Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Vital Signs
Urban legend confronts reality
Shipping outlook in 2011 – a year of reality checks
It has long been taken as a given in the world of shipping that rising commodity
volumes and prices mean higher rates for shipping. In 2010 we saw a strong
recovery in both dry bulk and containership volumes. Liner operators rebounded
from big losses to big profits, but dry bulk operators ended the year with rates
headed towards those seen in early 2009 during the global financial crisis.
Shipping rates can fall when commodity demand is strong
The rules of supply and demand are simple – when supply rises in excess of
demand, prices decline. When supply is insufficient to meet demand, prices rise.
Currently there is insufficient supply of iron ore to meet demand, so prices are at
record levels. In contrast, there is excess supply of dry bulk vessels, which is
pushing pricing to levels last seen in the global financial crisis. We forecast the
BDI to average 1300 (-53% YoY) in 2011 and 1400 in 2012 in response.
Bigger containerships do not mean lower rates
Investors and industry observers have expressed trepidation about the rapid
increase in the number of ultra-large containerships – those above 12,000 teu –
which are rapidly being introduced onto the Asia-Europe routes. For operators it
is simple – these vessels are much more economical to operate, and these
vessels will increasingly dominate these routes. We believe in a tight supply
situation that the industry will effectively cascade onto routes that don’t benefit
from the scale of the largest vessels. We believe that rates will continue to
depend on the balance of supply of vessels and demand for shipping services.
Tanker rates can be depressed when the oil price is rising
Tanker rates remain depressed despite the recent rally in the oil price. The oil
price is responding to a recovery in demand emerging from developed countries
coupled with ongoing growth in demand from emerging economies like China.
Unfortunately for the industry, there has been over-construction of tankers, just
as there has been for dry bulk vessels.
Change in recommendations on back of dry bulk outlook
We have cut our earnings and in many cases the ratings for dry bulk specialists
and the diversified shipping companies. Our highest conviction on the downside
is for China COSCO, which we already rated Underperform.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Vital Signs
Urban legend confronts reality
Shipping outlook in 2011 – a year of reality checks
It has long been taken as a given in the world of shipping that rising commodity
volumes and prices mean higher rates for shipping. In 2010 we saw a strong
recovery in both dry bulk and containership volumes. Liner operators rebounded
from big losses to big profits, but dry bulk operators ended the year with rates
headed towards those seen in early 2009 during the global financial crisis.
Shipping rates can fall when commodity demand is strong
The rules of supply and demand are simple – when supply rises in excess of
demand, prices decline. When supply is insufficient to meet demand, prices rise.
Currently there is insufficient supply of iron ore to meet demand, so prices are at
record levels. In contrast, there is excess supply of dry bulk vessels, which is
pushing pricing to levels last seen in the global financial crisis. We forecast the
BDI to average 1300 (-53% YoY) in 2011 and 1400 in 2012 in response.
Bigger containerships do not mean lower rates
Investors and industry observers have expressed trepidation about the rapid
increase in the number of ultra-large containerships – those above 12,000 teu –
which are rapidly being introduced onto the Asia-Europe routes. For operators it
is simple – these vessels are much more economical to operate, and these
vessels will increasingly dominate these routes. We believe in a tight supply
situation that the industry will effectively cascade onto routes that don’t benefit
from the scale of the largest vessels. We believe that rates will continue to
depend on the balance of supply of vessels and demand for shipping services.
Tanker rates can be depressed when the oil price is rising
Tanker rates remain depressed despite the recent rally in the oil price. The oil
price is responding to a recovery in demand emerging from developed countries
coupled with ongoing growth in demand from emerging economies like China.
Unfortunately for the industry, there has been over-construction of tankers, just
as there has been for dry bulk vessels.
Change in recommendations on back of dry bulk outlook
We have cut our earnings and in many cases the ratings for dry bulk specialists
and the diversified shipping companies. Our highest conviction on the downside
is for China COSCO, which we already rated Underperform.
No comments:
Post a Comment