Shipping in the eye of the storm: Hapag Lloyd, Glencore’s Inatech discuss


Shipping’s role in global makes the industry a good place to start to assess the extent or potential of recovery from the Covid-19 crisis.

Below is a transcript from a recent webinar. Please feel free to use the comments in reports.

Featured speakers:

  • Alok Sharma, Senior Vice President, Inatech, a unit of Glencore
  • Finn Fuelbier, Director of Global Fuel Purchasing, Hapag Lloyd
  • George Griffiths, Editor of Global Container Freight Market, Dry Bulk Shipping, S&P Global Platts
  • Tamara Sleiman, Managing Editor, EMEA Residual Fuel Oil, S&P Global Platts
  • Moderator: Paul Gunton, New Markets Media & Intelligence

To hear the webinar in full please go to: http://www.inatech.com/webinar/webinar-highlights-shipping-in-the-eye-of-the-storm/

Poll:
Based on your experience, how long will shipping markets take to return to their pre-coronavirus levels?

  • Up to 1 year: 17%
  • Between 1 & 2 years: 44%
  • Between 2 & 3 years:  31%
  • More than three years 7%

*Results based on votes from participants in the webinar.

Discussion:

How does the oil market now compare with the 2008 financial crisis?

Alok Sharma: Looking at the market’s expectation of 30-day volatility in US crude prices, we are approaching the level at the peak of the 2008 financial crisis. The CBOE Index VIX volatility right now is about 63 and at the peak of the crisis it reached about 76-80.

What has been and will be the impact of COVID-19?

Alok Sharma: The ultimate impact of COVID-19 on the wider oil industry depends on questions that do not yet have definitive answers: How quickly can an effective vaccine be developed? Will politicians respond to the pressure by creating jobs in renewable energy or electrical vehicles? Will consumers remain nervous about taking flights, using public transport? All of these questions have a direct impact on energy supply and demand.

On the one hand, we know that the travel industry has come to a halt and will take time to recover. Road traffic will likely remain low, causing a drop in demand.

On the other hand, just as volatility is affected by the coronavirus, so the depressed oil market has ramifications. Many countries are deeply dependent on oil revenue and so seem hardest hit economically by the virus. Yet, if the spread of the virus isn’t controlled, these countries will be forced into further renewed lockdowns, deepening the economic toll.

What has Hapag Lloyd’s experience been of the COVID-19 pandemic?

Finn Fuelbier: The worsening of the global economy was the initial effect we felt and still are feeling. In Q2 we saw transport volume decline by 10% compared with the same period in 2019.

Operationally, blank sailings became a bigger factor for the entire container shipping industry. In bunker procurement, fewer sailings means less bunker demand, although we managed to fulfil all of our commitments thanks to a great initiative from our bunker purchasers in cooperation with our suppliers.

The biggest effect on bunkering has been on the operational side: there have been widespread restrictions from port authorities preventing surveyors boarding foreign vessels and we had to find solutions or we would not have got our measurements or samples for lab testing.

Looking ahead, we have to be prepared for any situation that might develop. Hoping that the second wave won’t come is just not enough.

As for when the container sector will recover, we are still in the middle of the storm but we do see a positive trend in demand, which will hopefully continue through Q3. Being optimistic, we hope the volumes in 2021 will get close to our 2019 volumes.

What are the next steps for shipping after the initial COVID-19 demand shock?

George Griffiths: Based on import and export data from Los Angeles and Long Beach ports since January 2016, there are seasonal low points each year in about March, which is in line with Lunar New Year across East Asia. This year, it is still languishing way below what anyone could possibly call recovery levels.

Shipping is a bellwether for global performance so if the shipping market takes a knock the entire global economy takes a knock.

Economists are saying that this is going to be a fairly tough couple years, or that this might be the worst recession we’ve ever seen, and I don’t think that’s hyperbole. I think we’re really going to see some struggles.

Container carriers have been trying very hard to make sure that they don’t lose as much money as was previously thought. They have taken any additional capacity that they have out of sailings to try and preserve rates. As demand starts to come back into the market, we’re starting to see carriers have a little bit more confidence and rates are going up.

The dry bulk markets have also been able to ride this wave. There’s been a bit of strength coming out to the second half of May and into the start of June because things are opening up and people are suddenly importing again.

Tankers have seen a really difficult year. We saw huge spikes from floating storage but now we’ve seen the market realign itself and we’re currently at multi-month and in some cases multi-year lows. Ships that were previously used as floating storage are re-entering the market, leading to lower rates.

It will be a while until tankers, dry bulk and containers regain their former glory. But the situation looks significantly better than it did a couple of months ago.

How will the European marine fuel markets contend with COVID-19 ramifications?

Tamara Sleiman: This pandemic has put significant pressure on oil prices in 2020 so far but we saw a significant recovery in the fuel oil markets for the month of June. Both 0.5% and 3.5% sulphur marine fuel oil saw significant support towards the end of June.

Looking at the near future: 1% fuel continues to feel the pressure brought by COVID-19. Despite countries starting to ease lockdowns, the European low-sulphur fuel market does not expect a ramp up in demand anytime soon.

There is normally an uptick in 1% fuel demand from utilities as the holiday season surfaces in Europe but we haven’t seen this so far. Despite the slight signs of strength in June demand, the delivered bunkers market remains dampened by reduced shipping operations.

The general outlook for 0.5% bunker fuel demand is one of good availability over the next few months; some market experts are expecting slow growth for bunker demand.

The increase in runs from some European refineries are expected to add further pressure and oversupply to fuel markets. Fuel oil stocks in the Amsterdam, Rotterdam, Antwerp area increased by about 48% between January and June 2020 as coronavirus weighed on demand and prices.

With lockdown measures easing and demand picking up, oil prices have tentatively recovered from their April lows and S&P Global Platts analytics sees daily Brent ranging between $35 to $45 a barrel in the near term.

The modest recovery was reflected in the 0.5% marine fuel market. But the product that has taken us all by surprise is high sulphur (3.5%) fuel. Its strength has put scrubber investments on the backburner with many shippers either postponing or cancelling orders.

The gap between 0.5% marine fuel and 3.5% fuel oil has narrowed quite dramatically. The spread dropped from about $320 per metric ton at the start of January to just $45 per metric ton in late June. That has left shipowners who invested in scrubbers feeling a little cheated, even if the payback economics are still favourable.

Ultimately, the speed of global recovery from the pandemic will determine how bunker and fuel oil prices will develop in the months ahead. The supply overhang and availability, and the ability of OPEC and its allies to remain disciplined over their oil production agreement, will also play a key role.

Has COVID-19 set back the take-up of low sulfur fuels such as LNG?

Finn Fuelbier: We are planning to retrofit the 15,000TEU Sajir, which is quite unique because of its size. The project has been set back a little due to COVID-19 but we’re currently looking at getting the vessel into dock and finishing the retrofitting in late Q1 or Q2 in 2021.
Source: Inatech



Leave A Reply

Your email address will not be published. Required fields are marked *