Capesize

The Capesize market was in a steep climb for most of this week as it reached a pinnacle of $74,786 Wednesday before stalling, regathering, and then pushing on to $75,190 at weeks end. These heights were last visited in November 2009. The market is currently looking very robust on several fronts with vessel tightness on numerous loading windows across the globe, while an energy crisis in several countries add complications. This combination may provide further signal for rallies to come. With that said, the paper market seems less convinced as a steep fall to $50k levels for the Q4 period is pricing. Looking at the Pacific basin, the Transpacific C10 opened the week at $67,000 before surging to $82,854 on the back vessel tightness before charterers managed to pull it back slightly to close the week at $76,328. The Atlantic Basin showed less signs of abating as it hit a high to close the week at $84,750. The Fronthaul C9, a preference for many vessel owners now to close out Q4, was commanding a headline topping $105,650, rising +5950 on Friday alone. The market remains very buoyant with prices a little wild as traders move in big increments.

Panamax

The Panamax market proved to be a mixed picture this week, with the Atlantic shedding recent gains as the North of the region came under severe pressure. Conversely, the Asian basin witnessed some substantial gains with the NoPac trips proving to offer underlying support. Pressure was applied all week in the Atlantic as tonnage built up in the North. And, despite decent demand from the Black Sea, rates eased on both the transatlantic trips as well as the fronthaul. Asia proved to be mostly NoPac centric with solid levels of activity throughout. The highlight was $40,500 being agreed on an 82,000-dwt delivery Japan. However, the mean rate over the week returned circa $37,500 for 82,000-dwt types. The Australia to India coal runs continued to command decent premiums with $36,500 concluded a few times on 82,000-dwt vessels with China delivery. Period activity included a 76,000-dwt agreeing $29,000 for 9/12 months, basis China delivery.

Ultramax/Supramax

Whilst sentiment remained positive in most areas, brokers described a rather lethargic week overall as the upcoming holidays in China kept a lid on activity levels. The BSI made slight gains from the end of last week seeing a week on week gain of 24 points from last Friday’s close. Period activity remained. A 52,000-dwt open East Mediterranean fixing in the mid $30,000s for six to eight months trading redelivery Atlantic. From the South Atlantic, the upper $20,000s – plus upper $1 million ballast bonus for fronthaul runs to Asia and the Indian Ocean areas – were seen. Demand remained from the Mediterranean for inter Atlantic business. A 56,000-dwt open central Mediterranean fixing a trip to West Africa at $51,500. With the upcoming holidays, the Asian arena waned as the week came to an end. However, a 56,000-dwt fixing a trip from Indonesia to China at $43,000. Good levels were seen from the Indian Ocean, a 56,000-dwt open Chittagong fixing a trip via South Africa redelivery China at $35,000.

Handysize

The US Gulf made large positive strides this week, with a 38,000-dwt fixed for a trip from the US Gulf to the Continent/Mediterranean range at $28,000. A scrubber fitted 40,000-dwt was fixed from Tampico via Houston to North Brazil at $33,000 for a cargo of Petcoke. East Coast South America is a split market with the South Brazil and Argentina region seeing good returns with a 37,000-dwt fixing from Recalada to Peru-chile Range at $54,000. A 33,000-dwt open UK was fixed via the Continent to Brazil with Fertilizers at $36,000. Asia has been less active but a 33,000-dwt open Vietnam fixed two to three laden legs at $35,000 with worldwide redelivery. A 36,000-dwt open Philippines fixed via Australia to South East Asia with Alumina at $35,000. Period saw a 34,000-dwt logger open in Australia fixing for a period in the mid $30,000s plus a $450,000 ballast bonus.
Source: The Baltic Exchange

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Dry Bulk Market: Another Week, Another Rally

Tanker owners could receive some positive news from the Russian crude oil export market. In its latest weekly report, shipbroker Gibson said that “after many months of pain, crude tanker owners will finally see an increase in the volume of Russian export cargos in the coming weeks. Loading schedules indicate rising shipments of Urals and CPC blend crude. Reuters estimates that Urals crude loading in Baltic ports such as Primorsk, Ust Luga and Vysotsk will increase to 6m tonnes in October from 5m tonnes in September. This represents an increase of approximately 20% MoM on total Baltic Ural loadings for October. Similarly North Sea production is up 10% MoM for October, while overall OPEC+ production is set to increase by another 400 kbd. All of which shows rising production across the board”.

