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Daily Briefing October 25 2017

Korean bank struggles to get money back from shipping and yards

Topics

Korean bank struggles to get money back from shipping and yards

 

SOUTH Korea's ailing shipping and shipbuilding companies continue to cast a shadow on the country's government-backed banks, with the Export-Import Bank of Korea now targeted for criticism.

A Seoul-based lawmaker, Kim Sung-shik, revealed that about 75% of Kexim's non-performing loans come from shipping and shipbuilding firms.

As of end-August, about Won3.5trn ($3.1bn) of the bank's NPLs came from shipping and shipbuilding companies, even though loans to such firms fell from 29.1% of its total loans in 2014 to 25.9% in August, according to Mr Kim. He obtained the data from the Ministry of Strategy and Finance.

Mr Kim said: "The bank missed the proper time to financially support shipping and shipbuilding companies, and it caused continuous financial damage for the bank."

Mr Kim also criticised the bank for letting some shipbuilders, including Daewoo Shipbuilding & Marine Engineering and Sungdong Shipbuilding & Marine Engineering, take orders at low prices, which he believed was not a perfect measure to help to them stand alone. 
  
The bank's chairman Eun Sung-soo said during a review held today by South Korea's National Assembly that he believed DSME was recovering, even though there was a still long way to go.

However, Mr Eun added that he was sceptical about SSME, saying the shipbuilder would not have any more orders to work on after November.
He said the bank was trying its best to come up with normalisation plans for SSME, including liquidation of its facilities and wage cuts for employees.
Mr Eun said that the bank would consider selling SSME if the normalisation plans failed. He gave no further details.

Kexim is not the only government-backed bank in South Korea to struggle with financial pressure from to trying to save the country's shipping and shipbuilding companies.

South Korea's policy bank, Korea Development Bank, also saw a net loss of about Won3.6trn in the 2016 fiscal year due to restructuring expenses it incurred from bailing out a number of shipbuilders and shipping lines. The loss was the bank's largest loss since 1998.

The state-backed institution saw restructuring expenses of Won5.6trn for 2016, mostly from DSME in which it has a 79% shareholding, STX Offshore & Shipbuilding, and the now bankrupt former flagship carrier Hanjin Shipping.

The South Korean government announced plans last June to increase the capitalisation at two state-run banks in order to assist struggling domestic shipping lines and shipbuilders through the painful restructuring process as both policy banks had been largely involved with the restructuring efforts of most of these companies.

Under the plan, the government is to pump Won1trn into Kexim directly and jointly establish a "Recapitalisation Fund" with the Bank of Korea and the Industrial Bank of Korea worth Won11trn.

Full story

 


 

Top stories:

Liner shipping profits set to rise to $6bn in 2017

CONTAINER shipping is on course to report a combined operating profit of approximately $6bn in 2017 with the figure only set to rise next year, in what could become carriers' most profitable 12 months in nearly a decade, according to Drewry.

In a webinar held on Tuesday morning, the London-based analysts reported they had revised their full-year operating profit forecast for the industry from $5bn earlier in the year, on the back of a faster-than-expected recovery.

While Drewry did not put a figure on projected operating profits, or earnings before interest and tax, for 2018, it anticipates the sum to rise to its highest level since 2010, when the industry made approximately $20bn.

Although carriers are not expected to eclipse the profit levels witnessed at the start of the decade, Drewry said that if carriers were able to manage the huge influx of capacity next year, there was every chance that profits would continue to increase.

Drewry research manager Simon Heaney said that for container lines, the collapse of Hanjin Shipping could prove to have been a watershed moment, one that paved the way towards a "liner paradise of sustained profitability".
The swift strategic response to the biggest casualty in the industry's 60-year history and the unprecedented level of consolidation this triggered was now starting to pay off, he added.

Full story

 

Industry to miss Paris climate targets, warns DNV GL

DNV GL expects the Paris agreement's target of limiting the rise in global temperatures to no more than 2øC this century will be exhausted by 2041, despite moves by industry, including shipping, towards cleaner energy sources.

Instead, the classification society expects global warming of 2.5øC above pre-industrial levels by the end of the century - a level which is likely to force dangerous climate change.

