A glut of vessels and stalling cargo growth until 2020 : Goldman Sachs Group Inc.

The World Shrinks for Goldman as Commodity Rout Snares Ships

The collapse in global rates for shipping commodities from the world’s mines to mills and utilities will persist until at least 2020 on a glut of vessels and stalling cargo growth, according to Goldman Sachs Group Inc.

The extended slump is set to intensify competition in the iron ore and coal markets, benefiting the biggest, low-cost suppliers, analysts Christian Lelong and Amber Cai wrote in a report. Higher-cost producers may suffer, they said.

The Baltic Dry Index, a measure of shipping commodities including coal, iron and grains, sank to a record in February amid the fleet surplus and slowing demand for cargoes to China. The country’s transition from investment to consumption, together with a shift toward cleaner energy, caused a sharp slowdown in the dry-bulk trade, Goldman said. At the same time, shipyards churning out carriers find they are adding unwanted capacity into an oversupplied market, according to the bank.

“From the iron ore pits of Western Australia and Brazil’s Sudeste to the coal pits of Indonesia and South Africa, mining companies have experienced the end of the bull market in commodities,” Lelong and Cai wrote in the report dated May 6. “Now the shipping industry is feeling the impact.”

The daily charter rate for a Capesize vessel slumped below $10,000 from a peak of more than $100,000 in 2008, according to Goldman. Lower rates will combine with cheaper fuel to spur a period of cheap freight until enough older vessels are scrapped to balance the market, probably after 2020, the bank estimated.

Smaller World

“When transportation is cheaper and distance matters less, the world appears to be smaller and goods can travel further,” the analysts wrote. “The world has shrunk.”

Goldman cited slumping rates for hauling iron ore from Western Australia to China, described as the busiest dry-bulk trade route in the world. The cost of shipping one ton sank from $44 at the peak in early 2008 to $4.40 a ton, it said.

Global demand for seaborne iron ore, thermal and coking coal may expand only 2 percent this year, down from an average of 7 percent between 2005 and 2014, Goldman said. After that, trade-volume growth will stall to 2018, it forecast.

China’s slowing growth contributed to declines in bulk-commodity prices. Iron ore sank to a decade-low at the start of April as Rio Tinto Group and BHP Billiton Ltd. boosted low-cost output into an oversupplied market. GlobalCoal’s Newcastle thermal price, a benchmark index for the Asia-Pacific, fell in April to the lowest level since 2007.

The utilization rate of the dry-bulk fleet will drop from about 90 percent in 2008-2010 to 70 percent from this year to 2019, Goldman said in the report, which focused its analysis on iron ore and coal cargoes and the larger Capesize and Panamax vessels. Order books at shipyards will ensure that vessel capacity will continue to grow until 2017, it said.

“Faced with the risk of leaving vessels idle over long periods, we believe that shipowners will continue to charge low charter rates,” the analysts wrote. “We expect low freight rates to persist at least until the end of the decade.”

Protect your portfolio profits http://www.youroffshoremoney.com

The Dry Shipping Picture May Be Even Worse Than You Think


I want to recommend a new article on Seeking Alpha – the analysis shows our continuing belief this is a sector to watch NOT purchase.

Here is a sample from the article:

The supply glut continues to plague dry shipping –

. Too many ships are simply chasing too few cargoes. One Singapore broker bleakly stated, “The market is flat as a pancake. It’s going to be like this going forward – it’s hard to see a way out.” The rates, even despite the modest rise last week, continue to be below even operating costs for most ships especially for the large Capesize ships. Basic economics teaches us that should one day correct but when?

Chief Shipping Analyst at BIMCO, Peter Sands, stated last week,

“What we have seen in shipping in recent years and is going to experience more in future is the knock-on effect from China becoming a relatively more closed economy, driven forward by domestic demand rather the foreign demand like i.e. the US. In short this translates into a lower level of shipping demand going forward than what we got accustomed to during the past decades”

Article link:


Tanker Industry Review : The Market Realist



I want to recommned a great series of articles on the Tanker/ Shipping sector  from The Market Realist  www.market realist.com


here is a sample


The Dynamics of the Crude Tanker Industry
By Katie Dale • Apr 1, 2015 2:38 pm EDT
Oil prices impact crude industry

A February rebound in oil prices couldn’t hold on, and prices resumed their downward trend amid concerns over rising commercial crude stocks in the United States. Since late 2014, stocks have been increasing despite a falling number of oil rigs drilling in the United States.

Brent crude is trading at $55.11 as of March 24, 2014, down 7.3% from the previous month’s levels. Industry analysts believe that with falling oil prices, a crude tanker boom, albeit a short-lived one, surely exists.
Crude industry
Enlarge Graph
The performance of oil tanker operators such as Nordic American Tanker (NAT), Capital Products Partners L.P. (CPLP), Tsakos Energy Navigation Ltd. (TNP), Frontline Ltd. (FRO), and Teekay Tankers Ltd. (TNK) have a direct correlation with the crude tanker industry. The PowerShares DB Oil Fund (DBO) is an industry ETF that tracks the performance of crude oil.

Dynamics of the crude tanker industry

In the current shipping industry, the tanker market is on the greener side compared to the dry bulk market recovery. Teekay Tankers commented in its 4Q14 quarterly update, “The outlook for crude tanker fleet utilization and spot tanker rates is expected to remain positive in 2015 based on a shrinking mid-size crude tanker fleet and a continued increase in long-haul tanker demand as more crude oil moves from the Atlantic to Pacific basins. The impact of low prices and the development of floating storage in the first quarter of 2015 are also expected to support positive tanker demand in the first half of 2015.”

