Attached please find our Weekly S&P Market Report, Week ending June 26, 2015 (Week 25, Report No 25.15) Special Edition Weekly S&P Market Trends, Week ending June 26, 2015 (Week 25, Report No 25.15) This Week’s News snapshot on the economic and Shipping environment, Week ending June 26, 2015 (Week 25, Report No.25)
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/ Macroeconomics:
China: China’s CITIC Ltd., the state-owned conglomerate, said on Wednesday that its banking, securities, trust and construction divisions will jointly invest more than 700 billion yuan ($112.79 billion) to support China’s “One Belt, One Road” initiative. The investments will involve about 300 projects extending from Singapore to Turkmenistan.
Under its so-called “One Belt, One Road” initiative, China aims to create a modern trade route known as the Silk Road Economic Belt and the 21st Century Maritime Silk Road. Projects under the plan include a network of railways, highways, oil and gas pipelines, power grids, Internet networks, maritime and other infrastructure links across central, west and south Asia to as far as Greece, Russia and Oman, increasing China’s connections to Europe and Africa.
The bank will also establish and manage a “One Belt, One Road” fund, with 20 billion yuan in its first phase, to participate in mergers and acquisitions, public-private partnerships and financing Chinese companies to expand overseas. CITIC Bank expects to increase the fund to 100 billion yuan within five years to finance projects in the region, CITIC Bank Vice Governor Sun Deshun told reporters at a press conference.
CITIC’s other subsidiaries, including CITIC Securities Co., CITIC Trust Co., CITIC Construction Co., CITIC Heavy Industries Co. and CITIC Resources Holdings Ltd, will invest nearly 300 billion yuan in about 100 projects in more than 10 countries along the “One Belt, One Road” route, which also includes Laos, Mongolia and Kazakhstan. CITIC subsidiaries will provide 110 billion yuan in equity financing and debt financing to more than 30 companies with businesses related to China’s global initiative.
Shipping:
China has extended a scrap-and-build policy due to be expired in 2015 by two years to 2017, according to the ministry of transport. In a short statement announced on Tuesday, the ministry said the policy has been extended to 31 December 2017, while the content of the policy remains unchanged. In late 2013, Beijing revealed this scrap-and-build policy to subsidise owners who demolish their older vessels before their operational expiry dates, and to build new, more energy efficient ships as a replacement. The policy was initially set to run until the end of this year. A few state-owned shipping conglomerates such as China Cosco, China Shipping Development Co (CSDC) and China Shipping Group have benefitted from receiving the subsidies. The scrap-and-build policy states that a two-tranch subsidiy scheme will be given to owners with the first tranch dished out upon completing the demolition of an elderly vessel. The second tranch will be handed out after an order confirmation for a new replacement vessel. The Beijing policy offers subsidy of RMB750 ($120) per gross tonne for the recycled ship, and the same level of subsidy will apply for the replacement newbuilding that must be built at Chinese yards.
The policy states that the total tonnage of the newly ordered ships should not be less than the total tonnage of the vessels scrapped. Shipowners can choose to tabulate their tonnage based on a cumulative basis from all the scrapped vessels and newbuildings or on a one-for-one basis.
Ship financing of shipping companies on the rise, according to Petrofin. A new tool to assess the state of the Hellenic ship financing market has been released by the market leader in this field, Petrofin Research. Petrofin Index, unique in shipping, is designed to inform the shipping public of the state and development over time of Greek ship finance. Starting with a base of 100 in 2001, when the first Petrofin Bank Research on Greek ship finance commenced, the index as of the end of 2014 rose to 388, e.g. a cumulative annual growth of 11% over the last 13 years. However, the Petrofin Index rose to a peak of 443 in 2008 but has fallen, thereafter, to a low of 378 in 2013. Indeed the rise to 388 at the end of 2014 reflects a rise from the low of 378 last year.
