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SECTOR UPDATE: SHIPPING
Highlights (in August 2011)
q Shipping markets globally continue to go through a bad phase.
q The dry bulk market is persistently facing problem of oversupply of ships
pegged at 10 to 12% per annum (Gross supply of 231 mn tonnes in the
next 3 to 4 years) and that is putting the various Baltic Indices and
freight rates under pressure. However the month of August 2011 saw the
Baltic Index moving up ~ 30% with the cape Index gaining almost 60%.
While the other Baltic Indices reported little or no movement. It is important
to note that the Capesize represent more than 60% of the main Baltic
Index. Lot of activity was reported in the spot cargo for larger ships in
August which led to freights increasing by 15 to 30% on different routes.
Little activity was seen in the Panamax, Supramax and the Handymax
segments, not enough to boost sentiment and freight levels in the
month. The orderbook to fleet ratio currently stands at 37% - down from
52% in December 2010.
q The oversupply of vessel is a serious concern even in the crude tanker
market. Activity has slowed down in all the key segments of tanker primarily
due to sluggish world economy and the debt crisis in Europe.
Charters are withholding cargoes in anticipation of better freight rates.
This is negatively impacting the market with number of ships exceeding
the number of cargoes.
q With slowing consumer demand and burgeoning order book,even the
container market is estimated to remain flattish in near term.
q Higher bunker cost is also having a negative impact on the companies
q Overall we are cautious on the shipping business
CAPESIZE DEMAND LIFTS DRY BULK MARKET
August is the best month till date in CY11 for the dry bulk market
The Baltic Dry Index (BDI), an indicator of dry bulk freight rates gained a healthy ~
30 % (MoM) on 5th Sept, 2011. While the other Baltic Indices reported little or no
movement.
Current dry bulk market
In the dry market, the BDI was able to surpass the strong resistance at 1,500 points
level mark and reach 1750 points on 5th September 2011. The BDI has gained more
than 30% in the last one month. This was primarily due to robust performance of
the Capesize segment. The month of August 2011 saw cape Index gaining almost
60%. Little activity was seen in the Panamax, Supramax and the Handymax segments,
not enough to boost sentiment and freight levels in the month.
Improved demand from China in the month of August 2011
Demand from the key bulk player China, which is highly unpredictable improved in
the month of August and extended to the first week of September 2011. Lot of
activity was reported in the spot cargo for larger ships in August which led to freights
increasing by 15 to 30% on different routes. However iron ore stockpiles continue to
increase at Chinese ports. It has reached a level of ~100 mn tonnes (+33% YoY)
which indicates two things: 1. Slowing of Chinese steel industry - low consumption
of iron ore is reflected in piling up of iron ore reserves at all the ports and 2. Future
imports of iron ore and coal may be lower from China. It is important to note that,
due to frequent government interventions, uncertainty always surrounds the future of
Chinese steel production (iron ore and coal consumption).
Main issue is Oversupply of tonnage - The inflow of new orders till August 2011
in CY11 is down 67% as compared to same period last year. This has influenced the
orderbook to fleet ratio positively alongside the massive deliveries. It currently stands
at 37% - down from 52% in December 2010- but still a very high overall figure with
231 million DWT in the pipeline. Another problem the segment is facing is the vast
overcapacity of tonnage in the market with massive new building deliveries taking
place and lesser number of vessels heading for scrap. There continues to be a significant
net increase in the total active fleet every month. As the current order book is
still significant in size (231 mn tonnes) and both 2011 and 2012 are set to show
record number of new building deliveries (10 to 12 % per annum), we expect this
will just continue to add to the problem, leaving all hope on the demand side to
provide a turning point in the market (expected at 5 to 6 % in CY11).
The Capesize Time Charter Average is likely to stay around $ 12,000-16,000 per
day, Panamax and Supramax rates at $ 13,000-17,000 per day and Handysize rates
at $ 9,000-13,000 per day interval.
TANKER MARKET (WET MARKET)
Continues to be weak
The VLCC market appears to be in bad shape with the trend of very limited action
continuing. Charterers keep on drip feeding cargoes to the market, and the tonnage
list (number of ships) grows longer with each passing day. As per few shipbrokers,
the charterers appear to be in little hurry to get things moving. Even the Suezmax
and Aframax activity was weak in the month. The oversupply is a serious concern in
the crude tanker market and International Energy Agency (IEA) expects the demand
to be driven by non OECD nations
The outlook seems more positive for Medium range (MR) units than crude carriers,
as there are predictions for increased clean products and chemicals' demand, mainly
from China. China, the world's second largest oil user, may increase its refining capacity
by 33% till 2016, according to the International Energy Agency. Global oil
demand may rise 1.2 million barrels/day annually through 2016, with China accounting
for more than 40% of the increase. China will add about 2 million barrels/day
refining capacity in the next five years, as per announcement from the official
Xinhua News Agency in March 2011.
