Breakdown, Breakeven, Breakdance –what’s in store next?Dr Adam Kent - Maritime Strategies International (MSI)9th Annual Marine Money London Ship Finance Forum –24th Jan 2018
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Agenda
Breakdown, Breakeven, Breakdance – what’s in store next?
1. Demand2. Supply3. Earnings4. Prices5. Top Picks
DemandBreakdown, Breakeven, Breakdance
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Seaborne Cargo Growth
Positive cargo growth
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Chinese Crude Imports
Middle East not the be-all and end-all
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Global Refining Capacity
Oil network becoming more complex
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Tanker Fastest Growing Routes
Only fastest growing routes with over 5MnT flows in 2017 shown Size of bubble represents volume of cargo flow
Fastest growing routes
Coal’s Juxtaposition
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• Technological advancements in materials used and design of energy-efficient consumer products
• Improved demand-side energy management in industry and at home.
• New sources of electricity consumption: e.g. cars.
TRANSFORMATIONALCHANGES IN ENERGY
CONSUMPTION
TRANSFORMATIONALCHANGES IN ENERGY
PRODUCTION
• International / Government Regulations
• Increased investment in renewables
• Coal has a role, but new efficient coal-fired power (Super and Ultra-Critical plants) will dampen the impact of new power capacity on coal consumption
Continued Growth in Coal Trade
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Coal consumption has effectively peaked -
trade will expand
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Bulker Fastest Growing Routes
Only fastest growing routes with over 10MnT flows in 2017 shown Size of bubble represents volume of cargo flow
Fastest growing routes
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Container-Incremental Required Carrying Capacity
Growth across the board –change in focus
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Container Fastest Growing Routes
Only fastest growing routes with over 500,000 TEU moves in 2017 shown Size of bubble represents volume of cargo flow
Fastest growing routes
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Chinese Pivotal Policies– Demand Breakdown Risks
Coal/Iron ore mining Clean air policy
Liberalisation of refineries
SP reserves
Steel capacitylimitations
MTO productionfacilities
Methanol fuelblending
One belt one road
Power regulations
Grain policy, price & food security
Waste paper and recyclables
Oversea investments in mines, refineries & production facilities
Fuel specification
P-Xylene plants
Drilling SouthChina Sea
Supply
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Breakdown, Breakeven, Breakdance
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Contracting volumes
Contracting picking up
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Orderbook – Phantom?!Marine Money London January 2017
Phantom Orderbook in China
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Chinese Deliveries –A Pattern emerges
Supply outlook even better than the orderbook suggests – based
on historical output
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Supply Growth Stagnation
Includes MSI’s forecasts for contracting, slippage, cancellations and scrapping
Earnings
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Breakdown, Breakeven, Breakdance
Where on the Earnings Cycle Are We?
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Cru
de a
nd
Prod
uct T
anke
r
LPG
Car
rier
OSV
s
PCTC
Bulk
er
LNG
MPP
Con
tain
erC
hem
ical
Tan
ker
RoR
o
Schematic for illustrative purposes only!
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Breakeven-Who’s Dancing and to What Tune in 2018?
Based on 60% debt financing and daily OPEX only
Timing dictates whether you view 2018 as a good or bad
market
Break-even
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Put on the Contracting Breaks!
Based on 60% debt financing and daily OPEX only
Breakdown - Contracting Scenario
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60%
80%
100%
120%
140%
160%
180%
200%
2017
2018
2019
2020
2021
Index (2017=100)
Capesize - Base CaseVLCC - Base Case8.5k TEU - Base CaseCapesize - ScenarioVLCC - Scenario8.5k TEU - Scenario
Contracting could quickly change the earnings landscape
Annual contracting scenario : 50Mn Dwt Bulker, 40Mn Dwt Tanker, 2Mn TEU Container
Newbuilding Prices
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Breakdown, Breakeven, Breakdance
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Shipyards Receiving Orders- Consolidation
2012 & 2017 comparable contracting totals
~ 20 Mn CGT
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Japanese Orderbook by Year of Contract
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Regulation & Cost Absorption
SH to DHmom = 0%
CSRmom = 0%
BWTmom = +1%
Tier IIImom = 0%
No obvious dislocation in time series data
VLCC NB Price
NB Price Breakthrough
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0.0
0.5
1.0
1.5
2.0
2.5
3.0
80%
85%
90%
95%
100%
105%
110%20
12
2013
2014
2015
2016
2017
2018
2019
2020
2021
IndexForward Cover (RH Axis) Costs NB Price
Years
NB prices set to rebound
Annual contracting scenario : 50Mn Dwt Bulker, 40Mn Dwt Tanker, 2Mn TEU Container
Secondhand Prices
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Breakdown, Breakeven, Breakdance
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Chinese Scrap Steel Exports
Chinese scrap steel supply will double over the next 5 years
=Increasing exports and pressure
on scrap steel prices
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Depreciation Curve
Capesize Bulker
% 𝑁𝑁𝑁𝑁𝑁𝑁 𝐷𝐷𝐷𝐷𝐷𝐷. =𝑆𝑆𝑆𝑆𝑆𝑆𝐷𝐷 𝐷𝐷𝑝𝑝𝑝𝑝𝑝𝑝𝐷𝐷 – 𝑠𝑠𝑝𝑝𝑝𝑝𝑆𝑆𝐷𝐷 𝐷𝐷𝑝𝑝𝑝𝑝𝑝𝑝𝐷𝐷 𝑌𝑌𝑌𝑌𝑆𝑆
𝑛𝑛𝐷𝐷𝑛𝑛𝑛𝑛𝑛𝑛𝑝𝑝𝑆𝑆𝑛𝑛𝑝𝑝𝑛𝑛𝑛𝑛 𝐷𝐷𝑝𝑝𝑝𝑝𝑝𝑝𝐷𝐷 𝑌𝑌𝑌𝑌𝑆𝑆 − 𝑠𝑠𝑝𝑝𝑝𝑝𝑆𝑆𝐷𝐷 𝐷𝐷𝑝𝑝𝑝𝑝𝑝𝑝𝐷𝐷 𝑌𝑌𝑌𝑌𝑆𝑆
YoS = Year of Sale
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5 Year Old Prices
Panamax Bulker Aframax Tanker
1.7k TEU FCC VLGC
2021 annual average forecast
2021 annual average forecast
2021 annual average forecast
2021 annual average forecast
Top Picks
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Breakdown, Breakeven, Breakdance
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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IRR by Age by Sector
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Thank you for Listening
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