To achieve the low carbon target, DNV GL suggested greater and earlier adoption of renewables, broader adoption of electric vehicles, investment in strategic energy management and availability of subsidies.

The Paris accord, agreed by nearly 200 countries in 2015, seeks to limit planetary warming by curbing global emissions of CO2 and other gases which are believed to drive global warming.

Despite the report's optimistic outlook in the drive towards cleaner energy, the report found that "we are currently not on course to achieve the climate objectives of the Paris agreement".

Electricity consumption, meanwhile, is forecast to rise by 140% by 2050 and become the largest source of energy, followed by gas, the classification society said in its report: 'Energy Transition Outlook: Renewables, Power and Energy Use'.

The use of other energy sources such as coal is expected to be significantly reduced amid the drive to reduce emissions, while oil and gas use is set to increase only slightly.

Full story

 


  

Opinion:

A new sheriff in town

MOVE over Diana Shipping, there is a new sheriff in dry bulk town.
Scorpio Bulkers is poised to become the new "go-to" dry cargo company, supplanting Diana Shipping as the single most covered stock on Wall Street.

Scorpio announced its third-quarter results on Monday, kicking off the earnings season with a surprise dividend declaration of  (literally) two cents per share. The dividend may be token, but its effect on analysts was one big "wow", with many of them running out of superlatives to describe an imminent recovery in the dry bulk sector.

For the record, Scorpio Bulkers reported a net loss of $0.15 per share for the quarter, but as we have said many times in the past, valuation on Wall Street is only about the future.

We have so far received a dozen research notes. Of the 12 analysts, 10 have a buy or outperform rating on the stock. The highest target price is $14 and the lowest is $9. Scorpio Bulkers shares closed on Monday at $8.70.

If you believe the sages, now is the time to buy. Here are some of their gushing headlines.

Arctic Securities: "A positive confirmation that the 'dry bulk recovery game' is just getting started".

Axia Capital Markets: "Scorpio Bulkers ahead of the curve".

Clarksons: "Focus turning to shareholders".

Credit Suisse: "Dividend initiated but recovery still needed".

Deutsche Bank: "Dividend symbolises the entering of a new phase".

Evercore: "Normal is the new differentiator".

Jefferies: "Third-quarter earnings per share better than expected; dividend and share repurchase programme announced". 

It has been a long time since dry bulk got that sort of favourable attention. 

Full story

 


 

Analysis:

Shipbreakers brace for regulatory upheaval

POLICY and regulatory changes could revitalise the ship recycling sector, which has experienced overall lower scrapping volume on year.

On the buying side, Indian and Bangladeshi breakers still dominate the market, but the supposed termination of Beijing's scrap-and-build scheme could prompt Chinese owners and scrapyards to interact more with international markets next year.

As for the sellers, market recoveries, especially in the dry bulk sector, are temporarily keeping ships away from graveyards. But once the peak demand season passes, incentives for scrap sales will likely increase as regulatory issues come into play.

Many industry officials and analysts are anticipating significant increases in scrapping in 2019 and 2020 at the latest, with the Ballast Water Management Convention's grace period ending and new, lower sulphur limits in bunker fuels coming into force.

This is mainly because the IMO regulations will force shipowners to demolish their aged and fuel-inefficient vessels rather than incurring a high cost in retrofitting the compliance equipment.

Demolition rates will also be an important factor when owners make their scrapping decisions. For now, the fundamentals, including steel plate prices, remain stable, and the likely limited supply of scrapped ships could support rates for a few months.

Full story

 


 

Markets:

Southeast Asia's oil demand shows encouraging signs for tankers

THE International Energy Agency expects Southeast Asia's oil demand to expand to around 6.6m barrels per day by 2040, from 4.7m bpd now, offering positive news for tanker fundamentals amid uncertainty over production declines in the region.

A significant rise in the number of vehicles on the region's roads over the period - set to increase by two-thirds to around 62m cars and 1.6m trucks - would support demand, the agency said in its latest Southeast Asia Energy outlook report.