Among Greek banks, Piraeus Bank ranked in third place of the total shipping portfolios with loans of $3.85 billion, followed in fourth place by the National Bank of Greece, which controls a shipping loan portfolio of $2.933 billion. Alpha Bank ranked in 8th place overall with a portfolio of $2.42 billion, while Eurobank took fourth place among Greek banks and 20th overall with a portfolio of $1.315 billion. Finally, Aegean Baltic took 30th place overall with a loan portfolio of $201 million.
Meanwhile, international banks with a Greek presence continue to reduce their exposure, in 2014, by 4.23%, compared to a reduction of 9.35% in 2013 and a reduction of 3.9% in 2012. International Banks without a Greek presence show an impressive increase of 17.23%. The number of banks involved in Greek shipfinance has risen to 49 from 46 banks last year, as some new players now entered cautiously. The top 10 Greek ship financing banks have reduced their portfolios by 4%, resulting to a decrease in their market share down to 57.24% ($36.6bn) from 62.38% in the previous year ($38.3bn). But the next 10 banks have increased their market share by 3.05% with an increase of 17.6% in their portfolios to $17bn from $14.46bn”.
Dry Segment: June ends with a positive momentum from a recovery in the capesize segment that leads BDI to surpass the barrier of 800 points with new iron ore cargoes surfacing in the market. According to Commodore Research, 43 spot iron ore cargoes came to the market last week, 3 more than the previous week and 7 more than the trailing four week average. 40 of last week’s spot iron ore cargoes will be shipped on capesize vessels. Approximately 78.1 million tons of iron ore is now stockpiled at Chinese ports, 1.1 million tons (-1%) less than a week ago. Chinese iron ore port stockpiles are now down year-on-year by 25 million tons (-43%), implying stronger Chinese iron ore fixture volume and firmer support in the capesize segment.
33 vessels were chartered to haul iron ore cargoes to Chinese buyers last week, 3 less than the previous week but 3 more than the trailing four week average. In the thermal coal market, 8 vessels were chartered to haul spot thermal coal cargoes to Chinese buyers last week. This is 3 more than were chartered during the previous week and 3 more than the trailing four week average. However, last week’s Chinese thermal coal fixture volume was the largest amount seen since the Week Ending May 1st.
On Friday June 26, BDI closed at 823points, up by 6% from last week’s closing and down by 1% from a similar week closing in 2014, when it was 831 points. All dry indices closed in green apart from the panamax, with the largest weekly increase recorded in the capesize segment. BCI is up by 12% week-on-week, BPI is down by 2% week-on-week, BSI is up by0.28% week-on-week, BHSI is up by 2% week-on-week.
Capesizes are currently earning $9,154/day, up by $1,832/day from last week’s closing and panamaxes are earning $6,644/day, down by $138/day from last week’s closing. At similar week in 2013, capesizes were earning $12,741/day, while panamaxes were earning $3,362/day.Supramaxes are trading at $7,555/day, up by $17/day from last week’s closing, about 17% lower than capesize and 14% higher thanpanamax earnings. At similar week in 2014, supramaxes were getting $7,093/day, hovering at 44% lower levels than capesizes versus 17% today’s lower levels. Handysizes are trading at $5,361/day, up by $103/day from last week’s closing; when at similar week in 2014 were earning $6,276/day.
Wet Segment: June ends with a firm momentum in the crude segment for all sizes and a steady healthy environment for the MR segment.
In the VLLC segment, rates in AG-USG moved up to WS 38.5, up 3.5 points from the previous week and up by 20.5 points of end September 2014 (WS 18).
In AG-SPORE and AG-JPN routes, showed a firm recovery and increased by 10.5 on a weekly basis. Compared with end September 2014, levels are now up by 38.5points (WS 34). In WAFR-USG, rates gained 10 points and increased to WS 85, and similar increase is recorded in the WAFR-China route with rates lifting to WS 72.5.
In the suezmax segment, rates in WAFR-USAC showed increase of 15 points and moved up to WS 97.5, up by 33 points from end September’s 2014 levels. In the aframax segment, rates in the Caribbean market recorded sharp weekly increase of 35 points and ended at WS 175, up by 98 points from end Sept 2014.
