The first of February marks the first day of the Lunar New Year and the start of the Year of the Tiger. Whilst travel restrictions and associated Covid lockdowns are going to make this year’s celebrations distinctly muted throughout China, it’s still the most important festival of the year for millions upon millions across Asia. It’s also the busiest time of year for Feng Shui masters, who are in high demand for their forecasts on what the year ahead holds. For the past few years, Splash Extra has brought you insights from some of the leading fortune tellers in the region. Reflecting on what they said then makes it worth your while to pay attention now.

As the Year of the Rat dawned in late January 2020, one expert commented that he ‘had no good news for the shipping, transport and media sectors.’ With the Baltic Dry Index hitting an all-time low in May that year, clearly, he was on the money. For 2021’s Year of the Ox, the presence of the metal and water elements foretold a positive year for tourism, transport and finance. Tourism struggled and certainly amongst transport sectors, aviation, in Asia in particular, was disastrous, but if you were involved in transporting containers or dry bulk, again our man hit the spot.

So, what about the Year of the Tiger? Courageous, decisive, and confident are the characteristics of the tiger, so it’s almost as if he was made to be a shipowner. Hong Kong investment group CLSA publishes its annual Feng Shui Index at this time of year, attempting to apply the ancient principles of Feng Shui to investment markets. They advise that this is the year of the Water Tiger, and the lack of fire or metal elements presages a year of sudden changes, which does not sound too auspicious. More encouraging, however, is that the presence of water in the tiger year means a good year for trade, shipping and travel, sectors which should pick up and hold steady over the summer before pushing higher in winter.

Encouraged by this forecast for shipping but taking the ‘good year for travel’ with a pinch of salt as travel restrictions see no prospect of easing, at least in Hong Kong, we paid a personal visit to an acclaimed fortune teller to ask him some specific shipping questions. Clearly recognizing that this past year had been exhausting, our expert advised that shipowners should only return to work on February 8, adding a couple of days to the ‘official’ holidays, with the 8th being seen as a particularly auspicious day to get down to business. He also seemed to concur with those shipping analysts predicting that the early months might not be so buoyant, (and a buying opportunity?), by saying that April 12 onwards will see things improve. As the incense wafted across the room, we were eager to get down to specifics: “So what is the Year of The Tiger going to be like for shipping?” After years of hearing forecasts that can be interpreted any way you want, we were not expecting his response : “A great year to come!” he proclaimed. We didn’t want to spoil the mood by asking specific questions about the tanker market, but we left feeling invigorated that the experts all seem to concur that the Year of the Tiger holds much promise.

Whatever the Year of the Tiger holds, may your health and happiness be the dominant themes. Kung Hei Fat Choy!

Cape owners are not yet worried about the spot rate slide, though they will not want to see much more of an erosion. Several said they were able to cope with the current market, which has dipped below $6,000 per day. Spot capesize rates fell to $5,826 per day at the close on the Baltic Exchange on January 26, the lowest level since early June 2020.   

The market has been trading at loss-making levels for almost two weeks, although the average for the month so far is at about $13,500 per day, at breakeven for some owners. John Michael Radziwill, chief executive of C Transport Maritime, said most routes were running below operating costs and vessels were steaming at “eco and super eco” speeds where possible. “The current market is a product of a severe rainy season in Brazil hampering iron ore production and exports, Indonesia’s coal export issues and China’s winter pollution controls,” he told Lloyd’s List.

However, market fundamentals show that 2022 is looking like it will be “another robust year” given “very limited fleet growth and strong cargo volumes,” he said. “We believe the current situation will provide a ‘coiled spring’ for capesize rates once the above-mentioned and temporary phenomena hurting day rates are behind us.” Being in the Capesize Chartering pool, which has more than 100 vessels, had also cushioned some of the negative impact of current rates, he added.