A global push to combat climate change by replacing combustion engines in vehicles with electric-powered ones has raised concerns in the oil industry that demand for the commodity could peak in the next 10-20 years.

But oil will continue to meet around 90% of transport-related demand in Southeast Asia, especially for trucks and ships, the IEA's director of energy markets and security Keisuke Sadamori said at Singapore International Energy Week on Tuesday.

"Oil consumption for transport is likely to rise by 1.1m bpd," Mr Sadamori said. "Unless there are any drastic technological changes that can decarbonise these areas, we do not expect oil demand to fall."

This development could translate into an additional annual requirement for up to 250 VLCCs.

Full story

 

Dingheng Shipping to run 20 chemical tankers by 2017

SHANGHAI Dingheng Shipping, a Chinese chemical tanker operator that focuses on domestic and coastal trades, is to charter in six ships and order 10 new ones as part of its fleet expansion plan.

The private business said that it had signed bareboat charter agreements with private shipyard Ningbo Xinle Shipbuilding for four coated chemical tankers - three 7,500 dwt ships and one of 16,500 dwt - and two stainless steel 13,200 dwt vessels.

The six ships, which will be put into service over the next several months, faced delivery issues at the yard due to tough market conditions, according to Chinese media reports.

Shanghai Dingheng said its fleet would top 20 ships by the end of 2017 with the delivery of the vessels on order, which consist of four coated 8,500 dwt ships and two 13,000 dwt stainless steel ships.

At the same time, the two parties also inked a newbuilding contract for 10 9,000 dwt chemical stainless steel tankers. Details of the contract were not disclosed.

In addition, they reached a preliminary intent to build 10 6,000 dwt vessels, also equipped with stainless steel tanks.

Full story

 

Supramax earnings soar on coal and grain demand

THE average weighted time charter on the Baltic Exchange gained 2.9% in the week to $12,564 per day at the close on Tuesday, the highest since July 2015, while the index inched up to 1,130 points.

US Gulf cargoes have been covered for end-October dates and demand has continued for November loadings, at least for petroleum coke, a London-based trader said.

In terms of grains, South America was still strong, boosting rates into next month, the trader added. Paranagua to northwest Europe was being concluded at more than $19,000 per day.

Braemar ACM said in a note that Indonesian coal remained the "driving force in the Pacific" with tonnage lists growing. Some owners were reportedly opting for a premium to fix coal to the west coast of India, it added.

Only 10 trades were concluded in the spot market, according to Clarksons, with the highest at $21,000 per day for wood pellets being shipped from the US east coast to northwest Europe, and the lowest at $9,000 per day from the Black Sea to the US Gulf. A couple of nickel ore cargoes from the Philippines to China were seen at $13,800 per day and $14,500 per day.

Full Supramax report here

 

SSY appoints Lawson as new tanker head

SIMPSON Spence Young, one of the world's largest broking houses, has appointed Rupert Lawson as its new head of tankers.

Mr Lawson, who joined SSY in 1994 and became a partner in 2006, will be replacing James Palmer. Mr Palmer is leaving the company to pursue other interests, SSY said in a statement.

Aged 45, Mr Lawson spent 13 years based in SSY's Singapore office, most recently as the managing director for the tanker department with a specific focus on very large crude carriers.

Since returning to the UK last year, he has been working in the sale and purchase department, focusing on tanker projects and S&P.

"Rupert brings a wealth of knowledge, energy and experience to the team and we are looking forward to him leading our tanker department to continued success," SSY chairman Mark Richardson said in the statement.

"I would like to thank James Palmer for all his hard work and commitment to the business and wish him all the best for the future."

Full story

 


 

In brief:

US regulator approves Cosco's acquisition of OOIL

HONG Kong-listed Cosco Shipping Holdings has been given the green light by the US competition authorities to proceed with its acquisition of Orient Overseas (International) Ltd.

A statement from the group said: "The joint offerors are pleased to announce that with respect to antitrust review in the US under the US Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the regulations thereunder, the applicable waiting periods in connection with the offer have expired. Accordingly, the pre-condition has been fulfilled."

