Egypt headline inflation sees surprise dive to 9.4% in June

Vegetable prices increased by 17.6% year-on-year in June. (File/AFP)
Updated 10 July 2019

Egypt headline inflation sees surprise dive to 9.4% in June

  • Analysts said the deceleration is affected in part by lower vegetable prices
  • Fuel prices increased by 16-30% as part of IMF-backed economic reform

CAIRO: Egypt’s annual urban consumer price inflation fell sharply to 9.4% in June from 14.1% in May, official statistics agency CAPMAS said on Wednesday, a significantly bigger drop than analysts had expected.
Analysts said the deceleration was partly due to last year’s high base effect and lower vegetable prices, which are often a key contributor to high inflation.
“That’s a bigger than expected drop,” said Allen Sandeep, head of research at Naeem Brokerage. “Good news for the markets, as this could raise hopes for a rate cut tomorrow.”
The Central Bank of Egypt’s monetary policy committee will meet on Thursday. It held rates steady at its last two meetings, in May and March, after a surprise cut in February.
Of 15 contributors to a Reuters poll, Naeem was the only one to predict a cut on Thursday.
Urban inflation fell month-on-month in June by 0.8% after rising by 1.1% in May, the statistics showed.
“It’s due, in part, to last year’s high rates and also to some falling vegetable prices,” said Angus Blair, chairman of business and economic forecasting think-tank Signet.
Vegetable prices rose 17.6% year-on-year in June, but fell 10% compared to May, CAPMAS said.
Egypt raised fuel prices last week by between 16% and 30% as part of an IMF-backed economic reform program that saw inflation rise to a high of 33% in 2017.
While economists had predicted a softer deceleration in inflation in June, most continued to predict the bank would hold rates until the fuel price hikes’ impact is tested.


Tankers defer retrofits to cash in on freight rates

Updated 49 min 37 sec ago

Tankers defer retrofits to cash in on freight rates

  • The rates for chartering a supertanker from the US Gulf Coast to Singapore hit record highs of more than $17 million and a record $22 million to China earlier this week

SINGAPORE: Tankers that had been scheduled to install emissions-cutting equipment ahead of stricter pollution standards starting in 2020 have deferred their visits to the dry docks to capitalize on an unexpected surge in freight rates, three trade sources said.

US sanctions on subsidiaries of vast Chinese shipping fleet Cosco in September sparked a surge in global oil shipping rates as traders scrambled to find non-blacklisted vessels to get their oil to market.

The rates for chartering a supertanker from the US Gulf Coast to Singapore hit record highs of more than $17 million and a record $22 million to China earlier this week.

By comparison, prior to the sanctions, shipping crude from the US Gulf to China cost around $6 million-$8 million.

The extraordinary spike in freight rates proved too good to miss for some shipowners who were due to send vessels to the dry docks for lengthy retrofitting and maintenance work.

“We can confirm several owners have postponed dry docking earlier scheduled for the months of October and November to take advantage of the skyrocketing freight rates,” said Rahul Kapoor, head of maritime and trade research at IHS Markit in Singapore.

The shortage of ships to move crude oil was so acute that some shipowners also switched from carrying so-called “clean” or refined fuels like gasoline to “dirty” cargoes that include crude oil, despite the costs of having to clean them later.

“Current rate levels are a no-brainer for pushing back scrubber retrofitting,” said Kapoor.

Starting Jan. 1, 2020, the International Maritime Organization (IMO) requires the use of marine fuel with a sulfur limit of 0.5 percent, down from 3.5 percent currently, significantly inflating shippers’ fuel bills.

Only ships fitted with expensive exhaust cleaning systems, known as scrubbers, which can remove sulfur from emissions, will be allowed to continue burning cheaper high-sulfur fuels.

Ships must be sidelined for up to 60 days for fitting these, according to IHS Markit and DNV GL.

While freight rates have abruptly come off their recent highs, shipowners can still profit from the higher charges.

“One cargo loading at current elevated rate levels can not only finance the scrubber capex, but also account for extra costs incurred to install the scrubber at a later date,” said Kapoor, referring to the capital expenditure of fitting the scrubber.

Freight rates are expected to hold firm for the rest of the year.

“With seasonal demand support and tanker supply deficit still pronounced, we expect (fourth-quarter) tanker freight rates to stay elevated and end the year on a high note,” Kapoor said.