall grain trade is
projected to increase year-on-year by 47.7 million tons (16%).
Panamax
and capesize rates will continue to be under downward pressure in
February as Chinese port stockpiles remain high and fixture activity is
on soft decrease. However, iron ore fixture activity has managed to
remain firm despite the continued rise in Chinese iron ore port
stockpiles. Chinese iron ore port stockpiles have now increased for
nineteen consecutive weeks and are up by 29.3 million tons (42% up
year-on-year), while thermal coal remain far above the critical 7
million tons and power plant coal stockpiles are also on significant
rise.
On Friday February 21st, BDI closed at 1175 points, up by6% from last week's closing and up by 59% from a similar week closing in 2013, when it was 740 points. All dry indices closed in green apart from the panama segment. The supramax segment recorded the largest weekly increase. BCI is up by 9% week-on-week, BPI is down 5% week-on-week, BSI is up 10% week-on-week, BHSI is up 1% week-on-week.
Capesizes
are currently earning $10,144/day, up by $1,777/day from last week's
closing and panamaxes are earning $10,000/day, down by $506/day from
last week's closing. At similar week in 2013, capesizes were earning
$5,216/day, while panamaxes were earning $7,974/day. Supramaxes are
trading at about $11,476/day, up by $1038/day from last week's closing,
about 13% higher than capesize and 15% higher than panamax earnings. At
similar week in 2013, supramaxes were getting $7,494/day, hovering at
44% higher levels than capesizes versus 13% today's higher levels.
Handysizes are trading at about $9,905/day, up by $116/day from last
week's closing; when at similar week in 2013 were earning $6,127/day.
In the wet market, softer sentiment is maintained in crude tanker spot rates with downward revisions in VLCC-Suezmax and aframax rates- after the beginning of February. However, a surprise influx of Middle East cargoes affected positively the vessels supply-demand balance and led to fresh strong gains for VLCC rates.
VLCC
spot rates in AG-USG route moved up by 7.5 points to
WS37.5-$15,318/day, and reached the same highs of week ending January 24th. Spot rates in AG-SPORE and AG-JPN route lifted also to the robust levels of week ending January 24th
at WS62.5-$48,500/day, up by 14 points week-on-week. In WAFR-USG route,
rates maintained levels of WS60 and above since ending January and
ended at WS65-$47,300/day, up by 5 points from previous week. In
WAFR-China route, rates increased to WS62.5-$45,422/day, up by 12.5
points from previous week and down by 5 points from the highs of week
ending January 24th.
In
the suezmax segment, chartering activity in West African is on decline
with rates in WAFR-USAC route lowering to WS52.5-$7,173/day, down by 15
points from a week ago and down by 77.5 points from the highs of WS130
at the week ending January 17th. In
B.SEA-MED route, rates moved down to WS62.5-$8,832/day, down by 5 points
from last week and down by 125 points from week ending January 17th.
In
the aframax segment, there is also a lower fixture activity in the
Caribbean market with rates in CBS-USG route moving down to
WS100-$12,307/day, down by 20 points from last week and down by 205
points from the record highs of week ending January 17th. In
the N.SEA-UKC route, rates decreased to WS90-$15,316/day, down by 10
points from last week and down by 110 points from the highs of week
ending January 24th. The Caribbean market shows weakness and
in the panamax segment with rates in CBS-USAC route ending at
WS150-$16,027/day, down by 25 points from a week ago and down by 125
points from the accelerated levels of week ending January 24th.
In the gas market, Sovcomflot,
Russia's largest shipping company is said to have awarded the first
tender for the first icebreaking LNG carrier (out of the 16 required in
total) for the 16.5 mtpa Yamal LNG project, a $30B project that is also
expected to require 18 conventional LNG carriers. The shipping companies
that submmited bids are likely SCF/NYK Group, Mitsui OSK Lines, Teekay
Corp, Dynagas/Marubeni Corp, and Golar LNG.
In
the meantime, spot rates for modern 160,000 cubic meter (cbm) tri fuel
diesel engine liquefied natural gas carriers remain flat at $80,000/day
as the market records slow fixture activity.