Oil demand and tanker supply
There is a strong correlation between demand for tankers and the demand of oil.
The International Energy Agency in June 2011 predicted that the average world oil
demand could rise by 1.1 million barrels a day to 95.3 million by 2016. And we
estimate tanker tonnage to increase by 3.2 % ( 11.9 mn dwt) for the next two
years.
CONTAINER MARKET (BOX MARKET )
Showing signs of weakness
The international container shipping market was sluggish in Q2CY11 which extended
to even in July and August 2011 primarily due to sluggish world economy,
weak consumer demand, debt crisis in Europe, Japan's earthquake, additional shipping
capacity, and higher fuel cost. China's export container freight index (CCFI)
was at 995 points losing 0.4 percent in a month. Ship space utilization rate was
about 90 percent and shipping prices are declining due to overcapacity and discounts
offered by liners. Peak-season surcharges have been delayed and are not
likely to be implemented at all. General Rate increases beyond the Bunker Adjustment
Factor have not really been successfully implemented since early 2010.
Global cargo volumes for CY11 are expected to rise by minimum 5%, driven mainly
by the strong development in demand in the first quarter. While we estimate the
supply to be roughly about 3.2% of the current fleet or 5.5 mn dwt per annum over
CY11 to CY13. The container shipping rates are expected to remain firm in most of
the routes in longer term.
Signing of new building contracts in the container space has been
healthy
The total containership orderbook has swelled to 52 mn dwt (41 lakh TEUs) - up by
16% YoY. Despite deliveries of vessels with a capacity of 12 lakh TEUs over the past
year, the heavy ordering has resisted the orderbook from decline; instead it has
been on a steady rise for exactly a year now. The orderbook to fleet ratio currently
stands at 27% which is at all-time high for the segment.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
SECTOR UPDATE: SHIPPING
Highlights (in August 2011)
q Shipping markets globally continue to go through a bad phase.
q The dry bulk market is persistently facing problem of oversupply of ships
pegged at 10 to 12% per annum (Gross supply of 231 mn tonnes in the
next 3 to 4 years) and that is putting the various Baltic Indices and
freight rates under pressure. However the month of August 2011 saw the
Baltic Index moving up ~ 30% with the cape Index gaining almost 60%.
While the other Baltic Indices reported little or no movement. It is important
to note that the Capesize represent more than 60% of the main Baltic
Index. Lot of activity was reported in the spot cargo for larger ships in
August which led to freights increasing by 15 to 30% on different routes.
Little activity was seen in the Panamax, Supramax and the Handymax
segments, not enough to boost sentiment and freight levels in the
month. The orderbook to fleet ratio currently stands at 37% - down from
52% in December 2010.
q The oversupply of vessel is a serious concern even in the crude tanker
market. Activity has slowed down in all the key segments of tanker primarily
due to sluggish world economy and the debt crisis in Europe.
Charters are withholding cargoes in anticipation of better freight rates.
This is negatively impacting the market with number of ships exceeding
the number of cargoes.
q With slowing consumer demand and burgeoning order book,even the
container market is estimated to remain flattish in near term.
q Higher bunker cost is also having a negative impact on the companies
q Overall we are cautious on the shipping business
CAPESIZE DEMAND LIFTS DRY BULK MARKET
August is the best month till date in CY11 for the dry bulk market
The Baltic Dry Index (BDI), an indicator of dry bulk freight rates gained a healthy ~
30 % (MoM) on 5th Sept, 2011. While the other Baltic Indices reported little or no
movement.
Current dry bulk market
In the dry market, the BDI was able to surpass the strong resistance at 1,500 points
level mark and reach 1750 points on 5th September 2011. The BDI has gained more
than 30% in the last one month. This was primarily due to robust performance of
the Capesize segment. The month of August 2011 saw cape Index gaining almost
60%. Little activity was seen in the Panamax, Supramax and the Handymax segments,
not enough to boost sentiment and freight levels in the month.
