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Daily Briefing November 16 2017

Year-end projections: Tanker and gas 

Topics

Year-end projections: Tanker and gas:

LNG shipping enters the bull cycle but other segments are hitting bottom 

 

THIS year is shaping up to be a trough year for all oil and gas shipping sectors, except for liquefied natural gas. 

According to Lloyd's List's annual survey of analysts on forecast earnings, crude, product and liquefied petroleum gas carriers are all going to earn much less this year than last. Fortunately for owners, earnings are expected to be just above operating costs  which means no cash outflows and severe financial woes. 

The story for the three sectors is rather similar. Even as vessel demand remains generally healthy with buoyant seaborne trades, oversupply has worsened owing to a larger number of newbuildings hitting the water. 

For LNG shipping, net fleet growth has also stayed high this year owing to newbuilding deliveries. But strong cargo demand from traditional and emerging consuming nations, coupled with rising exports from Australia and the US, have resulted in double-digit growth in shipping demand and subsequently pushed up earnings. 

As usual, all tanker and gas sectors are hoping for a strong winter demand upturn. The signs have pointed to a decent fourth quarter so far amid healthy fuel demand. After three quarters of weak markets, owners need this one to be upbeat. 

The full version of this report, available here, contains forecasts of 2017 earnings from leading banks, brokerages and consultancies. Next week, we will publish our 2018 outlook. 

VLCC

As expected, spot earnings of supertankers are set to be much lower this year. The issue is mainly related to the supply side, even though the production cut ordered by the Organisation of Petroleum Exporting Countries did not help.

Year-on-year fleet growth reached 6.2% as of early November, according to Lloyd's List Intelligence data, with increased scrapping overweighed by newbuilding tonnage. 

Moreover, Opec has relied on Saudi Arabia's output reduction to meet the headline cut target this year, hurting very large crude carrier demand in the Middle East in particular. The oil kingdom produced 9.9m-10m barrels per day in January-October, down from the average 2016 level of 10.4m bpd, according to Opec secondary sources. 

Fortunately, Nigeria and the US are raising output and exports this year. Some of those Atlantic barrels are flowing to Asia on VLCCs, which boosts tonne-mile demand. 

Looking ahead, other than the usual seasonal swings, owners will hope these long-haul requirements can stay in place and continue to support earnings. 

Suezmax

Suezmax earnings have been plagued by a supply overhang this year, with LLI data showing year-on-year net fleet growth of 7.9% as of early November.  

Moreover, a total of 15 units are due for delivery in late 2017 and early 2018, which would curb rate gains in the winter peak demand season. 

On the bright side, vessel demand remains supported by resilient European oil consumption. The requirement can be met by rising exports from Nigeria and Libya, who are Opec members but exempted from the cut. 

According to Opec secondary sources, Nigerian oil production reached 1.6m-1.8m bpd in the second and third quarters, compared with 1.5m bpd in the first. Libyan output was gradually rising to 932,000 bpd in July-September, compared with the 2016 average of 390,000 bpd. 

Moreover, record high US exports are also a demand driver. LLI data suggested nearly 30% of US exports are on suezmaxes this year. 

Aframax

While facing oversupply issues, aframaxes might be the first crude tanker segment to enjoy a sustained rate recovery. 

Year-on-year fleet growth reached 2.1% as of early November, smaller than its larger cousins, VLCCs and suezmaxes. Total orderbook size accounted for 12.1% of the existing fleet, also a lower proportion than the other two segments. 

There are also sparks of activity on the vessel demand side, because significant proportions of Libyan and US exports are on aframaxes. 

However, aframax earnings will be curbed by the suezmax weakness. The larger ships can become cheaper than the smaller ones at times, making them more attractive to charterers. 

LR1 / LR2

For the bulls, this year's product tanker market is turning out to be a minor disappointment, unless there are huge rate spikes before the end of the year.

Slowing fleet growth and healthy product demand have been giving owners hope that earnings could bottom out from the current trough. Except for periods of supply disruptions, though, such as the US hurricane season, market performance has remained lacklustre. 

While product stocks are falling, the reduction is not yet sufficient to trigger larger numbers of cross-region movements especially when refinery runs are generally high across the globe. 

