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Daily Briefing October 19 2017

Look beyond 2017 for a rosy outlook in the tanker markets


Look beyond 2017 for a rosy outlook in the tanker markets


IT is no secret that 2017 has not been a banner year for tanker owners in any major market segment. But what does 2018 hold in store? Scrapping increases are starting to be seen, but outstanding orderbooks remain large for some classes of ships. Rates will be set by the interplay of delivery and scrapping, as the single most important factor is the number of ships on the water.
The strong markets in 2015 and 2016 encouraged many aged units to stay on the water when they would have been scrapped otherwise. This has a twofold effect. First, older ships must be offered at lower rates in most cases to secure a cargo, which drags down benchmarks for all participants. Second, it has kept the fleet size large.

This trend has started to shift as rising steel prices in India and China have boosted incentives to recycle vessels. Older units do not warrant the investment required beyond their third special survey. The capital costs of the drydock periods are much higher for ships aged 15 years or above. So we should see the continued surge of ship recycling.

The newbuilding overhang will continue to depress rates in the very large crude carrier market. The fleet will also face the addition of ships coming out of floating storage and back into the active trading. The supply of ships will rise above 750 ships, up from a little over 700 by the end of this year.

Organisation of the Petroleum Exporting Countries production levels, a driver of very large crude carriers' market strength, are expected to remain capped until we see a prolonged increase in oil prices. There should not be a significant rise in seaborne oil flows until this price shift occurs. Opec is not expected to put a significant amount of additional oil into the market until onshore shale oil production peaks.

Suezmaxes are seeing a somewhat rosier outlook as the fleet is past its peak growth window. Incentives to move crude oil from West Africa to Asia on VLCCs appear to be reducing as well, which should free up more spot market barrels for suezmax vessels.

Aframaxes have suffered a brutal 2017 so far but also should see an upside in 2018 as the age profile of this fleet will encourage the highest level of scrapping; 190 ships over 15 years, 55 over 20, and 10 over 25. The fleet will close out this year with about 1,000 units, about the same expected in 2018. We appear to be past the trough in rates, and trade flow dynamics appear to be past the rate trough seen in mid-2017.

Rate forecasting is notoriously difficult given the large impact of unpredictable geopolitical events. However, it is possible to say with some certainty that the outlook for smaller crude tankers is rosier than that for the 2m-barrel VLCC fleet.

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Top stories:

JP Morgan is bullish on dry cargo but split on tankers

BULLISH on all segments of dry cargo and product tankers but bearish on crude oil tankers is the outlook of a major Wall Street firm specialising in shipping.

Noah Parquette of JP Morgan, one of the earliest evangelists of a strong recovery in dry bulk shipping, still finds dry cargo as one of his favourite sectors, banking on strong demand growth across all major commodities in 2018 and a moderate supply growth over the next 18 months.

His view on tankers, however, is split. He believes that a reduction in global product inventories bodes well for demand for product tankers in 2018. On the other hand, he remains concerned with the supply side of crude oil tankers, arguing that the pace of new vessel ordering did not slow substantially in the third quarter of 2017.

On the dry cargo side, Mr Parquette sees continuing strong demand for iron ore, which primarily benefits the larger size vessels, but he also expects the coal and soyabean trades to have good years in 2017. This should broaden the dry bulk recovery to the mid-size and smaller ships, with its expected positive effect already reflected in period rates.

"Period charter rates for panamax and handymax vessels are now above all-in breakeven levels for most owners," he wrote in a note to clients.

In addition to a strong demand scenario, Mr Parquette likes that there were very few orders to speak of through March 2017, and that any new orders since then have not been at levels that would be considered alarming. He attributes the few orders to asset values for secondhand vessels still being more attractive than newbuildings.

He cautions that: "At some point soon this [the relation of second hand vessels to newbuilding prices] will reverse, and we expect new orders to accelerate over the course of 2018, but for now there is a clear period of at least 18 months that we should have very low fleet supply growth."

Moving to the tanker side, Mr Parquette sees the current inventory drawdown, and it subsequent need to replenish it, setting the stage for a good year in 2018, when vessel supply growth is expected to fall materially.

"One of the concerns on the demand side of the equation for product tankers has been high inventory levels, which has kept arbitrage driven trading low in the product tanker market. Over the past few months, progress has been made on reducing these inventories."

The only problem area for Mr Parquette is the crude oil sector, which continues to suffer from the heavy amount of vessel ordering. Mr Parquette sees a wild card to the sector coming from the Organisation of the Petroleum Exporting Countries, but he cautions moderation.

"While we see the potential for a bull scenario in 2018 if the Opec production agreement falls apart, we estimate rates would be still lacklustre, and the rally would be short-lived before bottoming out in 2019."

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Slow steaming urged as emissions from shipping rise

THE immediate reduction of vessel speeds would give shipping a headstart in its decarbonisation struggle, potentially cutting certain vessels' emissions by up to a third by 2030, according to a new study.

The suggestion came as another study revealed that total shipping emissions grew between 2013 and 2015.

