In what can only be seen as a worrying sign of things to come, shipbroker Gibson reports that VLCC orders this year have more than tripled, compared to those of the whole of 2016. The London-based shipbroker said in its latest weekly report that “back at the beginning of May, our weekly report focused on the accelerating pace of orders, in particular demand for VLCC tonnage. Two months later we are reporting 20 more fresh VLCC orders, in addition to those placed between January and April. The total count of VLCC orders placed in the first six months of this year reached 38 compared to just 13 in the whole of 2016. We are also aware of several owners circling around the issue, either to order speculative tonnage or direct replacements for their elder units which will certainly add to the recent melee. The pace of VLCC ordering prompted Bimco last week to warn of a potential “fundamental imbalance that would take years to overcome”. Furthermore, we have seen 16 Suezmaxes ordered this year compared to 18 in the whole of last year”.
According to Gibson, “orders for Aframaxes which are at 35 so far this year (6 in 2016) and LR2s at 12 (2 in 2016) indicate that ordering activity has heated up quickly. Similarly, orders for MRs have already overhauled last year’s total of 30. Almost half of all orders this year have been placed in June alone. Delivery dates for these orders indicate that only a few slots are available for late 2018 delivery, suggesting that shipbuilders are rapidly filling their forward orderbook. Price is still a driver, but the influx of new orders appears to have applied the brakes to the downward spiral of newbuild prices of recent times. Owners may also be betting on the potential recovery of the tanker market by placing orders for 2019/20 delivery in anticipation of a rising freight market. The latest deliberations at the IMO on ballast water is unlikely to have any real impact on newbuilding orders unless you require tonnage for US trade. With the US regulators operating a different regime outside of the IMO coupled with the Tier III requirements, some owners will be paying a higher newbuild price to comply. It appears that the US authorities are beginning to toughen up ballast water waivers since they started approving systems. The IMO has agreed to extend the deadline, this potentially could lead to slower pace of tanker scrapping in years ahead”.
Gibson added that “however, perhaps the most interesting development in June was the announcement by Trafigura to order up to 32 crude and product tankers, with a potential value in excess of $1.35 billion. Contracts were reported to have been placed by China’s Bank of Communications Financial Leasing against bareboat charters to Trafigura who are believed to have purchase options. Official confirmation of the initial 22 (Suezmaxes, Aframaxes & MRs) split between Hyundai and New Times remains sketchy and some of the finer details relating to this order remain unreported. Cido Shipping also seem to favour the products market, having recently announced changing an order for two car carriers in to MR tankers. The two vessels involved were originally ordered in September 2015 and as such are not recorded as fresh orders, adding to a swelling tanker orderbook”.
The shipbroker concluded that “most recent orders placed are for ‘blue chip companies’ who appear to have access to huge lines of credit or have been very creative with their funding. Lack of ‘easy money’ is something which has kept a lid on ordering in the recent past. Referring back to our May report “only those with strong financial muscle are likely to be in a position to capitalise”. There appear to be quite a few out there”.
Meanwhile, in the crude tanker market this week, Gibson said that there was “steady VLCC fixing through the week, but no pinch points in availability to allow Owners to lever the market higher than their previous low ws 50 East, mid ws 20’s West marks. The final phase of the July programme is now being played out and the end month does sometimes provide opportunity, but the odds of anything noticeable developing look poor as things currently stand. Suezmaxes moved through a reasonably active phase and premiums for Kharg loading did stretch to over 10 ws points, though the bulk of enquiry was quite easily satisfied by supply and rates bumped against at ceiling of ws 70 to the East and mid ws 20’s to the West. Aframaxes couldn’t find any relief from downward pressure, but did continue to make a stand at around 80,000mt by ws 90 to Singapore nonetheless. more resistance will be required next week too”, it concluded.
When it rains, it pours, as labor disputes are putting increased pressure on the automobile manufacturing and shipbuilding industries already sagging underneath the weight of slowing sales.
The industry giants currently involved in labor negotiations include Hyundai Motor, Kia Motors and GM Korea, while Hyundai Heavy Industries, the world’s largest shipbuilding company, is also embroiled in its own dispute with its labor union.
The issues that are being debated during the negotiations are diverse and run the gamut from salary to production quotas for manufacturing centers. The negotiations show no sign of cooling down, with both sides seemingly digging in their heels, despite some hope that common ground can be found before the height of summer.
An industry expert said on the general situation that “we very well might see strikes across the industry from July through August.”
For GM Korea’s labor union, the demands are for improved working conditions and establishing production quotas per factory. This is in response to the company’s attempts to placate the union with offers of financial compensation that have so far gone rejected. Reports indicate that the union is holding an internal vote on whether it will go on strike.
