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Mixed trends were witnessed in the month of Oct-10 – while spot rates in tanker and bulker segment recovered from recent lows; product tanker rates slipped after
being strong in the previous month. Charter rates were stable in the bulker and product tanker segment, but slipped in the tanker segment. Tanker charter rates are
at a six-month low currently. Asset prices remain stable in both the new build and secondhand market and across asset classes, but they move with a lag relative
to freight rates. We summarize the performance below:
Tankers: Spot rates improved on a sequential basis across asset class. However, rates in the VLCC segment remain low with shipping companies likely to be
making losses at current rates. This had a spillover impact on charter rates too with rates for VLCC declining around 20% MoM. Charter rates for other asset
classes also witnessed some decline MoM. Baltic Dirty Tanker Index improved by 5% MoM supported by recovery in spot rates. Asset prices continue to remain
stable and were broadly flat MoM across asset class. The weakness in tanker rates in last couple of month now seem to be spilling over product tanker rates too.
Baltic Clean Tanker Index declined 5% MoM on an average. Spot rates in the segment now are close to lows seen 12-months back. Charter rates in the segment
are however holding up relatively well and broadly been stable amidst the recent decline in spot markets. Oil demand recovery is underway, led by non-OECD
nations and improved demand in the US. We expect freight rates to remain firm in remaining part of C2010 on the back of winter demand. However, beyond that
freight rates will continue to be volatile until demand recovers and stabilizes. Tonnage in tankers is expected to grow at a 7% CAGR between 2009-11 which could
be a concern if demand growth is lower than expected. Asset prices (in both new and second hand market) however, in both dirty and clean segment continue to
be resilient and have been flat over the last couple of months, which is a positive sign. However, they tend to react with a lag.
Dry Bulk: Spot freight rates in the large vessel segment (Capesize) continued to improve from the lows seen in the month of Jul-10. Spot rates in other segment
(Panamax and Handymax) slipped marginally but remain above the recent lows seen in Jul-10. As a result, Baltic Dry index (on an average) was flat MoM in Oct-
10, however, it has strengthened in second half of the last month. Term charter rates have been stable amidst this volatility and were flat MoM. New build asset
prices were flat MoM in the large vessel segment after witnessing some weakness in the last couple of months.
Second hand asset prices too were stable MoM
after seeing marginal dip in the previous month.
Shipyard Order Book: Cumulative order book witnessed a decline of 2mn DWT in the last month (Oct 2010), implying that there is some slowdown in new order
flows. The majority of the orders continue to be concentrated in South Korea, China and Japan, some of whose shipyards may be new. More importantly, the
industry seems to be focusing on bigger vessels, as the proportion of ULCC/VLCC and Capesize in the overall order book remains high.
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