Snapshot on the economic and shipping environment

Global Economy:

International banks are looking to put together a group of investors to buy disputed Argentine debt and resolve a U.S. lawsuit that is blocking the country from servicing any of its foreign bonds.

The banks are seeking investors willing to purchase bonds left over from the nation's 2001 default held by firms led by Elliott Management Corp., said Eduardo Eurnekian, an Argentine billionaire who has been approached by bankers. In addition to Citigroup, JPMorgan Chase & Co. (JPM), HSBC Holdings Plc and Deutsche Bank AG (DBK) have also been in discussions with investors to resolve the dispute, according to a person familiar with the meetings who asked not to be identified because the talks are private.

The banks are the four biggest underwriters of Latin American bonds in international markets this year, according to data compiled by Bloomberg.

Eurozone:   Matteo Renzi, Italy's prime minister, in an interview with Financial Times, said the eurozone's third-largest economy is on track to hit its EU-mandated budget targets this year despite falling back into recession in the second quarter and defended the speed at which his reforms are moving.

Mr Renzi rejected suggestions made by European Central Bank president Mario Draghi last week that the EU should intervene in countries where reforms were not being implemented fast enough to spur economic growth.

 "I agree with Draghi when he says that Italy needs to make reforms but how we are going to do them I will decide, not the Troika, not the ECB, not the European Commission," he said. "I will do the reforms myself because Italy does not need someone else to explain what to do."

Italy unexpectedly fell back into recession in the second quarter for the third time since 2008. The economy shrank 0.2 per cent quarter-on-quarter between April and June, after contracting 0.1 per cent in the first three months of the year, having only briefly emerged from two years of recession at the end of 2013.

Overall, the second quarter of the year ends with missed market expectations for eurozone growth. According to European Union's Statistics Office, euro GDP growth was flat for the second quarter of the year against Reuters' poll that showed expectations for 0.1% growth. Germany's data surprise as euro's largest economy recorded contraction for the first time in over a year. The 0.2% contraction in Germany was due to negative balance of imports/exports along with construction, according to Germany's statistics agency. In addition, French economy also disappointed as it failed to grow during the second quarter of the year and the recent figures point that France will be unlikely to post growth of 1% for 2014.

Japan: Japanese economy suffered the worst economic contraction since the earthquake and tsunami in 2011 as an increase in the national sales tax triggered a sharp fall in consumer spending in the second quarter. According to preliminary estimate from the government, Japanese GDP growth declined by an annualized rate of 6.8%. On a quarterly basis, Japan GDP growth shrank 1.7% from April to June after a revised 1.5% expansion in the first quarter.

China: China trade surplus hit a record high in July and increased to USD 47.3 billion in July of 2014 from USD 31.6 billion in the previous month, beating market forecasts, as exports jumped while imports fell. Exports accelerated 14.5 percent year-on-year to USD 212.9 billion. Shipments to US increased by 12.3 percent, to European Union by 17 percent, to Japan by 2.9 percent, to South Korea by 32.1 percent, to Taiwan by 48 percent and to Australia by 2.6 percent.  Imports declined 1.6 percent to USD165.6 billion after gaining 5.5 percent in the previous month.
China's trade surplus with the European Union, its biggest trading partner, surged by 37 percent yoy to $13.7 billion. While with the United States widened by 17 percent to $22.3 billion. In the same month last year, China recorded trade surplus USD17.8 billion.

 

Unexpected surprise for China's economy is the weak growth in investment, retail sales and bank lending in July. Credit and financing figures showed this week that the amount of cash flowing in the world's second largest economy fell to a near six year low in July of $273.1 bn yuan ($44.34 bn), about one seventh of the amount in June. The central bank said that the plunge in lending was natural after an unusual surge in June.

Singapore: Singapore Prime Minister Lee Hsien Loong narrowed the government's forecast for economic growth this year and said the country must review its strategies as its needs evolve. The Southeast Asian nation's growth domestic product will probably expand 2.5 percent to 3.5 percent this year, Lee said in a televised message. The range is narrower than a previous prediction of 2 percent to 4 percent. The economy grew 3.5 percent in the first half, the leader said. "We must keep up this growth over the next decade to help you improve your lives," said Lee, 62. "We are now at a higher level, from which we can scale new heights. Hence we must reassess our position, review our direction, and refresh our strategies."

Brazil: Brazil economists cut their 2015 growth forecast for the first time in five weeks on prospects that spending cuts and higher energy and gasoline prices will slow the country's economic recovery. Standard & Poor's in March downgraded Brazil's sovereign credit rating one level to BBB-, one step above junk, with a stable outlook. Brazil's gross domestic product will expand 1.20 percent in 2015, compared with the previous week's forecast of 1.5 percent, according to the Aug. 8 central bank survey of about 100 analysts. That's the lowest estimate since the central bank started publishing the data in January. Economists forecast 0.81 percent growth this year, compared with 0.86 percent the previous week. The central bank kept the benchmark Selic rate unchanged at 11 percent in its two previous meetings, after raising it by 375 basis points in the year through April. While monthly inflation slowed in the past four months, annual price increases continue to hover around the upper limit of the central bank's target.

 

 

Shipping:

India shipbreaking moved from Steel Ministry to Shipping Ministry

India's shipbreaking has been removed from the Steel Ministry to come under the Shipping Ministry to help the sector attract more business and deflect criticism, reports the Hindu daily of Chennai. While shipbreaking has been under the Steel Ministry, the role of the Shipping Ministry is now vital in terms of rapidly encroaching regulations, said India's Ship Recycling Industries Association secretary Nitin Kanakiya.