Improved demand from China in the month of August 2011
Demand from the key bulk player China, which is highly unpredictable improved in
the month of August and extended to the first week of September 2011. Lot of
activity was reported in the spot cargo for larger ships in August which led to freights
increasing by 15 to 30% on different routes. However iron ore stockpiles continue to
increase at Chinese ports. It has reached a level of ~100 mn tonnes (+33% YoY)
which indicates two things: 1. Slowing of Chinese steel industry - low consumption
of iron ore is reflected in piling up of iron ore reserves at all the ports and 2. Future
imports of iron ore and coal may be lower from China. It is important to note that,
due to frequent government interventions, uncertainty always surrounds the future of
Chinese steel production (iron ore and coal consumption).
Main issue is Oversupply of tonnage - The inflow of new orders till August 2011
in CY11 is down 67% as compared to same period last year. This has influenced the
orderbook to fleet ratio positively alongside the massive deliveries. It currently stands
at 37% - down from 52% in December 2010- but still a very high overall figure with
231 million DWT in the pipeline. Another problem the segment is facing is the vast
overcapacity of tonnage in the market with massive new building deliveries taking
place and lesser number of vessels heading for scrap. There continues to be a significant
net increase in the total active fleet every month. As the current order book is
still significant in size (231 mn tonnes) and both 2011 and 2012 are set to show
record number of new building deliveries (10 to 12 % per annum), we expect this
will just continue to add to the problem, leaving all hope on the demand side to
provide a turning point in the market (expected at 5 to 6 % in CY11).
The Capesize Time Charter Average is likely to stay around $ 12,000-16,000 per
day, Panamax and Supramax rates at $ 13,000-17,000 per day and Handysize rates
at $ 9,000-13,000 per day interval.
TANKER MARKET (WET MARKET)
Continues to be weak
The VLCC market appears to be in bad shape with the trend of very limited action
continuing. Charterers keep on drip feeding cargoes to the market, and the tonnage
list (number of ships) grows longer with each passing day. As per few shipbrokers,
the charterers appear to be in little hurry to get things moving. Even the Suezmax
and Aframax activity was weak in the month. The oversupply is a serious concern in
the crude tanker market and International Energy Agency (IEA) expects the demand
to be driven by non OECD nations
The outlook seems more positive for Medium range (MR) units than crude carriers,
as there are predictions for increased clean products and chemicals' demand, mainly
from China. China, the world's second largest oil user, may increase its refining capacity
by 33% till 2016, according to the International Energy Agency. Global oil
demand may rise 1.2 million barrels/day annually through 2016, with China accounting
for more than 40% of the increase. China will add about 2 million barrels/day
refining capacity in the next five years, as per announcement from the official
Xinhua News Agency in March 2011.
Oil demand and tanker supply
There is a strong correlation between demand for tankers and the demand of oil.
The International Energy Agency in June 2011 predicted that the average world oil
demand could rise by 1.1 million barrels a day to 95.3 million by 2016. And we
estimate tanker tonnage to increase by 3.2 % ( 11.9 mn dwt) for the next two
years.
CONTAINER MARKET (BOX MARKET )
Showing signs of weakness
The international container shipping market was sluggish in Q2CY11 which extended
to even in July and August 2011 primarily due to sluggish world economy,
weak consumer demand, debt crisis in Europe, Japan's earthquake, additional shipping
capacity, and higher fuel cost. China's export container freight index (CCFI)
was at 995 points losing 0.4 percent in a month. Ship space utilization rate was
about 90 percent and shipping prices are declining due to overcapacity and discounts
offered by liners. Peak-season surcharges have been delayed and are not
likely to be implemented at all. General Rate increases beyond the Bunker Adjustment
Factor have not really been successfully implemented since early 2010.
Global cargo volumes for CY11 are expected to rise by minimum 5%, driven mainly
by the strong development in demand in the first quarter. While we estimate the
supply to be roughly about 3.2% of the current fleet or 5.5 mn dwt per annum over
CY11 to CY13. The container shipping rates are expected to remain firm in most of
the routes in longer term.
Signing of new building contracts in the container space has been
healthy
The total containership orderbook has swelled to 52 mn dwt (41 lakh TEUs) - up by
16% YoY. Despite deliveries of vessels with a capacity of 12 lakh TEUs over the past
year, the heavy ordering has resisted the orderbook from decline; instead it has
been on a steady rise for exactly a year now. The orderbook to fleet ratio currently
stands at 27% which is at all-time high for the segment.
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