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China’s economy still struggles

China’s economy still struggles to support the real estate market & the property sector. Almost one year has passed since the high-profile collapse of Evergrande, the world’s most-indebted developer and the Chinese property sector still is being rattled by a liquidity crisis. The recent victim is the Chinese property developer Country Garden which estimated that first-half profits fell as much as 70 per cent in the first half of the year, as the country’s largest real estate group by sales was drawn into a crisis that has raged through the heavily indebted sector. Beijing has sought to revive the sector with refinancing loans and China’s economic planners have for months been moving to unwind efforts to deleverage the sector and encourage people to buy new houses while China’s central bankers have eased lending rules and cut interest rates (today the People's Bank of China lowered its key loan prime rates, the second reduction this year) in a bid to combat the downturn. But all these measures proved to be less than enough. The on-going real estate & property sector crisis, supported by the continued industrial production lock downs to fight Omicron variant spread and the energy surge are the main reasons that China’s steel production stays lower than expected. China’s steel output has fallen over 5%, to 106m tonnes for July y-o-y and the iron ore imports are down almost 4% for the same period. Especially, iron ore imports from Brazil have dropped around 6% during the same time frame while the demand for iron and coal from Australia is also reduced. These events put a lot of pressure on the cape market. On the 18th of August BCI dropped about 20% while the index has fallen 74% on a monthly basis. On the contrary, BPI has fallen by 11% m-o-m and BSI and BHSI have fallen 15% and 20% respectively. Is the condition irreversible? Probably not as China sooner or later will have to deal more aggressively with the crisis in the real estate & property sector and industrial production has already started to return to normal levels as the lockdowns have stopped. The EU’s ban on Russian coal will also be an assist, as EU importers will need to source supply from further afield which could be positive for capesize tonne-mile demand.

As the dry market is on a midsummer night’s dream, the “dirty” wet market keeps the fire burning. The BDTI index is on the highest spot since 21st April 2022, at 1,554 points mark, a 8% increase on a monthly basis, while on the “clean” side of the market the BCTI is 1% lower on a monthly base at 1,314 points. Oil exports from Iran increased in June and July, and analysts tracking the flows said the country could increase them even further this month by offering a deeper discount to Russian crude for its main buyer, China. During President Joe Biden's term, Iran increased oil exports, largely to China. However, shipments have slowed recently due to Russian crude competition. In addition to high oil prices, if talks to revive a nuclear deal succeed, Iran could boost sales beyond China to former buyers in Japan, South Korea and Europe as they are searching for alternative sources to Russian oil. Oil products exports have also been rising and market analysts estimate Iran exported around 790,000 bpd of products in June and expects shipments to reach close to 1 million bpd by the fourth quarter. Moving from Middle East to South America, Venezuela’s oil output and exports have receded following a series of operational setbacks, while recently renewed shipments to Europe have been reportedly halted. Caracas’ oil operations were affected by mechanical disruptions caused by alleged attacks against oil facilities. On 16th of July, a natural gas pipeline explosion and a power outage interrupted PDVSA’s supply to its main crude production and export hub, the José Antonio Anzoátegui industrial complex in eastern Venezuela. Venezuela's oil prospects got another boost following the restoration of crude imports from the Latin American country to Europe as the US Treasury Department granted limited licenses to Italy’s Eni and Spain’s Repsol to implement oil-for-debt swap deals with Caracas.

Despite the energy crisis, and many countries’ turning back to the use of coal and oil, shipping industry remains committed to its goal of zero emission. A.P. Moller - Maersk has signed an agreement with Debo Energy in China to supply green methanol as fuel for its containerships in South Korea. Debo Energy plans to begin commercial production of green methanol in September 2024, with a purchase of 200,000 tons annually from the Danish company. Additionally, ABS has been awarded a contract to investigate barriers to adopting advanced nuclear propulsion on commercial vessels by the U.S. Department of Energy. According to ABS, the scope of the research project will address the challenges of adopting new reactor technology in commercial maritime applications and develop an industry advisory on the commercial use of modern nuclear power.

Sale and Purchase:

Dry cargo S&P activity was subdued for one more week with only few sales to report. Following previous week’s Diana’s shipping announcement for 9x Ultramaxes acquisitions, the company now has entered into two sale & leaseback agreements in the Capesize sector. The “New Orleans” - 181K/2015 SWS & the “Santa Barbara” - 179K/2015 Qingdao Beihai sold for a total of USD 66.4 mills to two different Japanese buyers. Diana Shipping will bareboat charter back the vessels for a period of eight years and have purchase options beginning at the end of the third year of their bareboat charter period.

The wet S&P activity maintains momentum with Suezmax sector playing a major role as more than half of this week’s sales were included in that sector. On the VLCC sector, the BWTS & Scrubber fitted “C. Guardian” - 300K/2019 Daewoo was sold for USD 98 mills to Middle Eastern buyers. It is worth mentioning that back in late June, the BWTS & Scrubber fitted VLCC “Elandra Everest” - 300K/2020 Hyundai Heavy was sold for USD 95 mills. On the Suezmax sector, the Scrubber fitted “Ayse C”- 158K/2020 HHI, the “Zeynep”- 158K/2020 HHI, the “Atina” - 160K/2015 Bohai and the “Istanbul” - 160K/2015 Bohai were sold for USD 222.5 mills to clients of SFL. The vessels are scheduled to be delivered between August and October and come with long-term time charters attached to a subsidiary of Koch Industries. In the same sector, the “Aksta”- 159K/2003 Hyundai Samho changed hands for USD 18 mills. Moreover, the Aframax Ice 1A “Imperia” - 115K/2006 Samsung found new owners for region USD 31 – 32 mills basis delivery with surveys passed & BWTS fitted on around September/ early October. Finally, we understand that the MR2 “Agnes Victory”- 47K/2004 ‘Uljanik' Brodogradiliste has achieved a remarkable USD 17 mills, which would set a new benchmark if true.

Xclusiv Shipbrokers Inc.