Golden Ocean chief executive Ulrik Andersen said his company, which also has a fleet of panamaxes, was able to weather the current slump as it built up positions in the latter half of last year and as such is only 50% exposed to the spot market. “We can stomach this,” he said. “We can get through the first-quarter and still be profitable, we’ll still be in a comfortable position.” Mr Andersen expects a rebound to come after the Chinese New Year and winter Olympics being held in Beijing next month, which has stymied demand. The optimism comes as the forward curve — the third quarter and fourth quarter in particular — are priced above $25,000 per day at current values, although they have softened slightly from previous sessions. In any case, Cal ’22 is trading at about the $22,000 mark, according to estimates, which is above operating costs.

Stamatis Tsantanis, chief executive of pure play capesize owner Seanergy also said that he expected the market to recover significantly within the next few weeks. “Despite the seasonal market weakness, we expect that supply and demand fundamentals will result in a strong recovery of capesize rates,” he said in a recent update. “Our solid balance sheet, modern fleet and strong relationships with world leading charterers in combination with our substantial operating leverage place Seanergy in an optimal position to generate strong revenues and profitability in an improving charter rate environment”. As a result of the company’s “proactive hedging strategy” in the second half of last year, Seanergy should outperform the current spot market by about 50% this quarter, he said. The Greece-based company estimates earnings of about $19,000 per day this quarter, following a fourth-quarter average of about $36,000 per day.

Norway’s 2020 Bulkers has achieved average time-charter equivalent earnings of about $22,400 per day, gross, so far this quarter. It reported net profit of $26.3m in the fourth quarter, with gross average earnings of about $52,900 per day.

Jefferies has dimmed its first-quarter outlook on dry bulk equities, based on China’s moves to curb steel production during the Lunar New Year and Winter Olympics in Beijing. The US investment bank lowered price targets for Diana Shipping to $4.50 from $5.50 and Safe Bulkers to $4 from $5.50, while reducing earnings per share estimates (EPS) for all seven bulker stocks that it covers. Jefferies also reiterated “hold” ratings for Diana and Safe but kept buy ratings for Eagle Bulk Shipping, Genco Shipping & Trading, Grindrod Shipping, Navios Maritime Partners and Star Bulk Carriers.

“Chinese iron ore and coking coal imports remain under pressure for the time being due to Chinese regulations aimed at curbing steel production and improving air quality,” analyst Randy Giveans wrote in a note on Wednesday. “These regulations will likely be loosened after Lunar New Year and the Beijing Olympics as Chinese authorities attempt to stabilize the domestic real estate market and encourage economic growth.”

Jefferies cast down the EPS estimates after lowering spot-rate forecasts across dry bulk shipping through 2023 but remained bullish on the smaller asset classes. “The minor bulk trade is much more leveraged to overall global economic growth, and global GDP is projected to increase by 4-5% this year, further supporting mid-sized rates,” Giveans wrote. But Jefferies still lowered 2023 forecasts for average capesize spot rates by $2,000 to $24,000 per day. His supramax projection moved to $20,000 per day, which was also a $2,000 cut.

The bank lowered both the EPS and spot-rate estimates despite the positive outlook to remain “conservative out of the gate”, Giveans told TradeWinds. Eagle Bulk’s EPS forecast for 2022 took the biggest hit from Jefferies, with a drop to $14.87 from $17.26.

He also noted in the client report that Brazilian iron ore exports were 6% higher during 2021 at 326 MMT and should increase further this year as Brazilian miner Vale ramps production. Despite torrential Brazilian rains disrupting its Minas Gerais mines, Vale expects to dig up 370 MMT of the steel-making commodity this year amid planned capacity growth for its northern and southeastern mining operations. Giveans also pointed to an orderbook-to-fleet ratio of just 6.9%, while Jefferies anticipates that fleet growth will slow to 2% during 2022 and 1% to 2% for the following year.

Clarksons Platou Securities said that shipping equities have risen following stock-market jitters but are still trading at a discount to NAV. “Valuations are still lower than a couple of weeks ago, which could provide an attractive entry point,” the Clarksons investment banking arm wrote on Wednesday.