According to Gibson, “current estimates place Urals volumes out of Novorossiysk for October at 1.74m tonnes, somewhat lower levels compared to 1.81m tonnes in September. However, CPC volumes are expected to increase as completed upstream pipeline maintenance should facilitate greater flows to Black Sea Ports. In the Baltic region, completed oil field maintenance and ongoing autumnal refinery maintenance are contributing to a rising surplus of Urals requiring additional Baltic loadings. This means Russian crude will have to be absorbed by overseas markets. All these factors provide a very positive short to midterm set of drivers for Aframax tankers which many owners hope will translate into higher vessel earnings albeit from a very low base”.

The shipbroker added that “whilst this loading data represents positive news for Aframaxes in October, this could be an early indicator of seasonal strength in the market. In the Black Sea the higher probability of Turkish Straits delays over the coming months rises. Whilst these delays are a shortterm boost, recent occurrences show the extreme volatility they can briefly generate. As Q4 progresses the market should see increased production along with deteriorating weather patterns which should help Aframax rates to rise. Beyond the next few months, winter demand for crude and Baltic ice formations could put further upward pressure on rates, should ice class season materialise to a sufficient level”.

Gibson added that “more broadly, the October data provides evidence of expanding Russian crude production and exports under the OPEC+ deal. As Brent crude briefly touched $80/bbl and oil demand continues to rise, this may raise the prospect of a gradual loosening of OPEC+ production quotas at upcoming meetings. Producers such as Russia will become increasingly incentivised to raise production levels further in line with any amended agreements to benefit from higher earnings revenue to finance Government expenditure and shore up foreign currency reserves. Bloomberg believes Russia will increase its crude and condensate production to 11.24m bpd in 2022 (up 8% on 2021 levels). This would be a significant development in coming close to reaching the 2019 production level of 11.25m bpd, which represents Russia’s post-Soviet production record. Therefore, it is likely these factors could support higher levels of crude production beyond pre Covid-19 highs”.

“Overall, the picture for tankers loading Russian crude looks more promising at least in the short to medium term, although signs of longer-term support for Aframaxes may provide further hope. Whilst issues such as the energy transition and Covid-19 economic recovery raises some questions about exactly how long Russia could maintain higher exports, the short to medium term necessity to meet energy demand and rising supply should provide some much-needed comfort for the market”, Gibson concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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Tanker Owners Could Receive Some Respite From the Russian Oil Export Market

The WTO is now predicting global merchandise trade volume growth of 10.8% in 2021—up from 8.0% forecasted in March—followed by a 4.7% rise in 2022 (Table 1). Growth should moderate as merchandise trade approaches its pre-pandemic long-run trend. Supply-side issues such as semiconductor scarcity and port backlogs may strain supply chains and weigh on trade in particular areas, but they are unlikely to have large impacts on global aggregates. The biggest downside risks come from the pandemic itself.

Behind the strong overall trade increase, however, there is significant divergence across countries, with some developing regions falling well short of the global average.

“Trade has been a critical tool in combatting the pandemic, and this strong growth underscores how important trade will be in underpinning the global economic recovery,” Director-General Ngozi Okonjo-Iweala said. “But inequitable access to vaccines is exacerbating economic divergence across regions. The longer vaccine inequity is allowed to persist, the greater the chance that even more dangerous variants of COVID-19 will emerge, setting back the health and economic progress we have made to date.”

“As we approach the 12th Ministerial Conference, members must come together and agree on a strong WTO response to the pandemic, which would provide a foundation for more rapid vaccine production and equitable distribution. This is necessary to sustain the global economic recovery. Vaccine policy is economic policy – and trade policy,” she said.

The large annual growth rate for merchandise trade volume in 2021 is mostly a reflection of the previous year’s slump, which bottomed out in the second quarter of 2020. Due to a lower base, year-on-year growth in the second quarter of 2021 was 22.0%, but the figure is projected to fall to 10.9% in the third quarter and 6.6% in the fourth quarter, in part because of the rapid recovery in trade in the last two quarters of 2020 (Chart 1). Reaching the forecast for 2021 only requires quarter-on-quarter growth to average 0.8% per quarter in the second half of this year, equivalent to an annualized rate of 3.1%.

