Price Developments Evaluating Sector Attractiveness

Transcription

1 Price Developments Evaluating Sector Attractiveness Dr Adam Kent - Maritime Strategies International (MSI) 7th Annual Marine Money London Ship Finance Forum 27 th Jan 2016

2 Agenda Price Developments Evaluating Sector Attractiveness 1. What determines secondhand prices 2. Newbuilding prices 3. Scrap prices 4. Earnings 5. Secondhand prices 6. Forecast Maritime evaluator (FMV) Maritime Strategies International 2

3 07/14 08/14 09/14 10/14 11/14 12/14 01/15 02/15 03/15 04/15 05/15 06/15 07/15 08/15 09/15 10/15 11/15 12/15 Prices - Conundrum 000 $/day 1 Year TC Rate 5 Year Old Price Static Prices Mn US$ Maritime Strategies International 3

4 Handy Aframax Suezmax VLCC Handy Panamax Capesize 1.7 k TEU 3.6 k TEU 4.4 k TEU 8 k TEU Break Even v Earnings $/day Breakeven TC Rate % Net Cash Flow (RH Axis) 120% 100% 80% 20 60% 40% 0 20% 0% % % -60% % Based on 60% financing Maritime Strategies International 4

5 The Complete Pricing Jigsaw Maritime Strategies International 5

6 What Determines Secondhand Vessel Prices? Current Replacement Cost - Sets Upper Reference (Yard Prices: Highly Unstable; Major Market Risk) Expected Earnings - Sets Depreciation Rate (TC Rate, Vessel Life Expectancy) Residual Scrap Values - Sets Floor to S&P Market ($/LDT:Limited Influence or Up-/Downside Risk) Maritime Strategies International Ltd. 6

7 Price Developments Newbuilding Prices Maritime Strategies International

8 Forward Cover = Pricing Power MSI s Shipbuilding Model Sector Specific Freight Rates Regional Yard Developments & Capacity Sector Specific Contracting Global Yard Capacity Global Orderbook Forward Berth Cover (years) Average Yard Price Index ($ CGT) Newbuilding Price (by vessel type by size) Global Cost Components (steel & machinery price, exchange rates) Regional Cost Components (wage, inflation, productivity) Weighted Average of Yard Costs Costs = Pricing Floor Maritime Strategies International Ltd. 8

9 Are the Yards Panicking Yet? Mn CGT Mn CGT Historical Max % of Max Historical Output (RH Axis) 30 Beyond 2016 yards are significantly underemployed 25 % Capacity 120% 100% 20 80% Empty Capacity Empty Capacity Empty Capacity 60% 40% 20% 0 0% South Korea Japan China Maritime Strategies International 9

10 Chinese Orderbook Whose Responsible? Bulker orderbook low Domestic orders are low Maritime Strategies International 10

11 Contracting Forecast Mn CGT % Share 100% Other Container Gas Bulker Tanker % Bulker (RH Axis) 90% Bulker orders are going to remain at low levels in 2016/17 80% 70% 60% 50% 40% 30% 20% 10% 0 0% Maritime Strategies International 11

12 # Quarter Since Last Order Chinese Yards # of Yards Redundant/Closed Capacity Quarters Since Last Contract Secured Maritime Strategies International 12

13 Diversified Portfolio Route to Survival Maritime Strategies International 13

14 Shipyard Turmoil Maritime Strategies International Ltd. 14

15 Effective Shipyard Capacity (Merchant) Mn CGT Other Europe China Korea Japan Maritime Strategies International 15

16 Shipyard Capacity Déjà Vu Mn CGT Other Europe China South Korea Japan Maritime Strategies International 16

17 Cost Index Index 2002= 100 Weighted Average Index Korea Index Japan Index China Index Exchange rate movements and zero inflation/wage growth now means Japanese costs are significantly below Korea 40 Maritime Strategies International 17

18 Exchange Rate Impact Panamax Bulker Value US$ (Mn) Japan Yen ('00 Mn) Korea Won ('000 Mn) China Yuan ('0 Mn) Converted to local currency newbuilding prices have gone up in Japan Maritime Strategies International 18

