Weekly Analysis:
– “This Week’s Snapshot on the economic and shipping environment” .
Special Edition:
– Special Edition: S&P MARKET TRENDS (SECONDHAND-DEMOLITION-NEWBUILDING MARKET), describing the pace of activity up to date.
Global Economy:
Fitch Ratings cut its global growth forecasts for 2015 and 2016 on weaker emerging markets.
Fitch, in its press release on December 8th, said that a buoyant US economy will drive global growth in the coming years as recovery continues to falter in the Eurozone, Japan and many large emerging economies and lowered marginally its global growth forecasts by 0.1% for 2015 and 2016 from September’s Global Economic Outlook. In the latest forecasts, Fitch estimates world GDP growth at 2.5% in 2014, the same as in 2013, rising to 2.9% in 2015 and 3% in 2016.
Eurozone: Fitch emphasizes strongly that eurozone recovery remains fragile with wekaness widespread across member countries in the both the periphery and the core. A pick up in German demand seems to be the remedy for euro prosperity. It projected euro growth at 0.8% in 2014 and 1.1% in 2015, while it keeps unchanged the growth rate for 2016 at 1.5%. Eurozone inflation and high unemployment ratio will remain the struggling issues for the next two years. Fitch foresees that euro unmployment rate will persist and remain above 11% till 2016 and for eurozone inflation projects 0.6% in 2014, 0.9% in 2015 and 1.3% in 2016.
US: Fitch maintained its US GDP growth forecast at 3.1% in 2015 and 3% in 2016, the strongest among major advanced economies, up from 2.3% in 2014, while unemployment rate dropped to record lows of 5.8% in October. “The US economy expanded at a rapid annualized 3.9% in 3Q14. Private consumption will be a key growth driver, supported by rising household disposable income and a strengthening labor market,” Fitch said.
Emerging Economies: Fitsch projects more persistent weakness than previously expected with growth slowing to 4% in 2014 from 4.7% in 2013, 4.1% in 2015 and 4.5% in 2016. “Brazil entered a technical recession earlier this year and Fitch expects another challenging year in 2015 with GDP growth of just 1%, as the new government tightens economic policies to address the imbalances that have developed in recent years and to revive confidence.”
“Russia will fall into recession in 2015 with GDP contracting 1.5% under the combined weight of western sanctions, sharply lower oil prices and tightening financial conditions. Investment remains firmly in negative territory, real wage growth is close to zero and household demand is marking time.” “India will be the only BRIC country where growth picks up in 2014 to 5.6% and accelerates to 6.5% in 2015 and 6.8% in 2016, owing to the government’s reforms to the business environment,” the ratings agency said.
China: China’s imports drop unexpectedly in November and exports’ growth slowed fuelling concerns about the strength of the world’s second largest economy. Exports rose 4.7% from a year earlier and imports dropped by 6.7%, marking the biggest drop since March, according to data released by the General Administration of Custom. However, the trade surplus recorded $54.5bn, despite analysts’ expectations for 8.2% growth in exports and 3.9% increase in imports. Fitch estimated Chinese growth to moderate to 7.3% in 2014, 6.8% in 2015 and 6.5% in 2016. Meanwhile, the risk of Chinese deflation deepens as the increase of consumer prices in November was the lowest since 2009. Consumer prices rose 1.4% in November compared with 1.6% increase in October.
Shipping:
Fitch Ratings has revised the shipping sector outlook to stable for 2015, from negative for 2014, due to expected modest improvement in sector fundamentals, albeit against a backdrop of persistent oversupply and volatility in rates.
In a newly-published report, Fitch said performance will vary across segments with tanker, and, to a lesser extent, dry-bulk shipping demonstrating moderate improvements. The LNG and offshore segments will maintain their sound performance, and container shipping will remain under pressure. The ratings agency expects that overcapacity will continue to be the key factor underlying the shipping sector’s weakness in 2015, although to a varying degree, depending on the segment. Freight rates will likely remain volatile across all shipping segments, adds Fitch, which forecasts that container freight rates will remain weak in 2015. Nonetheless, a recovery in tanker rates, supported by moderating supply growth and growing oil consumption, is expected.
