Product tanker supply/demand in dwt rates are (so basically the inverse of last week s discussion). Currently, the one-year time charter

Transcription

1 Crude Products Drybulk Containers AXIA Research An American s view from Piraeus Shipping Weekly Market Overview So, the elections happened just like everyone had predicted, and the markets responded just as everyone predicted. We expected a knee-jerk reaction but didn't expect it to reverse so quickly. In China, trade growth continued to slow in terms of USD, but if you re a second derivative guy, the rate of slowdown has been improving. During October, Chinese imports in USD terms decreased.4% year over year (or increased 3.% year over year in CNY terms), while Chinese exports decreased 7.3% year over year in USD terms (or declined 3.% year over year in CNY terms), all of which improved month over month from September, but were below consensus estimates. Drybulk This week, Cape rates continued to rebound, increasing another 45.8% to $3,66 per day from $9,334 last week, while Panamax rates were up 4.7% to $7,49 per day from $7,75 last week. Supramax rates were down slightly to $7,346 per day from $7,5 last week and Handysize rates were flattish at $6,4 per day from $6,38 last week. Crude tankers VLCC spot rates increased.% to $3,97 per day this week from $3,9 last week, while Suezmax rates declined to $,44 per day from $3,786 per day. Aframax rates were up 36.9% to $7,63 per day from $,6. Product tankers And just like that, the Colonial pipeline rally is no more, it has ceased to be. It is expired, and gone. It is now an ex-rally. LR rates declined this week to $5,933 per day from $9,59 last week, while LRs declined to $5,84 from $6,993 last week. MR rates in the Atlantic fell a whopping 5.8% to $,33 from $,986 last week, while MR rates in the Pacific were down slightly to $7,59 this week from $8, last week, and MR rates were down 5.6% to $9,63 per day from $9,596 last week. Containerships This week, the Shanghai Containerized Freight Index (SCFI) declined for the first time since the Hanjin bankruptcy, at 86.48, down.8% from its year to date high of recorded last week. Despite this minor decline, the liner operators continue to take advantage of the void left in the market as Hanjin s vessels continue to be either redelivered, scrapped or sold off while tonnage providers face increased pressure as the idle fleet has risen to.59 million teus, or 6.9% of the global fleet is now laid up. November 6 Robert Perri, CFA Director Research robert.perri@axiacm.com Market Data Current Wk ago Δ w/w BDI % S&P 5,4.8,97.9.% SCFI (.8%) WTI crude (.3%) Iron ore % Scrap rates (.%) LIBOR (%) % Vessel earnings monthly trend Drybulk vessels supply/demand in dwt Class 6E 7E Fleet growth.6%.5% Demand growth.4%.% Crude tanker supply/demand in dwt Interesting Demand growth 3.3%.3% Following our theme of last week, we thought this week it would be a good time to look at what the implied pricing for asset values would be based on where the current one-year time charter Product tanker supply/demand in dwt rates are (so basically the inverse of last week s discussion). Currently, the one-year time charter 6E 7E for a VLCC is $3,5 per day, so if you plan on holding the vessel and selling it in ten years, and Fleet growth 4.7% 3.% assuming the current 5-year old asset value of $6.5 million remains at that time, you would Demand growth 3.7% 4.% need to pay $54.5 million for the vessel in order to achieve an unlevered 8% return, and $47.8 million to make a 5% return using 6% leverage and a straight-line repayment profile. Given Containership supply/demand in teu that the current five-year old asset value is $6. million, prices would need to decrease by an 6E 7E additional % or %, respectively, if the market were to remain flat to make the proper Fleet growth 3.9% 3.7% realized IRRs. On the drybulk side, the one-year time charter rate is $9,5 per day, and the current 5-year old value is $8. million, so you would need to pay even less than the current Demand growth.8% 3.9% 5 year old value (or $4.9 million) for an unlevered 8% return, and $3.9 million in the leverage Source: Bloomberg, Baltic Index, AXIA Capital Markets scenario. This also shows that drybulk buyers are either expecting a significantly improved market over the coming years, or else asset values need to decline significantly (over 8%) from current levels, while on the tanker side, asset values could see another %-% decline from current levels before current rates are supportive of price, or the time charter rates need to increase by % (as per last week) to support these price levels. Now you know, and knowing is half the battle. Please continue to overleaf AXIA Capital Markets LLC, 645 Fifth Avenue, Suite 93, New York, NY Tel: , Fax: , Web: 6E 7E Fleet growth 5.9% 4.%

