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Soaring inflation heavily concerns central banks

From US to Turkey and from England to Australia, soaring inflation heavily concerns central banks. As of last week, the Federal Reserve increased interest rates by 0.5% to target a rate range between 0.75% and 1%. A significant increase, which is the largest since 2000 and follows a 0.25% increase in March. Closely after, the Bank of England increased its base interest rates by 0.25% to 1% after witnessing U.K.’s annual inflation hit a 30-year high of 7% in March. Meanwhile, Czech Republic’s central bank continues to increase interest rates which have reached 5.75%, marking the eighth straight increase since June 2021. Further, Australia’s central bank raised interest rates for the first time in more than a decade to 0.35%, up from a record low of 0.1%.

The main contributing factors for the current inflation, amongst others, include the latest energy crunch and the Russian invasion of Ukraine. Driving the cost of commodities, energy and labour to higher levels, which directly affect ship newbuilding prices. The average newbuilding price of a bulk carrier is almost 25% higher since last year while the average price for a newbuilding tanker is about 20% higher y-o-y. On the bulk market, rising newbuilding prices, in combination with firm freight rate levels, have a direct correlation with the firming of second-hand prices. On a y-o-y basis, Cape prices have seen an average increase of 24%, Panamax prices are up by 34%, while Handymaxes & Handysizes have risen by more than 50%. Interestingly enough, 20-year-old Handymax & Handysize vessels have presented the highest increase on price, over 100% y-o-y, primarily due to their yearly earnings being significantly higher than one year ago. It must be noted that the scrap price has risen almost 40% y-o-y, a factor that has also positively affected the price of vintage vessels. On the tanker side, the low freight rates have prevented secondhand prices of similar increases on y-o-y basis. Prices for VLCCs’ have increased by an average of 9%, while Suezmaxes and MRs by an average of 12%, Aframaxes with Chemical Tankers by an average of 20%.

Inflation is not the only front which affects the global economy but also the Russian invasion. The US government took its biggest sanctions move against Russia, blacklisting 69 vessels, seven shipping companies and a marine engineering firm. Meanwhile EU diplomats discussed further sanctions, with a revised proposal for banning Russian oil imports and exports but as Hungary, Slovakia and the Czech Republic are heavily reliant on Russian oil, they have requested to be excluded from the ban. Their exemption will only allow domestic use and forbid its export, although the Czech exemption may be cut short if work on the Transalpine Pipeline is operational in time. As western countries suspend their oil imports from Russia and explore potential embargoes due to the war in Ukraine, China’s independent refiners have been discreetly buying Russian oil at steep discounts. Rumours from the market suggest at least six VLCCs, each capable of carrying up to 2mn barrels of crude, have struck deals to consolidate cargoes of Russian Urals crude in Europe to be shipped to the Far East, mainly in China but also to India. India is trying to get deeper discounts (around 30%) on Russian oil to compensate for the risk of dealing with the OPEC+ producers as other buyers turn away. BCTI was positively affected from the increased demand of aviation fuels and the additional ton miles seeing a rise of about 53% the last month at 1357 points the highest level since May 5th, 2020. On the other hand, the BDTI has dropped by 20% during the last month, closing at 1182 points. The United States has a plan to buy back 60 million barrels of crude oil for the U.S. Strategic Petroleum Reserve, which is the first step in replenishing the stockpile after a record-sized release this spring, which might assist in freight rates improving.

On the dry market, the Cape index is at the highest level since 17th December 2021 at 2,894 points. US Census Bureau data shows that thermal coal exports rose to a one-year high of 3.4 mil mt, following the disrupted global trade flows after Russia's invasion in Ukraine & forecasts predict to increase more. India's power ministry has asked states to place orders for importing coal so that the fuel could reach power plants from this month, as increasing coal shortage had led to an electricity crisis before. The BPI & the BHSI have increased by 8.1% and 3% respectively although the BSI dropped by 0.2%. Since 9th February 2022, the average freight rates of Panamaxes, Supramaxes & Handysizes are constantly above USD 20k p/d and usually the difference between them is not over 5%. Further on, Cape freight rates remain the lowest in the fleet, however with the increasing demand for coal, freight rates for Capesize vessels are improving and may close the gap.

Sale and Purchase:

On the dry S&P activity, the BWTS fitted Kamsarmax “Orient Union” - 80K/2011 Fujian sold for mid/high USD 17 mills. On the Supramax sector, activity remains firm with the TIER II “Ap Ston” - 57K/2012 STX changing hands for USD 19.5 mills basis delivery within Q4 2022. Also in the same sector, the BWTS fitted “Therese Selmer”- 56K/2006 Mitsui was sold for mid USD 17 mills basis delivery within July/ Aug 2022. In the Handysize sector, the BWTS fitted Japanese built “Irongate” - 28K/2015 Imabari was sold for USD 18 mills basis delivery within September 2022.

It was a quiet week on the tanker S&P activity. The BWTS fitted LR2 “Almi Star” - 115K/2005 Daewoo was sold for USD 18.25, while the MR1 “Lugano” - 37K/2007 HMD changed hands for USD 11 mills.

Xclusiv Shipbrokers Inc.