Industry rivals Kia and Hyundai are negotiating with their own unions over salary issues and working conditions, respectively. For Kia, neither side has so far agreed to compromise on the demands for higher or lower salary levels.
For Hyundai, the union is facing an unsympathetic management with its demands for changes to policies for layoffs, rehires and compensation.
Hyundai Heavy Industries already faced small-scale strikes at its production facilities last month, as it navigates an increasingly harsh economic climate. Faced with a near saturated global market, Hyundai has responded to dwindling demand by closing down its manufacturing center in Gunsan.
The company is in such dire straits that it reportedly is requesting that employees “return” 20 percent of their wages to ensure its survival, a request that was rejected by the union. As in the automobile industry, the standoff between labor and management shows no signs of abatement.
Weak supply side fundamentals as well as a seasonal lull in demand are expected to plague the Asian crude tanker market in the third quarter of 2017, the Ocean Freight Exchange (OFE) informed.
A more worrying trend is that, according to BIMCO, very large crude carrier (VLCC) orders between January and May this year hit their highest level in 9 years on the back of low newbuilding prices, which could delay a potential recovery in rates.
Rates for the benchmark AG/ Japan route have tumbled from w97.5 at the beginning of the year to current levels of w51, OFE said, adding that rates have been languishing at w50 to w52 for a month as the battle between handicapped vessels and modern tonnage rages on. A recent uptick in interest for short-term time charters for floating storage failed to move rates upwards.
On the demand side, the extension of the OPEC production cuts “remains a thorn in the side of the Asian VLCC market,” further compounded by the seasonal summer lull. OFE suggests that a boost in ton-mile demand due to more long-haul trades from the Americas “may offer some temporary respite to falling rates.”
“It is unlikely that we will see a substantial recovery in rates before end-September, when a pick-up in winter demand takes place,” according to the organization.
While the market was counting on the upcoming IMO Ballast Water Management Convention on September 8 to raise scrapping activity, the ongoing Marine Environment Protection Committee (MEPC 71) in London is currently discussing the possibility of a partial two-year delay.
Additionally, the Suezmax sector in Asia “is likely to continue to be weighed down by lower exports from Iran and Iraq in Q3.”
OFE concluded that the Asian Aframax segment is also expected to remain in the doldrums due to lower exports from Kozmino.
Weak supply side fundamentals as well as a seasonal lull in demand are expected to plague the Asian crude tanker market in Q3 2017. The pace of newbuild deliveries continues to be relentless while scrapping remains miminal. A more worrying trend is that according to BIMCO, VLCC orders between January and May this year hit their highest level in 9 years on the back of low newbuilding prices, which could delay a potential recovery in rates. The effect of tonnage oversupply has been clearly felt in the VLCC market. Rates for the benchmark AG/ Japan route have tumbled from w97.5 at the beginning of the year to current levels of w51. Rates have been languishing at w50 to w52 for a month as the battle between handicapped (newbuilds, ex-dry dock and old) vessels and modern tonnage rages on. A recent uptick in interest for short-term time charters for floating storage failed to move rates upwards.
On the demand side, the extension of the OPEC production cuts remains a thorn in the side of the Asian VLCC market, further compounded by the seasonal summer lull. A boost in ton-mile demand due to more long-haul trades from the Americas may offer some temporary respite to falling rates. The Brent premium to WTI widened recently to around $2.50/bbl, opening the arb for US crude exports to Asia which was previously unworkable. The release of China’s second batch of crude import quotas may also lend support to its previously flagging appetite for WAF crude. It is unlikely that we will see a substantial recovery in rates before end-September, when a pick-up in winter demand takes place. While the market was counting on the upcoming IMO Ballast Water Management Convention on September 8 to raise scrapping activity, the ongoing Marine Environment Protection Committee (MEPC 71) in London is currently discussing the possibility of a partial two-year delay.
The beleaguered Suezmax sector in Asia is likely to continue to be weighed down by lower exports from Iran and Iraq in Q3. Iranian crude exports averaged 1.83 mmb/d in Q2, down by 20.5% from Q1. As reported by Reuters, Iranian crude exports in July are expected to drop by 7% m-o-m to 1.86 mmb/d. Iraq’s Basra crude exports averaged 3.22 mmb/d over Q2, down by 8.5% from December’s record high of 3.5 mmb/d. While no official July Basra program was released, loadings are expected to be lower than recent months. A potential pick-up in the WAF market on the back of higher exports from Nigeria may attract more ballasters from the East, helping to reduce the tonnage surplus. Similarly, the Asian Aframax segment is expected to remain in the doldrums due to lower exports from Kozmino. ESPO Blend exports from Kozmino are expected to fall by 2.6% from Q2 to 2.6 mmt.
