The LNG and LPG markets, especially the VLGC one, is expected to trend higher over the coming weeks and months, as ton-mile demand will increase significantly. In its latest weekly report, shipbroker Xclusiv said that “the El Niño, a natural climate phenomenon marked by warmer-than-average sea surface temperatures in the central and eastern Pacific Ocean near the equator which occurs on average every 2-7 years, is in jeopardy to affect global shipping. In July 2023, global average sea surface temperatures reached a record high of 20.96 Celsius. According to the National Oceanic and Atmospheric Administration (NOAA), El Niño is forecasted to reach the most significant level after the strongest ever recorded El Niño of 2014-2016 which fostered the warmest winter across the contiguous US. Although no El Niño winters are alike, the pattern typically brings cooler and wetter weather to the south, while it becomes dryer and warmer in the north”.
According to the shipbroker, “one significant El Niño’s impact is the Panama Canal’s unprecedented drought, as the Panama faces its driest rainy season in decades. The Panama Canal Authority has gradually tightened restrictions on the number and size of ships allowed to pass through Gatun Lake, the largest artificial lake feeding into the canal system, due to the reduced than usual rainfall (it is almost 41% down). The authority announced that by 1st February 2024 the average daily transits will gradually reduce to 18, far below the current number of 31 ships per day, and the maximum sustainable capacity of 38-40 daily transits. Restrictions on Panama Canal are going to affect all 4 main sectors, with several large tankers likely to stop transiting the Panama Canal by the beginning of next year. VLGCs are also likely to be driven out as a maximum of one vessel may go through the canal, providing a further sign of optimism for VLGC spot rates. This will result in dramatic changes in seaborne gas and oil trading patterns, stretching the tonne/mile picture in the process”.
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Xclusiv added that, “it’s not only the Panama Canal that will be hit by the El Niño, but also grain harvests. Although 2022/2023 Brazil’s grain harvests were record breaking, there are now fears about the next crops as harsh weather conditions are disrupting both northern and southern soybean-production areas. The unusual dry weather in Brazil, experiencing the hottest and driest October in at least a quarter of a century, especially in the Mato Grosso region, has raised concerns that farmers may have to replant soy fields, which could push back second corn planting. Reduced harvest may also affect the dry bulk market, especially in the small/medium sizes”.
Meanwhile, the shipbroker also noted that “dry bulkers’ market has witnessed a strong rally within the last two months, which was halted on 18 October 2023, with the BDI reaching 2,105 points, a 98% increase since 5 September 2023. This movement was mainly supported from the Capesize sector, which saw its 5 T/C Routes average increasing by 276%. Since then, Capesize index has had 11 consecutive negative sessions before showing some signs of life this past Friday with a 13.28% rebound. Capesize market was boosted mainly by a lack of tonnage in the Atlantic basin and a rate increase in iron ore route from Western Australia to China. The high volatility in dry bulk freight rates is not unusual especially when the dry bulk market has a weak year and is combined with a time of the year when all dry commodities are usually in high demand compared to other periods. Following the freight rates rally, sale and purchase transactions in the dry bulk market also increased during September and October when compared to the previous two-month period of July and August. A total of 124 bulkers changed owners since the start of September while during July and August only 89 vessels were sold. The impressive fact is that more than half (24) of the 41 Capesize sales of the last 4 months took place in July and August, before the positive spree of the BCI. While BCI was leading the race, dragging the BDI with it, owners turned their interest mainly to Handysize, Supramax and Panamax vessels, whose rates didn’t follow the significant rise of the Capesize market. Secondhand prices have also increased, following the indices rally, but mainly the older and bigger vessels saw a significant price change. Prices of a 15 year old Capesize, 10 year old Kamsarmax and 15 year old Panamax have increased about 9% since 5 September 2023, while prices of 5 year old vessels, regardless the size, have minor increases (less than 3%)”.
Nikos Roussanoglou, Hellenic Shipping News Worldwide