Newbuilding orders for bulk carriers have slowed, tanker charter rates have shown little improvement, and newbuilding prices for container ships have almost recovered to the levels of 2008 before the financial crisis. Let's review the performance of various ship types last quarter and the forecast for the latest quarter!
The overall newbuilding order momentum remained strong in the third quarter, but total tonnage was lower than in the first and second quarters.
So far in 2021, container ship newbuilding orders are second only to the high of 2007. Newbuilding orders for bulk carriers and tankers have slowed since the third quarter, especially in the tanker market.
The high newbuilding prices for container ships have also pushed up the construction costs of other ship types. Of course, persistently high steel prices and the easing of the pandemic are also factors.
However, it is expected that by next year, the newbuilding order boom in the container ship sector will cool rapidly, coupled with an expected decline in steel prices. Overall, 2022 will show a downward trend.
The trajectory of the COVID-19 pandemic and its impact on global trade remain the main factors influencing the future market.
The rising credit risk in China's real estate sector, as well as greenhouse gas emission reduction targets, will bring more uncertainty to the outlook for the ship market.
Before the new regulations of the International Maritime Organization (IMO) on the Ship Energy Efficiency Index(EEXI) and Carbon Intensity Indicator (CII) take effect in 2023, investors and shipowners may adopt a cautious strategy.
Dry bulk carriers: red-hot
The rally in the bulk market is mainly related to global shipping constraints, including COVID-19 prevention measures, and the recent rebound in commodity demand.
Capesize bulk carrier charter rates continued to strengthen last quarter. The daily charter rate for this type of bulk carrier increased from $30,000 in July to $63,000 in September. Such positive earnings trends have also extended to other bulk carrier types.
Panamax bulk carrier daily charter rates have stabilized at around $32,000, while Supramax and Handysize bulk carriers have reached $36,000 and $31,000 respectively.
Due to continued production cuts in China's steel industry, steel output from July to August this year decreased by 10% compared with the same period last year. We expect domestic steel demand to remain weak in the fourth quarter. Demand for construction steel from China's urbanization process may have peaked.
However, economic stimulus packages in Western countries are expected to revive iron ore demand, and prices are expected to rise.
As winter approaches, China's electricity consumption is bound to grow. At the same time, as the domestic coal mining industry advances safety production reforms and eliminates outdated capacity, import quotas may be relaxed, leading to increased import volumes and thus driving coal prices up sharply.
As for grains, soybeans and other minor bulk trades, they will drive growth in cargo volume and nautical mile demand over the next two years, and are expected to contribute a 4.8% increase this year, In 2022, it was 5.3%.
Newbuilding order volume has now grown to 6.5% of the global fleet. However, due to slow fleet growth and constrained supply and demand, capacity supply is expected to grow by an average of 2% per year over the next four years.
As the supply shortage may persist into 2023, the dry bulk shipping market balance is expected to tighten and push freight rates higher.
Tankers: A slow recovery in freight rates In the third quarter, recovering demand for crude oil and refined products led to declines in both inventories, while production faced challenges from hurricanes such as Ida. Amid the dual impact of disrupted production and high oil prices, market rumors suggest that OPEC (OPEC) may accelerate its production increases, which were originally planned at 400,000 barrels per day. Tanker earnings are expected to increase somewhat, but growth in tanker supply will slow the pace of the freight rate recovery. The average benchmark spot tanker earnings in 2021 will be the lowest level in 20 years, reflecting the severe impact of the COVID-19 pandemic and OPEC production cuts on the industry. Newbuilding orders in the third quarter of this year were at their lowest level since 2011, signaling some positive trends for the future capacity supply-demand balance. If OPEC (OPEC) does not raise its planned production increases, the near-term upside in the tanker market will be somewhat limited. To achieve the 2023 greenhouse gas emission reduction targets, reducing vessel speed will be the most mainstream method of emission reduction. This will affect the effective total trading capacity of the global fleet. From the end of this year through 2022, the tanker market is expected to recover strongly from its 2020 trough, in line with the recovery in global liquid trade and post-pandemic growth in fuel demand.
Container ships: A surge in newbuilding orders
Affected by port congestion in Europe and the United States, supply chain disruptions and COVID-19 restrictions in Asia, freight rates reached unprecedented highs last quarter.
In September, the daily charter rate for a 6500 TEU container ship reached USD 100,000, up 248% since the start of this year.
With limited vessels available in the short term, many charterers are actively seeking longer-term charters, which may prolong the tightening of the market supply-demand balance.
Before the decline in winter consumer goods trade volumes, supply chain disruptions and port congestion will continue to constrain capacity supply, so container ship charter rates may only begin to level off in 2022.
US imports in the fourth quarter are expected to approach recent record highs. With container demand expected to increase by about 12% in the spring, the peak in freight rates is approaching. Later, in 2022, as supply chain issues are resolved, we expect freight rates to begin to fall back as well.
It is expected that from 2022-2024, container ship demand will maintain healthy and steady growth, with an average annual increase of about 3.5%.
Currently, newbuilding orders for container ships account for 17% of the total fleet, the highest level since 2008.
Shipbreaking volumes are naturally remaining at low levels for now, but as the market returns to normal and new regulations take effect, shipbreaking activity may pick up.
For container ships, we have lowered our outlook for 2023 to 2025, reflecting the potential impact of new ships entering the market from 2023.
LPG carriers: steady demand Weak US liquefied petroleum gas (LPG) exports have pushed very large gas carrier (VLGC) charter rates down to USD 765,000 per month. Although charter rates showed initial signs of recovery in August, production was affected by Hurricane Ida, and rates fell to USD 630,000 per month at one point in September. As for the Middle East, export growth has been slow and therefore has not been able to offset in time the impact of the reduction in US export volumes. In 2022, LPG exports from the US and the Middle East will rise, with expected increases of 2.2% and 5% respectively. Similarly, in this quarter, LPG exports from the US and the Middle East are also expected to rise. Asia will remain the main destination for LPG exports, but risks from price volatility and trade disruptions remain, especially as winter approaches and natural gas prices remain high. Demand for ammonia is expected to strengthen in Asia, Africa, Europe and South America; however, high natural gas prices may hinder domestic ammonia production in various countries. In recent years, China has continued to invest in building ethylene and propylene production capacity to achieve self-sufficiency. South Korea, Malaysia, Vietnam and other countries are expected to follow suit. Despite the rapid expansion of capacity in Asia, US-produced materials will continue to flow to Europe and Asia to alleviate the structural supply shortages of these two hydrocarbons in those regions. In 2023 and 2024, VLGC growth will increase substantially, which may weigh on demand growth and depress expected earnings. Medium-sized gas carriers will face a similar situation. For smaller vessel types, fleet growth is more moderate, allowing for greater profitability.
