Shipping Markets: Dry Cargo Market “Highlights” - Week 47 (19/11/2010 - 26/11/2010)

This was a week of mixed feelings and mixed sentiments with no certain trends that can be clearly seen to be developing. To the contrary more uncertainty and more volatility and a directionless week that shows that all indices are actually ready to move towards in either direction. This totally irregular pattern was more evident in the Panamax size segment which has been performing like a sawtooth and every week it seems to gain what it had lost during the previous week. One week we have -12% losses and the following week we get a +12% gain, that will continue and has continued over the past 1 ½ month on this behavioral pattern. This week we saw the rise of the Panamax Index by more than 14% and we are counting 5 cShipponsecutive positive days, the fall of the Capes by more than 8% after a 5 day increase that was short lived, and the rise of the Supras that after 32 consecutive failing days returned to a positive slope and made some positive gains.

Read the full Dry Bulk Market Highlights - Week 47 (19/11/2010 - 26/11/2010)

Best Regards
Theo Scholiadis - Save as DraftS&P Broker

Shipping Markets: Where are the VL's going?

Dear Readers,

I'm sure you've all read the interesting rumours regarding VLBCs (and/or Chinamaxes) and VLCCs. What puts these behemoths in the "Top News" sections is that the sheer volume of cargo they carry and the economies of scale that they allow, can do nothing other than cause a shift in the market. So let's put these rumours to rest and see what the facts say:

Tankers:
With 102 VLCCs available for the next 30 days in the Arabian Gulf, I think it is safe to say that it is a bit overcrowded. In the AG - Far East route, VLCCs were making around $31,000/day more 2 weeks ago, and now they can make around $17,000/day more in the West Africa - U.S. route, than what they are making today. This explains why at least 5 vessels have made their way to West Africa, in ballast conditions no less, and upon hearing a WS77.5 on that route, other owners are also considering it a viable option. This action will no doubt push the West Africa market, while tightening the Arabian Gulf one, hopefully balancing out the oversupply issues that exist.

Bulk Carriers:
Capesizes are the ones that usually lead the market, since the volume they carry has a big impact on commodities. But this looks like it's changing, leaving a big question mark as to whether or not the Capesize vessels will survive. Akis Tsirigakis of Nasdaq-listed Star Bulk Carriers has put in an order for Capes, 2 of which will be delivered next year. He believes that economies of scale will move people to order larger vessels. On that note, Vale is expecting their first of 30 VLBCs (around 400,000dwt) in 2011. Even their competitor Rio Tinto has gone that route, and they want to make a "Brazil - China Highway" for Iron Ore (to begin with). Their argument is that these are expected to cost around $20/ton freight, whereas Capes cost close to $29/ton. This makes one wonder if the Capes will be "marginalised" out of the market.

In a world with price-driven demand promoting economies of scale, it looks like more and more owners are going "big", and proof of that is that the order book contains 166 dry cargo vessels larger than 200,000dwt, 74 of which are over 280,000dwt.

So will owners follow the markets and go "big", or will they look left when everyone is looking right?

Best Regards,
Theo Scholiadis - S&P Broker


Main articles used (list not exhaustive):

- Vale Threat to Cape Owners
[Source: TradeWinds] [Date: 18/11/2010]

- Does Size Matter?
[Source: TradeWinds] [Date: 18/11/2010]

- Supertankers May Sail Empty to West Africa for Oil
[Source: Bloomberg] [Date: 18/11/2010]

Shipping Markets: Dry Cargo Market “Highlights” - Week 46 (12/11/2010 - 19/11/2010)

 Last week was “saved by the Panamaxes”, this week it was the Panamax sector that suffered the most. Increased volatility, greater fluctuations, and weekly or monthly periodicity of peaks and troughs have definitely altered the shipping markets. This was an overall negative week with all indices being red and most of the smaller indices producing long consecutive falling trends. For this coming week the BDI recorded its 17th consecutive drop, and it closed the week just like previous weeks with another strong loss of -7.3%. Capes may have found a bottom as the index mid-week marginally gained and this could be the possibility to start building on another rising period while Asian thermal Coal imports that will be needed to cover for the strong winter that is still ahead, may support the charter market showing some clear signs of new prompt and available cargoes.

Read the full Dry Bulk Market Highlights - Week 46 (12/11/2010 - 19/11/2010)!

Best Regards,
Theo Scholiadis - S&P Broker

Shipping Markets: QE2 Worries are Proving True

Dear Readers,

It seems that our worries about the drop in the value of the dollar are not only felt by us, but by the financial community at large. The Federal Reserve Chairman Ben Bernanke has stood by and defended his monetary stimulus, and even went so far as to implicitly accuse China that they are not doing enough to strengthen their own currency. Adding to that the fact that the Euro has strengthened for the third day in a row and that the rising commodity prices have boosted consumer price inflation in China, the financial community fears that the dollar "will become the world's 'weakest currency'". Now, whether this will be a good thing for shipping, or not, is yet to be seen by the strategies that the shipping companies will decide to enforce.

