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Maritime Financial Research

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Maritime Financial Insight

November 2018

 

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Dry bulk shipping

Although September was a weak month for Capesize trade, the steel production in China helped by Chinese government’s decision to not impose blanket curb on steel output, the commencement of coal restocking programme ahead of the winter months and the robust minor bulk trade are expected to provide employment opportunities for dry bulk vessels. However, we expect flatter growth in iron ore trade, and thus, a slower recovery for Capesizes because of increasing inventories at Chinese ports and efficiency of high grade iron ore. Further, we believe the impending IMO regulations will lead to the scrapping of many aged vessels in second-half 2019.

 

Tanker shipping

Vessel earnings in tanker shipping should improve gradually over the next two years after bottoming out in 2018. The surge in demolitions over 9M18 has offset the impact of newbuilding deliveries which is a positive sign.

 

Product Tanker shipping

The product tanker market has been hit by high oil prices and the corresponding weakness in refinery margins. However, the damage could be counterbalanced by the declining orderbook. As freight rates are likely to trend higher in the closing months of 2018, with the approaching winter, earnings of product tanker companies should firm up.

 

Gas shipping

Bright prospects of LNG shipping in the next two years, given the current pipeline of liquefaction projects, and strong demand from Asian countries will help vessel demand to marginally outpace supply. The spot charter rates should continue to improve and will likely reach USD 200,000pd in the impending winter.

In the LPG shipping space, the Baltic LPG Index closed at USD 48.29 per tonne on 10 October 2018, the highest since March 2016. The index has however declined in the second half of October as a result of ample availability of ships. The trade war has had negligible impact on freight rates as the US has managed to direct propane to other Asian buyers and China has turned to the Middle East for supplies. On the supply side, the orderbook-to-fleet ratio for the VLGC segment, at 16.8%, remains the highest.

 

Container shipping

The intensifying trade war between the US and China led the IMF to recently downgrade its global economic growth estimates. This will mean more uncertainty around freight rates, which together with elevated bunker prices, might spell more trouble for the already depressed stocks. Meanwhile, some shippers looking to front load their cargoes from China to the US – in anticipation of fresh tariffs on Chinese goods from January 2019 – could boost volume and freight rates in the short run.

 

Port operators

The ports sector remains under continued duress from the decline in throughput amid plateaued growth. The trade outlook remains weak with Drewry revising down its 2018 estimates. Escalating US-China trade war over tariffs cautioned financial markets about looming throughput decline and earnings growth.

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

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