Shipping Monthly Report – April 2014 :: ICICI Securities

Shipping Monthly Report – April 2014
• The Baltic Dry Index (BDI) gained ~8% in March 2014 to 1362
level on the back of increased iron ore inventory by China.
Iron ore stocking by China increased ~8% MoM and 52% YoY
buoyed by 6% growth in steel output on a YoY basis.
Capesize rates were supported by Chinese demand, which
started to weaken towards the end of the month. Panamax
rates also softened in absence of grain and soya bean cargo

• Tanker indices remained under pressure for the month as
tonnage availability outstripped demand. The Baltic Clean
Tanker Index (BCTI) declined ~ 3%MoM to 610 levels whereas
the Dirty Tanker Index (BDTI) also shed ~4% MoM to 700
levels in March 2014. Category wise, VLCC and Aframax rates
declined 34% and 11% MoM whereas Suezmax rates firmed
up by 20%

• LPG carrier rates for the VLGC and LGC (57000 cbm) segments
gained ~8% MoM in March 2014 whereas MGC (57000 cbm)
segment rates across categories continued to remain steady
for March 2014

• Utilisation levels on an MoM basis for drill ships remained
flattish at 89% in March 2014. Semi-subs and jack-ups
utilisation also continued to remain flattish at 89% and 88%
respectively, in March 2014

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Outlook
Dry bulkers
We believe with China tapering off its restocking activity, freight rates for
dry bulk carriers such as Capesizes and Supramaxes will soften further in
the near term. Also, with delayed grain cargo from the US and soya bean
exports from South America together with slow intra-Pacific coal trade
Panamax rates are expected to remain under pressure. Further, the dry
bulk asset market showed a significant upsurge with asset prices rising
nearly 13% to 42% (for 34000 dwt to 1,80,000 dwt category ships) on a
YoY basis. However, over the longer term, with fleet addition already
done during 2013 (8% of current global fleet) and further 18% of current
capacity to be added by CY16, we expect the upside in freight rates as
well as asset prices to be restricted.
Tanker
The tanker segment remained muted for March 2014 due to lower activity
in the Middle East Gulf region. Going ahead, we expect tanker segment
freight rates to remain flattish with a negative bias as winter demand
wanes. We expect the tanker segment to perform better in the near to
medium term owing to lower order book (12.6% of global fleet).
LPG carriers
VLGC continues to remain the best performing segment among LPG
carriers with an 8% MoM increase in freight while other categories
remained flattish. Over the near to medium term, we expect day rates
across categories to remain flat.
Offshore vessels
Offshore vessels utilisation is expected to remain healthy and flattish amid
average crude price for March 2014 remaining at $107/barrel. We expect
higher utilisation and charter rates in the near to mid-term.

The crude carrier market continues to remain weak during March 2014.
VLCC and Aframax vessel charter rates declined on an MoM basis by 34%
and 11%, respectively, whereas Suezmax rates firmed up 20% MoM. The
crude tanker market remained weak due to a decline in activity in the
Middle East Gulf region compared to the previous couple of months.
VLCC rates declined more than 57% from their peak in December 2013
and are expected to remain soft. Similarly, Suezmax rates also declined
~82% from their peak in January 2014 but stabilised in March 2014 and
are expected to remain range bound. On the capacity front, the tanker
segment added a meagre 0.6 million dwt in March 2014 while scrapping
activity remained muted at 0.2 million dwt for the month. The net tanker
fleet as of March 2014 stands at 473.3 million dwt with removal and
delivery on a YTD basis at 0.2 and 0.6 million dwt, respectively. The tanker
segment has a strong order book till CY16 to the tune of 62.1 million dwt
(13% of the current global fleet).