The trajectory of the current merchandise trade forecast in Chart 1 is close to the upside scenario discussed in the WTO’s most recent forecast of 31 March. That scenario depended on a number of assumptions, including an acceleration in the production and dissemination of COVID-19 vaccines. More than 6 billion doses have been produced and administered worldwide. This is a remarkable achievement, but unfortunately still insufficient, because of sharp differences in access across countries. To date, only 2.2% of people in low-income countries have received at least one dose of a COVID-19 vaccine.(1) Failure to vaccinate in all countries against COVID-19 has led to a two- track recovery, with slower growth in countries with limited access to vaccines, which are frequently those that had the least fiscal space to support businesses and households. This divergence creates space for the emergence and spread of new, potentially vaccine-evading forms of the virus, which could result in the reimposition of health-related controls that reduce economic activity.

Trade volume growth is set to be accompanied by market-weighted GDP growth of 5.3% in 2021 and 4.1% in 2022 (revised up from 5.1% and 3.8% previously). GDP growth has been spurred on by strong monetary and fiscal policy support, and by the resumption of economic activity in countries that have been able to deploy COVID-19 vaccines at scale.

In the years before the global financial crisis (1990-2007), world merchandise trade grew around twice as fast as world GDP at market exchange rates, but subsequently slowed to about the same rate on average. The current trade projections imply that the ratio of trade growth to GDP growth will rise to 2.0:1 in 2021 before falling back to 1.1:1 in 2022. If the forecast is realized, this would indicate that the pandemic will not have had a fundamental structural impact on the relationship between world trade and income.

Risks to the forecast remain on the downside, but the relative importance of those risks is difficult to gauge. They include spikes in inflation, longer port delays, higher shipping rates, and extended shortages of semiconductors, with supply side disruptions being exacerbated by the rapid and unexpectedly strong recovery of demand in advanced and many emerging economies. The pandemic itself presents potentially even bigger risks to world trade and output, particularly if more deadly variants were to emerge. The highly contagious Delta variant has already prompted governments to reinstate some containment measures.

The recent upticks in inflation are probably temporary, driven by supply-side shocks affecting certain sectors in specific economies balanced against the unexpectedly strong recovery in demand. However, if inflationary expectations do become entrenched, central banks may feel the need to tighten policy early. This could create negative spill-overs, which would eventually hit trade flows. The period after the pandemic may see some periods of volatility as monetary policy normalizes and as governments shift to more sustainable fiscal policies.

Overall, the trade recovery continues to diverge by region. In particular, the Middle East, South America and Africa look set to have the weakest recoveries on the export side, while the Middle East, the Commonwealth of Independent States, and Africa will have the slowest recoveries on the import side.

Chart 2 shows quarterly growth in the volume of merchandise trade by region since 2019, the last full year before the COVID-19 pandemic. Because the depth of the recession in 2020 differed from one region to the next, 12-month year-on-year growth rates do not illustrate the crisis’s impact on each region’s trajectory as effectively as cumulative projected trade growth over the three years between 2019 and the end of 2022, visible in the divergence between the lines for each region.

If the current forecast is realized, by the final quarter of 2022 Asia’s merchandise imports will be 14.2% higher than they were in 2019. Over the same period, imports will have risen by 11.9% in North America, 10.8% in South and Central America, 9.4% in Europe, 8.2% in Africa, 5.7% in the Commonwealth of Independent States and 5.4% in the Middle East. Asia’s exports will have grown 18.8% over that period, while all other regions will have recorded more modest increases: North America (8.0%), Europe (7.8%), CIS (6.2%), South America (4.8%), the Middle East (2.9%) and Africa (1.9%).

It appears that regions with oil-reliant export bases suffered large declines in both merchandise exports and imports during the 2020 recession, and that these losses have since been only partly recovered. South America’s relatively strong import recovery also reflects base effects from recessions in some of the region’s key economies in 2019.

