Archives for posts with tag: crude oil

Price indicators can tell market-watchers many things. In the volatile shipping markets they can provide a helpful window on both the health of today’s markets and expectations of future conditions. In the case of the latter, they may not be correct but it’s always interesting to take a look. So, how do price indicators help us gauge the state of play?

The Price Is Right?

In a “normal” market, or at least when owners have the expectation of one, the price of a 5-year-old ship should theoretically be about 75-80% of the price of the newbuilding, reflecting that merchant ships have a 20-25 year economic life and depreciate accordingly, other things being equal. The Graph of the Week shows the 5 year old to newbuild price ratio for a Capesize bulkcarrier, a VLCC tanker and a 2750 TEU containership for the last 10 years.

Bulk Better, Box Bottom

Well, today’s VLCC price ratio is right on the 75% mark, having dropped as low as 58% in late 2011. What does that tell us about expectations? Crude oil trade is a mature business with 1% growth expected in 2014, but VLCC fleet expansion is projected to be sub-2% this year, so that’s a better balance than for a while. On the dry side the Capesize price ratio (which once hit 160% as owners sought to get their hands on tonnage at the height of the boom) is flourishing at 90%. That might be a good representation of expectations, with sentiment seemingly fairly positive, Capesize fleet growth expected to slow to 4% in 2014 and iron ore trade expansion projected to motor on at 10% this year.

The ratio for the 2750 TEU containership is much lower, standing at 51%, almost as low as the 44% seen in 2009 (though it’s higher in some of the larger boxship sizes). Given the size of the surplus generated by the 9% downturn in trade in 2009, the box sector remains a bit further behind the curve than the bulk sectors. And here the difference in potential fuel efficiency between new designs and older ships is starker, pressuring the secondhand asset price further.

Downturn Downtime

So the ratios today seem fairly well aligned with market perceptions. But how have they fared since the onset of the downturn? Since September 2008, the Capesize ratio has spent just 33% of the time below the 75% line. The VLCC ratio has spent 65% of the time below 75% but only 29% of the time below 65%. So, in those sectors the impact on asset pricing could have been worse.

Was It So Bad?

The downturns in the 1970s and 1980s were far harsher on asset prices. In the late 1970s the ratio for both a Panamax bulker and for an Aframax tanker dipped as low as 40%. Interest rates were much higher, and the banks were much quicker to foreclose on “distressed” assets. This time, despite the slump in 2008, the price ratios haven’t suffered so dramatically (in the bulk markets at least) and investor appetite remains. However, part of that is a reflection of today’s expectations and time will tell how well investors have forecast future market developments. Have a nice day.

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Last week, we looked at which countries occupy the leading positions in terms of the supply side of shipping: that is, who owns all the ships. This week we follow-up by looking at which countries contribute the most to the demand side of the industry. Which countries account for the largest portions of global demand for shipping? And which countries are punching above their weight?

Key Trade Players

In total, world seaborne trade is estimated to have reached just under 10 billion tonnes in 2013. Bulk cargo trades in dry bulks, liquid bulks and gases represented 85% of this total, or a massive 8.4 billion tonnes. Overall, world trade has grown at an average rate of 3.8% since 2000. The Graphs of the Week show which countries have contributed to this, and now have the largest shares of 2013 bulk trade by sea.

China Wins, Of Course…

It will come as no surprise to anyone that China is the country with the largest portion of overall seaborne bulk trade, with a 13% share of the total. China’s imports (a massive 1.8 billion tonnes) represented 23% of global imports in 2013, including nearly 800mt of iron ore, 286mt of crude and products and 308mt of coal. Of course, China has a much lower (2%) share of those commodities’ global exports. On the other hand, its containerised exports represent around 25% of global trade in TEU terms.

The ten countries shown on the graph account for just over 50% of the world’s seaborne imports and exports of bulk cargoes, meaning that, given that there are in excess of 250 countries globally, world bulk trade is quite consolidated around a relatively small number of countries. Indeed, the top three countries account for more than 25% of the total.

No EU countries feature in the top 10 countries, demonstrating the impact of the rise of developing Asia. Then again, if considered en bloc, the EU has 14% of world seaborne bulk trade: exceeding even China, although not by much.