Giveans said dry bulk stocks typically trade at discount to NAV because of investor skepticism, strained balance sheets and poor capital allocation. “The former will take time to change, and the latter should be mostly resolved as the balance sheets are now in great shape and dividends are being paid,” he told TradeWinds.

Analysts are increasingly confident that liners will smash 2021’s record earnings this year. Consultancy Drewry is predicting container shipping will notch up a combined EBIT of $200bn this year, up from its revised 2021 total of $190bn.

“The smoother earnings forecast rationale stems from a pivot away from the volatile (and likely retreating) spot market towards longer-term contracts that are expected to be signed at much higher levels in upcoming negotiations,” Simon Heaney, senior manager of container research for Drewry, wrote in the company’s latest Container Forecaster report.

Annual contract freight rates this year will be going up by more than 60% on the major routes, when compared with 2021 contract rates, Drewry estimates, allowing for greater profits even as volumes fall. “The pandemic and ensuing supply chain crisis is the primary driver of the supercharged carrier profits and share price bonanza. In simple terms, the longer the congestion lasts, the longer that freight rates and carrier profits will stay extremely high,” Drewry suggested.

Analysts at HSBC, meanwhile, reckon liner shipping will make a $163bn operating profit this year, up 8% year-on-year. “This is mainly driven by strong tailwinds in contract rates fueled by a 77% increase in spot rates (SCFI) in the past 12 months. Shippers and liners are entering into contract negotiations earlier than before. Head-haul (Asia-US, Asia-Europe) long-term rates look set to double or triple from those set last January, according to Xeneta, an analytics platform,” a report published by HSBC today stated.

Belships has fixed another two bulkers on long-term contracts that will commence this quarter. The Oslo-listed owner of supramaxes and ultramaxes has fixed one of its bulkers for 11 to 13 months at a gross rate of $24,800 per day. Another Belships vessel has been chartered out for 21 to 24 months at a gross rate of $21,400 per day. Neither the specific vessels nor their respective charterers were identified.

CEO Lars Christian Skarsgard told TradeWinds that fixing more of the fleet on period employment is of strategic value to Belships. “During the past few months, we have actively sought to secure contract coverage. We think our stock is heavily undervalued and these cash flows efficiently de-risk our earnings proposition and secures our ability to pay out dividends,” he said. “I think we are now one of very few companies that have completed the necessary fleet modernization ahead of new regulations, so we can focus on returning value to shareholders. And these contracts contribute to achieving that.”

Belships said its total contract coverage for 2022 now stands at about 62% at an average daily rate of $22,900 net per vessel. Its fleet of 27 supramax and ultramax bulk carriers have a daily cash breakeven of around $10,500 per vessel. Belships resumed its quarterly distributions to shareholders last year and has paid dividends shareholders for the past two consecutive quarters.

Period deals for supramax and ultramax bulkers have been scant during 2022 so far, but the daily rate for Belships’ one-year contract is roughly in line with the last reported deal. Last week, Copenhagen-based operator Ultrabulk reportedly fixed Suisse-Atlantique’s 60,696-dwt ultramax St-Cergue (built 2017) for 11 to 13 months at a daily rate of $25,000. The vessel was delivered at Leixoes, Portugal last Wednesday and will redeliver in the Atlantic.

During the first week of this month, Eagle Bulk reportedly chartered Ningbo Zrich’s 53,208-dwt supramax Lagrange (built 2008) for three to five months at $25,000 per day from mid-January. Meanwhile, the current supramax spot market is undergoing a seasonal slowdown. Baltic Exchange panelists assessed the weighted-average spot rate for 10 key supramax routes at $19,006 per day on Monday, which is $231 lower than on Friday. The assessment has declined by 22% since January began, less than the decline in rates seen for the larger tonnages.

