Never let a good crisis go to waste, argues an aphorism usually attributed to Winston Churchill. And that goes double when two crises come along at once. Given that someone probably had to make a fortune from the literally killer combination of the most devastating pandemic to hit the world in a century and the most serious war in Europe since 1945, it might as well be the shipping industry. The party has not been quite as much fun as the mid-2000s, the last time shipowners were seriously rolling in money, although the hangover we collectively endured throughout the 2010s was surely sufficient penance for the excesses of the period. While the upturn in almost all segments seen over the last two years has been with us for only a relatively short spell of time, it went a long way to making up for the pain of a decade of red ink.

Since 2020, container lines have collectively made a phenomenal $400bn in earnings before interest and taxes. Results in the third quarter will still be strong, perhaps even the best yet. But that is down to revenues from contracts signed earlier in the year. The past few months might have seen what Churchill would have called the end of the beginning, with demand slowing because of the world political situation and the first fears of looming recession. Container volumes, particularly into the US, are still looking pretty good. But they are evidently fading from the stratospheric levels of the past two years. What is clear is that sentiment has changed. Nobody is converting bulk carriers into boxships anymore, and how mad was that anyway? Supermarket chains are no longer eager to facilitate the continued flow of baked beans by becoming shipowners, and the release of large amounts of capacity from congestion has meant that spot rates have fallen sharply. Carriers are having to remove capacity and are even blanking sailings in a last-ditch attempt to maintain rates. And shippers have suddenly relinquished their apparent desperation to sign up to long-term contracts, realizing that spot rates are settling lower.

Meanwhile, Jefferies has this week issued its verdict on prospects for shipping right now and is expecting a “fairly healthy” third quarter. After a ropey first half, things are looking good for tanker owners, the investment bank contends. Crude tankers have at least the potential for outsize earnings this winter, thanks to the dislocation of trade that will result from ongoing sanctions against Russia. Results for liquefied petroleum gas and liquefied natural gas carriers are also set to be firm. The product tanker segment is well-starred, and operators can expect to surpass even previous peaks, it added.

Dry bulk is already feeling the pinch from slow demand for iron ore on the back of reduced steel output, itself often a harbinger of economic slowdown. But even these ships are seeing rates above the 10-year average to 2021. The elephant in the room remains what Jefferies euphemistically refers to as “an uncertain economic backdrop” in the year ahead. Growth in world trade is slowing, with the latest estimates from the IMF projecting a 3.2% increase this year, little more than half the 6.1% seen in 2020.

Covid-19 is thankfully in abeyance, but the threat has not gone away. And the bellicose rhetoric currently emanating from the Kremlin, up to and including a refusal to rule out resorting to nuclear weapons, means that peace in Ukraine may not come as soon as we all hope.

Nobody is suggesting that shipowners will be knocking at food bank doors anytime soon. But as the old joke goes, if something can’t go on forever, it won’t.

Analysts believe dry bulk shipping is in dire need of just one thing if it is to pull off any sort of rally in the remaining months of 2022: cargo. Spot rates fell across the sector over the past week as all bulker sizes received meagre fresh enquiry as China’s real estate sector, which uses half of the world’s steel, remains in disarray and the global economy stands at the brink of recession. The Baltic Exchange’s Capesize 5TC of spot-rate averages across five key routes dropped 19.4% over the past week to $16,350 per day on Friday, marking the steepest decline among four asset classes.

“The capesize market is in need of a large cargo injection to rally rates in the run-up to the end of the year,” Baltic Exchange analysts wrote on Friday in their weekly market wrap-up. “Activity levels showed small pockets of strength yet fixing values have continued to decline throughout the week.” Australian miner Rio Tinto hired an unnamed capesize to ship 170,000 tonnes of iron ore from Dampier, Australia, to Qingdao, China, at $8.75 per tonne after loading the ship from 10 to 12 November. That’s lower than the $9.50 per tonne that Fortescue Metals Group paid a week earlier to send 160,000 tonnes of iron ore from Port Hedland, Australia, to Qingdao, after loading the vessel from 7 to 10 November.

The Brazilian market had “reasonable” activity during the week and charterers capitalized off the current weakness by securing fourth-quarter tonnage needs, but China’s iron ore demand remains hazy, they said. “The China Congress has ended, but there is seemingly no change to the cargo demand or any guidance from China that the capesize market can rally behind,” they said. Panamax spot rates also slid during the week because of limited demand to move dry cargo. The Panamax 5TC declined 15.3% over the week to $16,350 per day on Friday. “With confined demand globally, it proved to be a challenging week for owners with a slow and steady erosion of rates in the panamax market,” analysts said. Panamaxes sending cargo across the northern Pacific Ocean achieved spot rates above $19,000 per day in the early part of the week, but rates fell to $17,000 per day as a result of limited mineral trade.