Dry Segment: Last week’s closing recorded a steep fall in the Baltic Dry Index below the psychological barrier of 1,000 points. The sharp weakness in the capesize segment supported the recent negative sentiment; while the performance of freight rates in the supramax segment surpass the levels of the panamax. Overall, dry bulk spot chartering activity was on increase last with 118 vessels being chartered to haul dry bulk commodities in the spot market, 20 more than the previous week. In addition, 4 vessels were chartered for period deals, 1 less than the previous week. For a third straight week, there was a small amount of vessels chartered to ship Brazilian iron ore ore with only five vessels being chartered. The improved sentiment in the supramax segment is aided by Australian coal and Indonesian coal cargoes surfacing in the market.
What is noteworthy for this week is the recent announcement from Vale for reducing its iron ore production forecast for 2015 to 340 million tons, from 348 mil tons. Vale’s forecasts for 2016, 2017, and 2018 remain unchanged at 376 million tons, 411 million tons, and 453 million tons respectively which is very encouraging. Iron ore fixture volume is currently on a weekly decrease with 26 vessels being chartered last week to haul iron ore, 2 less than the previous week and 6 less than the trailing four week average. 23 of last week’s iron ore fixtures were for capesize vessels, 3 less than the previous week and 7 less than the trailing four week average. However, Chinese iron ore fixture volume saw a small decrease last week with 20 vessels being chartered to haul spot iron ore cargoes to Chinese buyers, 1 less than the previous week and 8 less than the trailing four week average.
On Friday December 12th, BDI closed at 863 points, down by 12% from last week’s closing and down by 63% from a similar week closing in 2013, when it was 2330 points. All dry indices closed in red, the largest weekly decrease is recorded in the capesize segment. BCI is down by 40% week-on-week, BPI is down by 8% week-on-week, BSI is down 2% week-on-week, BHSI is down by 1% week-on-week.
Capesizes are currently earning $4,902/day, down by $3,523/day from last week’s closing and panamaxes are earning $7,976/day, down by $267/day from last week’s closing. At similar week in 2013, capesizes were earning $35,710/day, while panamaxes were earning $16,728/day.Supramaxes are trading at $9,937/day, down by $221/day from last week’s closing, about 103% higher than capesize and 25% higher thanpanamax earnings. At similar week in 2013, supramaxes were getting $16,242/day, hovering at 57% lower levels than capesizes versus 103% today’s higher levels. Handysizes are trading at $7,223/day, down by $28/day from last week’s closing; when at similar week in 2013 were earning $11,637/day.
Wet Segment: The second week of December highlights positive prospects for the VLCC segment with uncertaintly about the stability of the current euphoria, while a downward trend is recorded in the suezmax and aframax segments.
In the VLLC segment, rates in AG-USG stayed at WS32 for two straight weeks, while at similar week in December 2013 were at similar strongly and higher levels than today surpassing even the barrier of WS 35. In AG-SPORE and AG-JPN routes, rates stayed also steady at WS 60, showing the same performance of the end 2013. In WAFR-USG, rates decreased by 5 points to WS70 and in WAFR-China route moved up by 2.5 points to WS60.
In the suezmax segment, rates in WAFR-USAC weakened to levels below the barrier of WS80, when at the end of week November 21st were floating above WS130. In the aframax segment, rates in the Caribbean market recorded a weekly decrease of 7.5 points and concluded at WS 112.5 (from above WS160 at the end of October).