2 5yr old Asset vale (in U.S. dollars) Please refer to the last page for disclosures and analyst certification Company news Overseas Shipholding Group, Inc. (OSG) On November 9th, OSG announced the record date for the previously announced spin-off of its International flag business will be November 3, 6. The spin-off will separate the international and domestic businesses of OSG into two independent, publicly traded companies: Overseas Shipholding Group ( OSG ) and International Seaways ( INSW ). Lois K. Zabrocky will serve as President and Chief Executive Officer and Jeffrey D. Pribor will serve as Chief Financial Officer for International Seaways. Navios Maritime Acquisition Corp (NNA) On November 8th, NNA reported third quarter adjusted revenues of $66.9 million and EBITDA of $4.7 million beating consensus estimates for revenues and EBITDA of $6.4 million and $34. million, respectively. NNA also reported adjusted net income of $8.3 million or $.6 per common share beating consensus of $4.7 million and $.3 per common share, respectively. For additional color on NNA s earnings, please find our report here. Eagle Bulk Shipping Inc. (EGLE) On November 8th, EGLE reported third quarter adjusted revenues of $4.6 million, and an adjusted net loss of $9.4 million or $.5 net loss per share. Frontline (FRO) On November 7th, FRO announced that has sold one of the older VLCCs, the M/V Front Century (built 998) to a storage buyer at a price of $4 million. Hanjin Shipping On November 7th announced that the company will sell its containership fleet until December. The owner has returned nearly all its chartered-in vessels after filing for court receivership in August. The final two will be redelivered while It is left with other boxships. Five 6,5- teu ships will be sold as well being part of the court-led disposal of its Asia to US business. Chart of the week While time charter rates have gone in opposite directions, they still are not at levels to support current asset values Exhibit : Current time charter earnings versus implied asset values based on an 8% IRR unlevered, or a 5% IRR with 6% leverage % 54.5 % 47.8 Hist. yr adj. avg. 5yr old price VLCC: $88m Capesize: $46m % 4.9 VLCC Capesize Current impl@8% IRR impl@5% IRR w/6% leverage 85% 3.7 Source: Bloomberg AXIA Capital Markets LLC Page

3 $ per day 5 year-old asset value (in USD m) Drybulk The BDI rebounded nicely this week, hitting its high of the year Table : Drybulk earnings Capesize Panamax Supramax Handysize Source: Baltic Exchange, AXIA Capital Markets Spot, FFA and time charter rates % Δ Current Wk ago Mo ago Yr ago Wk ago Mo ago Yr ago Spot 3,66 9,334 4,57 7, % (6.6%) 8.4% 4Q6,957 9,85,86,56.4%.% (4.8%) FY7 9,46 8,664 8,853 8,9 6.7% 4.4% 3.9% yr T/C 9,5 9,5 9,5,.7%.7% (5.%) Spot 7,49 7,75 5,839 4, % 6.9% 6.3% 4Q6 7,65 6,54 6,543 6,7.%.% 8.% FY7 6,35 5,999 5,965 6,54 5.% 5.7% 4.% yr T/C 7,65 7,375 7,5 7,65 3.7% 8.9%.3% Spot 7,346 7,5 7,76 5,79 (.%) 3.8% 6.8% 4Q6 7,45 7,35 7,39 6,6.5% 3.9%.4% FY7 6,45 6,7 6,6 6,9 3.6% 4.7% 3.7% yr T/C 7, 7,5 7,5 7,5 (3.4%) (3.4%) (3.4%) Spot 6,4 6,38 5,935 4,63 (.5%) 4.7% 34.4% 4Q6 6,9 6,97 5,87 5,563 (.%) 3.7% 9.5% FY7 5,73 5,5 5,4 5,493.4%.6% (4.%) yr T/C 6,75 6,75 6,75 7,5.%.% (6.9%) Exhibit : Panamax average daily earnings, 9, 8, 7, 6, 5, 4, 3,,, Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec year avg. Exhibit 3: Panamax 5-yr asset values vs yr t/c rates Today: $4.m/$7,3 Historical Unlevered IRR : 4.8% Current Unlevered IRR : (.%), 4, 6, 8,, One-year time charter rates (in USD per day) Source: Baltic Index Source: Baltic Index, Clarkson Research Services Limited, AXIA Capital Markets Unlevered IRR is calculated using current 5 yr old asset values, assumes the vessel earns the yr t/c rate for five yrs, then sold after yr 5 at a price equal to the yr avg value of a yr old vessel All calculations are the same, except the vessel is sold at a price equal to today s value for a yr old vessel after five yrs AXIA Capital Markets LLC Page 3

