Weekly Analysis:
– “This Week’s Snapshot on the economic and shipping environment” .
Special Edition: S&P MARKET TRENDS (SECONDHAND-DEMOLITION-NEWBUILDING MARKET), describing the pace of activity up to date.
Please read below in a text format, this Week’s short news:
Global Economy:
World Bank Estimates for Global Growth – January 2015
The global economy is still struggling to gain momentum as many high-income countries continue to grapple with legacies of the global financial crisis and emerging economies are less dynamic than in the past.
Global growth in 2014 was lower than initially expected, continuing a pattern of disappointing outturns over the past several years. Growth picked up only marginally in 2014, to 2.6 percent, from 2.5 percent in 2013.
Several major forces are driving the global outlook: soft commodity prices; persistently low interest rates but increasingly divergent monetary policies across major economies; and weak world trade. In particular, the sharp decline in oil prices since mid-2014 will support global activity and help offset some of the headwinds to growth in oil-importing developing economies. However, it will dampen growth prospects for oil-exporting countries, with significant regional repercussions.
Overall, global growth is expected to rise moderately, to 3.0 percent in 2015, and average about 3.3 percent through 2017. High-income countries are likely to see growth of 2.2 percent in 2015-17, up from 1.8 percent in 2014, on the back of gradually recovering labor markets, ebbing fiscal consolidation, and still-low financing costs. In developing countries, growth is projected to gradually accelerate, rising from 4.4 percent in 2014 to 4.8 percent in 2015 and 5.4 percent by 2017. Lower oil prices will contribute to diverging prospects for oil-exporting and -importing countries, particularly in 2015.
Shipping:
Skepticism is emerged from Chinese shipowners for a shipping recovery in 2015. Αccording to a survey by Shanghai International Shipping Institute (SISI), Chinese shipowners are mostly not holding hopes of a shipping recovery this year due to the lingering oversupply of vessel tonnage. More than half of the 240 respondents believed that 2015 will continue to be a grim year for the shipping market by too many ships in a low freight rate environment. SISI revealed that 54.55% of those shipping companies surveyed anticipated that the oversupply will persist throughout this year, while 39.39% saw signs of recovery, but the outlook remains uncertain. Only 6.06% expected the market to upturn in the upcoming year. “Many shipping enterprises saw the benefits of lower fuel prices and taxes, but the fundamental problem of an oversupply of ships remains unresolved, dashing any hopes of a sustainable recovery, “SISI commented. The SISI survey pointed to a confidence index by Chinese shipowners of 83.26 points for the first quarter of 2015, down from 91.45 points in the previous quarter, due mainly to the market’s demand-supply imbalance.
Bunker prices slip to near 6- year record lows. Benchmark prices for IFO 380 fell below $300 pmt in previous week for the first time since April in major ports (Singapore, Rotterdam, Fujairah and Houston). Bunker traders have already anticipated prices to fall below $300 pmt due to the bearish crude oil market and product glut. “We have not seen the bottom of bunker prices yet. It is not suprising to see crude oil prices continue to fall further and with it a further downside to the bunker market”, a Singapore-based industry player told Seatrade Asia Week. A trader explained that part of the reason for the slow market is due to the tightening of credit after the collapse of major bunker trader OW Bunker in November last year. The Asian fuel market, however, is expected to pick up before Chinese New Year on 19-20 February, a typical annual trend as fuel buyers seek to secure products before the long holidays.
Dry Segment: Downward pressure with negative sentiment is being kept for drybulk vessels with record weak performance in all vessel categories. There is a small increase in Chinese iron ore fixture volume with an average number of about more than 20 iron ore vessel fixtures since the beginning of December last year. Despite the almost steady healthy volume of drybulk iron ore fixtures, the excess vessel capacity could not be absorbed from the current demand and charter rates persist to hover at levels of less than $6,000/day. However, Chinese iron ore fixture volume has not yet fully recovered with less than 20 vessels being chartered to haul iron ore, from about less than 30 during the week ending November 21, 2014.
