Shiping Q1: Asia Pacific dry freight market stutters after promising start - Platts

The story of the Asia Pacific dry bulk markets for 2018 has been that of a promising start, but a shaky entry into the second quarter and a hopeful medium term, based on the trends that emerged from Q1.

Almost all the segments of the dry bulk market -- Capesize, Panamax, Supramax and Handysize -- started the year on a very steady note. However, towards the end of Q1, the market started to lose momentum with the rates seeing a mini-collapse.

CAPESIZE -- THE RISE AND FALL

Despite a rather positive start to the year, Asia Pacific and Atlantic Capesize freight rates trended downwards during Q1. While cargo volumes in the Asia Pacific region remained healthy, the dearth of cargoes and oversupply of tonnage in the Atlantic region was one of the major factors weakening the market as a whole. This has seen shipowners opting for short-haul voyages, mainly out of Australia.

"At current levels, there aren't many owners who are willing to consider ballasting their vessels to the Atlantic -- with the transatlantic rates being so depressed, Brazil is the only real option, but the freight rates for even that route has reduced," a ship-operating source tracking the Capesize market said.

The source added that given the circumstances, owners are leaning towards fixing their vessels on short voyages, which have added more pressure on the Pacific market, leading to the fall in freight levels.

Participants have mixed views on the Capesize market's outlook. Some of them continue to remain bullish due to the healthy demand for the period business, which involves charterers locking-in vessels for a sizable duration.

"When Capesize rates come back with the seasonal uplift, all rates will see a benefit," Robert Bugbee, president of Scorpio Bulkers, said at a dry bulk shipping roundtable organized recently in the US by Morgan Stanley.

Bugbee added that Capesize rates are expected to reach $50,000/day within this year.

At the same time, those who are bearish think that the lower commodity prices and the weak market fundamentals, especially in the Atlantic region, will continue to pressure the market.

Q1 was relatively stable compared with the same period during 2017. The key Port Hedland, Western Australia, to Qingdao, China, Capesize route saw a minimum of $6,358/day and a maximum of $14,806/day as per Platts' time charter equivalent, or TCE, assessments in 2018 so far, compared to a minimum of minus $485/day and a high of $18,094/day in 2017.

On the other main Capesize routes, too, Q1 2018 performed better with routes such as Tubarao to Qingdao registering between $8,997/day to $16,216/day versus $2,884/day to $18,754/day in Q1 2017.

PANAMAX: GRAIN DEMAND IS THE KEY

The Asia Pacific Panamax freight rates generally trended higher through Q1 2018. While demand within the Pacific region was flat through the past quarter except for a short spike in China's coal demand during January, the robust grain trade out of east coast South America, or ECSA, was a key driver for this segment.

This encouraged many owners to ballast their ships from the Asia Pacific into the Atlantic, which helped restrict tonnage supply in the eastern hemisphere and boosted freight levels.

The jostling by ship-operators to take vessels on short period had created a strong floor for the rates. Most of these vessels fixed on period were directed to ECSA to load grains.

Looking ahead, demand from coal is not expected to increase substantially into China or India. Also, the low Capesize freight rates have encouraged charterers to combine Panamax cargoes on the Capesize vessels where possible.

The mainstay for the Panamax segment will continue to be the grain cargoes out of ECSA, the Black Sea and the North Pacific to sustain the rates that were seen during Q1 2018.

SUPRAMAX -- NO COAL COMFORT

The Supramax market in the Asia Pacific remained buoyant through Q1 2018, finding support due to a combination of factors, such as strong Chinese demand for seaborne coal during January and first-half February, and congestions at some Chinese ports, Bangladesh's Chittagong port and India's Haldia port.

The healthy demand from clinker and nickel ore cargoes towards the end of the quarter, as well as vessels ballasting out of the region to grain cargoes, helped strengthen the Supramax market.

While demand for moving coal cargoes to China has dropped since the Lunar New Year, cargoes like clinker and nickel ore are expected to lend support going into the next quarter.

The TCE for a 57,000 dwt vessel, delivered at Singapore to do a trip via South Kalimantan to east coast India, averaged close to $14,200/d in March compared to $11,405/d during the same period last year.

The uptick in the number of coal cargoes moving towards India compared with China suggests that tonnage continued to drain away from the Pacific towards the Indian Ocean. The burgeoning demand to move limestone and petcoke out of the Persian Gulf has increased employment opportunities for Supramax vessels.

--Andrew Khaw, andrew.khaw@spglobal.com

--Shriram Sivaramakrishnan, shriram.sivaramakrishnan.com

--Edited by Geetha Narayanasamy, geetha.narayanasamy@spglobal.com

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