4 $ per day 5 year-old asset value (in USD m) Crude tankers Aframax tankers the gainers of the week as rates increased by 36.9% week-over-week Table : Crude tanker earnings VLCC Suezmax Aframax Spot and time charter rates % Δ Current Wk ago Mo ago Yr ago Wk ago Mo ago Yr ago Spot 3,97 3,9 5,543 54,9.% 8.9% (4.%) yr T/C 3,5 3,5 6,5 5,.% 4.% (39.5%) 3 yr T/C 8, 8, 7, 43,5.% 3.7% (35.3%) Spot,44 3,786,58 5,33 (.%) (44.5%) (75.7%) yr T/C,5,5,5 39,.% 5.9% (4.3%) 3 yr T/C,875,875,875 33,5.%.% (3.7%) Spot 7,63,6 8,838 39, % 95.3% (56.6%) yr T/C 7,5 7,5 6, 3,.% 7.8% (4.5%) 3 yr T/C 7,5 7,5 7,5 6,75.%.% (35.5%) Source: Baltic Exchange, Clarkson Research Services Limited, AXIA Capital Markets Exhibit 4: Suezmax average daily earnings 8, 7, Exhibit 5: Suezmax 5-yr asset values vs yr t/c rates 6, 5, 8 4, 6 3,, 4, Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec year avg. Today: $44.m/$,5 Historical Unlevered IRR : 9.7% Current Unlevered IRR :.%, 4, 6, 8, One-year time charter rates (in USD per day) Source: Baltic Index Source: Baltic Index, Clarkson Research Services Limited, AXIA Capital Markets Unlevered IRR is calculated using current 5 yr old asset values, assumes the vessel earns the yr t/c rate for five yrs, then sold after yr 5 at a price equal to the yr avg value of a yr old vessel All calculations are the same, except the vessel is sold at a price equal to today s value for a yr old vessel after five yrs AXIA Capital Markets LLC Page 4

5 $ per day 5 year-old asset values (in USD m) Product Tankers Downward pressure in all segments with MR rates being more significant, down 5.8% W-o-W in the Atlantic region Table 3: Product tanker earnings LR (TC) LR (TC5) MR MR Spot and time charter rates % Δ Current Wk ago Mo ago Yr ago Wk ago Mo ago Yr ago Spot 5,933 9,66 3,85 6,73 (36.%) 54.% (64.5%) yr T/C 6, 6, 6, 3,.%.% (46.7%) 3 yr T/C 7,65 7,65 7,65 7,.%.% (34.7%) Spot 5,84 6,84 6,537 5,58 (4.4%) (.6%) (6.5%) yr T/C 4,65 4,65 4,65 5,.%.% (4.5%) 3 yr T/C 5,5 5,5 5,5,5.%.% (3.8%) Atlantic,33 7,34 3,448,3 (4.5%) 99.4% (53.5%) Pacific 7,574 8,8 8,9 5,687 (8.5%) (7.5%) (5.7%) yr T/C,5,5, 9,5.%.% (37.%) 3 yr T/C 4, 4, 4, 7,5.%.% (.%) Spot 9,5 9,638,46 7,57 (5.3%) (8.9%) (47.9%) yr T/C,75,75, 7,5.% (.%) (3.9%) 3 yr T/C 3, 3, 3,5 6,5.% (.9%) (.%) Source: Baltic Exchange, Clarkson Research Services Limited, AXIA Capital Markets Exhibit 6: MR average daily earnings 4, 35, 3, Exhibit 7: MR 5-yr asset values vs yr t/c rates 6 5 5, 4, 5,, 5, Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec yr avg. 3 Today: $.m/$,5 Historical Unlevered IRR : 5.6% Current Unlevered IRR : (.3%),, 3, 4, One-year time charter rates (in USD per day) Source: Clarkson Research Services Limited Source: Baltic Index, Clarkson Research Services Limited, AXIA Capital Markets Unlevered IRR is calculated using current 5 yr old asset values, assumes the vessel earns the yr t/c rate for five yrs, then sold after yr 5 at a price equal to the yr avg value of a yr old vessel All calculations are the same, except the vessel is sold at a price equal to today s value for a yr old vessel after five yrs AXIA Capital Markets LLC Page 5