On Friday January 16th, BDI closed at 741 points, up by 5% from last week’s closing and down by 48% from a similar week closing in 2014, when it was 1421 points. All dry indices closed in red, apart from the large improvement in the capesize segment. BCI is up by 99% week-on-week, BPI is down by 1% week-on-week, BSI is down 11% week-on-week, BHSI is down by 6% week-on-week.
Capesizes are currently earning $5,945/day, up by $2,630/day from last week’s closing and panamaxes are earning $6,057/day, down by $38/day from last week’s closing. At similar week in 2013, capesizes were earning $15,132/day, while panamaxes were earning $12,470/day.Supramaxes are trading at $7,487/day, down by $874/day from last week’s closing, about 26% higher than capesize and 24% higher thanpanamax earnings. At similar week in 2014, supramaxes were getting $12,186/day, hovering at 19% lower levels than capesizes versus 26% today’s higher levels. Handysizes are trading at $6,290/day, down by $386/day from last week’s closing; when at similar week in 2014 were earning $10,301/day.
Wet Segment: The New Year opened with firmness in the VLCC and aframax segment, while a soft downward trend is recorded in the suezmax segment. The buoyant sentiment is supported by the strong plunge of brent oil prices below $50/barrel this week from more than $100/barrel during a similar week in 2014. Chinese buyers are exploiting the current price trends and Chinese crude imports surged to record levels in December after a buying spree as the government in Beijing accelerated stockpiling. China’s oil imports surpassed 7m barrels a day for first time in December 2014. Overseas purchases increased to 30.4 million metric tons last month, according to preliminary data released by the General Administration of Customs. The daily levels of Chinese imports are estimated about 7.19 million barrels, up from the previous high of 6.81 million in April.
In the VLLC segment, rates in AG-USG moved up by 6.5 points to WS39, from more than WS33 during December 2014. In AG-SPORE and AG-JPN routes, moved up to WS70, up by 11.5 points from end December levels. In WAFR-USG, rates increased by 5 points to WS77.5, and in WAFR-China route moved up by 7.5 points to WS70.
In the suezmax segment, rates in WAFR-USAC fell to levels WS92.5, down by 7.5 points from end December. In the aframax segment, rates in the Caribbean market gained 20 points and increased to WS140 (from levels above WS160 at the end of October).
Route Vessel Size
VLCC: AG-USG 280,000t WS 39 (Dec 31 WS 32.5) Upward Trend
TCE- Abt ≈$35,000/d
AG-JPN 265,000t WS 70 (Dec 31 WS 58.5) Upward Trend
TCE- Abt ≈$72,000/d
AG-SPORE 270,000t WS 70 (Dec 31 WS 58.5) Upward Trend
TCE- Abt ≈$76,000/d
WAFR-USG 260,000t WS 77.5 (Dec 31 WS 72.5) Upward Trend
TCE- Abt ≈$73,000/d
WAFR-China 260,000t WS 70 (last week WS 62.5) Upward Trend
TCE- Abt ≈$73,000/d
Route Vessel Size
Suez: WAFR-USAC 130,000t WS 92.5 (Dec 31 WS 100) Downward Trend
TCE- Abt ≈$45,000/d
B.SEA-Med 130,000t WS 105 (Dec 31 WS 115) Downward Trend
TCE- Abt ≈$67,000/d
Route Vessel Size
Afram: CBS-USG 70,000t WS 140 (Dec 31 WS 120) Upward Trend
TCE- Abt ≈$43,000/d
Route Vessel Size
Clean: AG-JPN 75,000t WS 95 (Dec 31 WS 90) Upward Trend
TCE- Abt ≈$26,500/d
AG-JPN 55,000t WS 127 (Dec 31 WS 120) Upward Trend
TCE- Abt ≈$29,400/d
LNG Segment: Egypt is going to complete an agreement with Russia’s Gazprom for the company to supply it with liquefied natural gas (LNG) shipments later this month, Egyptian Oil Minister Sharif Ismail told Reuters on Sunday. Egypt agreed in principle last April for Gazprom to supply seven LNG shipments to help it meet gas supplies needed to face its worst energy crisis in decades. A Gazprom delegation would visit Egypt in mid-January, Ismail told Reuters by phone. If successful, the Gazprom deal would be the second LNG import agreement since Egypt finalized a deal for the necessary import infrastructure in November. The country of 86 million relies heavily on gas to generate power for households and industry, but has had difficulty securing imports because it lacks a terminal to process LNG. Egypt has turned from an energy exporter to a net importer due to increasing consumption and decreasing production.
