fold, hold, double up - which hand to play...
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Fold, Hold, Double Up - which hand to play next?James Frew - Maritime Strategies International (MSI)2017 Capital Link New York Maritime Forum
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AgendaFold, Hold, Double Up - which hand to play next?
1. Demand
2. Supply
3. Earnings
4. Scenarios
5. The Winning Hand?
6. The real risk
DemandFold, Hold, Double Up
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Seaborne Cargo Growth - Positive
Positive cargo growth across the board
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Historical 2012-2016
Forecast 2017-2021
Average Annual Cargo Growth –Relative Ranking
Ranking Movement (Forecast v Historical)
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Cargo Growth Only Presents Part of the Picture
How Many Ships?
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Routes Distance
Size ChangesCarrying CapacityBallast Ratio
Waiting/Port TimeSpeed
Operating Days
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Differentiating HandsDry Bulk Effective Speed*
* Calculation is representative of port‐to‐port speed, including slow steaming, anchoring, waiting etc.
Deck stacked against older
tonnage?
Incremental Vessel Requirements (H2 2017-2019)*
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-50
0
50
100
150
200
250
300
350C
rude
Oil
Prod
uct
Che
mic
als
LPG
LNG
Bul
ker
Con
tain
er
PCTC
Cru
ise
AH
TS
# of Vessels
* Assuming a current supply‐demand equilibrium
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Full Picture Includes Supply
Supply
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Fold, Hold, Double Up
Vessel Requirements (H2 2017-2019)v’s Current Orderbook
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-100
-50
0
50
100
150
200
250
300
350
400C
rude
Oil
Prod
uct
Che
mic
als
LPG
LNG
Bul
ker
Con
tain
er
PCTC
Cru
ise
AH
TS
# of Vessels Ships Required Ships on order
Over supply
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Supply Side - 3 Card Trick
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Contracting as % of Fleet
* Includes MSI’s forecast assessments for contracting, scrapping, slippage and cancellations
Contracting historically low
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Cancellations -
Cancellations generally trending down
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Fleet Age Profile
Youngest Fleet Oldest Fleet
When to Fold -Average Age At Scrap
17
10
15
20
25
30
35
40
1980
1985
1990
1995
2000
2005
2010
2015
Average Age
Oil Tanker Bulker Chem TankersLPG Carriers Containerships Dry CargoReefer Vehicle Carrier
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Average Annual Fleet Growth
* Includes MSI’s forecast assessments for contracting, scrapping, slippage and cancellations
Supply odds favourable
Earnings
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Fold, Hold, Double Up
Where on the Earnings Cycle Are We?
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Cru
de a
nd P
rodu
ct T
anke
r
LPG
Car
rier
OSV
s
PC
TC
Bul
ker
LNG
MPP
Con
tain
er
Che
mic
al T
anke
r
RoR
o
Rig
s
Schematic for illustrative purposes only!
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Earnings
Scenarios
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Fold, Hold, Double Up
Policy shifts impacting trade
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Two Scenarios
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• Some efforts to control pricing• Import when it makes
economic sense• Some attention paid to the
environment• More balanced economic
growth
Resource Nationalism
• Maximise use of national resources
• Limit imports• Low priority given to
environmental issues• Strong demand for resources
(in the short-run at least)
Base Case
Coal trade is finely balanced…
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-200
-100
0
100
200
3000.0
0.5
1.0
1.5
2.0
2.5
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Mn TBn T
Net Difference (Inverted, RHAxis)Chinese Coal Production
Chinese Coal Consumption
Policy shifts can have a massive impact…
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0
50
100
150
200
250
300
35020
11
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Chinese Coal Imports, MnT
Base Case
Resource Nationalism
Assuming China maximises its own coal production rather than relying on imports
has severe implications for coal trade
…And take the zip out of a recovery
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0
5
10
15
20
2520
11
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
$ k/Day
Base CaseResource Nationalism
Only changing our assumption on coal trade, 2018 becomes a downturn and even in 2020 earnings are still 6% below the BC
China’s domestic chemical production key
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0
5
10
15
20
25
30
35
40
45
50
0
20
40
60
80
100
120
140
160
180
20020
10
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Mn TMn T
Implied Deficit (RH Axis)ProductionConsumption
China’s chems consumption outpacing consumption
creates a healthy demand environment for chem tankers
0
1
2
3
4
5
6
7
820
12
2013
2014
2015
2016
2017
2018
2019
2020
2021
Mn Dwt
Base Case
Resource Nationalism
Impact of full utilisation on vessel demand
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Strong chems imports relies on Chinese chemical
production capacity operating at less than 100% utilisation
Chemical Tanker Earnings Clobbered
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If China’s chemical production can somehow run
at full nameplate capacity, there won’t be a chemical
tanker market recovery
Not all doom and gloom – crude booms!