6 5 year-old asset value (in USD m) Containerships Rates continue to slide across all asset classes as an increased number of vessels hit the T/C market Table 4: Containership earnings Time charter rates % Δ Current Mo ago Yr ago Mo ago Yr ago 9, TEU 3 yr T/C,, 3, (4.5%) (34.4%) 6,8 TEU 3 yr T/C 3, 3, 6,.% (8.8%) 4,4 TEU 6-m T/C 4,4 4,45 6, (.%) (6.7%) 5 yr T/C 9, 9,5, (5.3%) (5.%) 3,5 TEU 6-m T/C 5,5 5,5 6,5 (4.5%) (6.%),5 TEU 6-m T/C 5,6 5,8 6,4 (3.4%) (.5%) 3 yr T/C 8, 8,5 9,5 (.8%) (4.7%),7 TEU 6-m T/C 6,65 6,75 7,5 (.5%) (8.3%) 3 yr T/C 7,5 7,8 9, (3.8%) (6.7%) Source: Clarkson Research Services Limited, AXIA Capital Markets Exhibit 8: 3,5 TEU average 6m-yr time charter rates 6, Exhibit 9: 3,5 TEU 5-yr asset values vs yr t/c rates 7 4,,, 8, 6, ,, Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec year avg. Today: $8.m/$5,5 Historical Unlevered IRR : 6.4% Current Unlevered IRR : (8.3%),, 3, 4, 5, One-year time charter rates (in USD per day) Source: Clarkson Research Services Limited Source: Clarkson Research Services Limited, AXIA Capital Markets Unlevered IRR is calculated using current 5 yr old asset values, assumes the vessel earns the yr t/c rate for five yrs, then sold after yr 5 at a price equal to the yr avg value of a yr old vessel All calculations are the same, except the vessel is sold at a price equal to today s value for a yr old vessel after five yrs AXIA Capital Markets LLC Page 6

7 Asset Values Containership asset values continue to fall, while other vessel prices have stabilized Table 5: Vessel values Vessel price % Δ year over year Newbuild Resale 5 yr yr Scrap Newbuild Resale 5 yr yr Scrap Drybulk Vessels Capesize (.6%) (7.%) (5.8%) (.5%) (3.7%) Panamax (7.7%) (4.3%) (.5%) (5.8%) (3.4%) Supramax (9.%) (.%) (.%).% (.7%) Handysize (4.9%) (6.7%) (8.7%) (.6%) (.4%) Crude Tankers VLCC (.5%) (6.%) (4.%) (7.3%) (3.5%) Suezmax (3.4%) (.3%) (5.4%) (3.%) (3.3%) Aframax (3.9%) (9.6%) (34.8%) (4.9%) (5.%) Product Tankers LR (3.4%) (8.6%) (33.%) (39.4%) (5.%) LR (8.9%) (6.7%) (.%) (9.%) (4.9%) MR (7.%) (5.6%) (4.%) (.5%) (5.%) MR (.4%) (4.3%) (.4%) (7.6%) (5.%) Containerships 9, TEU (5.5%) (8.7%) (8.6%) (8.5%) (5.5%) 6, TEU (5.6%) (5.6%) (5.6%) (5.6%) (5.5%) 3, TEU (6.%) (3.8%) (.%) (6.8%) (5.5%) 9, TEU (6.7%) (.7%) (53.6%) (5.%) (5.5%) 6,8 TEU (9.8%) (.%) (5.8%) (5.%) (5.5%) 4,4 TEU (.%) (8.%) (5.%) (5.%) (5.5%) 3,5 TEU (4.3%) (3.5%) (5.%) (56.5%) (5.5%),5 TEU (6.7%) (3.3%) (37.5%) (45.5%) (5.5%),7 TEU (.6%) (6.7%) (9.%) (3.4%) (5.5%) Source: Clarkson Research Services Limited, AXIA Capital Markets For italicized prices are extrapolated by straight line depreciation to current scrap value using a 3 year average vessel life For newbuild and resale, price is for 4,8 teu post-panamax vessels, while second hand values are related to 4,4 teu panamax vessels 3 For newbuild and resale, price is for 3,8 teu post-panamax vessels, while second hand values are related to 3,5 teu panamax vessels AXIA Capital Markets LLC Page 7