Table 1 summarizes the WTO’s annual forecasts for merchandise trade volume and real GDP at market exchange rates from 2017 through 2022. The annual figures differ slightly from the quarterly numbers for reasons of statistical methodology, but they tell a similar story of regional divergences. In addition to the five WTO regions, the table also includes estimates for Least-Developed Countries (LDCs). The numbers show that the poorest countries saw their merchandise exports decline less than the global average in 2020, while their imports declined more.

The forecast projects export volume growth in 2021 will be 8.7% in North America, 7.2% in South America, 9.7% in Europe, 0.6% in the CIS, 7.0% in Africa, 5.0% in the Middle East and 14.4% for Asia. Imports in the same year are set to grow by 12.6% in North America, 19.9% in South America, 9.1% in Europe, 13.1% in CIS, 11.3% in Africa, 9.3% in the Middle East and 10.7% in Asia. Exports and imports of LDCs will increase by an estimated 5.3% and 5.5%, respectively, in 2021.

As with the quarterly figures above, annual trade growth figures for 2021 are to a considerable extent a function of the decline suffered by each region in 2020. The pandemic’s impact on trade is better illustrated by looking at cumulative growth over the two years from 2019 to 2021. If the second half of this year turns out as expected, world merchandise trade will be up 4.9% compared to 2019. Over that period, export growth will be -0.6% in North America, 2.2% in South America, 1.0% in Europe, -1.0% in the CIS, -2.4% in Africa, -7.2% in the Middle East and 14.7% in Asia. Meanwhile, import growth between 2019 and 2021 will be 5.7% in North America, 8.1% in South America, 0.8% in Europe, 7.5% in the CIS, -1.0% in Africa, -5.9% in the Middle East and 9.4% in Asia. For LDCs, the volume of merchandise exports will increase by 3.2% between 2019 and 2021, while their imports are set to decrease by 1.6% over the same interval. This divergence continues into the projections for 2022.

Nominal trade developments

The WTO’s latest statistics on merchandise trade in nominal US dollar terms are released in conjunction with the trade forecast. These and other statistics can be downloaded from the WTO’s online database.

Chart 3 shows estimated year-on-year growth rates for several categories of manufactured goods trade through the second quarter of 2021. The drop in automotive products trade in the month of June is unusually large compared to other goods categories. The decline could be related to the recent shortage of semiconductors in the automotive industry, which has disrupted car production worldwide. It is notable that the category Integrated circuits shows no such decline. Integrated circuits may have been diverted to other uses during the pandemic (e.g. consumer electronics), leaving limited supplies for automotive applications once production ramped up.

WTO statistics on commercial services trade for the second quarter will not be available until later in October, but Chart 4 below shows developments through the first quarter. Services trade overall was down 9% year-on-year in the first quarter, largely as a result of continued weakness in Travel, which was down 62%. In contrast, the category Other services, which includes financial and other business services, was up 6% compared to the previous year. Year-on-year growth in services trade is likely to turn positive in the second quarter due to a low base value in 2020, but this should not be automatically interpreted as a turnaround. The WTO’s most recent Services Trade Barometer of 23 September suggests that trade in services may be stabilizing along a lower trend than before the pandemic.

Supplemental Indicators

The WTO has been tracking timely, high-frequency trade-related indicators to better understand trends in merchandise and commercial services trade. A selection of these is presented below to provide additional context to the trade forecast and statistics.

Purchasing managers’ indices (PMIs) from IHS-Markit are based on surveys of hundreds of businesses in more than 40 countries. PMIs for individual countries are aggregated into a global index, with values greater than 50 indicating expansion and values less than 50 denoting contraction. The Global Manufacturing PMI and certain sub-indices shown in Chart 5 casts light on the recent problems of port congestion (with delivery times becoming much longer, as shown by the steeply deteriorating sub-index far below 50) and high prices for shipping services.

Despite COVID-related interruptions, container throughput in international ports remains at or near record levels. Meanwhile, shipping rates have risen dramatically, exemplified by a more than four-fold rise in the Shanghai Containerized Freight Index over the past year. The spike in shipping rates coincided with a strong rebound in the New Export Orders component of the global manufacturing PMI, indicating surging global import demand. Prices of manufacturing inputs and final goods also rose, while stocks of finished goods dipped, and delivery times stretched out.