Read our original article: Shipping Markets: Quantitative Easing Round 2 - $600 billion

Best Regards,
Theo Scholiadis - S&P Broker


Main articles used (list not exhaustive):

- Dollar to Become World's 'Weakest Currency,' Drop to 75 Yen, JP Morgan Says
[Source: Hellenic Shipping News Worldwide] [Date: 18/11/2010]

- Bernanke Defends Fed' Policy, Turns Tables on China
[Source: Bloomberg Businessweek] [Date: 19/11/2010]

- Euro Gains for Third Day; Asian Stocks, Metals Pare Weekly Drop
[Source: Bloomberg Businessweek] [Date: 19/11/2010]

Shipping Markets: Cyprus and Eastern Med Gas Deposits

Dear Readers,

In a previous post, our reader Omiros Angelidis (of CERES LNG Services / BG LNG Services), asked me to research and write about the Gas deposits found around the South of Cyprus and the Eastern Med, about who will exploit them and how it will affect the LNG market.

Personally, I believe that the LNG market is an underrated one and that the shipping world (or rather the energy world) will veer towards it in the not too distant future. The past has shown us that finds like these tend to change markets, so it was with a keen interest that we undertook this research. But you don't want opinions, you want facts:

A little over 3 years ago, Cyprus launched an exploration procedure that uncovered gas deposits around the South of Cyprus. As this was in international waters, bordering with 6 other nations, they needed to get approval before any drilling, as well as to outline what area will belong to which nation. Following that, further exploration revealed the area known as the Levant Basin Province is estimated to hold more natural gas resources than any region explored in the United States (it is estimated to hold 122tcf - trillion cubic feet). Needless to say, the countries that want in the game are Israel, Lebanon, Syria, Cyprus, Turkey and Egypt. 

Of course we do not need to remind everyone that this is a "political hot zone". Israel and Lebanon ties are tense (although they seem to agree on energy matters), Turkey does not recognise the Cypriot government, and the deaths of the Turkish crew members by the Israeli attack on the "Gaza aid flotilla" can only be an obstacle. Cyprus is being hindered by Turkey in any way possible, while at the same time they are trying to finalise an agreement with Israel. There are even talks of a pipeline from Israel to Cyprus.

So, to our question: "How does this affect shipping?"

At the moment, the largest natural gas reserves are located in the Middle East and Russia, followed by the United States and Africa. The main trading routes are from the Arabian Gulf to the Far East and the Arabian Gulf to the Northern Continent, since Russia supplies most of its natural gas by pipelines aided by the Black Sea trade routes. To top that, companies are building vessels known as Q-maxes (or Qatarmaxes), optimised to take LNG from Qatar to the Northern Continent. So now I ask you: What will happen to that route once one of the largest natural gas deposits is "open for trade" in the Eastern Med?

The Straits of Gibraltar currently have no vessel size restrictions, which means that economies of scale will be put to good use since the Suez canal restrictions will be moot. In addition, depending on the costs, it might be cheaper for the Med countries to get their natural gas from the Levant rather than the pipelines from Russia, thus indirectly affecting Russia's market as well as the Black Sea routes. Will it also be cheaper for the U.S. to import their extra gas requirements from the Levant?

To close, a lot of countries and companies are spending billions in trying to find new ways to use alternative fuels. One of the largest deposits in the world situated near Europe (considered to be fully developed) is bound to affect markets. Shipping companies are already building LNG fleets (albeit customised to certain trades for the moment), which shows that some shipowners also believe that this will be one of the possible futures of energy, and are updating their fleets accordingly. Now as to who will exploit the deposit, that's a matter that, unfortunately, is in the hands of the politicians and only time will show its outcome.

Best Regards,

Theo Scholiadis - S&P Broker

Main articles used (list not exhaustive):

- Cyprus minister confirms reports on natural gas deposits

[Site: FinancialMirror.com] [Date: 23/06/2010]

- Large Natural Gas Deposit Found in Eastern Med

[Site: Science 2.0] [Date: 09/04/2010]

- Offshore Drilling: Ownership of Israel Gas Deposits Up in Air

[Site: Trading Metro] [Date: 15/07/2010]

- Turkey announces plans to explore offshore Cyprus

[Site: PennEnergy] [Date: 22/10/2010]

Shipping Markets: Quantitative Easing Round 2 - $600 billion

Dear Readers,

As you no doubt have noticed, there has been a big debate over the $600 billion for Ben Bernanke's "long-term treasury purchases". Here is a quick recap of the debate to date:

On the 3rd of November 2010 the Federal Reserve announced Round 2 of Quantitative Easing, purchasing $600 billion of long-term Treasury securities through the second quarter of 2011, forking out $75 billion per month through next June. A group of economists launched an "attack" on the Federal Reserve with an open letter to Fed Chairman Ben Bernanke (published in the Wall Street Journal and the New York Times), saying that this will "risk currency debasement and inflation". This decision has also raised some concerns with some of the U.S. trading partners, including China, Germany and Brazil, some of which are already battling inflation problems. The Fed's response was that the "plan" will always be amenable to change, depending on the effects it has on world markets.

