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The global economy is singing “Inflation bites”

Back in the late 1980s until mid-1990s, fans of Def Leppard used to sing “Love Bites”, their only number-one single on the US Billboard Hot 100. Now in the early 2020s, the global economy is singing “Inflation bites”. The first signs of strain are obvious in the US economy and the forecasts of economic growth are showing 0.4% at the end of 2023, down from previous forecast of 1% (as the Federal Reserve’s interest hikes cool off demand, like they’re intended to). Is the American economy moving into a recession? Nobody can be sure. If inflation stays well above the 2% target - it’s now above 8% - policy makers may feel compelled to respond forcefully with higher interest rate increases, to bring it down, tipping the economy into recession.

As most economies are struggling with inflation, in China the main concerns are the consequences of the strict Zero Covid policy. Industrial activity unexpectedly fell by 2.9% in April from a year ago, the lowest levels since the pandemic began. Although manufacturing activity, especially in Shanghai shows recovery signs since mid-May, the pace of recovery has remained slow so far and steel consumption may remain low until manufacturing production returns to normal in June, which may then drive the dry bulk marker to enjoy higher rates. At the same time, India, which is the world’s second-largest wheat exporter, banned wheat exports as the heatwave hurts its crops, causing wheat prices to soar to record highs. More specifically, Chicago wheat futures peaked at around USD 12.8/bushel on 16th May before easing to below USD 12/bushel last Friday. According to traders, India's wheat exports topped 7.85 million tonnes in the fiscal year to March, an all-time high and a sharp surge from 2.1 million tonnes from the previous fiscal year, due to Russia's invasion of Ukraine, cutting off Black Sea rival supplies. This combined with Ukraine’s grain export shutdown, may exacerbate the global wheat shortage. The United Nations is trying to negotiate the reopening of Ukraine’s Black Sea ports – including Odessa – to avert a potential global food crisis, sadly without success until now.

The dry market continues its rally with the Capesize segment enjoying the highest rates of the past 6 months. The BCI, which has increased around 230% m-o-m, broke the 4,500 points mark for the first time since mid-December 2021, and closed the week at 4,526 points, nearly 110% up since early May 2022 and 15% up w-o-w. There are hopes for an even stronger second half since the forward curve for Capesizes is expected to enjoy higher freight rates, with June Capesize FFA’s showing a gain of around 14% w-o-w. For the smaller sizes, including Panamax, Supramax & Handysize the indices have increased by 10%, 8% and 14% respectively m-o-m.

The revival of the BCTI is evident & the 1,469 point mark is the highest point since 5th May 2020 but on the other hand, or shall we say on the “dirty hand”, the BDTI closed the week at 1,111 points, 37% lower than the 1,744 points we saw on 12th April 2022 (the highest level, since 16th October 2019). In general, the overall feeling for tanker market is positive as majority of countries have stopped travel restrictions, tourism is soaring according to preliminary data for this summer period, everyone apart from China have put the lockdown policies behind & demand for oil products is rising, while many refineries reactivate after 2 years of shutdown.

In April, China exported 49,000mt of gasoline to Bangladesh, marking the 2nd straight month of gasoline outflows to the country following a rare export in March, as Bangladesh looks for cost-effective alternatives to LNG, for its power consumption needs. The top destination for China’s gasoil export in April was the Philippines. Exports surged 337.5% m-o-m to 327,000 mt in April but are still down 24.7% y-o-y, with the trend not seen to be easing-off in May. On the other hand, China is ready to replenish its oil reserves not only with cheap Russian Crude oil - hefty discounts on Russian crude are increasingly whetting the appetite of China's independent refineries - but also with Oman blend. Rumours say that ChemChina have bought around 6-8mil barrels of July-loading Oman & Murban crude, while independent refiners Rongsheng & Shenghong bought a total of around 6mil barrels of various Middle Eastern crudes earlier in the trading cycle. Analysts point out that this may provide healthy demand for large tankers, ideally VLCCs as journeys from Middle East & Black Sea to China will add to ton mile demand. Also, it is worth noting that Japan is going to sell around 4.72 mil barrels of crude oil from its national oil reserves via tenders in June as part of contributions to the International Energy Agency's joint effort to release oil, a move that may well add further support to the tanker market momentum.

Sale and Purchase:

On the dry S&P activity, the BWTS fitted Capesize “Aquadiva” - 182K/2010 Odense sold for USD 31.3 mills to Greek buyers. On the Kamsarmax sector the BWTS fitted “Coventry” - 82K/2011 Oshima found new owners for USD 26mills, while the BWTS fitted & Eco Chinese built Panamax “Rio Tamara”- 76K/2014 Taizhou Kouan was sold for USD 24.5 mills to probably Oldendorff. 2x BWTS fitted Supramaxes, the “Evans” - 54K/2009 Zhejiang & the “Crestone”- 53K/2009 Zhejiang changed hands for USD 16 mills each. Finally, on the handysize sector, Middle Eastern buyers acquired the BWTS fitted “Moleson” - 36K/2010 Shinan Heavy for region USD 17.5 mills.

On the wet S&P activity, the VLCC sector continues to retain its robust buying/selling momentum, highlighting the sale of the BWTS fitted “New Talisman” - 296K/2009 Bohai which was sold for USD 38.2 mills to UAE buyers, while the 2-year older “Neptun”- 307K/2007 Dalian & “Nucleus”- 307K/2007 Dalian were sold for USD 30.8 mills each to Asian buyers. On the Suezmax sector, the “17 February”- 160K/2008 Samsung & the “Libya” - 159K/2007 Hyundai Samho were sold for an undisclosed price. It is worth mentioning that the previous sale failed and now sold to Greek buyers basis very prompt “as is” delivery. Finally, on the MR2 sector, the BWTS fitted & CPP trading “Jal Sasvata”- 47K/2009 Naikai was sold for USD 17 mills, while the “St. Pauli” - 50K/2017 HMD changed hands for USD 33.3 mills.

Xclusiv Shipbrokers Inc.