In the futures market for supramaxes, bids for the calendar year 2022 contract were around the $21,770-per-day level during the day’s trading on Monday. Bidding for 2023 paper was around $16,250 per day.

Costs for shipping goods by container will be higher in 2022 than ever before, even if spot rates soften, according to Xeneta chief analyst, Peter Sand.

Sand opened his weekly rates update with a forecast that container lines’ strong position in negotiations for long term rates and shippers’ desire to secure capacity will lead to fixing higher long-term rates. “This means that even if spot rates soften over the year, the average cost of shipping this year will be higher than ever before,” said Sand.

Fronthaul long-term rates look set to double or triple from those set last January, said Sand, giving the example of average long-term contract rates of $9,300 per feu on the Far East to North Europe route, closer to triple than double their year-ago levels. Long-term backhaul rates have seen more modest increases over the same period, up 12% to $1,300 per feu.

“We are much earlier in negotiations for long-term rates going into the US than for those from the Far East to Europe, but shippers should brace for sharp increases in the rates they are paying. Currently, the Xeneta platform shows that long-term contracts signed in the past three months from the Far East to the US East Coast have gone from $3,700 in January 2021 to $7,000 this year,” said Sand.

Spot rates on the Far East to North Europe and Far East to Mediterranean routes both set record highs, while backhaul rates from North Europe to the Far East eased 5% over last month to $1,300.

Softening transpacific rates for both spot and long-term contracts over recent months have not offset increases over the past year, and rates remain well above pre-pandemic levels.

Bulker markets will prosper this year if the Chinese government continues to intervene to stimulate economic activity and mitigate possible shocks, according to analysts. But Covid-19-related inefficiencies and disruptions will continue to affect bulker markets in 2022. This year has begun with a difficult picture for China, which since mid-2021 has suffered shocks to its real estate and credit sectors, plus energy rationing and emissions controls that have impacted key industries like steel production. China’s economic growth slowed to its lowest rate in 18 months during the fourth quarter of 2021 on the back of defaults in its property sector and slowing consumer activity as new Covid-19 restrictions were adopted. The country’s gross domestic product (GDP) increased by 4% year on year during the final quarter, compared to growth of 6.5% over the same period a year earlier.

But Derek Langston, head of research for shipbroker Simpson Spence Young (SSY), thinks it is possible that the Chinese government could step in this year to stimulate the economy. “There can be no doubting the pressures on credit and the real-estate sector in China, but we are also aware of the potential for some form of stimulus package, should the government deem it necessary,” Langston said in the firm’s outlook report for 2022. SSY expects that fluctuations in China’s coal imports this year are likely to contribute to freight-rate volatility in the Pacific once again. Langston said this month’s coal export ban in Indonesia “is an example of how government intervention can distort trade flows”. Covid-19 will continue to cause disruption to bulker markets in 2022, according to SSY. China has adopted a “zero-Covid” strategy, which SSY expects will pose a risk of disruption to port terminals, should a small-scale outbreak of the illness be detected. Added to that, SSY thinks that restrictions on crew changes and port calls are likely to be extended due to the increased transmissibility of the Omicron variant, which will exacerbate fleet inefficiency in bulker trading patterns this year. But it will be China that will drive the eventual upturn in bulker markets, which Braemar ACM Shipbroking expects “may be on the horizon”.

There are encouraging signs already, despite the prevalent gloom, according to the shipbroker’s research team. For starters, there is the action taken by the Chinese government to stimulate the economy and mitigate any further downside to its property market. Lending restrictions were eased in China on Thursday, lowering both the five- and one-year loan prime rates and granting increased bond issuance to companies under pressure. “These policies typically take time to filter through the economy before tangible results are realized, but if successful, we are likely to see an uptick in import demand for several bulk commodities,” Braemar said in a research report on Thursday.

