Impact On Shipping Markets S&D (Final)

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“The Global Financial Crisis & the Shipping Markets”

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Impact On Shipping Markets S&D (Final)

  1. 1. Impact on Shipping Markets Supply & Demand “The Global Financial Crisis & the Shipping Markets” Teddy H Tsai – Head of Research CLSA Capital Partners, Pacific Transportation Asia Pte Ltd. November 18, 2008
  2. 2. Table of Contents  Current Conditions in Financial Markets  Current News  Share price performance  Debt market conditions  Impacts on Shipping Markets  Funding requirements  Dry Bulk  Containerships  Tankers  Conclusions  Q&A 2
  3. 3. Current Market Conditions
  4. 4. Recent News Headlines in Shipping  Credit “Tsunami” Swaps Trade as Banks Curtains Loans (Bloomberg – 10/29)  Tufton says Half of Shipping Loans Accords at Risk (Bloomberg – 10/30)  Ship Orders Plunges 90% Last Month on Credit, Trade Slowdown (Bloomberg – 11/07)  Credit crunch batters Evergreen (Lloyds List – 10/30)  Credit crisis ‘golden opportunity’ says Gulf Navigation head Cain. (Lloyds List – 10/30)  Recession could sink some carriers (Shipping Digest – 10/27)  MOL and K Line cut forecasts (Lloyds List – 10/28)  Creditors out for Agrenco after alleged FFA defaults (TradeWinds – 9/26) 4
  5. 5. Share Price Performance (by Shipping Sub-Sectors) (52.3) Diversified (59.8) Shipping Trust YTD (63.7) Container Performance (63.8) Ports (64.8) Dry Bulk (65.9) Shipyard (76.3) Offshore (80.0) (75.0) (70.0) (65.0) (60.0) (55.0) (50.0) Average Mkt Cap 1D Chg 1-Mo 3-Mo 6-Mo 1-Year YTD Sector US$ mn % % % % % % Container 1,385 0.8 (0.0) (40.9) (62.2) (66.1) (63.7) Diversified 3,970 0.4 (6.6) (45.8) (56.4) (55.0) (52.3) Dry Bulk 1,751 (1.2) (4.6) (57.8) (68.0) (69.0) (64.8) Offshore 151 (0.9) 1.5 (63.3) (71.9) (76.7) (76.3) Ports 8,292 2.1 (8.4) (46.7) (57.3) (62.9) (63.8) Shipping Trust 121 (2.0) (5.8) (57.3) (59.3) (63.6) (59.8) Shipyard 2,543 (0.5) 11.6 (41.2) (57.2) (67.7) (65.9) Source: Bloomberg (Priced Nov 18, 2008) 5
  6. 6. Debt Market Conditions – Current Status Drawn Margins Syndicated Loan Volumes (All Industries)  Shipping banks are focused on existing loans, clients.  Clear signs of a lending slowdown since the start of the crisis in 3Q08.  LIBOR has fallen since peak in Oct 2008, but margins have widen significantly.  Gearing levels have fallen from 80-90% to now 50-60%. Source: Reuters Loan Connector 6
  7. 7. Impacts on Shipping Markets
  8. 8. Funding Requirements • More than US$327 billion in debt and US$218 billion in equity required over the next few years to finance the existing order book. 250.0 200.0 182.6 150.0 Debt 103.0 100.5 99.0 Equity 93.0 122.5 100.0 82.9 50.0 68.6 67.0 66.0 62.0 60.9 40.8 27.6 0.0 2005 2006 2007 2008 2009 2010 2011 Assuming 60% debt, 40% equity. Orderbook investment total from Clarkson’s 8
  9. 9. Baltic Dry Index 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 11/27/07 12/24/07 10/16/08 11/12/08 1/20/08 2/16/08 3/14/08 4/10/08 6/30/08 7/27/08 8/23/08 9/19/08 - 5/7/08 6/3/08 Baltic Dry Index Baltic Panamax Baltic Capesize  The BDI is down 91% since the start of the year.  China Iron ore Inventories remains at high levels, while miners are cutting production.  Is the commodities cycle coming to an end? Or this supply-driven? Source: Bloomberg 9
  10. 10. Dry Bulk Dry Bulk Jan-2008 2005 2006 2007 2008 2009 Notes TOTAL BULK, m. Tonnes 2,678 2,847 2,996 3,121 3,246 TOTAL FLEET, m. Dwt 2% scrapping 349.0 373.0 397.8 420.2 467.0 5% 6% 5% 4% 4% Trade Growth % n/a 7% 7% 6% 11% Fleet Growth % n/a -1% -2% -2% -7% OVERSUPPLY Balance Oct-2008 2005 2006 2007 2008 2009 Notes TOTAL BULK, m. Tonnes higher base effect 2,660 2,838 3,018 3,185 3,276 TOTAL FLEET, m. Dwt Sharp increase in '09 349.0 373.2 398.8 438.7 495.6 5% 6% 5% 4% 4% Trade Growth % n/a 7% 7% 10% 13% Fleet Growth % n/a -1% -2% -6% -9% MORE OVERSUPPLY Balance Avg.Panamax Earn.$ pd $23,110 $21,714 $49,350 $54,625 much lower (1998-built) 3% -6% 127% 11% much lower % Growth Source: Clarkson's 10