The New Export Orders index peaked at 54.9 in May of this year but has since fallen to 51.0 in August, suggesting a cooling of global import demand. At the same time input and output prices have started to ease, delivery times have plateaued, and stocks of goods have turned up. This suggest that high shipping rates and backlogs of ships waiting to unload goods in ports may have peaked, although it could take some time for prices to come down and for backlogs to clear.

A global shortage of semiconductors has recently disrupted supply chains in the automobile industry, leading to cuts in production and sales. This is illustrated by Chart 6, which shows recent declines in car sales in the United States, the European Union and China. The right panel of the chart shows that trade in semiconductors was falling long before the pandemic but that it has recently picked up again, which should help restore production of vehicles that use semiconductors intensively. Although leading semiconductor producing countries have had COVID-19 outbreaks recently, the problem seems to be one of demand for chips exceeding supply. This chart suggests that trade in automotive products may dip in the third quarter of 2021, but that any such decline will probably be temporary.

Finally, Chart 7 below shows the daily volume and average tone of news reports containing phrases related to economic activity, as monitored by the GDELT Project Summary Service. Such indicators can be used as signals of changing economic sentiment. At the start of the pandemic volume rose sharply and tone became extremely negative, as media reports anticipated a strong economic downturn. Once measures to contain the spread of the SARS-CoV-2 virus were taking effect and vaccines were on the way, volume declined and tone improved. The recent volume of press reports related to economic activity has been steady and the tone of reporting has seen some recent downward then upward variation, implying some short-lived uncertainty around otherwise rather stable expectations on economic activity.
Source: World Trade Organization

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Global trade rebound beats expectations but marked by regional divergences

Shipowners need strategies and practical solutions to stay compliant and commercially competitive, while meeting regulatory and stakeholder requirements for decarbonizing vessel and fleet operations,” says Linda Sigrid Hammer, Principal Consultant, Environment Advisory in Maritime at DNV and lead author of Maritime Forecast to 2050. “Correctly assessing the technology, fuel and energy production/infrastructure landscape can enable owners to comply with prescribed or even more ambitious carbon reduction trajectories.”

Modelling the economics of ship fuel and design options

To assist shipowners in responding to the drive for decarbonization, DNV charts a practical path to stay under the carbon reduction trajectories. Maritime Forecast to 2050 presents an updated carbon risk-management framework (Figure 1) for finding the most cost-efficient Fuel Ready and fuel flexible choices for vessels.

The framework involves two steps. First, a techno-economic model, the FuelPath Model, investigates the financial performance of different fuel and energy-efficiency strategies open to a specified ship. Applying varying assumptions and scenarios, this step assists shipowners to identify design choices that will be resilient to future changes and perform well under a range of scenarios. The second step is a structured review of those design choices to identify crucial implications for ship design at both newbuilding and (possible) conversion stages.

“We have updated the framework specifically to enable detailed assessments of fuel flexible and Fuel Ready solutions. Given vessel lifetimes, planning for such solutions could ease the transition to lower- and zero-carbon fuel alternatives and minimize the risk of investing in stranded assets,” explains Hammer.

Figure 1: DNV’s latest approach to assist shipowners considering how to future-proof today’s newbuilds for tomorrow’s carbon emissions regulations and competitive pressures

Step one: Applying DNV’s FuelPath Model for ships

The FuelPath Model evaluates the economic performance of available design options related to fuel over the vessel’s lifetime. The performance is expressed as total cost of ownership, and other economic measures.

Four main parameter categories provide input for the FuelPath Model for a vessel: ship specifications and trade information; target trajectories for greenhouse gas (GHG) emission reductions; design options related to fuels; and fuel prices.

Maritime Forecast to 2050 demonstrates the first steps in just such an evaluation by varying selected parameters for a case study vessel – a newbuild Newcastlemax bulk carrier weighing 210,000 deadweight tonnes (dwt) and with a lifetime of 25 years (Table 1). The cruising range assumption allows the fuel-storage requirement to be estimated, assumes one bunkering per round trip, and allows for flexibility on some major coal trading routes.

