Not yet time for carriers to rejoice spot rate rise

Exit of Germany’s Commerzbank, the second-largest ship financier globally proves a worry.

Carriers’ plan to raise spot rates on the AE trade by US$500/teu saw some success last week, with SCFI rates rising US$207-339/teu but CIMB cautions of further downside risks as Greece exits.

Here's from CIMB analyst Raymond Yap:

Conditions in shipping still look challenging. The consolation is that lower bunker prices should begin to flow through to earnings in 3Q12.

Transpacific rates continued to decline for a second week, falling a cumulative US$79-168/feu after a relatively successful US$400/feu hike around 10 June.

Given the high slot utilisation and the likelihood of a good peak season in the coming three months, we expect TP rates to hold at relatively high levels.

However, as A/NE capacity is expected to rise a further 8% qoq in 3Q12, spot rates could weaken again.

Despite a small recovery, capesize rates are still languishing below breakeven. Chinese steel prices have been declining almost continuously since 3Q11 and sapping strength from the iron ore import markets.

Further steel production cuts are likely in 3Q12. Supramax and handysize rates rose due to port congestion in Brazil.

Meanwhile, there was not much recovery on the crude tanker side. The most unfortunate news is that the delay to
the start-up of the Motiva refinery in the US could depress Mid East-US Gulf crude shipments for six months or more.

VLCC players have good reason to be worried as spot rates are below breakeven.

Finally, Germany’s Commerzbank, the second-largest ship financier globally, announced last week that it was exiting the business.

This has negative implications for secondhand ship prices but will benefit cash-rich shipowners and help prevent a repeat of massive newbuilding orders.