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The global economy has entered a period of volatility & inflation

The global economy has entered a period of volatility & inflation. One after another, central banks are increasing interest rates in an effort to taper both volatility & inflation, but many analysts express concerns that this will soon lead the global economy to a recession. After two years of Covid and just as the world was “moving” to the post Covid era, the Russian invasion of Ukraine was the straw that broke the camel’s back, derailing the recovery of the global economy. The bold truth is that the world’s economy is sailing into uncharted waters & no one can safely forecast what will happen next. As we say in Greece “make me a prophet and I’ll make you rich” but being realistic, no one is - or can be - a prophet especially in our volatile and turbulent days. Despite the bad omens gathering over the global economy, shipping seems to react positively. It’s a surprise to see that since 2002, there is a moderate positive correlation (0.3<r<0.5) between inflation and the BDI, BCTI, BDTI indices, with the BDI having a stronger positive correlation (0.5<r<0.7) during the past 10 years. In the charts below it is obvious that the Baltic indices (and so the freight rates), are mostly following the trend of inflation. Not always with the same intensity but usually with the same trend. So, the rising inflation may not be a bad thing after all for shipping industry. Freight rates are moving higher, pushing second-hand prices north, while newbuilding prices are moving north due to the higher building cost and scrap prices. It must be noted that scrap prices are almost 40% higher on a yearly basis.

In the dry market, we watch the great come back of the capes. The BCI has risen around 85% during the last month and almost 460% since the 26th of January 2022, when it was down at 702 points the lowest point of the past 23 months. Increased coal demand, especially from India, is the main reason for this come back. As the war in Ukraine continues and the energy crunch persists, many countries are looking for coal from other producers like Australia, Indonesia and South Africa, adding ton miles to the shipping industry and increasing the demand for seaborne trade. India, in an effort to prevent any energy break down and to drop the energy cost is trying to buy as much coal as it can mainly from Australia, Indonesia and China. But why is China selling? As China persists on a zero Covid policy and on economic and social lockdowns, it has less need for energy and so is selling the coal surplus that the country has created from the domestic production.

In the wet market, OPEC+ is steadily increasing oil production according to their plans and as the world is moving to the first “post Covid” summer, seaborne trade for crude oil and oil products is increasing. The increasing demand for oil products, prompts previously closed refineries to reopen, with the latest addition of a 300,000 barrel-per-day refinery-petrochemical complex in Malaysia, a joint venture between Petronas & Saudi Aramco, restarting after a more than a two-year closure. China and India have revived their appetite for Russian oil, which has been trading at record low prices since the invasion of Ukraine. Meanwhile, Europe, which used to be the largest buyer of Russian crude, is still seeking alternatives trying to amend the traditional crude flow. Many European crude traders comment that Iraqi grade Basrah Medium is the preferred crude for Mediterranean and Northwest European refiners, switching from Russian Urals. This means that more of Iraq crude oil is going to flow into Europe in the coming months while Russian crude will keep flowing towards China and India instead of Europe, creating a new pattern that will add ton-miles to the seaborn trade, increase vessel utilization, adding more demand for vessels which will support the market to healthier levels.

Sale and Purchase:

On the dry S&P activity, following the rise of BCI the buying appetite for Capesize vessels has increased. The “Mineral Yarden” - 181K/2016 Imabari sold for USD 50.75 mills to German buyers, while the same age “Jutta” - 181K/2016 Hyundai Samho was sold for an undisclosed price to Greek buyers. Furthermore, Greeks also acquired the “Mineral Haiku” - 180K/2010 Koyo for USD 33.5 mills. On the Kamsarmax sector, 2X JMU BWTS fitted vessels, the “BTG Olympos” - 81K/2015 & the “BTG Kailash” - 81K/2015 were sold enbloc for USD 71 mills to clients of TMS, whilst the Panamax “Rosco Olive”- 75K/ 2010  Sasebo committed region 24-25 mills basis prompt delivery. Clients of Norden A/S have sold the BWTS & Scrubber fitted Ultramax “Nord Baltic”- 63K/2018 Oshima for USD 37 mills, while the BWTS fitted & Tier I Supramax “Serene Juniper” - 57K/2011 STX was sold for USD 19.5 mills to Chinese buyers.

On the wet S&P activity, it was a robust week for the VLCCs, as more than half of total tanker transactions were at VLCC sector. Clients of DHT reported to have acquired the Scrubber fitted “Hunter Freya”- 300K/2020 Daewoo, the “Hunter Disen” - 300K/2020 Daewoo, the “Hunter Frigg”- 300K/2020 Daewoo & the “Hunter Idun”- 300K/2020 Daewoo for USD 95 mills each, while they sold the Scrubber fitted “DHT Hawk” - 299K/2007 Nacks & the “DHT Falcon” - 299K/2006 Nacks for USD 40 mills & 38 mills respectively. On the LR2 sector, the DPP “Almi Spirit”- 106K/2007 HHI has changed hands for USD 18.25 mills.

Xclusiv Shipbrokers Inc.