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0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
0
10
20
30
40
50
60
7020
16
2017
2018
2019
2020
2021
YoY Ch$/bblOil Price (Base Case)Oil Price (Resource Nationalism)Oil Demand (Base Case, RH Axis)Oil Demand (Resource Nationalism, RH Axis)
VLCC earnings – back to 2015?
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0
10
20
30
40
50
6020
12
2013
2014
2015
2016
2017
2018
2019
2020
2021
VLCC 1 Yr T/C($ k/Day)
Base Case
Resource Nationalism
The ‘Resource Nationalism’ scenario assumes aggressive crude production
causing an oil price drop in turn triggering strong demand and thus a VLCC market spike
The Winning Hand?
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Fold, Hold, Double Up
MSI - FMV
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• MSI Forecast Marine eValuator (FMV) is the first web-based tool to provide forecast and historical price data covering virtually all of the deepsea shipping fleet.
• Data includes forecasts of newbuilding, second-hand prices, 1 year timecharter rates and operating costs for specific vessels.
• MSI FMV draws on MSI’s proven, proprietary models and a consistent cross-sectional view across all principal shipping sectors. It puts asset values in the context of the near term market to enable reliable benchmarking with outputs based on annual averages.
• Coverage:Crude Oil Tanker
Product Oil Tanker
Dry Bulk Carrier
Chemical Tanker
LPG Carrier
LNG Carrier
Multi Purpose
Containership
PCC/PCTC
www.msiltd.com/fmvAHTS PSV
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Pure Asset Play
Base Case Including Cashflows
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Impact of resource nationalism
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The bigger risk
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Fold, Hold, Double Up
Consolidating excess capacity key
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0
10
20
30
40
50
60
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Shipbuilding Capacity, Mn CGT
OtherN. AmericaE. EuropeW. EuropeChinaS. KoreaJapan
What happens if consolidation is slower?
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0
2
4
6
8
10
12
14
16
1820
15
2016
2017
2018
2019
2020
2021
2022
Mn CGT
Japan - Scenario S.Korea - Scenario China - ScenarioJapan - Base Case S.Korea - Base Case China - Base Case
The impact for asset play is significant
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For over 30 years, MSI has developed integrated relationships with a diverse clientbase of financial institutions, ship owners, shipyards, brokers, investors, insurersand equipment and service providers.
MSI’s expertise covers a broad range of shipping sectors, providing clients with acombination of sector reports, forecasting models, vessel valuations and bespokeconsultancy services.
MSI is staffed by economists and scientists offering a structured quantitativeperspective to shipping analysis combined with a wide range of industryexperience.
MSI balances analytical power with service flexibility, offering a comprehensivesupport structure and a sound foundation on which to build investment strategiesand monitor/assess exposure to market risks.
MSI Background
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While this document has been prepared, and is presented, in good faith, MaritimeStrategies International assumes no responsibility for errors of fact, opinion ormarket changes, and cannot be held responsible for any losses incurred or actionarising as a result of information contained in this document.
The copyright and other intellectual property rights in data, information or advicecontained in this document are and will at all times remain the property ofMaritime Strategies International.
Disclaimer
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