19 Price Developments Scrap Price Maritime Strategies International

20 20k SR LPG 5/8 SR LPG VLGC LPG 6kCEU PCTC 9k Chemical 20k Chemical MR Tanker VLCC Tanker 1.7kTEU FCC Suezmax Tanker LR2 Tanker 12.5k MPP Aframax Tanker 6.1kTEU FCC 20k MPP 4.3kTEU FCC Cape Bulker Supra Bulker Panamax Bulker 20 Year Old Price - % Above Scrap % 600% 500% 400% Scrap prices heavily impacting old tonnage at this end of the spectrum 300% 200% 100% 0% Maritime Strategies International 20

21 Scrap Price - Drivers 1.0 r 2 Demolition Volume Steel Price High correlation with volume Scrap price related to general steel price Scrap price unrelated to volumes Correlation Period 21

22 01/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /2015 ISC Steel Imports from China 1.2 Mn T 1.0 Net increase in steel imports 2015 v 2013 = 700 Handymax Bulkers Maritime Strategies International 22

23 Price Developments Earnings Maritime Strategies International

24 Crude and Product Tanker LPG Carrier OSVs PCTC Bulker MPP Container LNG Chemical Tanker RoRo Where on the Earnings Cycle Are We? Maritime Strategies International 24

25 Shipping Sector Snakes & Ladders Oil Tanker Chemical LPG MPP LNG PCTC FCC OSV Bulker Maritime Strategies International 25

26 RoRo Crude and Product Tanker LPG Carrier OSVs MPP Container Bulker PCTC LNG Chemical Tanker and where are we heading? Maritime Strategies International 26

27 Price Developments Secondhand Prices Maritime Strategies International

28 Net Replacement Value Panamax Bulker Modern Panamax values could fall further based on historical evidence - old tonnage is already at all time lows Historical Range ( ) Current Depreciation YoS = Year of Sale Maritime Strategies International 28

29 Net Replacement Value VLCC Tanker VLCCs are approaching their maximum historical depreciation Current Depreciation Historical Range ( ) YoS = Year of Sale Maritime Strategies International 29

30 MSI - FMV 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 Chemical Tanker Multi Purpose Product Oil Tanker LPG Carrier Containership Dry Bulk Carrier LNG Carrier PCC/PCTC Maritime Strategies International 30

31 FMV Output Quarterly Fair Market Value & 1 Year Time Charter Rate (1Q history, current Q, 2Q forecast Annual average: Newbuilding contract price Fair Market Value 1 Year Time Charter Rate Operating Cost 5 years history and 15 years forecast Price Development Chart detailing forecast price development in relation to historical metrics Maritime Strategies International 31

32 Sector Attractiveness - IRR Maritime Strategies International 32

33 Summary Current secondhand prices only make sense if all drivers are viewed together Many shipyards will be underemployed in 2017, especially those yards bulkers focus There will be further yard capacity closures, this will help support newbuilding prices in the medium term Costs and exchange rates will help determine what yards survive Scrap prices will not recover whilst ISC imports cheap Chinese steel Shipping remains cyclical and what goes down must go up (eventually!) Bulker and Tanker depreciations are currently at historical extremes MSI s Forecast Marine evaluator (FMV) online product can show the attractiveness of a specific vessel, in terms of both value and cash flow projections Maritime Strategies International 33

34 Thank you Maritime Strategies International 34

35 MSI Background For over 30 years, MSI has developed integrated relationships with a diverse client base of financial institutions, ship owners, shipyards, brokers, investors, insurers and equipment and service providers. MSI s expertise covers a broad range of shipping sectors, providing clients with a combination of sector reports, forecasting models, vessel valuations and bespoke consultancy services. MSI is staffed by economists and scientists offering a structured quantitative perspective to shipping analysis combined with a wide range of industry experience. MSI balances analytical power with service flexibility, offering a comprehensive support structure and a sound foundation on which to build investment strategies and monitor/assess exposure to market risks. Maritime Strategies International 35

36 Disclaimer While this document has been prepared, and is presented, in good faith, Maritime Strategies International assumes no responsibility for errors of fact, opinion or market changes, and cannot be held responsible for any losses incurred or action arising as a result of information contained in this document. The copyright and other intellectual property rights in data, information or advice contained in this document are and will at all times remain the property of Maritime Strategies International. Maritime Strategies International 36

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