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Maritime Financial Research

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Maritime Financial Insight

January 2020

Container shipping: Despite the uncertainty, we expect the market to continue in much of the same manner in 2020 as it did in 2019. Lines will remain price-takers as the supply-demand fundamentals will work against them although they should be able to remain profitable as long as operating costs are kept in check. It will be a tightrope act and the capacity levers of idling and void sailings will be pulled frequently.

 

Port operators: Port sector celebrated the reduction in the global trade tension. Index gained c.4% in the last quarter of 2019. Now with the US and China finalizing the phase 1 of trade deal and phase 2 moving towards the end of 2020 (post the US presidential election), we believe other policy decisions and geopolitical agendas to take the centre stage, shaping the direction of the global trade.

 

Dry bulk shipping: Initial chaos over scrubbers and unavailability of low-sulphur bunker at many ports across the globe will push up earnings for dry carriers in the initial months of 2020. More than 2% of the dry bulk fleet is now at yards to install scrubbers, and we expect this trend to continue in 2020 as well, squeezing effective supply. Meanwhile, vessels without scrubbers will sail on LSFO which, we expect, will be sold at a premium of USD 200-300 per tonne. These vessels will slow-steam to save on high bunker costs, a phenomenon which will further reduce vessel supply.

 

LNG shipping: Spot LNG shipping rates have continued to decline recently on account of softening Asian LNG demand and higher inventory levels in Asia. China’s coal to gas switch momentum has come down due to the slowing economy. The LNG shipping stocks under our coverage remained flat on an average in FY19 and 4Q19.

 

LPG shipping: The outlook for global seaborne LPG volumes is positive, with LPG charter rates expected to remain firm in early 2020 as heavy fixing activity out of the US Gulf – in light of a strong US-Asia propane price arbitrage in December 2019 – has kept vessel availability low. In December 2019, VLGC earnings were around USD 1.8mn per month – nearly three times from USD 606,000 per month in December 2018. High LPG demand on US-Asia trade and limited vessel availability might further drive earnings in 2020.

 

Crude tanker shipping: Drewry expects 2020 to be a strong year for the crude tanker market, supported by growing long-haul trade, the positive impact of IMO 2020 and truncated supply because of geopolitics. Although record highs seen in October 2019 are unlikely to be repeated, we expect the market to carry some of the recent firmness into 2020. The main driver of rising tonnage demand in the crude tanker market will be strong growth in long-haul trade from the Atlantic to Asia. Burgeoning growth in crude production in the US, Brazil and Norway is likely to result in deeper production cuts by OPEC+ in 2020, which in turn will force Asian buyers to import crude from farther afield.

 

Product tanker shipping: Product tanker spot rates surged in 4Q19 on the back of IMO-related demand and geopolitical tensions. We expect refined product trade to benefit from the demand for IMO-compliant fuel as only 10% of the global active merchant fleet are fitted with scrubbers. We expect the results of product companies in 4Q19 to positively benefit from improving product tanker prospects.

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Whilst the Company believes the information it uses for research is from sources believed to be reliable, the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. The opinions and estimates included herein reflect the analysts’ views based on available information on the dates specified and these views may have changed without notice. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific client. The information herein is published for clients only and is not to be taken in substitution for the exercise of judgement by the client, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the Company, accepts no liability for any direct, special, indirect, consequential, incidental damages, or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and employees may have positions or other interests in, and may effect transactions in, securities mentioned herein. DFRS does not seek to do business with any of the companies mentioned other than sell them these reports. However, other related parts of Drewry Shipping Consultants Holdings Limited may seek to provide "advisory services or the sale of other group research products" to companies mentioned in this report.

 

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6

$6bn: The combined value of container shipping industry investments we have advised on since 2010.

20

$20bn: The value of financing projects we have provided commercial due diligence advice for in port M&A since 2010.

54

The number of countries in which our advisors have completed assignments since 2005.

400

Our advisors have been involved in over 400 port assignments over the past 10 years.
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