The life of a ship and the health of shipping markets
A poll of attendees at the “Life of A Ship” conference, jointly sponsored by the Hellenic and Norwegian Chambers of Commerce, in New York, pegged its duration at something less than 20 years. The conference covered topics ranging from shipbuilding, highlighted by a superb time lapse video from Aker Philadelphia Shipyard, through to end of life choices, dealing with knotty issues of changing rules on recycling and scrapping.
This conference, now in its 21st year - longer than the expected life of a new ship, according to the collective wisdom - attracts a select high-level audience seeking to absorb new information, while exchanging views. The views don’t always agree- including on issues of whether ships built in certain countries might last longer.
On the shipowner panel, where the poll was taken, Christine Chao from Foremost Maritime sung the praises of Chinese yards for newbuilds, albeit with very careful supervision, while panelist Jack Noonan from Chembulk Tankers, stated that Chembulk’s fleet of vessels with stainless steel cargo tanks have all been built in Japan. Principal Maritime’s Art Regan said “It’s probably more appropriate to talk about individual yards- rather than nations.” He also opined that owners are likely to spend more on life-extension measures when markets are stronger.
Audience interest in the health of the shipping markets dominates- as evidenced by the keynote session featuring Morgan Stanley’s top-notch shipping equity analyst Fotis Giannakoulis. Talking about tankers, he said: “there is some skepticism among investors about the sustainability of this strength in the market”. He noted: “The stock price over the past 12 months has been positive; we have seen stocks rising 25%.” But he provided evidence of the investor uncertainty, pointing out that “Valuations (the measures of stock price to fleet value) are below historical ranges.” Traditionally, he said, the stocks could trade at 110% by this measure, compared to the present 100% he added that most of the tanker stocks are still priced below their “net asset values” - another indicator of caution.
Regarding tanker supply and demand, the analyst told the audience that traditional supply / demand models, which look at fleet size and major flows of oil cargoes, “are not giving the solution to the tanker market anymore.” Rather, he pointed to the steep decline in oil prices, and the steep contango which has led to the booming market, saying “this is the new model that we are trying to propose…of course it is a much shorter term model”. Nevertheless, the model points in a positive direction; the analyst estimated that increased oil production will continue for at least six to nine months, with “more oil being good for shipping.” Beyond that, the usual oversupply fears begin to creep in, with Morgan Stanley saying, “there are risks beyond 2015.”
Similar sentiments were voiced on the shipbuilding panel by Nicholas Stillman from Clarksons Capital, who did calm some fears with his observation that “we don’t see a massive change in the tanker outlook as a result of switching from dry into wet”. Throughout this panel, there was a strong current of concern about the offshore business, hard-hit by the decline in capital spending for oil exploration and production- prolonged weakness could free up capacity at the big Korean shipyards circa 2016- 2017. Stillman said, “If you look at the actual (offshore) orderbook, it tails off pretty dramatically.”
The Morgan Stanley view of drybulk offered a pleasant surprise compared to the pronouncements of some of the more dour analysts. In a nutshell, the Morgan Stanley research suggests that 2013 saw a big build-up of dry bulk inventories in 2013 especially in Q3 and Q4. The ample inventories of dry bulk raw materials were drawn down in 2014, explaining the lack of a rally. Giannakoulis offered a glimmer of hope for dry bulk, suggesting that inventory replenishment may begin anew, later this year.
In covering LNG, the graphs show clearly a surplus of vessels over new liquefaction capability in the next two years- with a deficit of tonnage from 2016 onward with the market “hopefully balancing by the end of 2016.” LPG, which received brief mention, is a classic shipping story; it was the darling of investors in 2014- , but an over-ordering “frenzy” has put the projected fleet size well above expected demand- hurt by a severe decline in likely North American propane exports in 2015 – 2016, a time of hefty vessel deliveries.
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