Fold, Hold, Double Up - which hand to play next? James Frew - Maritime Strategies International (MSI) 2017 Capital Link New York Maritime Forum
Fold, Hold, Double Up - which hand to play next? Agenda 1. Demand 2. Supply 3. Earnings 4. Scenarios 5. The Winning Hand? 6. The real risk Maritime Strategies International 2
Fold, Hold, Double Up Demand Maritime Strategies International
Seaborne Cargo Growth - Positive Positive cargo growth across the board Maritime Strategies International
Average Annual Cargo Growth Relative Ranking Historical 2012-2016 Forecast 2017-2021 Ranking Movement (Forecast v Historical) Maritime Strategies International 5
Cargo Growth Only Presents Part of the Picture Maritime Strategies International 6
How Many Ships? Routes Distance Speed Waiting/Port Time Operating Days Ballast Ratio Carrying Capacity Size Changes Maritime Strategies International 7
Differentiating Hands Dry Bulk Effective Speed* Deck stacked against older tonnage? * Calculation is representative of port to port speed, including slow steaming, anchoring, waiting etc. Maritime Strategies International 8
Incremental Vessel Requirements (H2 2017-2019)* 350 # of Vessels 300 250 200 150 100 50 0-50 Crude Oil Product Chemicals * Assuming a current supply demand equilibrium LPG LNG Maritime Strategies International 9 Bulker Container PCTC Cruise AHTS
Full Picture Includes Supply Maritime Strategies International 10
Fold, Hold, Double Up Supply Maritime Strategies International
Vessel Requirements (H2 2017-2019) v s Current Orderbook 400 # of Vessels Ships Required Ships on order 350 300 250 200 Over supply 150 100 50 0-50 -100 Crude Oil Product Chemicals LPG LNG Bulker Container PCTC Cruise AHTS Maritime Strategies International 12
Supply Side - 3 Card Trick Maritime Strategies International 13
Contracting as % of Fleet Contracting historically low * Includes MSI s forecast assessments for contracting, scrapping, slippage and cancellations Maritime Strategies International 14
Cancellations - Cancellations generally trending down Maritime Strategies International 15
Fleet Age Profile Youngest Fleet Oldest Fleet Maritime Strategies International 16
When to Fold - Average Age At Scrap 40 Average Age Oil Tanker Bulker Chem Tankers LPG Carriers Containerships Dry Cargo Reefer Vehicle Carrier 35 30 25 20 15 10 1980 1985 1990 1995 2000 2005 2010 2015 Maritime Strategies International 17
Average Annual Fleet Growth Supply odds favourable * Includes MSI s forecast assessments for contracting, scrapping, slippage and cancellations Maritime Strategies International 18
Fold, Hold, Double Up Earnings Maritime Strategies International
Where on the Earnings Cycle Are We? Crude and Product Tanker OSVs LPG Carrier Rigs LNG MPP Chemical Tanker PCTC Container Bulker RoRo Schematic for illustrative purposes only! Maritime Strategies International
Earnings Maritime Strategies International 21
Fold, Hold, Double Up Scenarios Maritime Strategies International
Policy shifts impacting trade Maritime Strategies International 23
Two Scenarios Resource Nationalism Base Case Maximise use of national resources Limit imports Low priority given to environmental issues Strong demand for resources (in the short-run at least) Some efforts to control pricing Import when it makes economic sense Some attention paid to the environment More balanced economic growth Maritime Strategies International 24
Coal trade is finely balanced 2.5 Bn T Net Difference (Inverted, RH Axis) Mn T -200 Chinese Coal Production 2.0 Chinese Coal Consumption -100 1.5 0 1.0 100 0.5 200 0.0 300 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Maritime Strategies International 25
Policy shifts can have a massive impact 350 Chinese Coal Imports, MnT 300 Base Case Resource Nationalism 250 200 150 100 50 Assuming China maximises its own coal production rather than relying on imports has severe implications for coal trade 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Maritime Strategies International 26
And take the zip out of a recovery 25 20 $ k/day Only changing our assumption on coal trade, 2018 becomes a downturn and even in 2020 earnings are still 6% below the BC 15 10 5 Base Case Resource Nationalism 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Maritime Strategies International 27
China s domestic chemical production key 200 180 160 140 Mn T China s chems consumption outpacing consumption creates a healthy demand environment for chem tankers Implied Deficit (RH Axis) Production Consumption Mn T 50 45 40 35 120 30 100 25 80 20 60 15 40 10 20 5 0 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Maritime Strategies International 28
Impact of full utilisation on vessel demand 8 Mn Dwt 7 6 Base Case Resource Nationalism 5 4 3 2 1 Strong chems imports relies on Chinese chemical production capacity operating at less than 100% utilisation 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Maritime Strategies International 29
Chemical Tanker Earnings Clobbered If China s chemical production can somehow run at full nameplate capacity, there won t be a chemical tanker market recovery Maritime Strategies International 30
Not all doom and gloom crude booms! 70 60 $/bbl Oil Price (Base Case) Oil Price (Resource Nationalism) Oil Demand (Base Case, RH Axis) Oil Demand (Resource Nationalism, RH Axis) YoY Ch 3.5% 3.0% 50 2.5% 40 2.0% 30 1.5% 20 1.0% 10 0.5% 0 0.0% 2016 2017 2018 2019 2020 2021 Maritime Strategies International 31
VLCC earnings back to 2015? 60 50 VLCC 1 Yr T/C ($ k/day) Base Case Resource Nationalism 40 30 20 10 The Resource Nationalism scenario assumes aggressive crude production causing an oil price drop in turn triggering strong demand and thus a VLCC market spike 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Maritime Strategies International 32
Fold, Hold, Double Up The Winning Hand? Maritime Strategies International
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 AHTS /fmv PSV Maritime Strategies International 34
Pure Asset Play Maritime Strategies International 35
Base Case Including Cashflows Maritime Strategies International 36
Impact of resource nationalism Maritime Strategies International 37
Fold, Hold, Double Up The bigger risk Maritime Strategies International
Consolidating excess capacity key 60 50 40 Shipbuilding Capacity, Mn CGT Other N. America E. Europe W. Europe China S. Korea Japan 30 20 10 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Maritime Strategies International 39
What happens if consolidation is slower? 18 16 Mn CGT Japan - Scenario S.Korea - Scenario China - Scenario Japan - Base Case S.Korea - Base Case China - Base Case 14 12 10 8 6 4 2 0 2015 2016 2017 2018 2019 2020 2021 2022 Maritime Strategies International 40
The impact for asset play is significant Maritime Strategies International 41
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 42
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 43
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