Route Vessel Size
VLCC: AG-USG 280,000t WS 38.5 (last week WS 35) Upward trend
TCE- Abt ≈$30,500/d
AG-JPN 265,000t WS 72.5 (last week WS 62) Upward trend
TCE- Abt ≈$77,000/d
AG-SPORE 270,000t WS 72.5 (last week WS 62) Upward trend
TCE- Abt ≈$72,000/d
WAFR-USG 260,000t WS 85 (last week WS 75) Upward trend
TCE- Abt ≈$85,000/d
WAFR-China 260,000t WS 72.5 (last week WS 62.5) Upward trend
TCE- Abt ≈$72,000/d
Route Vessel Size
Suez: WAFR-USAC 130,000t WS 97.5 (last week WS 82.5) Upward trend
TCE- Abt ≈$45,000/d
B.SEA-Med 130,000t WS 110 (last week WS 95) Upward trend
TCE- Abt ≈$71,000/d
Route Vessel Size
Afram: CBS-USG 70,000t WS 175 (last week WS 140) Upward trend
TCE- Abt ≈$58,000/d
Route Vessel Size
Clean: AG-JPN 75,000t WS 125 (last week WS 125) Steady
TCE- Abt ≈$43,000/d
AG-JPN 55,000t WS 140 (last week WS 140) Steady
TCE- Abt ≈$32,000/d
LNG Segment: Spot market earnings for LNG carriers remained at $35,000/day for the 3rd week after rising 3.6% (from $33.8K) three weeks ago. At the beginning of the year, rates were in the range of $72,000/day.
LPG Segment: Rates to haul LPG on very large gas carriers (VLGCs) have exceeded USD120/tonne as charterers have been fixing ships in both the east and west of Suez. As at 22 June, the Baltic Exchange assessed the benchmark Gulf-Asia Pacific rate at USD121.875/tonne, up from USD116/tonne on 15 June. Rates have not been this high since August 2014.
In the time charter market, rates remain firm. VLGC (Very Large Gas Carrier), MGC (Midsize Gas Carrier), and handysize 1-year time charter rates currently stand at $72,250/day (up 11% yr/yr), $38,750/day (up 12% yr/yr), and $32,512/day (up 2% yr/yr), respectively, as trade flows within the LPG space and rising volumes out of the USG (United State Gulf) continue to support a healthy rate environment. In the large ssegment, 1-year time charter rates are currently at $64,860/day.
Container Segment:
The index ended at 557 points last week, 25 points down from previous week (down by 5% w-o-w) and down by 639 points (53%) from the levels of beginning August 2014.
In Asia-Europe route, rates fell even further to bottom lows at $205/TEU, down by $38/TEU (16% w-o-w) and in Asia-Med; rates moved also down by $38/TEU (12% w-o-w) and concluded at $274/TEU. The levels in Asia-Europe route are now down by $1,250/TEU (86%) from the beginning of August 2014 and down by $1,334/TEU (83%) in Asia-Med route.
In transpacific routes, rates moved down by $73/FEU (5% w-o-w) in Asia-USWC and down by $100/FEU (3% w-o-w) in Asia-USEC route. Rates in Asia-USWC route concluded at $1,268/FEU and $2,904/FEU in Asia-USEC route. Compared with the beginning of August, rates in Asia-USWC route are down by $930/FEU (42%) and down by $1283/FEU (31%) in Asia-USEC route. Rates in Asia-USWC remain below the barrier of $2000/FEU since week ending Mar 6.2015, while in Asia-USEC route remain are now below the barrier of $3000/FEU for the first time since 2011.
Against the downward trend of freight market fundamentals, the newbuilding activity remains high. According to Alphaliner, the total capacity of containerships ordered so far this year has reached 1.04 Mteu, or 60% more in capacity terms than what was ordered during the same period of 2014. The new wave of orders is focused mainly on ships of above 18,000 teu, with orders for 39 units of 18,000-21,000 teu already placed in the first six months of this year.
