Dry Bulk Market Outlook 15 May Presented to the IMSF Geneva Prepared by Angelica Kemene Research Executive

Transcription

1 Dry Bulk Market Outlook 15 May 2017 Presented to the IMSF Geneva Prepared by Angelica Kemene Research Executive

2 Dry Bulk Demand Outlook Short term & long term demand

3 Global infrastructure spending on the rise Global GDP growth assumptions Global Infrastructure spending growth Global upturn scenario Source Data: Oxford Economics Despite the economic uncertainties, interest in and accumulation of capital for investment in infrastructure projects continue to grow. In the short-term, building or upgrading transport or energy networks can boost aggregate demand through increased construction activity and employment a useful reference is a recent IMF study, which found that a dollar well invested in infrastructure yields $3 in GDP. The US & Canada region will invest 3.8% in infrastructure spending as % of GDP Global spending will be at 5.9% and Asia Pacific at 9% Infrastructure spending in Asia-Pacific is expected to soar to $5.3 trillion per annum by 2025, accounting for nearly 60% of the global total over the next 10 years. China and India, where urbanization is in full swing, along with ASEAN countries should dominate the picture.

4 One Belt One Road (OBOR) & BRI Countries

5 One Belt One Road (OBOR) Will it reshape global trade? Long-term project importance for the Bulk Carrier sector China is seeing a bit of a slowing down in its growth. A lot of people are saying that that s part of the next growth wave of Chinese exports, which is that it s going to have its influence and its infrastructure build-out in many of these countries, most of them emerging markets, in lots of things that frankly have fueled the very high growth in China over the past decade. The project can be replicated in many of these countries in the next ten years that s significant as many of these countries are really lacking in this infrastructure. Challenge: whether there is going to be long-term planning that s required, and whether the local governments and the state governments are able to take the Chinese model and the Chinese infrastructure and figure out how they can have their own version (corruption instability) While we have the AIIB and the Silk Road Fund and the New Development Bank, if you add it all together, it s still a very, very small amount relative to what needs to be funded, which is roughly between $2 trillion and $3 trillion per year! On a positive note, while the project was announced back in 2013 steps have been taken so there is progress and will still be. It s a serious long term geo-economic strategy that will potentially shift the global economic center of gravity Funding for BRI by source Outstanding loans or equity investment at end-2016 (US$bn) Source Data: Company Statements, Oxford Economics, FT

6 China: iron ore &coal imports Iron ore price arbitrage gap China s iron ore imports $/tonne Cape TC Avg. TSI China domestic iron ore Avg. adjusted 100,000 90,000 80, Million tonnes 2017 Q1 iron ore imports started at a higher mark than the past years ,000 60,000 50,000 Capesize av5tcs , , , , Q1 Q2 Q3 Q4 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 The huge iron ore price gap between China s domestic market and the international market has resulted in the surge of China s iron ore imports in 2014, however a change in domestic fundamentals resulted in a 10% growth in iron ore imports in China in 2015 approx. at approx. 954MT. Iron Ore imports have been affected in part because of the depreciation of the Chinese currency coupled with the slow down and change in policy of the Chinese economy & the steel industry Iron ore trade is mainly driven nowadays by restocking activity

7 China: iron ore & coal imports China s coal imports China to toughen efforts in cutting excess capacity China has phased out 31.7 million tonnes of steel capacity and million tonnes of coal capacity about 63% and 46% of the annual targets There is still rising demand for steel and coal Falls in iron ore prices will also serve to boost China s imports as higher quality but lower cost ore from Brazil and Australia will displace domestic supplies. 2017: the pool of potential steel scrap supply in China is expected to reach 7.8 billion tonnes. This pool of potentially recyclable steel could increase to reach to 10 billion tonnes by 2020 and 12 billion by 2025 The output of steel scrap is estimated at around 200 million tonnes and the CMIPR Institute forecasts to double by 2025 The growing pool of potential steel scrap is expected to slowly reduce China s reliance on iron ore imports Coal imports are likely to remain robust, given the current cost advantage they enjoy over domestic supplies, which have been somewhat constrained by Beijing s efforts to eliminate over-capacity and inefficient mines Millions 2017 Q1 coal imports started at a higher mark than the past years Q1 Q2 Q3 Q4

8 India: Modi s measures and plans Annual Indian Iron Ore Production and Trade Iron ore production in India: FY 2016/17: 185 Mll Tns FY 2017/18: 200 Mll Tns Iron ore exports in India: FY 2016/17: 24 Mll Tns FY 2017/2018: 40 Mll Tns By 2020 domestic iron ore requirement will stand at 234 Mll tns and then projected to escalate to 447 Mll tns by 2030 Steel production at 300 Mll tns by 2025 according to government plans. For India to export iron ore a price of $60-$65 pmt is not viable. For the profit margins to make sense iron ore price should be around $70-$75 pmt Risks for iron ore exports increase as India is at a 5 year production high and domestic steel mills do not use fines as feedstock for their blast furnaces, as the Indian Rupee is appreciating against the USD and as international iron ore prices are at low levels. Overall, India targets infrastructure projects such as roads and rails India decided over the next 7 years to invest $1.3 trillion in real estate and is set to become India s next growth driver.