The ministry now plans to seek the help of Japan International Cooperation Agency to upgrade the Alang beaches, which have come under criticism from NGOs, aggrieved at the dangers poor Indian shipbreakers face.

NGOs like BAN (Basel Action Network) is mostly concerned about toxic waste while the American Shipbreaking Platform, worries about the Indian workers facing on-the-job risks while promoting safer more costly American yards. Another plan will be prepared to modernise the Darukhana shipbreaking facility at Mumbai, sources said. This is one of the 15 major projects taken up under the ministry's comprehensive action plan.

The action plan follows Finance Minister Arun Jaitley's announcement in the budget rationalising shipbreaking taxes and melting scrap of iron or steel by reducing duties on dead ships from five per cent to 2.5 per cent.

Fiscal year 2013-2014, had seen fewer scrap vessels being imported, at 298, or 24% less than the 390 in fiscal 2012-2013, as the economic slowdown subdued domestic demand for steel.

Dry Segment: Capesize segment records weakness with a lull in Brazilian iron ore fixtures. According to Commodore Research, only 2 capesize vessels were chartered to haul Brazilian iron ore cargoes in the spot market during the first four days of last week. However, long term prospects remain positive with as Vale's iron ore shipments during the second half of this year are expected to increase by at least 31.6mil tons from the first half and a large surge in Brazilian iron ore fixture volume is expected to occur during the next several months.

Supramax segment recorded the largest weekly increase of rates last week and the euphoria is expected to stay as Black Sea grain exports remain likely to move upwards in next months and provide further strength in current rates. Overall, there was a small increase in spot chartering activity last week and steady movement in the period market. According to figures compiled from Commodore Research, 101 vessels were chartered to haul dry bulk commodities in the spot market last week, 4 more than in the previous week and 11 vessels were chartered in the period market, the same amount as previous week.

Encouraging sign for the current weakness of capesize segment is that Chinese iron ore port stockpiles are now on decrease for nine consecutive weeks by falling to about 100.5 million tons, but still at near year-on-year record levels by staying 39% above from last year's levels. In the coal segment, port stockpiles at China's largest coal port, Qinhuangdao are also on decline for four straight weeks and stand now at approximately 6.6 million tons, 4% less than a week ago.

The current decrease in Chinese coal port stockpiles is a positive sign for stronger support of rates in the panamax/suprmax segments that seem will also benefit from supply-demand issues in India and tensions from Ukraine. Arctic Securities analyst Erik Nikolai Stavseth says Indian coal imports could increase 30% this year as domestic growth in production is set to fall short of the rising demand. "Domestic miners continue to face production challenges and have failed to reach their production targets," he said. "Coal stocks at Indian power generators have reached critical levels, with 45 of 100 coal based power plants monitored by India's central Electricity Authority having stocks of less than seven days. "Indian coal imports reached 143mt in 2013, a 16% increase year-on-year. A 30% increase in imports would boost imports by 42mt to 183mt."

Additionally, fallout from recent sanctions against Russia over its stance on Ukraine could force European utilities back to using more coal. "European gas prices have surged 17% over the last three weeks on the back of the recent escalation in the tensions between Russia and the west. "We argue that an increase in gas prices and threats of a Russian ban on gas exports to Europe could boost European coal imports- which have been soft year to date. "Increasing European coal imports would be welcomed by owners operating in the trans-Atlantic dry bulk market, a segment that has been struggling with weak freight rates through the first half of 2014."

 On Thursday August 14^th, BDI closed at 942 points, up by 23% from last week's closing and down by 64% from the beginning of the year. All dry indices closed in green and the largest weekly increase is recorded in the capesize segment. BCI is up by 64% week-on-week, BPI is up by 20% week-on-week, BSI is up 10% week-on-week, BHSI is up by 4% week-on-week.

Capesizes are currently earning $12,793/day, up by $4,405/day from last week's closing and panamaxes are earning $5,883/day, up by $987/day from last week's closing. At similar week in 2013, capesizes were earning $14,010/day, while panamaxes were earning $7,374/day. Supramaxes are trading at about $9,000/day, up by $796/day from last week's closing, about 30% lower than capesize and 53% higher than panamax earnings. At similar week in 2013, supramaxes were getting $9,552/day, hovering at 32% lower levels than capesizes versus 30% today's lower levels. Handysizes are trading at about $5,590/day, up by $224/day from last week's closing; when at similar week in 2013 were earning $7,531/day.

Wet Segment: The second week of August ended with a downward trend in crude spot market with the aframax segment keeping levels of above WS100 in the CBS-USG route.

In the VLLC segment, rates in AG-USG showed no weekly change and stayed at WS27, down by 1.5 points from the beginning of July. In AG-SPORE and AG-JPN routes, there was a weekly increase of 3 points and rates concluded at WS46, up by about 10 points from the beginning of May. In WAFR-USG route, rates lost 7.5 points and ended at WS50, up by 5 points from the beginning of May. In WAFR-China route, rates decrease by 3.5 points to WS 49, up by 9 points from the beginning of May.

 In the suezmax segment, rates in WAFR-USAC showed sharp decrease from the levels seen in mid July, when they fetched the barrier of WS100. Now, WAFR-USAC rates at WS72.5, down by 5 points week-on-week but up almost 20 points from the levels of beginning May. In the aframax segment, rates in CBS-USG route are now floating at levels of less than WS150 and they lost 55 points last week to conclude at WS120, which is almost the same level of beginning May.