Using their Chance?

So, what about those countries punching above their weight? Excluding island microstates, the country with the largest ratio of trade to population is Qatar, with 94 tonnes of trade per capita. Qatar is the world’s largest gas exporter, with 33% of world LNG trade and 16% share in LPG. Other countries high on this ranking include several other Gulf states, and the sparsely-populated raw materials export giant that is Australia. However, in 2nd place is Singapore, which imports more bulk cargoes than it exports, given its status as an oil refining hub. China is just 127th place for trade per capita, while India is 181st.

Overall, the graphs confirm the importance of a list of countries which will be well known to all involved in global shipping. At the heart of world trade are a group of big raw materials exporters, along with the consumption-driven states of the developed world, plus major developing economies. All four of the key BRIC developing countries feature on the graph. Many of the so-called VISTA countries feature in the next 20 countries not shown: could they soon begin to move up the table?

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Changes in the composition of the world fleet are nothing new, and have been a recurring theme throughout the history of the shipping industry. The twenty-first century has been no exception. At the start of 2000 the world fleet totalled 788 million dwt, but today’s fleet and orderbook combined total more than 2.0 billion dwt, and alongside this expansion the make-up of the fleet has also continued to change.

Bulk Boom Bulge

Clarkson Research tracks the world fleet and orderbook of over 90,000 ships. The Graph of the Week shows the difference in each vessel sector’s share of the total fleet in terms of both vessel numbers and dwt capacity, comparing start 2000 to today’s fleet and orderbook combined. It comes as no surprise that the clearest gain in share belongs to the bulkcarrier sector. During the ordering boom of the mid-2000s bulkers were often the investors’ ship of choice, spurred on by ramped up earnings and dry bulk trade growth averaging 7% during the period 2003-07. On the basis of today’s fleet and orderbook, bulkers account for a 11% greater share of world fleet dwt than at start 2000, and a 4% larger share of fleet numbers.

The tanker fleet meanwhile has seen its share of the world fleet decline over the same period; the overall tanker fleet saw its share of dwt capacity fall by 8%. Although 317m dwt of tanker tonnage was ordered in the years 2003-08, activity in other sectors has seen the tanker tranche slim down. Crude oil trade growth this century has been limited to an average of 1% per annum, although more positive growth in oil products volumes (5% per annum on average) has driven requirement for product tankers, helping maintain the tanker share of vessel numbers.

Liner Alignment

On the liner side, the containership sector has seen a significant growth in its share of tonnage. Robust trade volume growth of an average of 8% per annum this century has ensured a requirement for rapid growth in capacity. However, that has not been the only factor. In capacity terms container tonnage has also benefitted over the period from the increasing containerization of general cargo trade. Whilst the containership share of global tonnage has increased from 8% to 13%, the shares constituted by general cargo ships, MPPs, ro-ros and reefers have all decreased in dwt and number terms.

What’s Next?

The world fleet product mix continues to evolve. The consensus view seems to be that the more rapid growth in requirement for more specialised tonnage will see the share accounted for by, for example, gas, container and offshore units expand. In the period shown here, the offshore sector, led by the numerically strong OSV fleet, has already increased its vessel number share by almost 3%.

However ‘wildcards’ also come into play(few foresaw boxships as large as 18,000 TEU back in 2000) and ordering patterns are determined by a range of factors not just demand fundamentals. If prices look attractive, shipping investors often turn back to the sectors in which they are comfortable, and the composition of the fleet doesn’t always evolve as it seems it logically should. So, for the latest trends, watch this space. Have a nice day.

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SIW1113Every so often we reach milestones in shipping that are worth pausing to celebrate and in 2014 the industry will achieve the no mean feat of moving 10 billion tonnes of international seaborne trade across the world’s open seas. Our Graph of the Week illustrates the strong growth of the past thirty years, with trade doubling since 1995 and tripling since 1984. The graph also highlights another industry milestone reached back in 2002, when the world fleet first transported more than one tonne per person globally. With China fuelling growth (it is estimated that at least half of the 4bn tonnes added since was China-related), this ratio has surged to the current figure of 1.4 tonnes per person.