The Supramax 10TC retreated 11.6% over the past seven days to $16,318 per day as owners kept spot rates low in dire efforts to get work for their vessels in the Pacific basin. “The Asian arena saw a big correction with a severe lack of fresh enquiry in most areas,” analysts said. “Prompt tonnage was building up and owners were discounting to get cover as charterers remained firmly in the driving seat.” A 57,000-dwt supramax off West Africa was heard fixed for a trip to China at $20,500 per day, according to Baltic Exchange analysts. The Handysize 7TC also joined the week-long downward trend, falling 6.7% over the week to land at $16,142 per day on Friday. “Limited enquiry across Asia resulted in further reductions as levels of open tonnage continued to grow,” analysts wrote.

Norway’s Belships has chartered out three of its ultramax bulk carriers on period contracts. The Oslo-listed company has one vessel fixed between 10 and 13 months at $17,750 per day, the second between 11 and 13 months at 16,250 per day, and the third vessel will earn $17,250 per day and be employed between five and seven months.

Two of the new period contracts have commenced this month and the third will begin in November. The vessels have not been disclosed.

The deals mean the Norwegian owner has 90% contract coverage in the fourth quarter, covered at an average gross rate of $22,900 per day per vessel. For 2023, contract coverage stands at 50% at a gross rate of about $21,900 per day per vessel.

The Lars Christian Skarsgård-led supramax and ultramax owner has a fleet of 31 ships with an average age below four years.

Diana Shipping has fixed an ultramax bulker on a period deal to Delta Corp Shipping in a sector that has been on the rise in recent weeks. The Semiramis Paliou-led owner of 36 bulkers has signed its 60,466-dwt DSI Pollux (built 2015) to Delta at $17,000 per day for a charter lasting anywhere from 14 months to 16 months. New York-listed Diana expects to make about $7.14m for the minimum period of the charter, which began on Thursday.

The Athens-based owner fixed another ultramax, the 60,382-dwt DSI Pixus (built 2018), to Cargill Ocean Transportation at $17,100 per day on a charter that will last from 10 months to a year and began on 16 October. Two other ultramaxes have gotten that daily rate on one-year fixtures in the past two weeks. BulkTrading hired Grecomar Shipping’s 63,323-dwt Vita Kouan (built 2016) on 21 October for a charter starting that day. Olam International hired Asyad Shipping’s 63,244-dwt Jabal Shams (built 2019) on 11 October for a voyage starting anywhere from 25 October to 5 November.

The average daily rate for one-year ultramax charters has made steady gains in the first few weeks of October, according to data from Clarksons Research. It rose from $16,750 per day on 30 September to $17,250 per day on 7 October and 14 October before improving to $17,375 per day on 21 October.

London-listed Taylor Maritime Investments (TMI) believes handysize bulker markets could be set for an improvement towards the end of this year. The Edward Buttery-led owner said the recent softening of the market was triggered mainly by port de-congestion, which released previously constrained supply and coincided with the seasonal summer holiday lull. The market has since shown signs of recovery with the Baltic Handysize Index up about 16% at quarter-end since its early September lows.

This is despite the demand-limiting factors of slowing global GDP growth, China’s construction slowdown and the ongoing conflict in Ukraine, TMI added. “Driven by GDP-oriented demand and the supply of necessity goods, we expect a potential for improvement towards the end of the year once the US Gulf grains start moving, despite broader economic headwinds,” the owner said.

Asset values decreased during the quarter, with the Clarksons benchmark for a 10-year-old 32,000-dwt bulker falling to $18m on 30 September. But this is still up 6% when compared to the same period last year, and well above the long-term historical average of $15m. “Asset values appear to be gradually improving. We remain confident there is further upside to secondhand asset values with the handysize orderbook at multi-decade lows, a tightening supply outlook and steady minor bulk demand growth,” TMI added.

The 26 TMI handysizes and a supramax were worth $447m on 30 September, down 15% over the three months. The company noted “continued healthy earnings” through the quarter despite the softer market environment. There has been a firming of rates since September. The net asset value is 5% lower since 30 June, at $1.70 per share, but up 73% since the May 2021 initial public offering (IPO). At the end of the third quarter, the fleet’s average net time charter rate was $17,670 per day, with an average duration of six months. This generated an operating profit for the period of $28m.