In a clear message to the International Maritime Organization to act quickly on emissions controls, environmental groups unloaded the combination of historical data and future projections on Tuesday and Wednesday, pushing the issue to the fore ahead of a series of international meetings next week.

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How to avoid being seen as low-hanging cyber fruit

THERE are two types of company right now - those that have been breached by a cyber attack and those that don't know it yet. That was the view from our recent webinar on cyber security where our chief correspondent Richard Clayton sat down with Ince & Co partner Rory Macfarlane and John Boles, director of global legal technology solutions at Navigant.

Their conversation, now available to listen to online, underlined that cyber response has risen to the top of the list of urgent maritime issues and explains why business leaders throughout the maritime sector have stepped up their search for advice, both internally and externally, about ways to protect their systems following the NotPetya attack on the world's largest liner company in July.

Spoiler alert - there is no silver bullet to cyber security, but the webinar is required listening all the same. The advice from the experts suggests that you need to work out what you can't live without, and identify the necessary level of protection around that. Remember - security not used is not security at all.

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The nickel ore liquefaction problem has not gone away

THE loss of a supramax bulk carrier off Cagayan in the Philippines, with 10 Indian seafarers still missing out of a crew of 26, is as yet unexplained. But the incident has already prompted industry groups to reissue warnings about the dangers of shipping nickel ore and raised concerns about safety standards being applied in Indonesia now that a three-year ban on nickel ore exports has been lifted.  

Speaking to Lloyd's List Professor Mike Bradley of the Wolfson Centre in London warned of the commercial pressures masters are under, the lack of competent authority regulation at the point of loading and the lack of a reliable test that masters can use.

Lack of sheltered storage to keep the ore dry while on the quayside, thereby minimising moisture absorption in the load, is a further factor. Some of the cargo for export might have come from old stockpiles left in the rain for several months. All of which increases the risks of liquefaction. 

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The Qatar blockage has altered LNG trade flows to Egypt and the UAE

THE International Energy Agency has found Egypt and the United Arab Emirates to be the most affected by Middle East Gulf nations' joint blockage of Qatar in terms of liquefied natural gas trade flows.

Since June, Bahrain, Saudi Arabia, the UAE and Egypt have severed diplomatic relations and cut off transport links to and from Qatar over allegations of state sponsorship of terrorism, which the gas-rich kingdom has vehemently denied.

In its global gas security review, the IEA expects total Qatari LNG export volume to stay above 100bn cu m this year, little changed from the level seen since 2011.

"Comparing the range of monthly LNG export volumes seen in the past five years, Qatar has continued to export its LNG within the range," the Paris-based energy watchdog said in the report.

This is mainly because trade flows to Europe and Asia, which purchase nearly 90% of Qatar's LNG, have not been affected the blockage, the IEA suggested.

Full market report

Panamax earnings are approaching a four-year high

PANAMAX bulker earnings have hit their highest level in three years and nine months as continued demand met with a lack of available vessels, especially in the Atlantic basin.

Rates were increasing for US Gulf grain shipments, while in the Pacific, charterers were actively fixing vessels ahead of any potential spikes there.

The average weighted time charter on the Baltic Exchange surged to $13,230 per day at the close on Wednesday. While the earnings potential is 9.5% higher than a week ago, it is slightly lower than the $13,265 per day seen on Tuesday, which was in itself the highest since January 2014.

The Baltic Panamax Index increased to 1,646 points.

The momentum may continue through the end of the year, analysts suggested. 

Full market report


In brief:

Don't forget about the risks, LNG industry has been warned

LIQUEFIED natural gas trades face regulatory, financial and logistic risks despite potential for huge growth in the coming decades, panel speakers at an industry event have warned.

At the Oil & Money conference in London, senior industry executives warned of potential obstacles to LNG market participants that could derail this type of energy's growth, something that would hurt shipping demand and investors that bet big on LNG carriers.

The remarks have come after several recent forecasts put natural gas en route to replace oil as the world's top energy source sometime during 2020-2050. For the nearer term, Shell has forecast that global LNG trade will have expanded by 50% from the 2014 level by 2020.

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Iran sees Trump rhetoric as a non-issue for the energy industry

DONALD Trump's threat to pull the US out of the 2015 international nuclear agreement has no impact on Iran's future development of its energy industry, according to a senior government official.

Last Friday, the US president announced his decision to de-certify the former Joint Comprehensive Plan of Action, accusing Teheran of sponsoring terrorists and violating the deal.

He asked Congress to come up with more stringent measures in the JCPOA against Iran within 60 days.

"I think legally this has no effect, no implication on our future plan for the oil industry," Iran's deputy oil minister for trade and international affairs Amir Zamaninia said at the Oil & Money conference in London.

Mr Zamaninia said the Islamic Republic would continue to talk to energy firms in Europe, Asia and Russia over developing the country's large energy reserves.
"Over the next four to five months, we will see what can be done," said Mr Zamaninia, adding that 28 contracts with foreign firms were currently under discussion.