The International Energy Agency figures showed stocks of middle distillates in Organisation for Economic Co-operation and Development's European nations remained nearly 20m barrels above the five-year average as of the end of August. This would curb Middle Eastern flows to the region, hurting demand for long-range vessels especially. 

Middle East-Asia naphtha flows are LRs' bread and butter trade, yet this route also lacks spark this year, in part owing to cheap liquefied petroleum gas that can replace naphtha as petrochemical feedstocks for some periods.

All this has pointed to soft earnings for LRs this year, with LR1s especially underperforming. 

MRs 

Medium range vessels are also forecast to earn less this year, but this segment could experience a market recovery earlier than larger ships.

The demand outlook is bright, with the US increasing product exports to Europe and Latin American on the back of high refinery runs amid shale revolutions. 

According to the Energy Information Administration, distillate exports from the US reached a record high of 1.3m barrels per day in January-June. 

A further bullish sign comes in the shape of US gasoline stocks falling to 212.8m barrels as of the end of October, the lowest since August 2015, which could trigger cargo movements from Europe and support fronthaul Atlantic rates. 

In Pacific trades, China is widely expected to remain a demand driver owing to expanding refinery capacity. According to the Baltic and International Maritime Council, the country's exports of refined products were already up 8% year on year in the first three quarters. 

LNG carriers (150,000 cu m-180,000 cu m)

The bull cycle has finally begun for LNG tanker owners after more than three years of weak earnings. 

Spot charter rates have been on an upward trajectory since the second half of 2016 before finally breaching the $60,000-a-day mark in early November. If earnings can stay above this level, most owners with spot exposure will be able to make profits. 

The recovery comes as supply-demand fundamentals turn favourable.

According to DNB Markets, tonne-mile demand is expected to increase by 13% this year, compared with fleet growth of 8.1%. Subsequently, average yearly vessel utilisation will rise to 71%, versus the 2016 level of 68%, which was a seven-year low. 

This winter has proven very bullish for owners, with strong northeast Asian imports and new export projects coming online across the globe. Analysts have talked up LNG's prospects as the world's top primary energy source in the coming decades and if LNG's status as a top money maker arrives soon that forecast pre-eminence cannot be far away. 

VLGC

Worsening oversupply has pushed the earnings of very large gas carriers lower, but optimists are hoping a slow recovery can begin this winter. 

As of early November, year-on-year fleet growth reached 11.7%, LLI data showed. Another six units are due for delivery in late 2017 and early 2018.

On the vessel demand side, Clarksons Platou painted a disappointing picture, with growing exports from Angola and Algeria offset by falling supply in the Middle East, where the production of Opec members was negatively affected by the crude output cut. 

But owners will hope the US can pick up the slack, with the world's top LPG exporting nation set to have another record year of exports on the back of its shale revolution. 

Government data showed propane exports from the country reached 900,000 bpd in January-June. According to Wells Fargo estimates, US LPG exports may have reached 1.3m bpd in September, in part due to pent up exports after Hurricane Harvey. 


 

Top stories:

Netherlands 'in the frame' for Britannia subsidiary

THE Netherlands is the most likely location of a potential subsidiary to enable the Britannia Club to continue trading on equal terms within the European Union after Brexit, the marine mutual has confirmed. 

The revelation comes as speculation grows that many British-based clubs are considering similar options as the likely date of Britain's departure from the EU, currently planned for March 2019, draws nearer. 

The UK Club said last month it will formally announce its plans to deal with Brexit by the end of the year. There is widespread speculation it wants to set up shop in Luxembourg. 

North of England and Standard are thought to be considering Dublin subsidiaries, following contacts with the Irish Marine Development Office, while Steamship is looking at the attractions of Rotterdam, while the London club is still mulling two or three possibilities. But none of those clubs were immediately ready to comment. 

West of England and Shipowners have been regulated in Luxembourg for some time, even before Brexit was an issue. 

At present, UK or Bermuda-domiciled P&I clubs are able to do business on the same terms as local insurers anywhere in the European Economic Area, thanks to the so-called passporting rights enjoyed by their London operations. 

However, the future of passporting rights for UK financial services concerns is unclear, after the country decided in a referendum last year to quit the EU. 

Brexit negotiations in Brussels are making only limited headway. They could even end without a deal being reached, which would create massive uncertainty for internationally oriented businesses in the UK. 