Two vessels were fixed on time charters of about a year at the start of the quarter, before the onset of the expected summer slowdown. Period coverage increased to 32% of the fleet as a result. This month, six ships have started new short-term time charter fixtures, taking the portion of the fleet on charters of six months or less to 58%. This creates an opportunity to capture an expected rising charter market this quarter, TMI said.

The company has covered 55% of remaining fleet days for the financial year ending 31 March 2023 at an average net time charter rate of $18,638 per day. TMI has also carried out its first biofuel trial in the period, achieving a CO2 reduction of 25.74% on a well-to-wake basis. The B30 fuel contained cooking and other waste oils.

Average spot rates across dry bulk shipping fell on Wednesday as global demand for steel continues to wane on the back of a weakening worldwide economy. Global steel usage is expected to come in at 1.8bn tonnes this year, down from 1.84bn in 2021, according to the World Steel Association.

China, which is dealing with a struggling real estate sector, is expected to consume 914 MMT of steel in 2022, down from 952 MMT last year. “China is in a disarray, Europe is in a recession and things are slowing down here in the US,” John Kartsonas, founder of Breakwave Advisors, told TradeWinds. “Why would dry bulk be strong?”

Breakwave is an asset management firm that runs a dry bulk ETF-trading platform. The Baltic Exchange’s Capesize 5TC of spot-rate averages across five key routes declined 3.53% on Wednesday to $15,637 per day. “The capesize market was underwhelming in its fixing activity today as rates continued to ebb away,” Baltic Exchange analysts wrote on Wednesday. “Several major charterers were heard in the market on West Australia as usual but only a couple of fixtures were reported.” The Baltic Exchange had no reports of capesize fixtures for Wednesday, but it did indicate that Kepco Tender hired a panamax and six bulkers got put on time charters.

The Panamax 5TC slipped 3.15% on Wednesday to $18,065 per day, while the Supramax 10TC dipped 1.58% to $17,950 per day.

“Capes have underperformed last year’s averages throughout 2022 but now panamax and supramax rates have also slipped,” Jefferies analyst Omar Nokta wrote in a note on Wednesday. “Weaker steel demand has impacted iron ore activity, which has masked the favorable coal market conditions that have gotten stronger in recent months. “A key question revolves around how mid-size ships will perform in a softening economic environment.”

Total seaborne dry bulk trade is now expected to fall 1.6% in 2022 from 2021, but tonne-miles should slip only 0.5% due to changing trading patterns after the war in Ukraine, according to Clarksons Securities. “Iron ore trade is driving the decline in volumes as seaborne iron ore volumes are set to decline 2.2% year over year in 2022,” Clarksons Securities said.

Looking to 2023, Clarksons Research said it foresees a 0.8% uptick in tonnes and a 1.4% increase in tonne-miles but notes that the fleet is only expected to grow 0.5%.

It’s the topic that has sparked the most debate in the container sector all month – just where is the floor for rates? Analysts seem divided on how much lower rates will head before settling at a new normal level. According to SHIFEX, one of a host of container spot freight rate indices, freight rates for 40-foot containers moving from China to the port of Los Angeles fell to $1,825 in October, which is equivalent to the pre-pandemic peak season level.

The transpacific is the trade lane that has experienced the most dramatic falls in fortunes over the past few months, though this is something that is hurting smaller, new entrants on the trade far more than the established big names. “I think it will be rougher seas for new carriers who entered the market driven by the high spot freight rates, compared to legacy carriers who have more contract rates and enough cash reserves to sustain the reduction in rates for a while,” said Shabsie Levy, CEO of Shifl.

The US housing market downturn is now official, a data point which has historically been a good leading indicator for container shipping demand. With the rollover in the leading container headline indices moderating in the past couple of weeks, some analysts believe this is a sign the sector is getting close to bottoming out. HSBC is one of the companies maintaining this viewpoint, something it detailed in a new shipping report issued this week entitled ‘Less bad news is good news’. HSBC urged carriers to blank and suspend more services to stabilize spot freight rates ahead of the upcoming contract negotiations for the Asia-Europe route. “The blanked sailings have been ineffective in preventing freight rates from sliding on all main trades, with the Middle East the only notable exception,” noted researchers at Linerlytica in their latest weekly reporter.