9 Grain trade: New demand centers Consolidated long haul trade to China Grain & Soy Exports FY 2017/18 USA: MMT Brazil: 96.5 MMT EU: 31 MMT Russia: 29 MMT Argentina: 30.2 MMT Ukraine: 23.8 MMT Canada: 22 MMT Aussie: 22 MMT Grain & Soy Exports FY 2017/18 China: 105 MMT Mid. East-Afr: 58.6 MMT EU: 29.5 MMT Vietnam: 10.5 MMT Indonesia: 9.5 MMT Exports Imports

10 Dry Bulk Fleet Outlook Supply

11 Historical Fleet Growth 140 Net dry fleet growth per year in DWT Mln dwt net increase within 4 years Almost 222 Mln dwt net increase in 20 years

12 Quarterly contracting 60 New Building contract activity by quarter for the dry bulk carriers 50 Millions Dwt Handy ( K) Hmax ( K) Pmax (65-100K) Cape (>100K) Chinese shipping companies have ordered Valemaxes for delivery starting from has shown a strong preference to Kamsarmaxes 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q

13 Scheduled delivery dates and potential slippage New Building orders under construction vs orders that have not yet started Million Dwt Almost 33.4% of the 2017 orders have not yet started Under Construction On order_not yet started % of total OB will be delivered this year Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q

14 Fleet age profile & demolition Age profile (mln dwt) YTD Annual realized demolition volume and projection (mln dwt) In Q vessels had been scrapped equal to 5.4 million deadweight Deliveries stood at 201 vessels equal to 17.8 million deadweight

15 Demolition Prices: Will they recover? 800 Average Monthly scrap prices against Chinese Steel Exports 12 $/ltd China Steel exports Average of B/C_SUBCON Average of D/TKR_SUBCON 700 Million tonnes Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Source Data: Baltic Exhange, Eikon, Optima Shipbrokers 0

16 NB vs 5 years old secondhand ship values 61K DWT Ultramax Bulkcarrier Newbuilding Prices Supramax 58K Bulkcarrier 5 Year Old Secondhand Prices 56-58K DWT Handymax Bulkcarrier Newbuilding Prices: As at End of Period Specified. 40K until Sep-99; 51K between Oct- 99 and May-08; 56-58K between May-08 and Jan-09, 61-64K thereafter

17 Prospects Risks Investment Opportunities

18 Sectors: Cycle Position May 2017 % deviation from earnings average Where do we stand now at the major shipping sectors? Handysize TC Average % The Bulk Carrier & Container markets are at the point of maximum opportunity Freight Earnings recovery Supramax TC Average % Panamax TC Average % Capesize TC Average % -80% -70% -60% -50% -40% -30% -20% -10% 0% % change in average earnings from the average Source Data: Optima Shipbrokers

19 Seaborne Trade Growth & The World Economy Seaborne Trade Growth & Global GDP Growth Seaborne Dry Bulk Trade 12 % change YoY World Seaborne Trade % Yr/Yr World GDP Growth (IMF) THOUSAND MT Estimate for 2016 Iron Ore Coal (Thermal & Coking) Grain Phosphate Rock Source Data: IMF, Optima Shipbrokers Bauxite/Alumina World Seaborne Minor Bulk Trade -4 In 2016 world seaborne trade is estimated to have accelerated by almost 0.7% compared to may experience more or less same levels of growth. However, the overall weakness in economic activity (ie: slowdown in investment growth) appear to be key restraints on trade growth since According to the IMF the significant decrease in investment accounts for up to three-fourths of the trade growth slowdown. That s probably a situation that will not change substantially over the coming years.

20 Prospects & Risks Prospects High scrapping low contracting activity to persist, welcoming other shipping segments as well. Reduced concern about China s near-term prospects following policy support to growth. Financial market sentiment toward emerging market economies to continue to improve. Some firming on commodity prices that will provide support to trade. Given the supply fundaments of the Bulk Carriers, we believe that those sectors have hit the bottom in terms of asset prices and will marginally start to recover. Regulations for scrubbers and WBT on all sectors may provide some further help to alleviate oversupply. Risks Rising trade barriers: more and more countries adopt protectionist measures and there are many unresolved matters regarding several ongoing trade agreements A trend towards de-globalisation coming out from governments, intensifying protectionist policy approaches. (ie: China and Valemaxes) Technology advancements having the power to reduce tonne-mille demand (ie: 3D printing) Many factors nowadays have been impacting the shipping industry making it extremely difficult to calculate risks and plan long term investments. However challenging the markets might be there are still opportunities out there.

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