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The Russian invasion of Ukraine has put an end to globalisation

Russia’s invasion of Ukraine may eventually reshape the world economy and further drive-up inflation by prompting companies to pull back from their global supply chains. As BlackRock executives note, “The Russian invasion of Ukraine has put an end to globalisation as we have experienced it over the past three decades”.

Its also worth noting that the search for Russian oil and natural gas alternatives may inevitably change the plans toward net zero emissions and slow the progress in the near term as the invasion of Ukraine may affect the transition to cleaner energy.
In this volatile environment analysts insist that the only commodity that can help solve the energy crisis in Europe in the short term is coal. While the Russia–Ukraine crisis is expected to speed up actions towards the energy transition and the independence of Europe from Russia in the long term, in the short-term coal is the solution to EU’s current energy price surge. Last year CO2 emissions rose because of higher coal usage and higher energy demand as global economies ended lockdowns and started recovering from the pandemic. In 2022, CO2 emissions are set to hit a record high, about 2,5% higher than 2021 despite the greater focus on climate protection and the impact of the pandemic. The iron ore dry bulk trade has remained steady since invasion of Ukraine on 24th February but within this month, coal trade has increased and is now being shipped from longer distances, creating more freight miles per ton of coal while shipments are coming from as far afield as Australia to Europe. As Europe’s dependency on gas from Russia is high, coal is necessary to enable European power stations reduce the need of gas from Russia. The BDI closed the week 0.9% lower than the previous one while also Cape and Supramax indices dropped by 4.2% & 0.4%. at 1,887 & 3,020 points respectively. On the other hand, Panamax & Handy indices rose by 1% & 0.7% at 3,413 points & 1,782 points.
On the wet market the first statistics about Russian crude oil & products haven’t caught anyone by surprise. Volumes of crude oil and products shipped from Russia are down by 30% since the beginning of the invasion but the tanker fundamentals have not shifted significantly. Due to Russian loadings, most tanker sizes have seen an increase in Baltic Exchange rate indices. The BDTI has increased by 23% since the start of the invasion while the BCTI has increased by 34%. Aframaxes have seen the highest rate increase, they stand at almost five times higher than earlier this year. VLCCs had a short-lived rate improvement despite not being heavily involved in the Russian oil trade, but during the past week their rates retreated to pre-invasion levels. Invasion of Ukraine has helped tanker rates to gain ground but there are no other signs that the market will be improved in the short-term. As the oil prices remain high creating subdued demand, global production is not increasing and there are still pandemic lock downs in China (Shanghai). We see that with no significant change in the supply/demand situation, there is nothing to give any additional boost to the tanker market. On Friday March 25, the BDTI closed the week 1.7% higher at 1,112 point & BCTI dropped by 2.9% to 933 points.
Having analysed the dependence on Russian commodities over the past weeks, we focus on nickel, as Russia supplies about 10% of the world’s nickel. The importance of this commodity is high as nickel-containing grades make up for about 75% of the stainless-steel production. So, the recent turmoil in the nickel market, mainly because of ban fears which may lead to shortages and further price increases, is pushing today newbuilding prices up, with price of steel plate having increased by up to 30% over the past 2 months. Analysts predict a further price increase in the near future. Upward trend in already high newbuilding prices may make investors put on hold NB plans & order volumes are already seen to decline according to market sources.
The fluctuation of steel prices is also expected to have an impact on the demolition sector. Despite a shortage of tonnage in the demolition market, due to firm freight rates, analysts believe that this is going to change in the forthcoming months. An interesting statistic (2019-2022 data) about the demolition market is that Japanese built bulkers are scrapped at an average age of about 28 years old while Chinese bulkers are scrapped at around 21 years old. For tankers This is also around 29 years old and 21 years old at time of demolition (for Japanese built and Chinese built respectively).
Sale and Purchase:
On the dry sector, the Kamsarmax “Majestic Sky” - 82K/2014 Tadotsu sold for USD 31.5mills to Greek buyers, while the Japanese “Azur” - 82K/2007 Oshima was committed at region USD 20 mills. Moreover, the 10-year-old “Mandarin Ocean” - 57K/2012 Jiangsu Hantong & the “Mandarin Crown” - 57K/2012 Jiangsu Hantong sold for USD 17.25 mills each to Singaporean & Chinese buyers respectively, while the vintage “Shangrila”- 52K/2001 Tsuneishi changed hands for USD 12.9 mills. Finally, the Handysize “Eco Dynamic”- 32K/2005 committed at USD 13.7 mills to Greek buyers.
On the wet sector, the suezmax “Libya” - 159K/2007 Hyundai Samho & the “17 February”- 160K/2008 Samsung rumored sold enbloc for USD 46 mills. 2X MR2 resales the “K Shipbuilding 1930” & the “K Shipbuilding 1931” - 50K/2023 K- Shipbuilding (Tier III & scrubber ready) sold for USD 38.85 mills each to clients of Pacific Carriers.
On the gas sector, Dorian LPG’s “Copernicus” - 82K/2015 Daewoo & the “Cratis” - 82K/2015 Daewoo were sold for USD 70 mills each to Japanese Financiers on the basis of a 9-year bareboat charter back, with purchase options from 2025 onwards. Finally, the “Providence” - 82K/2008 Daewoo sold for USD 47 mills to clients of Foresight basis delivery in May. We understand Foresight had tied up BW LPG’s “BW Trader” – 77K/2006 Daewoo which failed and subsequently resold elsewhere.

Research:Xclusiv