Full story

Beijing calls on ports to end monopolistic practices

THE National Development and Reform Commission, China's top economic planner, has asked several major state-owned port groups to rectify their monopolistic practices, following anti-trust investigations earlier this year.

According to an NDRC statement, these port companies include Shanghai International Port Group, Tianjin Port Group, Qingdao Port Group and Ningbo-Zhoushan Port Co. 

The companies were criticised for monopolising tug, tally and agent markets at local ports via subsidiaries in the respective businesses; charging excessive handling fees for export cargos; and imposing compulsory de-vanning and tally services on counterparties, among other terms. 

"These practices have eliminated or constrained market competition, affected fair competition in the business environment and resulted in soaring service prices and increasing running costs in the real economy," the NDRC said.

Full story

Hapag-Lloyd turns its back on new ship orders

HAPAG-Lloyd has no intention of joining fellow European carriers CMA CGM and Mediterranean Shipping Co in ordering a fresh round of newbuildings, because it is content with the recent fleet additions provided by its merger with United Arab Shipping Co.

Speaking in a conference call shortly after the German carrier announced its results for the third quarter — the first three-month financial period to include UASC's operational contribution  Hapag-Lloyd chief executive Rolf Habben Jansen was keen to reiterate that the expanded entity's fleet, including the young and efficient tonnage provided by UASC, would fulfil capacity requirements over the next few years.

Mr Habben Jansen added that the current global orderbook was also at the required level to cope with expected volume growth, emphasising why there was currently little need to enter into yard negotiations.

Indeed, Mr Habben Jansen said that he expected a — reasonable balance  between supply and demand in the short to medium term given the healthy percentage of the boxship orderbook, currently about 14% of the existing fleet.

Despite admitting that projected demand growth of 3%-4% through to the end of the decade and the impact of scrapping could in reality require an orderbook closer to 20%, he said that it could be deemed encouraging that a number of the larger carriers in addition to Hapag-Lloyd did not have any plans for new ships.

Mr Habben Jansen also said that Hapag-Lloyd would sooner venture into the charter market if demand was such that more capacity was needed.

Full story

Yang Ming denies 20-ship order, but mulls fleet renewal plan

YANG Ming has dispelled news about its plan to order 20 boxship newbuildings.

A company spokesman approached by Lloyd's List said the story, which has been circulating in the industry, was inaccurate, but admitted the company was mulling a replacement plan for chartered and older tonnage.

"As more than 10 vessels will be off-hire or older vessels will be retired for the next two to three years, we are studying replacement plans to maintain our competitiveness in the shipping market," a spokesman said.

"However, everything is still in the initial stage and under discussion. It's too early to provide more information at this moment." 

The company is in the process of completing a second round of capital injection via a share offering, which will exceed the approximately $T1.7bn raised in the first round.

It is expected to issue 1bn new shares in total by the end of this year and to raise between $T9bn and $T11bn.

Full story


  

Opinion:

Lloyd's List honours Tamer Masoud 

JOINING Francis Vallat, head of the French Maritime Cluster, and Kishore Rajvanshy, head of Fleet Management in Hong Kong, in Lloyd's List's pantheon of lifetime achievement award winners is Tamer Masoud. 

After 12 years at sea with an Egyptian company and two as master of a special support vessel, Capt Masoud spent four years as a harbour pilot in Fujairah before stepping up to Port of Fujairah harbourmaster in 1992. Over 25 years, he has been closely involved in the rapid expansion of the port, its oil and dry bulk terminals, its fleet of harbour tugs, and the offshore anchorage area. 

While 5,000 ships call at the port each year, three times that number call at the offshore anchorage to load bunkers, transfer crew, take on spare parts, and await orders to lift cargo in the Gulf region. Fujairah is the world's second-largest bunker port, after Singapore. 

Capt Masoud will be given his award at the SAMEA event in Dubai on November 28.

Book your table for the Lloyd?s List South Asia, Middle East and Africa Awards 2017


 

Markets:

Overtonnage to depress tanker rates over 2018, says Fitch

A wave of newbuilding deliveries coupled with the slower scrapping of older tonnage will keep freight rates in the tanker market depressed in 2018, with companies in the segment facing pressure on their credit metrics, according to Fitch Ratings. It is forecasting tanker tonnage to have risen 5%-6% by the end of 2017 compared with the same period a year ago, with capacity expected to increase by 4% in 2018. 