8 AXIA Research Disclosures This communication is not research or a research report. It is for informational purposes and institutional clients only; it is not an offer or solicitation of an offer to buy or sell any security or instrument, or to make any investment. This material does not constitute investment advice because it does not take into account the particular investment objectives, financial situations, or needs of individual clients. Clients seeking investment advice specific to their financial profiles and goals should contact their professional advisors, including independent tax advisors. In reaching a determination as to the appropriateness of any proposed transaction or strategy, clients should undertake a thorough independent review of the legal, regulatory, credit, accounting and economic consequences of such transaction in relation to their particular circumstances and make their own independent decisions. The information and any opinions contained herein are as of the date of this material and AXIA Capital Markets ( ACM ) does not undertake any obligation to update them. All market prices, data and other information are not warranted as to the completeness or accuracy and are subject to change without notice. This communication is not a complete analysis of every material fact concerning any company, industry or security. ACM assumes that it will be read in conjunction with other available reports and data. Past performance is not indicative of future results, and no representation or warranty, express or implied, is made regarding future performance. No investor can assume that reliance on the views, opinions or recommendations contained herein will produce profitable results. Foreign-currencydenominated securities are subject to fluctuations in currency exchange rates that could have a positive or adverse effect on an investor's return upon the conversion into local currency of dividends or interest received, or proceeds from the sale of such securities. In addition, the value of U.S. dollar-denominated ADRs and the value of U.S. dollar-denominated ordinary shares, or common shares, of foreign issuers can be influenced by fluctuations in currency exchange rates. Clarkson Research Services Limited (CRSL) Clarkson Research Services Limited (CRSL) have not reviewed the context of any of the statistics or information contained in the commentaries and all statistics and information were obtained by AXIA Capital Markets LLC from standard CRSL published sources. Furthermore, CRSL have not carried out any form of due diligence exercise on the information, as would be the case with finance raising documentation such as Initial Public Offerings (IPOs) or Bond Placements. Therefore reliance on the statistics and information contained within the commentaries will be for the risk of the party relying on the information and CRSL does not accept any liability whatsoever for relying on the statistics or information. Insofar as the statistical and graphical market information comes from CRSL, CRSL points out that such information is drawn from the CRSL database and other sources. CRSL has advised that: (i) some information in CRSL s database is derived from estimates or subjective judgments; and (ii) the information in the database of other maritime data collection agencies may differ from the information in CRSL s database; and (iii) whilst CRSL has taken reasonable care in the compilation of that statistical and graphical information and believes it to be accurate and correct, data compilation is subject to limited audit and validation procedures and may accordingly contain errors; and (iv) CRSL, its agents, officers and employees do not accept liability for any loss suffered in consequence of reliance on such information or in any other manner; and (v) the provision of such information does not obviate any need to make appropriate further enquiries; and (vi) the provision of such information is not an endorsement of any commercial policies and/or any conclusions by CRSL; and (vii) shipping is a variable and cyclical business and any forecasting concerning it cannot be very accurate. AXIA Capital Markets LLC 645 Fifth Avenue, Suite 93 New York, NY, US Tel: Fax: Research & Sales Robert Perri, CFA - Director of Research