Aside from the US regulators, the group has obtained approval for the deal from China's State-owned Assets Supervision and Administration Commission of the State Council and its shareholders during an extraordinary general meeting held earlier in October.

CSH now has to obtain approval from China's antitrust authorities, the National Development and Reform Commission and the State Administration of Foreign Exchange.

It will also have to await a decision from the European Commission to allow the transaction to proceed.

 

Autonomous 50,000 teu boxships could be in service within 50 years

CONTAINER shipping could see self-driven 50,000 teu vessels by 2067, with standardised unmanned floating containers following alongside as trade grows to two to five times greater than current levels, according to McKinsey.

These changes could take place as digital technologies, big data and the internet of things make a significant impact on the industry.

Aside from the bigger boxships, the management consultancy is also expecting short-haul intra-regional trade to grow as converging global incomes, automation and robotics de-consolidate manufacturing hubs.

"Container flows within the Far East will remain huge, and the second-most significant trade lane may link the region to Africa, with a stopover in South Asia," says a new report from McKinsey.

Amid the ongoing consolidation trend, three or four major container shipping lines may remain. These survivors will be digitally enabled, have a strong customer focus, groundbreaking commercial practices or be small subsidiaries of technology majors that combine the digital and physical aspects of business.

Freight forwarders will not be able to exist as standalone businesses with digitalisation allowing parties to circumvent middleman roles. "All winners, closely connected through data ecosystems, will have fully digitised customer interactions and operating systems," McKinsey says.

Full story

 

V.Ships to manage Minsheng Financial Leasing ultramax newbuilding quartet

BUXTEHUDE-based NSB has taken its managed fleet to 96 vessels, after unveiling a joint venture with Indonesia’s Temas Line that will bolster its books by 31 units.

The new company, known as Asia Marine Temas, will be headquartered in Jakarta.

The move is part of NSB’s masterplan to transform itself from a standard German company managing KG-owned ships into an international operator. The changes have included pulling its vessels from the German register, a move that has attracted a certain amount of flak back home, after 500 European seafarers lost their jobs as a result of the decision.

Full story

 

ICTSI inks deal for second phase of Basra Gateway Terminal upgrade

PHILIPPINES-based International Container Terminal Services Inc has signed a $100m deal to start construction work on the second key phase of Basra Gateway Terminal's upgrade project in North Port, Umm Qasr, Iraq.

The terminal operator will build the new Berths 25 and 26 that includes a 20-ha yard that raises the terminal's box handling capacity by 600,000 teu to 1.2m teu.

Both berths will be equipped with quay and landside container handling systems that will be able to manage boxships up to 10,000 teu.

When completed, the two berths, and Berth 27 alongside them, will form a continuous berthing line of 600m.

"This new $100m investment follows hot on the heels of ICTSI's development of Berth 27 and the rehabilitation and upgrade of berths 19, 20 & 21, a $150m investment. Our commitment to provide international standard port facilities and services in Iraq is plain to see. It also represents the fruit of a positive working relationship with the Iraq Ministry of Transport, General Company for Ports of Iraq (GCPI) and Governorate of Basra as well as other government agencies," said ICTSI chairman and president Enrique Razon.

Full story

 

Manila ready to handle Christmas cargo influx

MANILA port is likely to remain congestion-free as year-end cargoes for the Christmas season continue to arrive.

Authorities have said that utilisation rates at the port at the start of the final quarter of 2017 are sufficient to handle incoming cargoes during the peak holiday season.

Productivity levels at the three key facilities, Manila International Container Terminal, Manila South Harbour, and Manila North Port are robust with no bottlenecks expected ahead of Christmas, said Philippine Ports Authority general manager Jay Daniel Santiago, as total yard utilisation at the international terminals of MICT and MSH are 20% below the optimum level of 80%.

The 60% utilisation rate indicates that there are still 32,600 available container slots with only 48,900 slots currently occupied.

"With container gate-outs almost reaching 8,000 container outs per day, the utilisation rate is expected to hover around the 55%-60% utilisation rate until after the Christmas season," said Mr Santiago, noting that both terminals had posted at least a 10% productivity increase at end-September which suggests the ports are fully functional. 

 

 

 

 

 

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