“While the case study is for a newbuild bulk carrier, the evaluation approach can be adapted to any ship type and DNV is already supporting customers to achieve that,” adds Hammer.

Table 1: Case study for 210,000 dwt Newcastlemax bulk carrier state-of-the-art concept design compliant with Energy Efficiency Design Index (EEDI) Phase 2

Evaluating fuel and design options in a bulk carrier case study

The Newcastlemax bulk carrier study applies a single GHG trajectory catering for cargo owners with ambitions to decarbonize emissions sooner than under the International Maritime Organization’s (IMO) current timetable. A slower trajectory involving minimum compliance was also considered but not modelled.

Full details of the chosen trajectory for the case study are in Maritime Forecast to 2050. Suffice it to say here that its eventual goal is full decarbonization of shipping emissions by 2040, with the most dramatic reduction coming after 2030.

Table 2: Design options related to fuel, investigated for a Newcastlemax bulk carrier. Fuel flexibility at newbuild and after conversion (if applicable) are shown for each design option.

The case study covers various fuels that can be used for each of seven rationally selected design options, either in a newbuild or after a possible future conversion (Table 2).
Fuel prices are a key determinant of the financial performance of design options related to fuel, but future fuel prices are hard to predict.

For simplicity, the case study’s fuel price assumptions (Table 3) reflect its choice of a single future scenario in which low-cost renewable electricity is available for producing electrofuels more cheaply than for biofuels.

The scenario envisages ammonia being the cheapest carbon-neutral fuel; shipowners serving those customers who are the most demanding when it comes to GHG reductions; and no carbon price –though the model does include scope to evaluate the economic impact on shipping of carbon pricing mechanisms that are being developed.

Maintaining constant fuel prices over the period modelled, the case study uses the FuelPath Model to see how the seven fuel-system design options described above compare with each another in the single scenario.

Table 3: Fuel prices as USD per gigajoule (GJ) and tonnes of oil equivalent (toe) applied in the Newcastlemax case study. The prices are given as future averages and reflect a scenario in which low-cost renewable electricity is available for the production of carbon-neutral electrofuels.

Key findings of the case study

Full details of the Newcastlemax bulk carrier case study findings are available in Maritime Forecast to 2050, but three key ones (Figure 2) for the chosen scenario and assumptions are:

1. The conventional mono-fuel (MF) ship has the highest total discounted cost beyond 2030. It incurs the lowest capital expenditure (CAPEX), but the highest fuel expenditure (FuelEX) over its lifetime. This is because the study assumes a high price for carbon-neutral marine gas oil (MGO), which would be the only fuel option available for meeting the chosen GHG target trajectory.
2. The ammonia-ready design solutions would have a higher CAPEX but comparatively lower FuelEX than the conventional option in their lifetimes.
3. The two design options with lowest discounted costs are MF Fuel Ready (ammonia) and dual-fuel (DF) LNG Fuel Ready (ammonia). The study also identifies DF LPG Fuel Ready (ammonia) as a low-cost option but does not investigate it further.

Figure 2: The total discounted costs of seven possible fuel-system designs evaluated by applying DNV’s FuelPath Model to a rapid decarbonization scenario for a 210,000 dwt Newcastlemax bulk carrier case study ship

These and other findings from the case study need interpreting in light of the narrowly defined assumptions applied in the case study, advises Hammer: “We stress that the results do not show that the ammonia-ready designs are necessarily the most robust choice (Figure 3), and the findings do not represent recommendations to shipowners. When used for actual newbuild decision support, multiple fuel and CO2 price scenarios and GHG trajectories should be tested to identify the most robust choices for the shipowner’s specific ship type and trade. However, the exercise firmly illustrates potential advantages of selecting designs underpinned by safety considerations and boosting a vessel’s fuel flexibility.”

Figure 3: Important factors influencing the business case for an ammonia-ready design, compared with a conventional vessel. In scenarios where these factors are changed, other designs may outperform the ammonia-ready designs.

Step two: Acting on the design implications of ship fuel strategies

Maritime Forecast to 2050 uses the case study findings as the basis for a structured review of design, which is forming step two of our carbon risk-management framework, for adapting 210,000 dwt newbuild Newcastlemax bulk carriers for possible future fuel transitions.

