SSY shares analysis of H1 ‘focused on the three Cs: China, Covid and Carbon’

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After more volatility in the first half of 2021, shipbroker Simpson Spence Young (SSY) analyses the last six months and highlights areas of particular interest in its mid-year outlook. The report looks at various drivers of the shipping markets, including the on-going impact of evolving emissions regulations.

“The first six months of 2021 have been very much focused on the three Cs: China, Covid and Carbon,” comments SSY Chairman Mark Richardson. “The first is still the dominant force in shipping, the second continues to have an impact across the globe, and the third is fast becoming one of the key priorities in sustainable shipping.

Highlights of the report include:

Dry Bulk – “Despite crude steel production growth in January-June of almost 12% in China alongside a comparably robust 14% in the rest of the world, many benchmark steel prices have still managed to soar to record heights.”

Tankers – “China is a major driver of crude tanker demand, but its imports declined through 2Q21 as it reduced spot crude purchasing and utilized domestic stocks that were rapidly built in 2020 when oil prices were low.”

Chemicals – “With copper prices reaching 10-year highs, sulphuric acid became a very desirable commodity, being used in the production of copper. Asia is also one of the major acid exporting regions. During this period, demand soared, and freight rates almost doubled.”

LNG – “The first half of 2021 has been the strongest first half of any LNG shipping year since 2014, with an average price for TFDE vessels of $68,000 / day. Most owners would consider this to be at or above breakeven levels, which, for the traditionally poor half of the year, is very encouraging indeed.”

Dry FFAs – “The FFA market has responded to price volatility with increasing volume as existing traders react to price shifts and new participants come to the market to find a solution to increased exposure to risk. This was driven by demand growth in tonnage from Handysize to Panamax as imports into China boomed after their economy accelerated away from lockdown in Q1 and Q2.”

Green Financing – “We note that capital is increasingly reluctant to finance unproven technologies, even if classified as green. Retrofit financing of open loop scrubbers was deemed green financing just over a year ago, but views have changed drastically since then.”

Decarbonisation – “SSY EEXI/EEDI estimates suggest that less than 25% of Bulkers and Tankers will attain compliance leaving most of the fleet facing either EPLs or another form of CO2 abatement. All these vessels will need to be assessed by class societies, creating a substantial logistical challenge.”