A deep dive from American Shipper at FreightWaves, February 26:
Not surprisingly, coronavirus is a major topic
on the quarterly calls of public dry bulk shipping companies —
executives maintain it’s having a negative effect on rates. And yet,
index data provided to FreightWaves by S&P Global Platts shows that
the rate decline clearly predates the coronavirus. Base spot rates have
actually bounced up off the bottom during the outbreak.
So is the worst still to come, or are coronavirus dry bulk fears
overblown? Have rates reached a point where they cannot go lower because
owners will not accept lower rates?
During the quarterly call of Genco Shipping & Trading (NYSE: GNK)
on Wednesday, CEO John Wobensmith said, “In addition to seasonal
weakness, the outbreak of the novel coronavirus has further impacted
industrial activity, commodity demand and freight rates.
“It’s still a little early to tell when Capesizes [bulkers with
capacity of around 180,000 deadweight tons that carry iron ore and coal]
start to move up in a significant way,” he continued.
“Our belief is that when the coronavirus is contained and things are stabilized, the Chinese government will do a large stimulus package, and Capes will certainly benefit.”
Platts global Capesize index
If there is a negative effect from coronavirus on rates, it isn’t
showing up yet in the index data — a potentially ominous sign, given that data from CargoMetrics implies a sharp decline in China’s bulk import appetite.
In addition to the 5TC Index produced by the Baltic Exchange, Capesize rates are tracked by S&P Global Platts through its CapeT4 Index.
Platts provides dual indices in light of the IMO 2020 regulation, which
requires all ships without exhaust-gas scrubbers to burn more expensive
0.5% sulfur fuel called very low sulfur fuel oil (VLSFO).
The
dual indices assess the rates of nonscrubber ships burning VLSFO and
scrubber ships burning 3.5% sulfur heavy fuel oil (HFO). Because HFO is cheaper, scrubber ships earn more on a net basis, depending on the VLSFO-HFO spread.
The Platts CapeT4 assessed Capesize rates on Wednesday at $4,292 per
day for nonscrubber ships burning VLSFO. The index has been hovering
around this level since the beginning of the year, well before China
implemented virus containment measures; rates fell in December, not
January. The index is down 13% from Jan. 2, but it’s up 72% from a nadir
of $2,497 per day on Feb. 13. In other words, it has risen (albeit off
extremely low levels) during the very time virus fears have heightened.
For scrubber ships, rates have declined 44% year to date. But that’s
not because of coronavirus. It’s because the daily savings from burning
HFO have decreased 57% over this period....
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