Two such vessels are considered: a conventional oil-fuelled ship, and a newbuild designed for dual-fuel LNG engines. DNV evaluates what is needed to ready both designs for transitioning to ammonia fuel in the future if required.

The review takes a systems engineering approach covering engineering considerations for fuel storage, engines and the integration of the fuel system in the ship design. The results from the engineering review can be fed into ship newbuild specifications. This may eliminate showstoppers and streamline a future conversion, hence reducing cost and time spent at a conversion yard.

For example, the table below shows action points that emerge from the review of what is needed to prepare the case study Newcastlemax bulk carrier for conversion from mono-fuel (conventional) to be ready to switch to ammonia as fuel.

Table 4: Fuel Ready – preparations at newbuilding stage and conversion for a mono-fuelled (conventional) ship

Design review provides valuable input for newbuild specifications

Summing up, Hammer says: “The structured review of design maps out vital implications for newbuild specifications for a fuel-flexible strategy. The review is itself enabled by the guidance it receives from the techno-economic evaluation. Together these processes complete our two-step approach to managing carbon risk for shipowners who need practical solutions to comply with increasingly stricter decarbonization regulations and incentives.”

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Evaluating future fuel strategies and their design implications for newbuilds

The LNG/LPG shipping segment could take a hit from the incremental rise in global energy prices. At the same time, an increased demand for fossil fuels, aka crude oil, could also emerge, boosting demand for crude tankers. In its latest weekly report, shipbroker Allied Shipbroking said that “we are reaching the final quarter of the year and the world’s economy seems to now be facing a fresh challenge. The major upsurge in energy prices, with the gas sector being at the top of concerns, has already affected both industry and households alike and with winter approaching in the northern hemisphere, worries are mounting. The limited supply in combination with the increased energy demand, after a prolong period of industrial production disruptions due to the pandemic, have had as a result the severe competition for gas imports between Europe and Asia. This contest has led to a price spike of more than 600% compared to the same period in 2019, with the respective impact being witnessed in electricity generation prices”.

Source: Allied Shipbroking

According to Allied’s Research Analyst, Mr. Yiannis Vamvakas, “given that energy costs are the highest component within operating expenses for many industries, it is of little surprise that production disruptions have already been seen. Numerous cases having emerged, with Yara’s decision to curtail around 40% of its European ammonia production capacity being a prime example. The domino effect in global supply chains seem to be inevitable. Furthermore, EU climate policies are also criticized for the today’s price hike. The decarbonization and the limitation of fossil fuel consumption, have trimmed the level of flexibility available to the continent’s energy mix”.

“Europe is not the only region of the world that is encountering such an energy crunch. Power supply issues have been seen in China as well. The rising demand for electric power generation in the country cannot be covered by local producers, after the decisions by Beijing for significant cuts in emissions. Alongside, the rise in gas prices, coal prices have compounded the issue in the country. Aluminum smelters, food processing plants and technology parts factories have already proceeded to scaling back production. In addition to the soared prices, China has to tackle this issue amidst and ongoing trade ban of imports from Australia, the second biggest exporter of coal in the world”, Vamvakas said.

Source: Allied Shipbroking

He added that “the “reading” from these tensions in the energy sector can be two-fold from the perspective of the shipping industry. The price hike in the gas sector is likely to dampen demand growth for LNG and LPG, while at the same time it may be an opportunity for crude oil producers to regain some of the lost demand of the last couple of years. There are countries that have the capacity to increase their oil-based energy production in order to keep up with the mounting demand and the limited usage of gas. An increase of interest for crude oil and heavy fuel oil will be able to give an additional boost to the tanker market during the winter period, which also happens to be a time where enquiries seasonally ramp up. Apart from this, the latest estimations for oil demand are bullish for 2022, as OPEC has stated that it expects oil demand to surpass 2019 figures next year (at around 100.8 million bpd), while IEA is less optimistic, but still believes that the recovery will be robust next year, reaching 99.4 million bpd, which is close to pre-pandemic levels. Meanwhile, the disruptions in production in several industries may lead to decreased trade, but also cause further shifts in trade routes for some commodities, which is likely to increase the ton-mile demand for ships. The latter will have an impact on sectors such as dry bulk and containerships. The question though that is swirling across most minds is over if this situation is temporary or will it create the base for a new norm with much higher gas prices and how fast the global economy will be able to adapt. The answers will determine to what extent each shipping sector benefits or not and to what extent”, Vamvakas concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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High Energy Costs Could Hurt LNG Shipping Demand, But Help the Tanker Market