Meanwhile, the sustained plunge in oil prices has already started to influence US LNG projects. Excelerate Liquefaction Solutions (Excelerate) has filed a motion requesting that FERC hold Excelerate’s Lavaca Bay LNG Export Project (Project) application in abeyance until April 1, 2015. Excelerate states that “r]ecent global economic conditions—including, among other things, a steep decrease in the price of oil—have created uncertainty regarding the economics of the Project,” and therefore Excelerate has determined to place the Project on hold pending a change in circumstances. The proposed Project consists of floating liquefaction storage and offloading units (FLSOs) for an LNG export terminal at the Port of Port Lavaca-Point Comfort, Texas, and an interconnecting pipeline.
The US is expected to start deliveries of liquefied natural gas at the end of the year, a move aimed at loosening European dependence on Russian energy, said Amos Hochstein, US State Department Coordinator for International Energy Affairs. The first shipments will be delivered to India and Japan, but other markets are likely to emerge in the near future, Hochstein said during a talk at the Atlantic Council. The US and the EU have long been discussing loosening Europe’s dependence on Russian energy sources. The talks became more intense amid geopolitical tension over the crisis in Ukraine. Western countries have repeatedly suggested imposing sanctions on Russia in the energy sector. In December Russia announced the cancellation of the South Stream project. Now Gazprom is going to use the already constructed South Stream infrastructure in Russia to build a new gas pipeline across the Black Sea to Turkey.
With new major players emerging in the global energy market, the world production capacity of LNG can at least double by 2020. The construction of 20 LNG plants with total capacity of up to 200 million tons per year has been claimed in North America. Ten plants (six in the US and four in Canada) have already received export licenses for 100 million tons per year. In this way the US can increase the supplies of LNG to 45 million tons per year by 2020 with around a third of the volume directed to Europe, according to the Skolkovo innovation center experts’ estimates.
LPG Segment: One-year VLGC, MGC, and handysize time charter rates currently sit at 59,000/day (up 69% yr/yr), 33,000/day (up 22% yr/yr), and 34,000/day (up 14% yr/yr), respectively, as tightening fundamentals and
firm sentiment within the LPG space continue to support a healthy rate environment. LGC one-year time charter rates are currently at $61,000/day (up 87% yr/yr), unchanged from prior week and representing a 4% discount to peak LGC levels ($63,500/day).
Container Segment: The Shanghai Container Freight Index remains above 1,000 points from December 2014, with the largest weekly decrease recorded in Asia-Europe route. The index ended at 1006 points last week, 43 points down from end December’s closing (down by 4%) and down by 189 points from the levels of beginning August.
In Asia-Europe route, rates decreased to $975/TEU, down by $110/TEU (10% from end Dec 2014) and in Asia-Med, rates moved down by $67/TEU (5% from end Dec 2014) and concluded at $1,174/TEU. The levels in Asia-Europe route are now down by $480/TEU from the beginning of August and down by $434/TEU in Asia-Med route.