Container charter and secondhand prices are sliding too in tandem with the freight rates while the appetite to order new tonnage at yards in Asia has all but disappeared this fall. “With regards to values, in stark contrast to the exponential increase in asset values for container vessels seen in the first three quarters of 2021, values for 2022 have on the whole decreased significantly with the biggest fall in 0-year-old Feeder-max vessels, falling c.35% since the beginning of the year,” a new report from VesselsValue stated, adding that scrapping levels will likely rise in the coming months. VesselsValue also carried some forecasts on asset value drops through to 2026, with the UK firm predicting some containerships could nearly halve in value in the coming years.

On the demolition side, a crucial lever for carriers as they adjust to altered supply/demand dynamics, Alphaliner has run the numbers on the proportion of the liner fleet becoming scrap candidates in the coming year. Alphaliner data shows there is a total of 655,149 teu of scrapable tonnage of 25 years of age and older, but a much bigger overall 2.5m teu of potential recycling candidates totaling 1,102 vessels which are 20 years of age and older. “Although the removal of 2.5m teu of capacity aged 20 years and over would be instrumental in helping mitigate the impact of the 5.1m teu newbuild capacity to be delivered within the next two years, this is just not going to happen overnight,” Alphaliner warned in its latest weekly report, highlighting the record orderbook due to deliver soon.

China maintains robust aluminum output in September

Chinese primary aluminum output totaled 34 MMT in September, up 7.8% YoY, according to International Aluminum’s latest release. Despite facing several industrial headwinds in 2022, total production YTD has amounted to 266.9 MMT, increasing by 1.8% YoY. The aluminum-intensive automobile industry saw particularly strong production growth of 23.7% YoY, according to the country’s most recent economic data announcement.

Bauxite trade has so far reflected the strength in Chinese aluminum production. With the monsoon season ending, China imported 4.9 MMT of bauxite from Guinea on bulk carriers in September, rising by 27.4% YoY. Energy shortages remain a downside risk to Chinese aluminum output, however, as many smelters rely on hydropower as an energy source, which is still facing a drought. As a result, new power restrictions on smelters in Yunan province were implemented on 10 September. The region accounts for 12% of Chinese aluminum output according to Shanghai Metals Markets.

Worldsteel cuts short term demand outlook

The World Steel Association has forecast a 2.3% reduction in global steel demand in 2022, a 270-basis point cut from its previous forecast in April. Worldsteel also trimmed its 2023 demand forecast by 110bp, estimating demand growth of 1%, referring to increased infrastructure spending as the primary driver. A slowdown in China’s economy was cited as the main reason for the contraction in 2022. Worldsteel forecast Chinese steel demand will decline 4% to 914 MMT in 2022 and then remain flat in 2023. The latest Chinese steel production figures from Worldsteel showed mild signs of improvement at 87 MMT, increasing by 17.6% YoY in September. Though from a low base, the absolute volume is still solid.

In Europe, the broad economic slowdown is expected to drive steel demand lower by 3.5% in 2022 and 1.3% in 2023, according to Worldsteel’s latest figures. In the US, however, a recently passed infrastructure spending bill and pent-up demand in the steel-intensive automobile industry is forecast to prevent a contraction in the country’s steel demand, which is estimated to grow by 2.2% in 2022 and 1.6% in 2023.

Steel demand in India is expected to rise by 6.1% in 2022 and 6.7% in 2023 to 120.3 MMT, driven by infrastructure spending and demand for capital goods and automobiles. This is the largest growth in demand forecast for any major steel consumer by Worldsteel. India has been the only major producer to maintain growth in steel production in 2022. According to Worldsteel, output totaled 93.3 MMT from January-September, up 6.4% YoY.

It was a case of maintaining the status quo in the ranking of top shipping analysts as determined by voting in Institutional Investor magazine’s annual survey. And once again it was low-profile researcher Kenneth Hoexter of Bank of America walking away as the top shipping analyst, retaining the crown he first wore in 2021. The top three analysts stayed the same, with Amit Mehrotra of Deutsche Bank and Evercore ISI veteran Jonathan Chappell repeating their places from 2021. Citi’s Christian Wetherbee was the only other shipping analyst ranked this year, finishing fourth. Wetherbee took the place of former Jefferies analyst Randy Giveans, who left the investment bank in April to head investors relations at Navigator Holdings.

As TradeWinds has reported, Giveans’ move set in motion an analyst shuffle that saw veteran Clarksons Securities researcher Omar Nokta bolt to Jefferies. Clarksons filled the post internally with the shift of renewables and offshore specialist Turner Holm. Meanwhile former Giveans lieutenant Chris Robertson was poached by Mehrotra and Deutsche Bank to help expand shipping coverage there. All the movement may have contributed to fewer shipping analysts being ranked, as there have been eight or more making the list in past years. The rankings are understood to feature a top three and then anyone who finishes within 65% of the market share of the third-ranked analyst, Chappell in this case. Wetherbee was the lone analyst to meet those criteria.