Route Vessel Size
VLCC: AG-USG 280,000t WS 32 (last week WS 32) Steady
TCE- Abt ≈$20,000/d
AG-JPN 265,000t WS 60 (last week WS 60) Steady
TCE- Abt ≈$54,000/d
AG-SPORE 270,000t WS 60 (last week WS 60) Steady
TCE- Abt ≈$57,000/d
WAFR-USG 260,000t WS 70 (last week WS 75) Downward Trend
TCE- Abt ≈$66,000/d
WAFR-China 260,000t WS 60 (last week WS 57.5) Upward Trend
TCE- Abt ≈$55,000/d
Route Vessel Size
Suez: WAFR-USAC 130,000t WS 77.5 (last week WS 112.5) Downward Trend
TCE- Abt ≈$33,000/d
B.SEA-Med 130,000t WS 90 (last week WS 130) Downward Trend
TCE- Abt ≈$48,000/d
Route Vessel Size
Afram: CBS-USG 70,000t WS 112.5 (last week WS 120) Downward Trend
TCE- Abt ≈$26,000/d
Route Vessel Size
Clean: AG-JPN 75,000t WS 105 (last week WS 110) Downward Trend
TCE- Abt ≈$30,000/d
AG-JPN 55,000t WS 110 (last week WS 119) Downward Trend
TCE- Abt ≈$20,000/d
Oil and gas exploration projects of more than $150bn are facing the risk of cancellation from the current sharp drop of oil prices. The outlook for onshore and offshore developments – from the Barents Sea to the Gulf or Mexico – looks as uncertain as the price of oil, which has plunged by 40 percent in the last five months to around $70 a barrel. Next year companies will make final investment decisions (FIDs) on a total of 800 oil and gas projects worth $500 billion and totaling nearly 60 billion barrels of oil equivalent, according to data from Norwegian consultancy Rystad Energy.Chevron’s North Sea Rosebank project is among those with a shaky future and a decision on whether to go ahead with it will likely be pushed late into 2015 as the company assesses its economics, analysts said. “This project was not deemed economic at $100 a barrel so at current levels it is clearly a no-go,” said Bertrand Hodée, research analyst at Paris-Based Raymond James. In addition, Norway’s Statoil said it had postponed until next October — a six-month delay — a decision to invest $5.74 billion in the Snorre field in the Norwegian Sea as its profitability was under threat.
Projects in Canada’s oil sands, which require expensive and complex extraction techniques, are the most unlikely to go ahead given their high investment requirements and relatively slow returns. Total recently decided to postpone the FID on the Joslyn project in Alberta, the cost of which is estimated at $11 billion. Shell’s liquefied natural gas (LNG) project in Canada’s British Columbia, already under pressure from a looming supply surge, faces further strain in the current price environment, analysts said. Royal Dutch Shell’s chief financial officer Henry Simon indicated in October that it was “less likely” to go ahead with unconventional projects in West Canada if oil falls below $80 a barrel.
LNG Segment: The price of liquefied natural gas in Asia has fallen to its lowest levels in nearly four years, which is unusual for the winter period.LNG prices have sunk below $10 per million British thermal units, down nearly 50% from a year earlier, as the region’s largest buyers–Japan and South Korea–are already stocked up for winter and supply is pouring in from new gas producers, according to Singapore-based traders. About 235 million metric tons of LNG is traded globally each year and about 75% of that is bought and consumed in Asia. Demand from two major buyers, Japan and South Korea, has largely stagnated. Two of Japan’s nuclear power reactors are expected to restart next year, further lowering LNG demand. Traders said Japanese and South Korean buyers are so well stocked that they aren’t able to take advantage of the current low LNG prices. Other countries including India, China and Thailand have been purchasing LNG at low prices, though supply has outstripped demand.
Papua New Guinea was the newest producer to add fresh LNG supply to the market this year. BG Group PLC’s Queensland Curtis project in Australia will further increase supply when it exports its first cargo in December. It has a 20-year supply contract with China National Offshore Oil Corp., or Cnooc. As winter picks up, LNG prices are expected to rise, but aren’t likely to see a surge seen in previous years. Asian LNG spot prices are currently at about $9.6 per million British thermal units for January delivery into North Asia. It had touched a high of about $20 in February on winter demand. The largest new supplier in 2015 will be Australia, which is expected to add LNG supplies from at least three new projects–Chevron Corp.’s Gorgon project, Santos Ltd.’s Gladstone project and Origin Energy Ltd.’s Australia Pacific LNG project.
LPG Segment: According to Business Monitor International (BMI), Saudi Arabia LPG consumption will see strong growth over the next five years, driven by new capacity demand in the domestic petrochemicals sector and the growing shortage of alternative ethane feedstock. For 2014, BMI estimates Saudi Arabia’s LPG consumption stood at 604 400 bpd. Business Monitor forecasts a rapid increase in domestic demand, reaching 751 000 bpd by 2018. After 2018, the pace of growth is predicted to begin to slow, putting total LPG consumption at 831 900 bpd by 2023. Small volumes of LPG are consumed in the residential and industrial sectors, but the bulk of demand stems from the petrochemicals industry, which is set to remain the main source of consumption growth throughout BMI’s forecast period.