In transpacific routes, rates moved down by $128/FEU (6% from end Dec 2014) and in Asia-USWC, the levels are almost steady from end Dec 2014 levels. Rates in Asia-USWC route concluded at $1,930/FEU and $4,500/FEU in Asia-USEC route. Compared with the beginning of August, rates in Asia-USWC route are down by $268/FEU and up by $313/FEU in Asia-USEC route. Rates in Asia-USWC are now below the barrier of $2000/FEU, while in Asia-USEC route keep levels above the barrier of $4000/FEU from November 2014.
Against the fragile momentum in the freight market, Japanese shipping player Mitsui OSK Lines is planning to order 20,000 TEU boxships the largest yet to be built. Commenting on the containership business in his New Year message MOL president Koichi Muto said: “As far as the structural problem our containership division faced, we have already taken steps to reform the business, such as upgrading the fleet with the world’s largest containership – 20,000 teu – to make us more cost competitive.” No details were given but MOL has been tendering to buy 20,000 teu newbuildings through a third party charter deal. The largest containership currently in service is the 19,000 teu CSCL Globe which is set to be eclipsed this month by the 19,224 teu MSC Oscar. Looking at the containership business as a whole Muto said, “With global economic expansion, containerised cargo trade is certain to keep growing so the containership business, including container terminals, represents a growth opportunity.”
Shipbuilding: Chinese shipyards’ new orders fell 14.2% year on year to 59.95M dwt in 2014 as new orders slumped y/y in December 2014. In December 2014, the number tumbled 82.3% y/y to 3.19M dwt, reversing the gains made for the period from January to November 2014, according to statistics released yesterday by China’s Ministry of Industry and Information Technology. In the first 11 months of 2014, the new orders rose 9.4% y/y to 56.76M dwt. The orderbooks of the Chinese shipbuilders grew 13.7% y/y to 148.90M dwt at the end of 2014, due to the surge in new orders placed at Chinese yards since mid-2013. The completed tonnage at the Chinese yards fell 13.9% y/y to 39.05M dwt in 2014. The fall in completed tonnage came as the new orders won by Chinese yards since mid-2013 have yet to be delivered. China retained the status of the world’s largest shipbuilder for 2014, winning 50.5% of all new orders placed worldwide, up 2.6 percentage points from 2013. The new orders continued to migrate to the top-10 yards in China in 2014. The 10-largest Chinese yards bagged 55.5% of all orders placed in China in 2014.
Shipping Finance:
Capital Market: Golar LNG Limited (“Golar” “GLNG” or “the Company”) announced that it is offering 7,170,000 common units, representing limited partner interests in Golar LNG Partners LP (“Golar Partners” or the “Partnership”) as a selling unitholder in the public offering announced on January 8, 2015 by Golar Partners (the “Offering”).
Golar intends to use the net proceeds of the Offering to fund a portion of the recently announced contract with Keppel Shipyard to convert one of its first generation LNG carriers, Gimi, into a floating natural gas liquefaction facility (GoFLNG). These proceeds will be in addition to the net proceeds expected to be received over the next two years from the recently announced USD $390 million sale of the Golar Eskimo to Golar Partners when Golar Partners refinances the USD $220 million loan from Golar to be made in connection with the closing of the acquisition.
Star Bulk Carriers Corp. announced that it has priced its underwritten public offering of 49,000,418 of its common shares at a price of $5.00 per share. The offering is expected to close on January 14, 2015, subject to customary conditions. The Company intends to use the net proceeds from the offering for its newbuilding program and general corporate purposes. Oaktree Capital Management, L.P. (“Oaktree”), Angelo, Gordon & Co. (“Angelo, Gordon”), Monarch Alternative Capital, LP (“Monarch”) and family members and entities owned and controlled by affiliates of the family of Mr. Petros Pappas, our Chief Executive Officer (the “Pappas Shareholders”), which are four of the Company’s significant shareholders, are expected to purchase approximately 37,250,418 of the common shares in this offering. Jefferies LLC and Morgan Stanley & Co. are acting as joint book-running managers for the offering. ABN Amro N.V., Credit Agricole Corporate and Investment Bank, DNB ASA and DVB Bank SE are acting as co-managers for the offering. The underwriters have a 30-day option to purchase up to an additional 1,762,500 common shares.