The Singapore Shipping Association (SSA) is forming a new marine fuels committee in an effort to prepare Singapore’s bunkering sector for the 0.5% global sulphur cap and the rise of LNG as a marine fuel.
“Bunkering has always been a very important segment of our industry, and issues relating to bunker and marine fuels in general have grown increasingly complex,” Esben Poulsson, SSA President, said.
“As such, in the anticipation that owners will take an increasing interest in what their ships consume, we have formed the Marine Fuels Committee to help ensure that our members will be well-prepared for the future. The Committee will be chaired by SSA Councillor, Ms. Caroline Yang,” Poulsson added.
The committee, which will also address operational issues relating to bunkering operations, was formed on the back of a continuous growth of bunker sales in Singapore which reached a record 48.5 million tonnes in 2016.
This has been accompanied by the introduction of new initiatives and techniques, such as the mandatory use of mass flow meters for bunker deliveries at the start of 2017.
SSA said that there has also been increasing interest in the field of marine fuels in general, including the use of alternatives such as LNG. This is due in large part to commercial and regulatory interest in issues such as the pending 0.5% sulphur cap, which will come into force in 2020, and the increasing interest in fuel consumption for ships, and how it might impact their CO2 emissions.
The Baltic Exchange’s main sea freight index, tracking rates for ships carrying dry bulk commodities, slipped for the fifth straight session on Wednesday, hurt by lower rates for larger vessels and supramax.
The overall index, which factors in rates for capesize, panamax, supramax and handysize shipping vessels, was down 24 points, or 2.76 percent, at 847 points.
The capesize index lost 96 points, or 9.63 percent, at 901 points.
Average daily earnings for capesizes, which typically transport 150,000-tonne cargoes such as iron ore and coal, were down $789 to $7,264.
The panamax index was down 2 points, or 0.19 percent, at 1,060 points.
Average daily earnings for panamaxes, which usually carry coal or grain cargoes of about 60,000 to 70,000 tonnes, decreased $16 to $8,496.
Among smaller vessels, the supramax index fell 5 points to 742 points, while the handysize index was flat at 470 points.
Stocks of South Korean shipyards, led by Hyundai Heavy Industries Co., suffered losses in the past few weeks due to a fall in global oil prices, with analysts remaining divided Tuesday on whether they will build up further gains down the road on the back of a recovery in the sector.
Hyundai Heavy traded at 175,000 won (US$152) on the Seoul bourse as of 10:20 a.m., unchanged from the previous session’s close, but the quotation marks a drop from its yearly high of 187,500 won.
Samsung Heavy Industries Co., another major shipyard here, has gained some 15 percent in the past three months. The shipyard traded at 12,700 won on the Seoul bourse, after hitting a 52-week high of 13,800 won in mid-June.
Hyundai Mipo Dockyard Co., a unit of Hyundai Heavy, has gained the most rising some 22 percent over the cited period. The company traded at 112,000 won, a drop from its yearly high of 121,000 won.
“The issue of an oil supply glut may be addressed in 2025, and South Korean shipbuilders are positioned to benefit from a rise in demand for oil products because they have an edge in building tankers,” said Park Moo-hyun, an analyst at Hana Financial Investment.
Earlier data showed that local shipyards are estimated to have clinched a third of new shipbuilding orders in the first half of the year, with their combined tally more than doubling from a year earlier.
Hyundai Heavy and other local shipyards have bagged orders worth a combined 2.56 million compensated gross tons (CGTs) in the January-June period, accounting for 34 percent of the total orders placed around the globe, according to the data compiled by industry tracker Clarkson Research.
It marked the first time since 2012 that South Korea was in the top slot in terms of new orders.
The new orders mostly centered around oil tankers and LNG carriers.
Lee Bong-jin, an analyst at Hanwha Investment & Securities, said that local shipyards may stage a rally on the hopes for a recovery in the global shipbuilding segment, but the increase in new orders were mainly due to a base effect.
“Rather than a recovery in new orders, it would be more correct to attribute it to a base effect,” Lee said. The analyst said the accumulated orders in the first five months of the year are 63 percent off the average seen between 2011 and 2015.
“The sticky issue is that a surge in global trade is unlikely without a jump in oil prices,” he said.