In the longer run, Mr Zamaninia reiterated Iran's ambition to build its first liquefied natural gas export project by 2021, after Total and China National Petroleum Corp signed a deal with National Iranian Oil Co to develop the South Pars field in July.

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Box growth is on track to exceed 6% in 2017

FULL-YEAR global container throughput growth is on course to rise above an unprecedented 6% in 2017, as robust traffic across all regions maintained its steady upward curve in the third quarter, says Alphaliner.

The industry analysts said that strong first half growth, estimated at 6.7%, remained through to the end of September with Chinese majors continuing to lead the way.

China's ports, including Hong Kong, reported growth nearing double-digit proportions in the third quarter of 9.3%, driving year-to-date traffic numbers at the country's terminals through the first nine months of 2017 to 9.1%.

In light of the current strength of demand, Alphaliner said that the teu-to-GDP multiplier was on course to reach 1.7 times GDP growth, "reversing the recent downward trend that has seen the multiplier drop to below 1.0 in the previous two years".

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Genco has opened an office in Singapore to tap into lucrative iron ore trade

DRY bulk owner Genco has opened an office in Singapore as it turns its attention to the lucrative iron ore trade amid a solid market recovery.
The New York-listed company said it has appointed Ivo Kempenaer as vice-president and commercial director of major bulks.

Mr Kempenaer has more than 30 years of chartering experience, having worked as a senior broker on the capesize desk at Simpson Spence Young, and head of capesize at mining giant BHP. He was also general manager for Pacific chartering at EDF Trading Singapore. 

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Digital forwarders are not seen as a threat to established businesses

DHL Global Forwarding claims start-up freight forwarders are not offering a wide enough service range to significantly disrupt forwarding markets, and traditional rivals remain its true competition as supply chains go digital.

The digitalisation of forwarding markets would see substantial customer service improvements but would not lead to incumbents being displaced by start-ups, said DHL Global Forwarding chief operating officer Tobias Meyer.

He told Lloyd's List that DHL Global Forwarding viewed the digitalisation of logistics - from small process improvements to new business models - as an "exciting journey" and an opportunity to improve services. He added that the company was responding quickly to the challenge of e-forwarders.

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Korean prosecutors have turned down an arrest warrant for Hanjin's chairman

SOUTH Korean prosecutors have rejected an application for a warrant to arrest Cho Yang-ho, chairman of Hanjin Group, the parent company of the now-defunct Hanjin Shipping, who was accused of embezzling funds to renovate his private home.

The Seoul Central District Prosecutors' Office said on Tuesday that it instructed the police to further investigate the case to substantiate the charges, according to Korean media reports.

The police, meanwhile, said: "We will decide whether to seek an arrest warrant again after reviewing prosecutors' requests."

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Korea's Sejin Heavy is set to receive $29m subsidy from Ulsan's local government

SOUTH Korea's Ulsan Metropolitan City plans to invest Won32.7bn ($29m) in Sejin Heavy Industries to help the company to diversify its business areas.

The investments will help Sejin Heavy to embark on new business fields such as offshore plants and small-sized vessels, a statement from Ulsan's government office said.

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NYK has postponed an order for a luxury cruiseship

JAPAN's Nippon Yusen Kabushiki Kaisha has postponed its plan to order a new luxury cruiseship.

"It would be difficult to introduce a new luxury cruise ship by 2020, and it is likely we will continue to operate the existing cruise ship," said Tadaaki Naito, the chairman of NYK, during an interview with the Nikkei.

NYK currently operates Asuka 2, Japan's biggest luxury cruiseship, which was built in 1990 by Mitsubishi Heavy Industries. It was originally built as Crystal Harmony for Crystal Cruises, but later in 2006 transferred to NYK and renamed.

NYK has been reviewing possibilities of ordering a new cruiseship to replace Asuka 2 by 2020, but Mr Naito's remarks were made amid concern over costs, according to the Nikkei.

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TIL has gained full control of Las Palmas terminal

TERMINAL Investment Ltd, or TIL, has reached an agreement with Noatum Ports to take full ownership of Grand Canaria's largest container terminal Operaciones Portuarias Canarias (OPCSA), Las Palmas.

Spanish terminal operator Noatum Ports acquired a 45% share in OPSCA, which began operations in 1986 as Las Palmas' first fully independent stevedoring company, when it bought fellow Spanish group Dragados in December 2010.

Mediterranean Shipping Co's terminal operating arm previously held a 55% stake in the facility, one of two Spanish terminals within TIL's global network in addition to the MSC Terminal in Valencia.

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Cosco shareholders approved OOIL acquisition

SHANGHAI- and Hong Kong-listed Cosco Shipping Holdings has won sharedholder approval for its offer to acquire Orient Overseas International Ltd, according to an exchange filing.

The go-ahead was given at an extraordinary general meeting of CSH shareholders held on Monday.

CSH said the offer was still dependent on several other preconditions, including anti-trust reviews by competition authorities in China, the European Union and the US, and approval by China's National Development and Reform Commission.

CSH vice-chairman Huang Xiaowen said at a press conference in September that he expected the acquisition to be completed by the end of the year.

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