The drop in oil price has started also to influence the LPG freight market environment. Spot earnings for very large gas carriers have started to fall at levels around $66,000/day on the benchmark route Middle East to Asia(from the remarkable highs of $100,000/day) due to the sharp downward correction in propane price paid by Japan for liquefied petroleum gas. Propane prices paid by Japan in July were $900/ton and now have lowered to $500/ton from the drop in global oil prices reducing vessel demand for LPG transportation from the US to Asia.
Container Segment: Asia-Europe spot rates are still under serious negative pressure as players delay the appliance of General Rate Increases with the Shanghai Container Freight Index showing negative incline for December. French shipping giant CMA CGM has announced this week a US$200 per TEU rate increase from all Asian ports from Japan to south East Asia and Bangladesh to the Red Sea from December 15.
The Shanghai Container Freight Index remains below 1,000 points for two straight weeks, with downward directions in all main routes. The largest weekly decrease is recorded for one more week in Asia-USWC route. The index ended at 919 points last week, 31 points down from previous closing and down by 276 points from the levels of beginning August.
In Asia-Europe route, rates decreased to $719/TEU, down by $20/TEU (3% w-o-w) and in Asia-Med, rates moved down by $37/TEU (4% w-o-w) and concluded at $915/TEU. The levels in Asia-Europe route are now down by $736/TEU from the beginning of August and down by $693/TEU in Asia-Med route.
In transpacific routes, rates moved down by $80/FEU (4% w-o-w) in Asia-USWC and down by $58/FEU (1% w-o-w) in Asia-USEC route. Rates in Asia-USWC route concluded at $1,825/FEU and $4,020/FEU in Asia-USEC route. Compared with the beginning of August, rates in Asia-USWC route are now down by $373/FEU and down by $167/FEU in Asia-USEC route. Rates in Asia-USWC are now below the barrier of $2000/FEU for a second week, while in Asia-USEC route keep levels above the barrier of $4000/FEU for four consecutive weeks.
CSCL Globe, the world’s largest container ship and the first of a series of five 19,100teu container ships ordered by China Shipping Container Lines (CSCL) in 2013, has set its maiden voyage at Tianjin Port last week. “The maiden voyage of CSCL Globe marks Chinese shipping industry making a step towards the international stage,” said Xu Lirong, chairman of China Shipping. The ship will call at Qingdao in Shandong province, Dalian in Liaoning province, Felixstowe in England, Rotterdam in the Netherlands and Hamburg in Germany during its 70-day voyage. The ship was built at Hyundai Heavy Industries (HHI) in South Korea, and constructed to DNV GL class. “CSCL Globe represents not only the largest, but one of the most energy efficient containers vessels in the world,” Tommy Bjørnsen, DNV GL’s Regional Manager for Korea and Japan told IHS Maritime.
Shipbuilding: Interesting news emerged this week about the threat that Chinese shipbuilders are facing from South Korea. Industry sources suggest that China is poised to loose its shipbuilding crown from South Korea for the first time in five years as several shipyards from Dalian to Guangzhou are lying idle and others exist the industry amid a slowdown in orders. In an attempt to strengthen the position of Chinese shipbuilding industry, the ministry of industry announced a second batch of nine Chinese shipyards to be added in the “white list” of 51 yards already approved in September. The nine yards are Jiangsu Hongqiang Heavy Industry, Taizhou Maple Leaf Shipbuilding, Guangdong Yuexin Ocean Engineering, CSSC Chengxi Shipyard, CSSC Xijiang Shipbuilding, CSIC Chongqing Chuandong Shipbuilding Heavy Industry, CSIC Tianjin Xingang Shipbuilding Heavy Industry, Cosco (Zhoushan) Shipyard, and Avic Weihai Shipyard. Chinese yards that made it to the ‘white list’ are expected to enjoy financial support from the local banks and gain recognition as a reputable shipbuilder. A total of 21 shipbuilding companies were actually being reviewed for the second ‘white list’ batch, but so far only nine have passed the criteria.
Shipping Finance: China Exim Bank has inked deals with 11 clients to provide CNY21.8Bn ($354M) in credit to finance 77 vessels. These vessels include jack-up rigs, 9,400teu container ships for export as well as 12 eco river and coastal vessels. As of this month, the bank has provided a total of CNY579.6Bn credit for 9,637 vessels built by Chinese yards, with total value at $197.7Bn, said Sun Ping, vice-president of China Exim Bank at the International Shipping Finance Forum 2014.
