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The Oscar of 2022 will probably go to the surging inflation

The Oscar of 2022 will probably go to the surging inflation as it is the main concern for almost all economies of the world. Annual inflation rate in the Euro Area jumped to 10% in September 2022 from 9.1% in August, reaching double-digits for the first time ever, while the market forecasts were of 9.7%. It marks the fifth consecutive month of rising inflation, with prices showing no signs of peaking, at a time when pressures already spread from energy to other items. The European Central Bank is likely to raise the interest rates again by 0.75% next month, while a further increase in December is more than possible. On the 21st September 2022, the Fed also raised the interest rate by 0.75% the third such outsized rate increase in a row, bringing the Fed rate to 3%-3.25%. Almost every central bank around the world follows the same strategy, that of interest rate increase, so to fight inflation. Until now that strategy looks ineffective and the only result is an additional increase of the cost of everything, from credit card debt and mortgages to company financing, while it pushes global economies further into a path of recession. The implications caused by inflation and interest rates increase to the shipping industry create some concerns. First, the price surge combining with the technical recession from the central banks are targeting a reduced consumption of goods and a reduction in investments. This is something that may affect freight rates by the decrease of ship demand. Secondly the interest rates increases – something that possibly will continue even during 2023 – are pushing the financing cost higher, making the financing decision for an owner more difficult to take. The necessity of using more own capital and less debt, which will become more expensive for asset acquiring, may lead reduced activity in the second-hand S&P and push ship values lower. Also it must be taken into consideration that many owners might choose to use cash in order to pay off existing loans and in such way improve their cash flow, rather than proceed to acquire new ships with additional borrowing, also decreasing demand for ships in the S&P market.

If the Oscar goes to inflation who or what will be the nominee, then? Definitely the Russian invasion of Ukraine. The recent crescendo of this “bad-play”: suspected sabotage, through explosions of the two gas pipelines, between Russia and Europe, Nord Stream 1 & 2. Both of the pipelines are heavily damaged from underwater explosions, which have led to huge gas leaks. German authorities have expressed their fears that the damage to the pipelines may prevent them from any reactivation for a long time. As the gas pipeline for Norway is working at max capacity and as Russian sources have leaked that Nord Stream 1&2 will need at least 1.5 years to be repaired - if the damage is repairable - the news for the LNG market and the U.S. LNG market is definitely welcomed. Europe had already turned, mainly to the U.S., and secondary to the Middle East for replacing Russian natural gas, meaning an unexpected ton mile increase and an increase in LNG carrier’s demand. The latest damage creates the belief that the shift to LNG from natural gas will not be temporary as many thought, but it will be the new reality for Europe for the years to come, making the U.S. the biggest supplier and creating very positive prospects for LNG ship demand and the gas freight market.

As for the dry bulk market, undoubtedly, the first half of 2022 was very strong, with many shipowners taking a position and soaring second-hand prices. During the past 2 months, we witnessed a very low buying appetite activity, which was mainly driven by the correction in the dry bulk freight market, and the high second prices. Within June 2022, 10-year second-hand prices peaked in all segments. However, since then, the second prices have decreased significantly, which was naturally driven by the decrease of dry bulk indices. Since early June 2022, all the dry bulk indices have eased with the BSI & BHSI highlighting the biggest drop of 38% and 37% respectively. This is followed by a decrease of 33% of the BCI, while the BPI has reduced by 27%. The correction of the market has also affected the average second hand prices, since 10-year old Capesize & Kamsarmax are down by around 15%, while 10-year old Supramax and Handysizes have been reduced by around 10% during that period. For instance, the “Frontier Triumph”- 181K/2012 Imabari was sold last week for USD 30.1 mills, and that is 20% down from its peak in June 2022. Noteworthy is the sale of the 8-year old electronic M/E Kamsarmax “Ocean Thyme”- 82K/2014 Dalian for USD 21 mills, whilst back in mid July the “Ocean Scallion”-82K/ 2013 Dalian was sold for USD 23.5 mills. Finally, the Handysize sector has also drawn a decreased trend, as the 9-year-old “Dream Ocean”- 33K/2013 Shin Kurushima was sold for USD 17.8 mills, while back in June 2022 a 9-year old Handysize was valued at around USD 20 mills.

Sale and Purchase:

The reduction of Dry-Bulk second-hand asset prices during the past two months, has started to increase shipowners’ buying appetite. On the Capesize sector, Turkish buyers acquired the BWTS fitted “Shinyo Guardian” - 177K/2005 Namura for USD 17.25 mills, while the two year older “Lila Nantong” - 171K/2003 Sasebo was sold for USD 16 mills. Moving down the sizes, the BWTS fitted, Tier II Eco M/E Kamsarmax “Ocean Thyme” - 82K/2014 Dalian found new owners for USD 21 mills. Chinese buyers obtained 2x BWTS fitted Panamaxes, the “Agri Queen” - 77K/2009 Oshima & the “Agri Kinsale” - 77K/2009 Oshima for USD 16 mills each. Following the previous week’s sales, Norden continues disposals, with the Scrubber fitted “Nord Barents”- 63K/2019 Oshima sold for USD 33.3 mills basis delivery until January 2023 to Greek buyers. On the Supramax sector, the “Genco Bourgogne” - 58K/2010 Yangzhou Dayang was sold for mid/high USD 15 mills to Bangladeshi buyers. Last but not least, the BWTS fitted Handysize “Promise 2” - 32K/2010 Samho changed hands for USD 13.8 mills.

Tanker S&P activity continues at very strong levels. On the VLCC sector, the BWTS & Scrubber fitted “Maran Aquarius” - 321K/2005 Daewoo was reported sold for USD 53 mills to Chinese buyers. On the Suezmax sector, Thenamaris obtained the Suezmax “Vinga”- 159K/2012 Samsung for USD 42 mills, while the BWTS fitted “Lila Guangzhou”- 159K/2004 Bohai was sold for USD 23.5 mills. Performance Shipping announced an agreement to acquire the BWTS fitted Aframax “Phoenix Beacon”- 106K/2011 HHI for USD 35 mills basis delivery within December 2022. The BWTS fitted LR1 “PGC Ikaros” - 73K/2004 Hudong Zhonghua found new owners for USD 12.25 mills. Finally, the CPP MR2 “Dee4 Fig”- 45K/2011 Onomichi was sold for USD 26.5 mills.

Xclusiv Shipbrokers Inc.