The numbers are a result of newbuilding orders placed in 2015, when freight rates were at elevated levels, with a substantial number of orders from Greek and Chinese shipowners. 

Although vessels scrapped had edged higher on robust steel prices, the ratings agency noted that just five very large crude carriers were demolished over the first seven months of the year, while 36 VLCC newbuilds were delivered in the same period.

Full market report

Ocean capacity indiscipline driving down fourth-quarter freight rates

CONTAINER volume growth remained strong through the third quarter, but the failure of carriers to void more sailings in the fourth quarter is now driving down freight rates, according to Alphaliner. 

Limited capacity withdrawals over the winter slack season has started to have an impact on spot freight rates, with the SCFI rate assessment to north Europe falling by 6.5% on November 10 to $728 per teu from $779 per teu a week earlier. 

Further falls are expected over the next few weeks, with carriers reported to have abandoned rate increase attempts in November.

Full market report


 

Analysis:

Asian shipping lines show interest in digitalising operations

ASIAN shipping lines, which tend to be family-owned and have a traditional mindset that is resistant to change, are showing more interest in the use of information technology to optimise operations.

After sounding out these shipping lines in the region over the past ten months, the electronic shipping marketplace INTTRA has found that attitudes are changing as the next generation of owners take over at these businesses.

Full story


 

In brief:

Torm looks to list on Nasdaq New York bourse by end-2017

DENMARK-listed Torm is seeking a listing on the Nasdaq Stock Market in New York before the end of the year as it aims to improve the liquidity of its traded shares.

When completed, the company's shares will be traded on the Nasdaq Copenhagen and Nasdaq New York bourses and it expects the dual listing to help bring more investors to trade its shares and in the process boost its financial flexibility.

Full story

Noble Group in talks with stakeholders to address liquidity

BELEAGUERED commodities trader Noble Group is in talks with stakeholders as debt obligations over the next year threaten to restrict liquidity.

It will prioritise near-term liquidity and its aim to continue to operate on a normal basis in these the discussions, which are part of the Hong Kong-based and Singapore-listed company's strategic review. The company has sold some key assets to reduce debt but intends to keep its hard commodities, freight and liquefied natural gas businesses.

Last week, Noble Group reported a third-quarter net loss of $1.17bn that drove losses for the year above $3bn.

Full story

Vessel impairments widen Team Tankers losses in the third quarter

TEAM Tankers International posted a $36.3m net loss for the three months ended September 30, compared with a $4.2m net loss in the year-ago period, due to vessel impairments recorded in the quarter. 

The company conducted a vessel impairment assessment during the third quarter testing whether the recoverable values for three of its tankers were higher than the book values, and had to revise its expectations of a market recovery due to the prolonged downturn in the chemical tanker market.

It recorded a $28.8m total impairment loss, comprising a $3.8m loss on one vessel and a $25m loss on another.

Full story

Pan Ocean looks to grains for further growth after profits rise

SOUTH Korean dry bulk carrier Pan Ocean wants to expand its exposure to grains shipments in Southeast Asia from 2018, seeking to find more growth area after restoring its profitability.

The Singapore-listed company, which has been majority owned by livestock and animal feed group Harim after restructuring in 2015, ships mainly to South Korea at the moment.

Pan Ocean said in a presentation that it intended to "improve profitability with diversification of sellers, sorts of grain, and increasing trading scale", calling grain business its "new growth engine".

Full story

Evergreen returns to the black in third quarter

TAIWAN's Evergreen Marine posted a net profit of $T4bn ($133m) for the third quarter of 2017, reversing a $T1.6bn loss during the year-ago period.

The results were in line with expectations backed by a substantial rise in lifting volume and freight rates, as well as by an increase in operational efficiency after joining the Ocean Alliance.

Full story

GTT wins orders to design LNG tanks for Dynagas FSRU pair

FRENCH engineering company GTT has clinched a deal to design the liquefied natural gas tanks for two dual-purpose vessels ordered by Dynagas.

The vessels, which will be able to operate as either LNG carriers or floating storage and regasification units, are being constructed by Hudong-Zhonghua Shipbuilding (Group) Corp in Shanghai, with delivery scheduled for 2021.

Full story

 

 

 

 

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