The latest contract was concluded last week, when Maersk Line ordered 11 ships of 19,630 teu from Daewoo of South Korea (DSME) and took options for six additional units of the same type (see next page). These second generation Triple-E (EEE) vessels will add to the 20 ’EEE’-class vessels of 18,340 teu that Maersk ordered in 2011. This latest deal brings the total number of 18,000-21,000 teu ships ordered so far to 88. Eight carriers have now joined the order fray for these next-generation-ULCS, which brings into question the future of the carriers that are staying away from ordering such ships. CMA CGM, which in March ordered three 20,600 teu ULCS, is currently moving ahead with its plan to build six 14,000 teu neo-panamax ships (19 rows) at Hyundai H.I. aimed at the FE-US trades. These vessels will be the largest ships capable of transiting the new Panama Canal locks, scheduled to open in 2016.
Shipbuilding: Chinese shipyards’ new orders slumped 77.4% year on year (y/y) to 7.86 million dwt in the first five months of 2015, China Association of the National Shipbuilding Industry (CANSI) said. The orderbook of Chinese shipbuilders fell 8.2% y/y to 138.18 million dwt at the end of May, down 7.5% from the level at the end of 2014. The plunge in new orders came after Chinese shipbuilders ended 2014 with a 14.2% y/y fall in awarded orders, as buyers cut back on spending on new ships since late 2014.
The completed tonnage at the Chinese yards grew 18.9% y/y to 15.48 million dwt during the same period. For exports, the new orders also fell 79.8% y/y to 6.65 million dwt, accounting for 84.6% of overall new orders placed at Chinese shipyards. A total of 88 companies in the Chinese shipbuilding and relevant industries surveyed by CANSI posted y/y rise in operating revenues of 4.4% to CNY102.0 billion (USD16.4 billion), with gross profits up 17% to CNY2.06 billion.
Orders at Japanese shipyards went up in May 2015, compared with a low base in the same month last year. Figures from the Japan Ship Exporters’ Association (JSEA) showed its member shipyards clinched 17 export orders of 1.47 million gt in May 2015, compared with 14 export orders totaling 454,140 gt in May 2014. The higher gross tonnage was due to orders for bigger ships. The orders in May comprised four container ships, three pure car and truck carriers, one very large crude carrier, and nine bulkers, which consisted of two Handysizes, six Handymaxes, and one Panamax. JSEA member shipyards exported 20 ships of 810,000 gt in May, similar to the 19 ships of 801,431 gt delivered in May 2014. As of 31 May 2015, Japanese shipyards’ outstanding orderbook stood at 630 ships of 28.86 million gt, compared with 655 ships of 27,731,450 gt over the same period in 2014.
Shipping Finance: EXMAR announced the financing agreement for the world’s first floating LNG unit (FLNG – Floating Liquefaction and Storage Unit). ICBC will provide financing to EXMAR for the FLNG project in a total amount of USD 200,000,000. It is reported that this project is China’s biggest exporting project to Belgium in terms of contract value up to now, and also the highest technology project.
Navios Maritime Midstream Partners L.P announced the closing of a five-year term, $205.0 million Term Loan B facility, secured by first priority mortgages covering certain vessels owned by subsidiaries of Navios Midstream, in addition to other collateral, and guaranteed by such subsidiaries. The Term Loan B facility was priced at LIBOR plus 4.50%. Morgan Stanley Senior Funding, Inc., J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated acted as joint lead arrangers and joint book-runners for the Term Loan B facility. Credit Suisse Securities (USA) LLC and Deutsche Bank Securities Inc. acted as joint-bookrunners, S. Goldman Advisors, LLC acted as co-arranger, and ABN AMRO Capital USA LLC and DVB Capital Markets LLC acted as co-managers. Concurrently with the closing of the Term Loan B facility, Navios Midstream took delivery of the C. Dream, a 2000-built VLCC of 298,570 dwt and the Nave Celeste, a 2003-built VLCC of 298,717 dwt.