Hoexter acknowledged the honor in an e-mail message to TradeWinds on Tuesday. “We aim to help investors navigate the shipping sector in rapidly changing markets, particularly important as 2021-22 was one of the most volatile years in history,” Hoexter said. He noted that liner rates hit all-time highs and then retrenched to pre-Covid lows, while clean-product and crude rates spiked after Russia’s invasion of Ukraine. “Positive feedback from clients via the Institutional Investor survey is invaluable to confirm that our contributions is additive to their work,” Hoexter said. The analyst’s top calls included a 3 March upgrade of Scorpio Tankers ahead of a surge in clean rates and a 5 February downgrade of Seaspan parent Atlas before container rates plummeted.

Hoexter has long been more than just a shipping analyst. He was hired by Bank of America in January 2002 as senior airfreight, surface transportation and shipping analyst, with much of his research coming in those other transport sectors. Institutional Investor has ranked him an “All-Star Analyst” some 20 times, with the lion’s share of those rankings coming in the “transportation” category. Hoexter’s broader coverage is no longer so rare, as former shipping purists like Chappell and Mehrotra also have broken off into other sectors like trucking and rail.

The shipping award was first severed from the general transportation category in 2015, and it started a reign of five straight years at the top for Michael Webber, who was then working for Wells Fargo Securities. Institutional Investor conducts separate voting in the category of “air-freight and surface transportation”, and there are some familiar shipping names on that list as well. Hoexter finished second, Wetherbee third and Mehrotra fourth. The category was won by Wolfe Research.

Estimates for spot charter rates for LNG carriers have been rapidly closing in on the $500,000 per day mark amid an exceptionally tight market for tonnage and a bullish mood among those sitting on vessels. But some players are indicating that the market could soon see the first signs of a correction in what is proving to be a record earnings season for LNG vessels. Details of fixtures are limited, being reported at different rates and in some cases closely guarded.

German trader RWE has been linked to a deal for a modern two-stroke vessel, the 180,016-cbm Prism Brilliant (built 2019) at around the $400,000 per day mark. Rival Gunvor is reported to have relet a tri-fuel diesel-electric LNG carrier, the 155,000-cbm GasLog Shanghai (built 2013), for a period of 40 days at a rate close to $300,000 per day. The Switzerland-headquartered trader also paid out $210,000 per day for Sinokor Merchant Marine’s 138,000-cbm steam turbine LNG carrier Singapore Energy (built 2003). Brokers pointed out that with ballast bonus fees the ships are likely earning significantly more than these headline rates.

On Tuesday, Spark Commodities dropped its Spark30 Atlantic LNG freight spot rate assessment for a tri-fuel diesel-electric vessel by $11,000 per day to $471,000 per day. The Baltic Exchange’s BLNG2g route from the US Gulf Coast to Europe was down $16,00 to just over $489,000 per day. One shipowner described the LNG carrier market as “uber strong”. But he said the lack of liquidity causes it to halt at times or rates get so high that charterers try to reshuffle cargoes or move around tonnage, which is more of an adjustment than a weakening of sentiment or fundamentals.

Another said that while there is no apparent softening yet, the LNG shipping market could slide later in December. That is when the flotilla of vessels currently floating cargoes off Europe, as they either wait on terminal slots or the best pricing, are to be discharged, bringing greater visibility on the remaining winter season. Brokers and LNG carrier owners reported that more relet tonnage is emerging or promised from portfolio players, which in some cases is moving to disrupt the market. “A number of portfolios [players] have either offered out or hinted they will be able to relet tonnage next year for 6 to 36 months,” Affinity LNG said. “There are signs to suggest a weaker sentiment may be on the horizon.”

The potential for liquefaction project disruptions, specifically the flooding at Nigeria LNG and the restart of the fire-damaged US plant Freeport LNG plant in the US, are also blurring the picture for the Atlantic basin. Warm fall weather in the northern hemisphere and high storage inventories in Europe is also pushing down gas demand and with-it LNG futures. But concerns of how the Russian gas starved Continent would cope in an extreme cold snap means this picture remains finely balanced. But into 2023 the fundamentals for LNG carriers appear strong.

Brokers and owners reported a growing interest from charterers to fix tonnage from well into mid-2023 and beyond to ensure they have cover for next winter.