In Japan, Sumitomo Mitsui Trust Bank have announced plans with France’s Crédit Agricole CIB to make up to $1Bn worth of credit available to shipowners for their vessel financing and other projects in the New Year. Under the terms of an agreement, signed in Tokyo on December 5, the two banks have set up a 50-50 joint venture under the name of Sea Bridge Finance, which they say will provide its first loans in January. In a statement today (9 December), Crédit Agricole CIB, the corporate finance and investment banking arm of the Crédit Agricole group, said that the new company, understood to be based in London, would provide financing for a varied range of assets in different maritime sectors. Deputy chief executive Regis Monfront said that the agreement was an important one which reflected the ties which already existed between the two banking groups. Sumitomo Mitsui Trust Bank executive director Rikiya Hattori said that his bank was looking to increase its global maritime financing capacity through the joint venture with its French partner, which was already a leader in the field. “We hope to contribute to the development of the whole maritime sector by engaging strongly in this joint venture,” he said.
Ship financing deals: Scorpio Bulkers Inc. announced that it has signed a Memorandum of Understanding with ABN Amro Bank N.V. and The Export-Import Bank of China, in respect of a loan facility of up to $234.9 million (the “Facility”). The Facility will be used to finance up to 60% of the contract price of seven Capesize vessels currently under construction at Shanghai Waigaoqiao Shipbuilding Co., Ltd, China for delivery between Q1 2015 and Q2 2016. The terms and conditions of the Facility, including covenants, will be similar to those in the Company’s existing credit facilities and customary for financings of this type. The Facility is subject to customary conditions precedent and the execution of definitive documentation.
OAO Sovcomflot (SCF Group) is pleased to announce that it has signed a new USD 319 million 10 year credit facility with a consortium of leading European banks with ING acting as Agent. The funds will be used towards financing two new ice-class LNG carriers SCF Melampus and SCF Mitre, which will operate on long-term contracts with the Shell Group. Nikolai Kolesnikov, Senior Executive Vice-President & Chief Financial Officer, said:“We are delighted to have concluded a new long-term international financing agreement for SCF Group. This deal represents a major milestone for the company in 2014 and serves to demonstrate its continued access to the international financial markets. In the course of the last one and a half year SCF has arranged long-term bank financing in a total amount of over USD 700 million for its growing liquefied gas transportation business. This limited-recourse financing will further strengthen the Group’s liquidity position and enable it to address upcoming financial requirements. The major European banks participating in the deal have long-standing relations with SCF Group, and we value and appreciate their continued support and specialist expertise.”
Capital Market: Navios Maritime Acquisition Corporation (NYSE: NNA), announced that its Board of Directors has authorized a share repurchase program for up to $50.0 million of Navios Acquisition’s common stock, within two years. Share repurchases will be made from time to time for cash in open market transactions at prevailing market prices or in privately negotiated transactions. The timing and amount of purchases under the program will be determined by management based upon market conditions and other factors.
Maritime Piracy: A total of 169 actual or attempted attacks by pirates on ships in Asian waters were reported in the first 11 months of this year, surpassing the full year figures in the last five years, according to ReCAAP Information Sharing Centre. ReCAAP, or Regional Cooperation Agreement on Combating Piracy and Armed Robbery against Ships in Asia, revealed in its November report that pirates are not only becoming more active but also more daring and violent. The escalating violence has led to the death of a Vietnamese seafarer after armed pirates hijacked his tanker in South China Sea on Sunday, and gunshot wound was found on the engineer’s forehead. “The ReCAAP ISC is concerned about the spate of incidents reported in the Straits of Malacca and Singapore and South China Sea, although most of them were petty theft and less significant in nature,” ReCAAP stated in the November report.
From January to November this year, there were 71 reported cases of petty theft or ‘minimum significance’ incidents and 12 so-called ‘category 1, very significant’ incidents which involved the siphoning of oil and deaths.
In 2013, there were 150 reported piracy incidents, an increase from 133 cases in 2012. ReCAAP urges the crew to stay vigilant at all times, and encourages the littoral states to step up surveillance, intensify patrols and respond immediately to reports made by victim ships.
wk49.this week$s news and snapshot