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India follows China in reporting extreme coal shortages

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LNG fuel proponents fire back at the World Bank

The sudden rise in demand for biofuels is causing supply tightness in the soybean oil market, which is likely to persist until 2022. Alternatives such as sunflower oil will benefit from this situation.

The year 2021 has been turbulent for the soybean oil market due to the increasing emphasis on biofuels from the US to Brazil and Argentina. These countries are using soybean oil as the main feedstock to produce biodiesel, squeezing its availability as an edible oil for major importers like India and China. Meanwhile, the edible oil demand of these Asian countries is expected to rise due to economic recovery from Covid as consumption will normalize. Although the supply concerns of soybean oil are likely to persist until 2022, sunflower oil in India is expected to curb the demand for soybean oil in the same period as the price of this oil fell below soybean oil in July 2021.

Biodiesel mandates affecting supply

The supply tightness started from the beginning of 2021 with the election of Joe Biden as US President who promised “Clean Energy Revolution”. This initiative increased biofuel demand and the use of soybean oil as feedstock in biodiesel production. The increased demand further tightened the vegetable oil supply, especially soybean oil, which was already squeezed due to traders’ restocking activities after COVID-19 lockdowns.

The biofuel initiative wasn’t limited to the US. Brazil has historically been the second largest exporter of soybean oil after Argentina. However, Brazil’s soybean oil imports surged in 2021 to 86,000 tonnes until August from mere 21,000 tonnes in the same period in 2020 due to increasing biodiesel blending mandates with Brazil’s biofuel regulator ANP (National Agency of Petroleum, Natural Gas and Biofuels), permitting the use of imported feedstocks for biofuel production amid high domestic prices.

This supply tightness is likely to continue as Brazil’s soybean oil production is expected to be lower in 2021 than 2020. The country’s blending mandate will also increase from 10% to 13% in November 2021. Argentina, the biggest exporter of soybean oil, is also expected to lower its exports until 2022 on accounts of higher biodiesel use. The domestic consumption of soybean oil is expected to increase by 1.8 million tonnes in the crop year 2021-22 to 61.4 million tonnes compared to the previous year.

Price

Global soybean oil prices started rising after Covid lockdowns as restocking happened in fear of second lockdown and quarantine measures. However, it kept rising in 2021 from US$1,099 per ton in January to US$1,569 per ton in May, before normalizing in June following the decline in biodiesel demand in the US. However, soybean oil prices in Brazil and Argentina are still up due to the higher domestic demand. Global buyers are looking for cheaper supplies from other South American countries and soybean oil alternatives.

Alternatives of soybean oil

High prices and supply tightness of the soybean oil market is forcing price-sensitive buyers like India and China to look for cheaper alternatives such as palm oil and sunflower oil.

Although palm oil appears the cheapest option, it is reserved only in the hospitality and catering sectors, while sunflower oil (like soybean oil) is a preferred home-cooking oil. Furthermore, global sunflower oil prices fell below soybean oil in May 2021, and Indian delivered sunflower oil prices became cheaper than soybean oil in July 2021. Sunflower oil production is also expected to increase by 2.8 million tonnes to 22.1 million tonnes in the crop year 2021-22 against the previous crop year. The global exports of sunflower oil are expected to be 5.1% higher than soybean oil in the crop year 2021-22.

Sunflower oil imports are also rebounding and are expected to increase in India and China to fill the vacuum created by soybean oil.

Conclusion

Argentinian soybean oil cargo to Asia is likely to remain stable in 2022, while additional vegetable oil demand countries like India and China are likely to be met with increased sunflower oil trade from Ukraine and Russia. This rise in trade on the Black Sea to India and the Black Sea to China route will support freight rates of chemical tankers on long-haul routes. However, the tonne-mile demand will face a minor setback due to reducing shipping distance.
Source: Drewry

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