Shipping Finance Deals:
Baltic Trading Limited announced that it has entered into a new credit agreement with Nordea Bank Finland plc and Skandinaviska Enskilda Banken AB for a $148 million senior secured credit facility.
Dorian LPG Limited announced that is has received commitments for up to $761 million of debt financing for its VLGC newbuilding program. ABN AMRO Capital (USA), LLC (“ABN AMRO”) is acting as Global Coordinator, and Citibank, NA, London Branch (“Citibank”) is acting as Export Credit Agency Coordinator.
DryShips Inc, a global provider of marine transportation services for drybulk and petroleum cargoes, and through its majority owned subsidiary, Ocean Rig UDW Inc. (“Ocean Rig”), of offshore deepwater drilling services, announced that Ocean Rig has received firm commitments from lenders for up to a $475 million syndicated secured term loan to partially finance the construction costs of the Ocean Rig Apollo. The facility amount is for the lesser of $475 million and 70% of the fair market value of the drillship. This facility has a 5 year term, and approximate 12 year repayment profile, and bears interest at LIBOR plus a margin. This financing is led by DNB and the lending syndicate consists of DVB Bank and potentially other commercial lenders as well as KEXIM.
This agreement is subject to definitive documentation which Ocean Rig expects to complete in the following weeks.
Maritime Piracy: Piracy and armed robbery along Bangladesh’s coasts, especially near sea and river ports, have doubled, raising the number of incidents to 11 in 2014 from six in 2013, officials said. The Regional Cooperation Agreement on Combating Piracy and Armed Robbery against Ships in Asia (ReCAAP) Information Sharing Centre (ISC) has expressed its concern over the rise of incidents and urged Bangladesh to take steps to combat it, they added. “The ReCAAP ISC urges the authorities to step up enforcement at Chittagong anchorages, and the masters to exercise vigilance and report all incidents to the authorities,” the regional body said in its annual report. According to the report, of 11 incidents which occurred during the January-September period of 2014, eight occurred at Chittagong anchorages. “In most cases, the robbers boarded the vessels in groups of 5-10, except in some cases when the robbers approached in a relatively larger group of 30 which happened in the incident involving Malta-registered bulk carrier Loyalty,” the report mentioned. It also said eight out of 11 incidents involved robbers carrying knives but in most cases, they were not violent except in the incident involving Singapore-registered LPG tanker Gas Batam where the robbers assaulted the duty watchman on deck by throwing stones at him.
A report by the International Maritime Bureau launched today shows a remarkable drop in Somali-based piracy, falling from 236 incidents in 2011 to just 11 in 2014. The fall indicates that the military operation combined with industry best practices has finally had a significant impact on piracy in the Indian Ocean. But the UK Chamber has warned that significant progress made in the Indian Ocean should not mask significant security threats to shipping and seafarers in other regions, both off West Africa and in South East Asia. – where a violent ‘petro-piracy’ is thriving. UK Chamber CEO Guy Platten said:
“These new figures are welcome, and show that military and civil cooperation has made a huge difference to solving maritime security concerns. “But whilst most of the media and Hollywood attention has been focused on Somali-based piracy, the worrying trends emerging in the Gulf of Guinea and Singapore Straits have received little attention. “This new form of maritime criminality, which often has links to shore-based oil theft, is taking place within the jurisdictions of functioning nation-states, but ones that pay little attention to maritime security and governance. Put simply, these regions have become a breeding ground for future pirates. “Unlike in Somali-based piracy, these new threats do not require a military response. Rather, the UK and other global leaders should pressure governments in West Africa and South East Asia to develop better maritime governance structures and stronger law enforcement.” Source: UK Chamber of Shipping