China last year suffered an energy crunch that peaked in October but has since eased somewhat. Now that the risk of energy shortages has passed, Braemar thinks key industries that are reliant on dry bulk commodities will be able to ramp up their operational capacity again — which should translate to stronger demand for dry cargo shipping. Steel, aluminum, and cement manufacturers have been subject to tighter emissions controls in the run-up to the Winter Olympics in China, which will conclude in mid-February. Several events will be held in Hebei province, China’s single largest province for steelmaking. Braemar said these constraints are likely to be eased once the games are over, helping production to normalize. Chinese crude steel production totaled 86.2 MMT in December, 5.5% lower than a year earlier, according to National Bureau of Statistics figures cited by Braemar. Utilization rates at Chinese steel mills have fallen to 18-month lows. However, December’s steel production was up by 24.4% compared to November and represented the highest monthly output since July. Overall steel production for the full year 2021 fell by 2.2% compared to the previous year, totaling 1.03 BMT.

China’s import ban on Australian coal translated to longer voyages for coal stems last year, as bulkers headed further afield to load in regions like Russia and the US. Braemar said it expects this effect to “may intensify in the coming months following the announcement of the Indonesian coal export ban”. Most miners still have not met their domestic sales obligation, which prohibits these producers from selling their product for export, Braemar noted.

An analyst who has frequently criticized the strategy of Scorpio Tankers management is now accusing the New York-listed owner of conducting a “fire sale” of its LR1 product tanker fleet. The latest client note from Deutsche Bank analyst Amit Mehrotra follows TradeWinds’ report on Wednesday that Scorpio is about to sell all 12 of its LR1s to Oslo-listed Hafnia. Hafnia confirmed “advanced talks” with Scorpio in a stock exchange filing on Thursday. “To be sure, STNG is not doing this from a position of strength, but rather from a position of defence, and it has prospective implications on the earnings power of the company given the sale of assets with among the highest earnings potential over time,” Mehrotra wrote, using Scorpio’s ticker symbol. “Said another way, STNG would be selling about 10% of its fleet in exchange for 3 more months of ‘runway’ on liquidity, by our estimate.”

The tankers – all built in 2016 except for one constructed in 2015 – are estimated to be worth between $30m and $32m each by VesselsValue but could fetch a premium in a surprisingly escalating market for secondhand tanker sales. Clarksons Platou Securities analyst Omar Nokta, speaking at a Capital Link webinar on Wednesday, said the market is moving up fast as a “leading indicator” of an expected rebound in tanker rates from their persistent trough in the year’s second half.

Nokta said on Thursday that if Scorpio does fetch a premium over the $32m figure, it could approach the strongest price for 6-year-old LR1s since 2016, when the average price was $36m. “If they do achieve that type of price, they are selling for values reflective of a strong market,” Nokta told TradeWinds. “The sale-and-purchase market has really picked up over the last four or five weeks. Ships sold at this point are not going to be anywhere near last-done or current assessments.”

Scorpio management has not issued any comment on the impending sales.

Mehrotra is maintaining his “sell” rating on Scorpio, which he has said carries too much debt and might have to resort to a dilutive equity raise to bridge the liquidity gap to a better market. That danger is now averted in the near- to medium-term, he acknowledges, but “this move continues a decade and string of poor timing in asset sales and purchases due to debt problems”.

A group of leading Japanese shipbuilders and the country’s classification society have completed a design for an ammonia-fueled panamax bulk carrier. The design has been granted approval in principle from classification society ClassNK based on its safety guidelines for ammonia-fueled vessels. The project has come together under the Tokyo-based Panning and Design Centre for Greener Ships.

The organization has brought together 11 leading shipbuilders, and ClassNK, to combine their knowledge to develop the green low emission ships of the future. The yard group participants are Imabari Shipbuilding, Onomichi Dockyard, Oshima Shipbuilding, Sumitomo Heavy Industries, Mitsui E&S Group, Mitsubishi Heavy Industries, Shin Kurushima Sanoyas Shipbuilding, Shin Kurushima Dockyard, Namura Shipbuilding, Japan Marine United and Naikai Shipbuilding.

