Earning Correlations - Global Maritime Hub

Pricing a Recovery: What will Drive the Next Stage of the Asset Price Cycle? Dr Adam Kent - Maritime Strategies International (MSI) 15th Annual Marine Money Week Asia – Singapore September 20th to 21st 2016

Agenda Pricing a Recovery: What will Drive the Next Stage of the Asset Price Cycle? 1. 2. 3. 4. 5. 6.

Demand Supply Earnings Newbuilding Prices Secondhand Prices Recovery? and will it be a

Mountain or Mole Hill

© Maritime Strategies International

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2016 5 Year Old Price versus Historical* Prices have dropped during 2016 across the board

*Based on MSI’s quarterly published averages 1990 to 2015


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The Complete Pricing Jigsaw


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Pricing a Recovery

Demand


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Seaborne Cargo Growth Positive outlook for seaborne cargo growth for all sectors (apart from offshore in the short term)


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How Many Ships?

Routes

Distance

Speed

Waiting/Port Time

Operating Days

Ballast Ratio

Carrying Capacity

Size Changes


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Incremental Vessel Requirements (until 2019) 350

# of Vessels

Ships Required

300

More ships “needed”

250 200 150 100 50 0

-50


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AHTS

Cruise

PCTC

Container

Bulker

LNG

LPG

Chemicals

Product

Crude Oil

-100

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Pricing a Recovery

Supply


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Supply has been the ‘Party Pooper’







 Supply



Supply





Supply

Supply




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Orderbook - Over Exposure 600

# of Vessels

Ships Required

Ships on order

500 + underemployed current fleet 400 300 200 100 0


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AHTS

Cruise

PCTC

Container

Bulker

LNG

LPG

Chemicals

Product

Crude Oil

-100

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Supply Side Medicine

HIGH SCRAPPING

LOW CONTRACTING © Maritime Strategies International

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2016 Self Help Mn GT 10 Contracting

Scrapping

5

0

-5

-10


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Offshore

Vehicle

Cruise ship

RoRo/RoPax

MPP

FCC

LNG

LPG

Chemical

Bulker

Oil Tanker

-15

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Help from Unusual Places?


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Imminent Significant (3rd+) Special Surveys Bulkers

Tankers

Containers

LPG


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Supply Side Saviour

Many sectors will witness stagnant growth post 2016


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Pricing a Recovery

Earnings


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© Maritime Strategies International 18 RoRo

Chemical Tanker

LNG

MPP

Container

Bulker

PCTC

Rigs

OSVs

LPG Carrier

Crude and Product Tanker

Where on the Earnings Cycle Are We?

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At Todays Prices it makes Sense for Some

Based on 60% financing of a 5 Year Old


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Bigger they are the Harder they Fall ‘000 $/day 30

1.7 k TEU

2.1 k TEU

4.4 k TEU

6.5/7 k TEU

Biggest vessels in liquid charter market hardest hit

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…but it’s not a case of obsolesce but lack of demand

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15

10

5


20

3Q16

2Q16

1Q16

4Q15

3Q15

2Q15

1Q15

4Q14

3Q14

2Q14

1Q14

4Q13

3Q13

2Q13

1Q13

4Q12

3Q12

2Q12

1Q12

0

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But History Shows Size Does Matter…Eventually ‘000 $/day 80

Aframax

VLCC

70

…but when demand increased the rates realigned

60 50

Fall in tanker demand hit largest vessels in charter market hardest

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30 20 10


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2014

2012

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1980

1978

1976

1974

1972

1970

0

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© Maritime Strategies International 22 Chemical Tanker

LNG

PCTC Bulker

Container

OSVs

Rigs

MPP

LPG Carrier

Crude and Product Tanker

RoRo

… and where are we heading?

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Pricing a Recovery

Newbuilding Prices


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MSI’s Shipbuilding Model Forward Cover = Yard Pricing Power Sector Specific Freight Rates

Sector Specific Contracting

Global Orderbook Forward Berth Cover (years)

Regional Yard Developments & Capacity

Global Yard Capacity Average Yard Price Index ($ CGT)

Global Cost Components (steel & machinery price, exchange rates)

Weighted Average of Yard Costs

Regional Cost Components (wage, inflation, productivity)

Costs = Yard Pricing Floor © Maritime Strategies International Ltd.

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Newbuilding Price (by vessel type by size)

2016 Contracting Woefully Low

Naikai Zosen

Large number of yards that have taken minimal/zero orders in 2016

Beihai

AVIC Weihai

Shanghai

JMU Kure

COSCO Zhoushan Jinhai HI Xiamen

SWS

JMU Ariake Jiangsu New

H. Samho Imabari

H. Mipo

HHI

DSME

Samsung

Yards that have taken at least 0.1 Mn CGT of contracts in a single year


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Shipyard Capacity Is a Worry Mn CGT 60

Other

Europe

China

Korea

Japan

50

40

30

20

10


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2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

0

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Newbuilding Price Dynamics

Cost pressure will stop NB prices falling further in 2018


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Pricing a Recovery

Secondhand Prices


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How Bad is it? % NRV 100%

All time lows VLCC Tanker (1983)

90%

Panamax Bulker (1983)

80%

Panamax FCC (Aug 2016) Handy Bulker (Aug 2016)

70%

Drillship (Aug 2016)*

60% 50%

40% 30% 20% 10%

25 Yr Old

20 Yr Old

15 Yr Old

10 Yr Old

5 Yr Old

0 Yr Old

0%

* Re-expressed for 25 year life expectancy


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Currency Pain Relief


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Not as Bad as it Might First Appear… for Some


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Pricing a Recovery

Recovery?


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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

www.msiltd.com/fmv © Maritime Strategies International

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FMV Output Quarterly Fair Market Value & 1 Year Time Charter Rate (1Q history, current Q, 2Q forecast Annual average: • Newbuilding contract price • Fair Market Value • 1 Year Time Charter Rate • Operating Cost 5 years history and 15 years forecast

Price Development Chart detailing forecast price development in relation to historical metrics

www.msiltd.com/fmv © Maritime Strategies International

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Asset Play Prognosis Buy 5 year old today – sell in 5 years time


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When driving up the mountain don’t forget to bail out before its too late!

Thank You for Listening © Maritime Strategies International

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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.


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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.


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Maritime Strategies International Ltd

6 Baden Place Crosby Row London SE1 1YW United Kingdom Tel: +44 (0)207 940 0070 Fax: +44 (0)207 940 0071

Email: [email protected] www.msiltd.com