So, the question for which you are all here: "What does this mean for shipping?"

$600 billion is a large amount by anybody's standard. It is highly likely that this huge influx of cash will devalue the U.S. dollar to some degree. This, of course, will affect anybody holding U.S. dollars, be they shipping companies "sitting" on cash for good purchase opportunities, or governments like China. As a broker friend of mine said "inflation is the enemy of idle or risk-averse money". Could this mean that shipowners will try and make use of that money before it loses value? Could we see a move for more vessel purchases while "their money is good"? On the flip-side, could we see the shipowner sellers holding out in order not to receive U.S. dollars before its devaluation? Many brokers are expecting vessel prices to finally come down and reflect the existing market. Could a combination of these 2 factors come to play, and we see an unchanged market, reflecting even more uncertainty?

This influx will also affect other sectors of the market, like Breakers and Shipyards. To use shipyards as an example, they are paid in U.S. dollars, but they pay their workers and suppliers in their local currency. A devaluation of the U.S. dollar will mean a decrease in their profit margins, since their expenses will remain the same. In order to keep their margins constant, they will likely raise the U.S. dollar price making the vessel more expensive to the shipowner "sitting" on cash. Could this mean that we will see more newbuilding deals in order to capitalise on the current value of their dollar? Even if they decide to ask for payment in their local currency, the effective increase in price will be the same to the buying shipowner.

Bernanke wanted to "move the economy" with this money. Both sides of the argument have valid points and only time will show the victor of the argument. However, will "rush" purchases be a good thing (i.e."Buy now before I lose my money!!!")?

I hope that this won't cause decision makers to make hasty decisions, because "he who hurries, stumbles".

Best Regards,
Theo Scholiadis - S&P Broker


Main articles used (list not exhaustive):

- Bernanke's Fed Sets Sail With $600 Billion QE2
[Site: Forbes.com] [Date: 03/11/2010]

- Fed's Bond-Buying Plan Faces New Assault By Critics
[Site: Los Angeles Times - Business] [Date: 14/11/2010]

- Open Letter to Ben Bernanke
[Site: Real Time Economics] [Date: 15/11/2010]

Shipping Markets: Dry Cargo Market “Highlights” - Week 45 (05/11/2010 - 12/11/2010)

Once again the week was “saved” by the Panamaxes. What could have been an all red and negative week was marginally salvaged by the BPI that closed the week with only a small gain having lost dynamics after midweek of week 45 went by. For this coming week the BDI recorded its 12th consecutive drop, and it closed the week just like week44 with a -7.3% loss. Capes are still toneless with China further reducing the quantities of Iron/Ore imported and the charter market still showing some unfortunate clear signs of lack of prompt and available cargoes.

Meanwhile, the sluggish performance so far of the Dry Bulk Index for nearly 4-5 weeks, has been shrugged off as coal shipments have been drastically increasing in the latter half of 2010 as China is preparing for a colder than normal winter. If we didn’t have these boosts of coal, we might have been talking about a seriously negatively affected dry bulk market, and here are some positive news coming from Xu Xu (Xu “squared” it could well be!!), the chairman of the China Chamber of Commerce of Metals, who expects that demand is expected to pick up as he announced that China's iron ore imports are expected to rise for the rest of the year as steel mills embark on a period of restocking -- in September we saw an 18 percent sequential rise in China's iron ore imports.

Read the full Dry Bulk Market Highlights - Week 45 (05/11/2010 - 12/11/2010)!

Best Regards,
Theo Scholiadis - S&P Broker

Shipping Markets: New Look

Dear Readers,

As you will no doubt have noticed our CEO, John N. Cotzias, has been co-hosting the "Shipping Report" on Channel9, Greece's business TV network. In order to keep in line with the spirit of analysis and reporting that NCS Consulting provides the Shipping Community at large, we have decided to give this Blog a new look:

We will no longer simply inform you of the articles that we find interesting.

We will now do the work for you!

We will read the articles and analyse them for you, so that you get the crux of the stories and the conjectures that we believe can be derived from these. We are not going to pretend we know what the market will do in the future; as the last few years have shown, anyone attempting that feat is more likely pretending to know what he is talking about. We will try and provide the most logical conclusion from what we read, in order for you to get the most useful information as quickly as possible without you having to do any of the legwork.

Why, you ask, we would provide this information with what seems like "No strings attached"? Well, we believe in cooperative competition. "Game Theory" teaches us that cooperating will provide a better outcome for all parties involved. We are not afraid to tell people how we think and what we believe, since quality can not be duplicated... only imitated!

We believe that if your business goes well, so will ours!


So here's to productivity and profits, in a market that seems to have them elude us.

See you all next time.....

Best Regards,
Theo Scholiadis - S&P Broker