In the cruise segment, MSC Cruises received €1.2 billion in financing for two newbuilding cruise vessels from Fincantieri, with deliveries in 2017 and 2018. Crédit Agricole CIB acted as structuring agent, bookrunner, and mandated lead arranger, BNP Paribas, Cassa Depositi e Prestiti, HSBC France, Banco Santander, and UniCredit also acted as MLAs. The financing was supported by Servizi Assicurativi del Commercio Estero (SACE).
In the gas segment, Petredec Limited secured $186.3 million of financing from KfW IPEX-Bank for four handy size gas carrier newbuildings. Euler Hermes will cover €50.4 million of the financing with export credit insurance, for components sourced from Germany.
Capital Market: GasLog Partners reveals a public offering of 7,500,000 common units, aimed at funding the acquisition of three LNG carriers from its parent company, GasLog. The Partnership intends to grant the underwriters a 30-day option to purchase up to 1,125,000 additional common units from the partnership, stands in the company’s statement.
The partnership plans to use the net proceeds from the public offering to partially prepay amounts under an existing credit facility related to the vessels being acquired and for general partnership purposes. The company earlier said it will acquire 100% of the ownership interests in entities that own the liquefied natural gas carriers the Methane Alison Victoria, the Methane Shirley Elisabeth and the Methane Heather Sally. Citigroup Global Markets, Barclays Capital, Morgan Stanley & Co., Evercore Group, UBS Securities, Wells Fargo Securities, Credit Suisse Securities (USA) and Deutsche Bank Securities are acting as joint book-running managers and ABN AMRO Securities (USA) is acting as co-manager for the offering.
Gener8 Maritime launched an IPO of 15,000,000 shares, plus an over-allotment option of 2,250,000 shares, with pricing expected between $17.00 and $19.00 per share. Gross proceeds would be $310.5 million at the midpoint of the range and the greenshoe is fully exercised. $87 million of the net proceeds will be used to partially repay senior secured credit facilities; remaining proceeds will be used for general corporate purposes, which may include vessel acquisitions, newbuilding installment payments, or redeeming a portion of outstanding senior notes. Citigroup Global Markets, UBS Securities, Jefferies, and Evercore Group are acting as joint-bookrunning managers, with DNB Markets and Skandinaviska Enskilda Banken as senior co-managers and DVB Capital Markets, ABN AMRO Securities, Pareto Securities, and Axia Capital markets as co-managers.
In terms of fleet investment strategy, GasLog Partners LP (NYSE:GLOP) (“GasLog Partners” or the “Partnership”) and GasLog Ltd. (NYSE:GLOG) (“GasLog”) announced that they have entered into an agreement for the Partnership to purchase from GasLog, the sole member of the Partnership’s general partner, 100% of the shares in the entities that own and charter the Methane Alison Victoria, Methane Shirley Elisabeth and Methane Heather Sally, for an aggregate purchase price of $483 million (the “Acquisition”), which includes $3 million for positive net working capital balances to be transferred with the vessels. The three vessels subject to the Acquisition are modern liquefied natural gas (“LNG”) carriers built in 2007, each with a capacity of 145,000 cubic meters. The Acquisition is subject to the Partnership obtaining the funds necessary to pay the purchase price and the satisfaction of certain other closing conditions. The Partnership expects to finance the acquisition with a combination of equity and the assumption of the vessels’ existing credit facilities.
Companies’ news: In the bulker segment, NewLead Holdings Ltd. announced that it has entered into a time charter contract for one of its Eco-type dry bulk Handysize vessels, the Newlead Castellano, for a minimum of three and a maximum of five months. The gross charter-out rate is US$7,650 per day less a 6.25% commission paid to third parties. The vessel was delivered to the charterers at the beginning of June 2015.
The Newlead Castellano is a 2013-built dry bulk Eco-type Handysize vessel of 35,542 dwt and is one of the three Eco-type dry bulk Handysize vessels that were delivered to NewLead’s fleet in 2014.
