Archives for posts with tag: commodities

For many of the markets covered by Shipping Intelligence Weekly, the first part of 2015 was relatively kind. Rates for crude and product tankers were riding high, boxship charter rates picked up for the first time in years and VLGC rates have hit levels above 2014 averages. Even Capesizes have recently shown signs of life. But spare a thought for the offshore sector, the hardest hit by the oil price decline.

Price Drop

Back in the downturn of 2008/09, most commodity and shipping markets felt the negative impact and the offshore markets were no exception, with dayrates dropping by an average of around 35% (see graph).  Moving forward to the current time, however, the 50% decline in oil prices since mid-2014 has brought some relief for merchant vessels, in the form of cheaper bunkers, and stimulated oil demand, helping trade. But cheaper oil has meanwhile put heavy pressure on the offshore sector, where field operators already faced cashflow problems as field developments ran late and over-budget. The response has been sharp cuts in exploration and production (E&P) budgets. It is estimated that spending on offshore E&P will fall by 19% this year.

Investment Cuts

This means investment decisions on new projects have been deferred, whilst expenditure to enhance recovery from existing fields has also slipped. Accordingly, drilling demand has fallen, just as deliveries of new jack-up and floating drilling rigs have accelerated. Rates for ultra-deepwater floaters are now almost 50% below their late 2013 peak, at around $300,000/day. This reflects the reduced demand in frontier areas for exploration and appraisal drilling, not helped by the corruption investigations in Brazil. Meanwhile, jack-up drilling rig rates have been equally hard hit, with shale gas production killing demand in one of their traditional major markets, the shallow water Gulf of Mexico. Utilisation of jack-ups is below 80%, and rates have fallen more than 35% to around $100,000/day.

Less Support For Vessels

This has had rapid knock-on consequences. The 5,365 vessels and 1,133 owners in the OSV market are also exposed to the downturn in exploration drilling and operational field maintenance. Fewer active rigs harms the AHTS market for rig towage and positioning, whilst PSVs rely on the growth in active offshore installations (drilling rigs, plus mobile and fixed production platforms) to add to demand. Rates for OSVs are down in all regions, by over 35% on average in terms of the index on the graph. PSVs have a further problem of a robust supply growth to contend with (and close to 40% of the fleet on order for the largest units over 4,000 dwt).

Of course, markets are cyclical, and the offshore sector had its moment in the sun during 2012/13, at a time when several of the merchant shipping markets were in the doldrums. Although the current oversupply in world oil markets of around 1.5m bpd is a clear short-term hurdle, projected demand trends suggest that higher oil prices remain a likely prospect in the long-term, and the improvement in other sectors suggests that there will eventually be light at the end of the tunnel for offshore too. It’s just that it could be a little way off yet. Have a nice day.
SIW1185

SIW1115Big ships get lots of attention. How often do you read about the Valemaxes, Capesizes and VLCCs? Of course the big bulk trades are massively important and the five major bulks totalled 2.8 bt of cargo last year. But they’re not the whole story. The minor bulks are not so minor any more. This year they will reach 1.5 bt of small parcels that tie up lots of ships – probably about 200 m dwt.

Minor Bulk, Major Cargo

This seething mass of trades is the bedrock of the “handy bulker” business, but for analysts they are challenging. Clarkson Research tracks more than 30 “minor bulk” commodities, each a micro-business with its own drivers, trading partners and transport requirements. The smallest is less than 10 mt pa and the biggest nearly 300 mt. The best way to deal with so many commodities is to bundle them into groups that can be analysed together.

The “Six Minor Bulks”

The six minor bulk commodity groups shown in the chart are agri-bulks; fertilisers; forest products; iron & steel; minor ores; and other minerals. This wide-ranging mix of trades displays good and bad points. On the positive side, the average volume trend since 1990 has been upwards. In the period 1990-2003 minor bulk trade grew at an average of 3% per annum, and this has risen to 4% in the years since then. Not so good was the volatility, growth swinging between 6-8% pa (for example 1994, 2003-4, 2006-7 and 2011) and zero or negative growth (1991, 1996, 1998, 2001 and 2008-09).

Cargo Diversity

There has also been a good deal of diversity in the growth rates of the individual commodities. Across the period in question agribulks and fertilisers, two solid trades of around 300 mt combined, grew at 3% per annum, which fits in with their agricultural base. But forest products, another 200 mt trade, have been quite flat, averaging only 0.9% growth since 1990. Iron and steel, which includes products, scrap, pig iron and DRI reached 426 mt in 2013. But trade growth has averaged only 2.8% pa and the trend is edging downwards. In contrast the minor ores, which include nickel, manganese and copper, are the stars of minor bulk. They have averaged 9.2% pa growth since 1990, accelerating to 15.7% in the last decade, backed by Chinese demand. Finally the other minerals include lignite, anthracite, cement, sulphur, salt, petcoke, limestone and lots of very small trades. Together they totalled almost 500 mt of cargo in 2013 – a challenge for analysts, but good business for small bulkers.

Real Life Shipping

So there you have it. Minor bulks don’t hit the headlines, but they provide business for an enormous range of shipowners at the smaller end of the dry market. Some are big and highly organised corporates, others are companies with just a few ships. And with each decade the trade gets bigger and more complex, which, on the whole, is good news for shipowners who like a challenge but not media attention. Have a nice day.