Winners & Losers

So what are the “winners” and “losers” in the period between our two trade “milestones”? Reminding us that it has been very much at the heart of globalisation and a strong growth story despite its current travails, container trade leads the way contributing nearly a quarter of all growth with 931m tonnes. Iron ore, with 815m tonnes, and coal with 605m tonnes, are less of a surprise (with Capesizes the main beneficiary) and indeed over 50% of all trade growth was dry bulk related. Elsewhere there have been good contributions from steel products, grain, oil products and LNG. Crude oil has been disappointing however with growth of only 250m tonnes over the period and its share of trade dropping to 18%. A few trades have shown no growth at all over the period, for example phosphate rock, with fertiliser processing increasingly taking place at source.

Wildcards

Trade forecasters have been caught out more than a few times in recent years with major surprises in each of the key markets. Back in 2002, general consensus on China grossly underestimated the development of the steel industry and related import levels, while the turnaround in the US energy balance has been just as surprising and is significantly impacting the oil and gas trades. Container trade meanwhile generally grew (prior to 2009) at a few % points higher than the long term forecasts from the early 2000s. Throw in the financial crisis, when trade contracted for the first time since 1983, as a further challenge.

Another Ten Billion?

So where next for trade? In the 1980s growth was a sluggish 1%, before more encouraging growth of 4% in the 1990s and again in the 2000s. Some things seem more predictable – it’s difficult to look past China, India and Other Asia providing the majority of regional growth in the medium term, while most observers would expect gas to grow above trend – but other issues are far more uncertain. At 4% growth (a number we don’t feel is unreasonable for scenario planning on the basis of continued globalisation) we reach 15 billion tonnes by 2024 and 20 billion tonnes by 2031. Of course with shipping moving 90% of all global trade, the physical world rarely plays out like a smooth line on a graph and it’s the “wildcards” that often have the largest impact!

SIW1078“Following reports of China’s import figures for May, attention has focused on the data for crude oil imports. In January to April 2013, China imported 92mt of crude (including landborne trade), or 5.6m bpd, followed by 5.7m bpd of imports in May. In the year-to-date, imports by the major hope for crude oil trade growth are down by 2%. Is it time to plan for the worst?

Strategic Thinking

Well, maybe not. Clearly, the crude tanker markets are not in good shape, with evident oversupply, and demand weakness not helped by the effect which shale production is having on US import requirements. The freight markets remain fragile: in March, earnings levels on the eastbound routes from the Arabian Gulf dipped below $3,000/day.

Better Times

However, in the second quarter better fortunes were experienced. The VLCC spot fixture count in the Arabian Gulf during May came to a massive 162, including 123 eastbound fixtures. This compares to average eastbound cargoes of 91 per month in Q1 2013, and caused eastbound earnings to rebound to around $25,000/day in late May. The activity seen during May makes it likely that firmer import figures lie ahead.

What’s Happening?

Although the VLCC market has softened since, and fixture levels fell in June, there is a more fundamental reason not to take the weak Chinese trade growth data at face value. Early 2012, which forms the baseline for the negative year-on-year comparisons, was an extraordinary period for Chinese crude imports, well ahead of trend (see graph), with the government capitalising on conditions to acquire substantial volumes to fill Phase II of its Strategic Petroleum Reserve.

Something In Store

Relatively little is known about total Chinese storage capacity. The data on the graph has been estimated from the few figures which have in the past emerged on total Chinese stocks, both commercial and state-owned, plus the more-commonly published data on net stock changes. However, the trend is clear: the record imports of early 2012 occurred at a time of strong building of stocks. So the underlying level of imports for actual consumption remains positive.

Of course, this is partly academic as far as the VLCC market is con-cerned. Imports are cargo, whatever they are used for, and last spring there was more to go around and fewer ships. But there are causes for comfort: May fixtures show demand at levels better than before, year-on-year import growth is likely to turn positive again in 2H 2013 (imports are now heading back towards trend levels and stock build had slowed by 2H 2012), and many indicators of Chinese oil demand are improving. Furthermore, some reports suggest up to 55m bbl of additional SPR tank capacity could be completed and filled later in 2013. Now, that would be a pleasing development for the large crude tanker market. Have a nice day.