The 80,400-dwt bulker design comes fitted with two 2,500-cbm ammonia fuel tanks and has a service speed of 14.2 knots. The Planning and Design Centre for Greener Ships sees zero-carbon emission ammonia as the next generation fuel after LNG, which is the current focus on Japanese investment in low emission shipping. The country’s first ammonia ship could soon be built.

Trading house Sumitomo Corp recently announced its intention to build and trade an ammonia-fueled panamax by 2025. It is working with Oshima Shipbuilding on the project.

As earlier reported by TradeWinds Japanese shipowners Mitsui OSK Lines, NYK Line and K Line are all pushing forward separate projects to put ammonia-fueled ships into operation within this decade.

Train crashes and fires have not prevented Russian steam coal exports jumping by almost 10% in the first 10 months of 2021, according to a top shipbroker. Between January and October volumes leaving the country rose by 13.9 MMT year-on-year in to 164.1 MMT, said Simpson Spence Young (SSY). However, the world’s largest independent shipbroker said latest government data indicated a “slower pace of shipments” in the final two months of the year.

SSY said growth was achieved despite rail capacity constraints and disruption to exports caused by a railway bridge collapse in July, a collision between two trains affecting output from the 7 million tonnes per annum (mtpa) Elga coking coal mine in the country’s Far East also in July and a fire at Vanino also in the Far East in October. Significantly for capesize tonne-mile demand, this included growth in fronthaul coal shipments from Russia’s Black Sea terminal of Taman. Liftings rose from just six in 2020 to 61 in 2021, vessel tracking shows coal railings to Russia’s Black Sea and Azov Sea terminals almost doubled year-on-year in 2021 to 31.4 MMT, according to official data.

“Russian exporters were major beneficiaries of China’s aversion to Australian coal with exports to China up 15.1 MMT to 45.6 MMT over January-November,” said SSY. “In addition to shipments from Russia’s Pacific coast, the number of Taman-to-China capesize liftings surged from just one in 2020 to 28 in 2021. There was also strong growth in shipments to India and South Korea.” However, SSY said the development of the Taman terminal also has negative implications for capesize demand as the expansion in short haul shipments to Turkey, up from five in 2020 to 10 last year, threatens trans-Atlantic trade from Colombia. SSY said prospects for further growth from Taman were boosted in October 2021 with the inauguration of a new line for loading coal at the port with a capacity of 8,000 tonnes per hour.

Russian coal production increased by 9% year-on-year in 2021 to 436.6 MMT, and several new projects should add to future production capacity. According to the International Energy Agency (IEA), 21.3 MMT of new Russian coal mining capacity is under construction or been approved, while a further 41.2 MMT is at the feasibility or environmental approval stage. SSY said steps are also being taken to upgrade export infrastructure, with a particular focus on growth markets in Asia. Just under 65%, or 106.4 MMT, of Russia’s seaborne coal exports were to Asian destinations in the January-November 2021 period, the shipbroker said.

Expansions in capacity totaling a combined 58 mtpa are planned for the Port of Vanino by 2024, according to the IEA. There are also plans to construct a 17 mtpa coal terminal at Vostochny and a 25 mtpa coal terminal at Vladivostok. However, SSY said both would require rail infrastructure upgrades to reach their nameplate capacity.

Meanwhile, reduced sea ice is encouraging development of Russia’s northern coast. SSY said construction of the seven mtpa Yenisei Port on the Taimyr Peninsula is due for completion in 2023, while nearby Port Dikson is being upgraded with a new 10 mtpa coal terminal. Finally, the new 18 mtpa Lavna coal terminal near Murmansk is scheduled to begin operations in 2024. Significant investment is also being made in rail infrastructure to supply these new and expanded terminals. However, SSY said the approval of a new 1,000 km rail link from Eastern Russia to China in March 2021 would likely be a negative for seaborne trade should construction go ahead.