It has been found that South Korean shipbuilders obtained 34% of new shipbuilding contracts in the first half of this year to rise back to the top. Until June 28 from the beginning of this year, they signed contracts equivalent to 2.56 million CGT in total, more than doubling the figure from the same period of last year.
Chinese shipbuilders overtook them in 2012. However, South Korean shipbuilders are likely to turn the tables this year as they are expected to conclude a number of contracts in the second half as well. In addition, STX Offshore & Shipbuilding is scheduled to resume its business in the second half. This company, which went into receivership in April last year, recently obtained a new contract for four 11,000-ton tankers.
Among the three largest South Korean shipbuilders, the Hyundai Heavy Industries Group led the positive growth in the first half. The group’s three shipbuilders – Hyundai Heavy Industries, Hyundai Samho Heavy Industries, and Hyundai Mipo Dockyard – signed contracts for no less than 72 ships worth a total of US$4.2 billion in the first half of this year alone, boosting the figures by 59 and US$3.2 billion from a year ago, respectively.
Samsung Heavy Industries obtained new contracts for 13 ships (US$4.8 billion) during the period, including one floating oil production platform and one floating LNG production facility. The contracts for these offshore plants have a combined value of US$3.77 billion. Daewoo Shipbuilding & Marine Engineering scored seven and US$770 million.
Singapore-listed Yangzijiang Shipbuilding (Holdings) has bagged six effective orders in the second quarter of 2017 totaling in USD 133 million, the company said in a stock exchange filing on Monday.
The six contracts include three 1,800 TEU boxships that were exercised from the existing options, while the remaining three are new shipbuilding contracts for 82,000 DWT bulk carriers.
As the new ships are scheduled to be delivered between 2018 and 2020, therefore they will not have any significant impact on the earnings of the company for the financial year ending 31 December 2017, the filing further reads.
Yangzijiang Shipbuilding said that, year to date, it has secured a total of nineteen shipbuilding contracts with an aggregate value of USD 450 million.
In addition, the existing contracts include nine outstanding options for one 6,500 DWT ConRo Vessel, two 62,000 DWT bulk carriers, three 1,800 TEU containerships and three 29,800 DWT self-unloading vessels to be exercised.
The first half of 2017 saw a total of 87 incidents reported to the IMB Piracy Reporting Centre compared with 97 for the same period last year, indicating a continuing decline in the number of reported incidents of maritime piracy and armed robbery against ships.
Recording some of the lowest figures seen in the last five-year period, the latest piracy report shows that in the first six-months of 2017, 63 vessels were boarded, 12 fired upon, four were hijacked and attacks were attempted on another eight vessels. A total of 63 crew have been taken hostage so far, this year while 41 have been kidnapped from their vessels, three injured and two killed.
However, IMB noted that the encouraging downward trend has been marred however by the hijacking of a small Thai product tanker en route from Singapore to Songkhla, Thailand. The hijacking, at the end of June, was conducted by six heavily armed pirates who transferred 1,500 MT of gas oil to another vessel. The incident followed a similar pattern to a series of product tanker hijackings in the region which occurred approximately every two weeks between April 2014 and August 2015.
“To prevent criminal gangs carrying out attacks on other product tankers, the IMB PRC is calling on Malaysian and Indonesian authorities to take robust action, in the same vein as their response which brought perpetrators of the previous spate of attacks to justice,” said Pottengal Mukundan, Director, IMB.
Cooperation between Indonesia, Malaysia and Philippines has been recognised as the fundamental reason for the overall decline in the number of reported incidents in and around the Philippines – from nine cases recorded in the first quarter of the year to just four cases in the second quarter. Overall, the number of mainly low-level attacks off Indonesia has also decreased from 24 in 2016 to 19 in 2017.
Somali pirates remain threat to merchant ships
The hijacking of an Indian dhow in early April was one of five incidents off Somalia reported in the second quarter of 2017. Added to a further three reports of vessels coming under fire and a bulk carrier being boarded by pirates in the Gulf of Aden, the incident reveals that Somali pirates still retain the skills and capacity to attack merchant ships far from coastal waters.
Pirates in Nigeria continue to dominate when it comes to reports of kidnappings. So far, this year they have been responsible for the abduction of 31 crew in five reported incidents. The numbers include 14 crew members taken from two separate vessels in the second quarter of the year.
Violence against crews continues with half of all reports of vessels being fired upon coming from Nigeria.
Recognizing the need to get a clearer understanding of the depth of under reporting in the Gulf of Guinea region the IMB, in association with Oceans Beyond Piracy, has proposed the idea of a ‘Community of Reporting’ – a project aimed at encouraging all stakeholders to share reports of piracy and armed robbery with the IMB.