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China Return to Action Could Trigger a Freight Market Rebound

China’s reopening after the Lunar New Year celebrations, is expected to offer a boost in the freight rate market. In its latest weekly report, shipbroker Xclusiv Shipbrokers said that “as the Lunar New Year was celebrated in China, the dry bulk and tanker markets continued moving south. Since the beginning of 2023, the BCI has lost 66%, while the BPI, BSI, and BHSI have reduced by around 30% touching levels not seen since June/July 2020. Furthermore, in the tanker market, the BCTI is down by around 44%, whilst the BDTI has witnessed a smaller decrease of 9% from this current year’s start. According to Chinese cross-cultural experts, the rabbit, the year of has officially commenced, signifies relaxation, calmness, and contemplation, not exactly market- friendly attributes. In any case, as the rabbit “has entered the race”, it remains to be seen if it will rely mainly on its speed”.

According to Xclusiv, “with dry bulk indices having entered a downward rally, many argue that 2023 has started on the wrong foot in the market. However, this is not the first time that the dry bulk market shows signs of cooling during the first months of the year and especially throughout the Chinese New Year, mainly due to China’s subdued demand for raw material commodities. Earlier this year, the higher-than-seasonal average heavy rains in Brazil, have temporarily halted production and transport at major miner Vale. During the first weeks of 2023, iron ore shipments fell by 13.1% year on year, the lowest volume since at least 2019. On the other hand, the unofficial ban on Australian coal imports that was imposed in 2020 in response to political disagreements has been lifted by China’s National Development and Reform Commission, allowing four domestic companies to resume Australian coal imports, with China Energy Investment Corp being the first which has reportedly placed an order. Back in 2019, China’s decision to ban Australian coal had driven Australia to increase its coal exports to Japan, India, and Europe, which is not expected to change, though the ban has been lifted. In the meantime, as global power markets are still disrupted by the fallout from Russia’s invasion, Indonesia’s coal exports may hit a new milestone possibly reaching 520 million tonnes in 2023, 6% up compared to 2022’s coal exports, with the country planning to produce 696 million tonnes of coal. We are eager to see how the markets will react and how will China’s thirst for iron ore and coal be after the Lunar New Year celebrations are complete”.

“Being just one week before the EU’s sanctions on Russian diesel, gasoline, and other product imports, fresh turmoil is looming in the oil market. Analysts indicated that Europe’s ban on Russian oil products may be more disruptive than the ban on Russian oil crude that took place on 5th December. The product tankers represent about 59% of the total tanker fleet (>= 10,000 DWT), while crude tankers consist of 41% of the tanker fleet from which we have excluded the Chemical carriers. The MR sector covers 66% of the product tanker fleet, whilst LR2, LR1, and Small tankers (of 10,000-25,000 DWT) have around 10% each of the product fleet. India and China, import heavy volumes of crude oil for their refining systems. However, they don’t have a similar buying appetite for refined oil products. On the other hand, Russian crude oil exports to India may hit new highs as demand is increasing, with India expected to import roughly 24% more from the previous month, hitting 1.24 million barrels per day of crude because of its competitive landed cost”, Xclusiv said.

The shipbroker added that “during the first month of 2023, we witnessed a significant increase in the number of vessels that went for scrap, with most of them being Container vessels. The decrease in Container freight rates (FBX closed at 2,214 points down by 80% from 2021’s September highs) and the reduced demand have pushed more and more owners to scrap their older units. As of today, 14 container vessels (50% of total demo sales in 2023 in dry bulk, tanker, gas, and container sectors) were sold for demolition, and that is already 25% up compared to all of 2022 container demo sales with only one month within this current year. Noteworthy that in 2022 the Container ship demolitions dropped to the weakest level since 2005. Cash buyers expect a significant increase in the number of containers and bulkers to be broken up mainly since more than 80% of these ships’ GHG performance, may fall in the lowest CII ratings. In the meantime, the threat of Pakistan’s economic collapse, as a rolling blackout and a severe shortage of foreign currency, may cause some turmoil in the demolition market as Pakistan is the third largest demo destination in preference, following Bangladesh and India responsible for a very significant amount of scrap tonnage intake”, Xclusiv concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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