Shipping sector still in rough seas, says CIMB

The outlook remains challenging due to overcapacity and slower global growth.

CIMB noted:

Market review
Container rates on the Asia-Europe trade were unable to hold their ground, falling 3.2%-4.2% wow. Proposed surcharges of US$400-500/teu on 1 July by several carriers were only partially successful.

As rates have fallen this week, it seems likely that there will be further downward pressure on the AE trade in the coming weeks. For the Transpacific trade, rates have also dipped but overall, rates have done pretty well after the 10 June hike. Slot utilisation for TP remains at 90%, while it is around 80% for the AE trade.

In the dry bulk sector, capesize rates have rallied on a strong flow of iron-ore cargoes from Australia, with rates now above cash costs. However, most brokers are not very confident that rates can stay at these levels, as some idle ships could re-enter the market.

VLCC rates have hit their lows of 2012 and are just marginally above cash breakeven costs. The shutdown of the Motiva refinery in Texas and build-up of oil inventories in 1H12 have reduced the appetite for oil imports.

In the near term, oil prices could fluctuate on threats by Iran to close off the Strait of Hormuz and the shutdown of the Ras Lanuf port, one of Libya’s oil terminals due to the presence of armed protestors.

Our take
The outlook for the shipping sector is still challenging due to overcapacity and slower global growth. Easing bunker prices could start to flow through to earnings in 3Q12.