In the container market, the Shanghai Container Freight Index is on a straight decline since week ending January 24th,
by falling last week below 1,100 points to 1,095, down by 6%
week-on-week and 9.4% year-on-year with sharp declines in Asia-Europe
and Asia-Med routes. Rates in Asia-Europe lowered by 12% week-on-week by
falling to levels of less than $1,400/TEU, which are up by 6%
year-on-year, but the weakest levels since the beginning of November
last year. In Asia-Med route, rates fell to $1414/TEU, down by 11%
week-on-week and up by 12.4% year-on-year. The typical lull season,
after Chinese Lunar New Year with the shutdown of Chinese factories, has
influenced significantly the performance of freight market combined
with the existing overcapacity.
February
is one of the weakest months of the year in terms of demand. Container
Trades Statistics figures show 919,800 teu transported in February last
year compared with a 2013 monthly average of 1,169,042 teu on the
Asia-Europe trade lane.
Despite the weak sentiment in major trading lines, containerisation
international research showed that utilization rates on vessels sailing
from Asia to Europe have increased for the first quarter of the year to
96% compared with 85% during the same period last year. In
Asia-Mediterranean route rose at 90% compared with 82% last year.
In
transpacific rates, there is also a downward momentum with downward
revisions appearing to be not as strong as in the other two major
trading lanes. In Asia-USWC route, rates fell to $2041/FEU, down by 3.2%
week-on-week and down by 16.5% year-on-year, but they retain the
momentum above $2,000/FEU since week ending January 17th. In
Asia-USEC route, rates lowered to $3,363/FEU, down by 1.8% week-on-week
and down by 6.7% year-on-year, but they are above $3,000/FEU since week
ending December 20th.
Shipping
lines have already started to announce general rates increases for the
beginning of March. Hapag-Lloyd has announced westbound general rate
increase of $525/TEU set to come into force on March 1. In addition,
China Shipping Container Lines and Yang Ming announced a $500/TEU
increase from the beginning of March. Other top carriers, Maersk Line,
Mediterranean Shipping Co and CMA CGM are pending to announce any
increase.
The
current fragile spot freight market environment is being threatened
even more from the ongoing surge in newbuilding orders, but the intense
scrapping appetite for panamax boxships with an average age of 17years
(3,000-5,000TEU) already appeared from major players, Hanjin Shipping
Maersk, will aid to a slow pace of container capacity growth in 2014.
According to Alphaliner estimates, the global containership fleet is
expected to grow at its lowest rate in over a decade and to reach 5.5%,
which would be the lowest annual increase since 1999. Although 1.65mil
TEU of new capacity is scheduled for delivery this year, representing
9.6% of the total fleet at the beginning of January, it will be offset
by a projected scrapping of 500,000 TEU and 200,000 TEU of delivery
deferrals, which would shave some 4.1% of the projected growth rate.
In the shipbuilding industry, Samsung Heavy Industries (SHI) has confirmed a huge order for a floating LNG (FLNG) production unit. Malaysian national oil company Petronas will pay KRW 1.56 trillion ($1.5bn) to receive the project by January 2018, the Korean shipbuilder said in an exchange filing.
In the shipping finance,
Chilean boxship player CSAV said that it will proceed with two capital
raising exercises under a possible merger with German carrier Hapag
Lloyd. The first is subject to the approval of shareholders to be held
in March and it will raise $200mil to be used for the funding of seven
9,300TEU boxships under construction at the Samsung Heavy Industries,
South Korea. The second raise will be followed upon the completion of
the merger agreement for up to $400mil and the proceeds will be used to
subscribe the amount committed by CSAV to Hapag Lloyd's EUR370mil
($506mil) capital increase.
In
the tanker segment, Ardmore Shipping is going to issue another 5.37mil
shares in total, including an underwriters' option by setting a maximum
price of the issue at $13.97 each. The proceeds from the new facility
are expected to be used to finance up to 65% of the purchase price of
eight vessels on order in the company's current fleet.
In
the dry segment, Paragon Shipping has raised $42,2mil from a public
offering by selling 6.785m common shares at $6.25 per share. Net
proceeds are expected to be about $39.7mil and will be used primarily
for vessel acquisitions with the balance for general corporate purposes,
including working capital and the repayment of debt.
MARIA BERTZELETOU - Shipping Analyst
GOLDEN DESTINY
RESEARCH & VALUATIONS
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