  11. 11. Container T/C Rates US$ / day 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 Panamax 3500 teu gls 6-12 Month Timecharter Rate 5,000 - '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 Source: Clarkson’s 11
  12. 12. Container Shipping Container Shipping Jan-2008 2005 2006 2007 2008 2009 Notes TOTAL TRADE, m. Teu 106 117 129 141 155 TOTAL FLEET, '000 Teu 10,165 11,543 12,880 14,610 16,458 10.5% 10.7% 10.1% 9.7% 9.8% Trade Growth % 8.0% 13.6% 11.6% 13.4% 12.6% Fleet Growth % 2.5% -2.9% -1.5% -3.7% -2.8% OVERSUPPLY Balance Oct-2008 2005 2006 2007 2008 2009 Notes TOTAL TRADE, m. Teu Lower demand 106 117 129 138 148 TOTAL FLEET, '000 Teu “More” supply 10,183 11,566 12,920 14,629 16,491 10.6% 10.7% 10.4% 6.8% 7.2% Slower growth Trade Growth % 8.0% 13.6% 11.7% 13.2% 12.7% Fleet Growth % 2.6% -2.9% -1.3% -6.4% -5.5% MORE OVERSUPPLY Balance $38,747 $27,215 $30,208 $27,917 lower Average Deep Sea Rate 3% -30% 11% -8% lower % Growth Source: Clarkson's 12
  13. 13. Baltic Tanker Indices 2,500 2,000 1,500 1,020 1,000 956 500 3/14/08 5/7/08 6/3/08 7/27/08 11/12/08 11/27/07 12/24/07 1/20/08 2/16/08 4/10/08 6/30/08 8/23/08 9/19/08 10/16/08 Baltic Dirty Tanker Baltic Clean Tanker  Tanker rates have been more resilient than dry bulk rates.  Clean products are less volatile than dirty products. Source: Bloomberg 13
  14. 14. Tankers Tanker Jan-2008 2005 2006 2007 2008 2009 Notes TOTAL DEMAND, m. dwt 3% growth in '09 315.9 324.6 334.7 343.3 353.6 TOTAL SUPPLY, m. dwt 391.9 In '09, 50% '10 phaseout 316.2 333.8 350.2 366.5 TOTAL SURPLUS, m. dwt 0.3 9.3 15.6 23.2 38.3 7% 3% 3% 3% 3% Trade Growth % n/a 6% 5% 5% 7% Fleet Growth % n/a -3% -2% -2% -4% OVERSUPPLY Balance Oct-2008 2005 2006 2007 2008 2009 Notes TOTAL DEMAND, m. dwt 3% growth in '09 315.3 325.2 336.1 345.4 355.8 TOTAL SUPPLY, m. dwt 405.3 In '09, 50% '10 phaseout 322.9 340.4 358.4 372.8 TOTAL SURPLUS, m. dwt 7.6 15.2 22.3 27.4 49.5 7% 3% 3% 3% 3% Trade Growth % n/a 5% 5% 4% 9% Fleet Growth % n/a -2% -2% -1% -6% MORE OVERSUPPLY Balance Avg. WTI Oil Price 08/09 EIA forecast $56.49 $67.12 $72.27 $101.45 $63.50 VLCC 1-year T/C $58,583 $58,313 $55,642 $76,033 (modern) lower 3% 0% -5% 37% lower % Growth Source: Clarkson's 14
  15. 15. Conclusions
  16. 16. Sector Summary • Dry Bulk – Sharp increase in 2009 orders may not be realized as vessels gets canceled – Supply has been expected, and smart shipowners have not over-ordered. – Demand likely will weaken, as inventories need to be worked down. Government policy may help, but actual spending and impact on demand remains to be seen. – Rates will likely remain weak and average down. • Container ships – Incremental supply in 2008 has been moderate, but lots of large vessels previously ordered. KG-funded post-Panamax container ships may face pressures. – Key driver will be the slowdown in US and Europe growth, due to the financial/housing crisis, and the impact on the real economy, particularly consumer consumption. – T/C rates may come down, but focus should be on counter-party risk, and whether existing contracts will be renegotiated. • Tankers – Oil prices and the phase out remains the key drivers for tankers. – Cancellations due to the crisis is less likely in this sector, as supply has been in anticipation of the phase out. – Scrapping or conversions will be needed to ease oversupply. – Oil prices and demand will continue to be influenced by seasonality and economic conditions. 16
  17. 17. Conclusions • The global financial crisis will make funding more difficult, but this isn't something shipowners haven't seen before. There are options – Sale & leaseback, more equity, renegotiation of contracts, etc. • Shipping is cyclical, and will remain so. Over-ordering of vessels and slowing economic conditions is resulting in lower freight rates. • BUT, this also means that asset prices will likely come down, making better investment opportunities for the next up-cycle. • CLSA/Pacific Transportation is in a position to help build sustainable companies for the next up-cycle. 17

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