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The volatility in commodities markets continue

For one more week, the invasion of Ukraine is still the main topic of discussion. Apart from the huge humanitarian crisis, the continuation of hostilities create huge turmoils to global economies, creating inflation, energy crunches, driving EU & all Western Economies to pursue alternatives rather than Russian commodities.

The volatility in commodities markets continue and WTI & Brent futures closed downwards at around USD 99/barrel & USD 104/barrel, a reduction of around 10% w-o-w. The U.S. crude oil strategic petroleum reserves dropped last week by 2.4 million barrels to 580 million barrels, while the US announced the release of one million barrels a day for the next 180 days from these reserves, in order to try bring down gasoline prices. In a time of mounting threats to supply, analysts say the raid of the oil reserves could backfire, sending panic to an already hot market and causing the world's largest oil emergency stockpile to get dangerously low.

Russia replied to sanctions by requesting foreign buyers pay for Russian natural gas payments in roubles, creating concerns that Russia may cut off deliveries to buyers who do not comply. Several European countries that depend heavily on Russian gas have reacted with alarm over the threat of supply disruptions, with Germany and Austria preparing for energy rationing this week. In the meantime, the Russian government is offering India steep discounts on the direct sale of oil compared to prices before the war (as much as USD 35 a barrel). The plan is for India to purchase 15 million barrels of oil this year. The fact is that Russian oil has been streaming to Asia in more noteworthy volumes after the invasion of Ukraine, with India and China being the key buyers. Finally, Russia has offered rupee-ruble-denominated payments using Russia’s messaging system SPFS, making oil trading more attractive for India.

In the shipping industry, companies halt either trading with Russia or halt new Russia deals. Euronav, for example, has ceased trading with Russian clients, and even though the Russian market comprises less than 5% of Euronav's turnover, the consequences of the international reaction to Russia's invasion of Ukraine could go beyond that, given the role Russia has as a major crude exporter. Moreover, giant Swiss trader and charterer Glencore will no longer accept new business involving Russia. Current contracts, however, will continue to be honoured if they are in compliance with the international sanctions. The BDTI closed the week at 1,321 points, posing a rise of around 19% w-o-w, while the BCTI decreased slightly (1.7% down w-o-w) to 917 points.

On the dry market this was a rough week, as all the indices dropped on a weekly basis. BCI dropped by 1.2%, the BPI dropped by 10% while Supramax and Handysize indices fell by 8.8% and 4.9% respectively. It’s worth noting that BDI stopped at 2,357 points, 7.4% lower than previous week and has up to now 7 consecutive negative days. As the Russian invasion of Ukraine has created problems on the energy map, lots of countries are trying to increase the energy production using coal. India & Vietnam are trying to increase thermal coal imports to meet the rising demand for electricity during the summer period. But as coal prices from major exporters like Indonesia, South Africa and Australia have been on the rise and way beyond the reach of most Asian countries, Indian and Vietnamese buyers are waiting on the side-lines. In India the coal stockpiles are low even with the increased domestic coal production, so the raised concerns about a possible power shortage during the summer season may force the increase of coal imports despite the high prices. In Vietnam, many domestic companies failed to provide the committed volumes, resulting in a tightening of the thermal coal supply. Almost 30% of electricity demand via coal is covered by import volumes from Indonesia and Australia.

Finally, a paradox is being observed in the market. Charterers are fixing larger ships to move smaller parcels as the costs for Supramax and Handysize vessels are more expensive than Panamax and Capesizes. The average of the 7 T/C Routes for Handysize is 114% higher than the Capesize and 10% higher than those of Panamax, while the average of the 10T/C routes for the Supramax is 112% higher than Capes and 9% higher than Panamax. Capesize vessels also fix Panamax cargoes regularly – as their average rate is 94% less than Panamax one – in routes that there are no port/size limitations. “Economies of scale paradox” is here as it seems that cost is lesser when cargoes are moved on larger vessels loading far less than their actual carrying capacity.

Sale and Purchase:

It was another active week in the dry market with many transactions to report. On the Kamsarmax sector, the BWTS fitted “Rosco Litchi”-82K/2011 Tsuneishi Zhousan sold for USD 26 mills to Greek buyers. On the Ultramax sector, clients of Centrofin acquired 3x BWTS fitted vessels, the “S Hermes”-61K/2016 Imabari, the “S Echo”-61K/2015 Imabari & the “S Tango”-61K/2015 Imabari for USD 94 mills enbloc. The BWTS fitted Supramax “Amoy Action”-57K/2010 Xiamen sold for USD 18.2 mills to Greek buyers. Finally, in the handysize sector, Interlink Maritime sold 4x BWTS fitted vessels. The “Interlink Capacity”-39K/2016 Taizhou Kouan, the “Interlink Equality”-39K/2016 Taizhou Kouan & the “Interlink Quality”-39K/2016 Huatai Heavy sold enbloc for USD 26.5 mills each to clients of Tomini, while the one-year older “Interlink Ability”-39K/2015 Huatai Heavy sold for USD 25.5 mills to clients of Tufton Oceanic.

Although the uncertainty in the wet sector has not faded yet, it was an interesting busy week for the tanker S&P. There were a couple of sales in the VLCC sector with the sale of the “Eastern Juiniper”-306K/2007 Daewoo which was changed hands for USD 36.5 mills. Furthermore, the VLCC “Tokio”-306K/2005 Mitsubishi was reported sold for USD 31.5 mills to Chinese buyers, while the scrubber fitted “Front Force”-305K/2004 HHI & the “Front Energy”-305K/2004 HHI were sold for 34 mills each to Chinese buyers. On the Suezmax sector, Greek buyers acquired the BWTS fitted “Bari”-159K/2005 HHI for USD 21.5 mills. Moreover, Scorpio tankers sold 2x Scrubber fitted LR2’s, the “STI Savile Row”-110K/2015 Sungdong & the “STI Carnaby”-110K/2015 Sungdong for USD 86 mills enbloc to clients of Advantage tankers who are arranging a 5+1+1 year T/C to Trafigura for USD 22,750 pd/pv. The same sellers sold also the Scrubber fitted Mr2 “STI Benicia”-50K/2014 SPP for USD 26.5 mills to clients of MSEA Capital. Finally, Hafnia sold 8x StSt chemical vessels, the “Hafnia Spica”-25K/2017 Fukuoka, the “Hafnia Sol”-25K/2017 Fukuoka, the “Hafnia Sceptrum”-25K/2017 Kitanihon, the “Hafnia Saiph”-25K/2017 in Kitanihon, the “Hafnia Sirius”-25K/2016 Kitanihon, the “Hafnia Spark”-25K/2016 Kitanihon, the “Hafnia Stellar”-25K/2016 Kitanihon & the “Hafnia Sky”-25K/2016 Kitanihon for USD 252.4 mills enbloc to clients of Ace Tankers basis delivery September 2022, apart from “Hafnia Stellar” & “Hafnia Spark” which will give delivery within September 2023.

Xclusiv Shipbrokers Inc.