What’s in this series?

In this series, we’ll look at the factors that drive the crude tanker industry and affect the performance of tanker companies. Before we begin the important indicators, we’ll look at the Baltic Dirty Tanker Index. Among indicators, we’ll take a look at China’s crude imports and auto sales, Canadian crude exports to the United States, and others.

CPLP $9.90 $0.02 0.20%
DBO $14.00 $0.01 0.07%
FRO $2.84 $0.21 7.99%
NAT $12.60 $0.10 0.80%
TNP $8.97 $0.06 0.67%



Crude Tanker Indicators Amid Fluctuating Oil Prices (Part 2 of 10)
Baltic Dirty Tanker Index on the Decline
By Katie Dale • Apr 1, 2015 2:39 pm EDT
Baltic Dirty Tanker Index

The Baltic Dirty Tanker Index is followed by analysts and money managers in order to assess the revenue and earnings potential of the crude oil shipping industry. How the Baltic Dirty Tanker Index performs, especially its year-over-year growth, is one factor that has significant implications for companies such as DHT Holdings Inc. (DHT), Frontline Ltd. (FRO), Teekay Tankers Ltd. (TNK), and Nordic American Tanker Ltd. (NAT). The PowerShares DB Oil Fund (DBO) is an industry ETF that tracks the performance of crude oil.
Baltic dirty index
Enlarge Graph
On a year-to-date basis, the Baltic Dirty Tanker Index declined 13.1% to 769 on March 20, 2015. On a year-over-year basis, the index recorded an 8.2% increase.

Big Oil’s Push to Replace Coal : Coal Mining and Shipping Sectors At Risk

BP Plc coined the slogan “Beyond Petroleum.” The new industry mantra might be “Beyond Oil and Into Gas.” Oh, and while we’re at it, “Down With Coal.”

Consider Royal Dutch Shell Plc’s recent $70 billion acquisition of BG Group Plc — clearly a huge bet that natural gas will prove to be its cash cow of the future.

The petroleum industry’s move toward gas is hardly new — the hydraulic fracturing shale revolution is in its second decade, after all. Still, Shell’s move is an emphatic confirmation that some among the Big Oil family firmly believe gas will play a growing role in meeting the energy demand of emerging countries such as China and India that are trying to move away from dirtier coal.

“Gas will likely overtake coal as the world’s second fuel by the late 2020s,” said Jonathan Stern, head of the natural gas program at the Oxford Institute for Energy Studies.

Gas is emerging as a preferred fuel around the world because it’s cleaner to burn than coal and oil, prompting the International Energy Agency to say in 2011 that the world was entering into the “golden age of gas.” In a highly symbolic move, China announced last month it would convert the last of four major coal-fired power plants around Beijing to gas next year.

Last September, in a petroleum industry meeting timed to a United Nations session on global warming, some of the world’s leading producers got up to argue that gas gave them a huge advantage over coal in the climate-change battle, according to the website Responding to Climate Change.

“One of our most important contributions is producing natural gas and replacing coal in electricity production,” said Helge Lund, then chief executive officer of Statoil ASA, citing figures that switching from coal to gas could halve global emissions.

Fast Growing

Until recently, coal was the world’s fastest-growing major energy source, averaging a 5 percent annual rate. The Paris-based IEA forecast the rate would slow down to 1 percent from 2012 to 2020, and decelerate further to 0.3 percent in the 2020s as China and other emerging countries battle pollution.

Shell CEO Ben van Beurden said in February that “a shift from coal to natural gas” was needed to battle climate change. “When burnt for power, gas produces half the CO2 coal does,” he told an industry audience.

For Shell, this is the second gas-focused deal in so many years. In early 2014, it bought the liquefied natural gas business of Spain’s Repsol SA for $4.1 billion. The Anglo-Dutch group is not alone betting on gas: Chevron Corp., BP, Total SA and Exxon Mobil Corp. are spending heavily on the fuel.

Gas Focused

Trevor Sikorski, head of natural gas, coal and carbon for consultant Energy Aspects Ltd., said companies were “starting to recognize” a trend in emerging markets in favor of gas and against coal. “This deal potentially kicks off acquisitions of other gas-focused companies the size of BG or maybe smaller,” he said. Among the potential candidates, analysts are looking at Woodside Petroleum Ltd. and Santos Ltd. of Australia, U.S.-based Devon Energy Corp. and Noble Energy Inc., among others.

The bet on gas has been extremely profitable so far for Shell. The company reported underlying earnings of $10.4 billion in 2014 from gas, up 470 percent in five years.

But it has its risk, nonetheless. First, LNG prices have dropped about a quarter from the torrid levels reached after Japan bought large quantities of the fuel following the 2011 nuclear crisis of Fukushima. The price drop will hurt profits.

Coal Prices

At the same time, coal prices have fallen to levels not seen since the global financial crisis, providing cost-sensitive countries, including India, a strong reason to keep buying. BP CEO Bob Dudley last June warned that with coal prices falling, the commodity was “extending its competitive edge in power generation” over gas.

Second, the shift from coal into gas depends in a great part on climate change negotiations of uncertain outcome.

And third, analysts worry that energy companies would struggle to keep construction costs under control, jeopardizing the future of the LNG sector.

If Big Oil is successful in its push toward gas at the expense of coal, those most at risk will likely be global mining groups including Glencore Plc, Anglo American Plc and Rio Tinto Group with billions of dollars in coal deposits in South Africa, Australia and Colombia.

Dry bulk shippers: Stocks fall on lower capesize rates


Dry bulk shippers: Stocks fall on lower capesize rates

16 Mar 2015 – Reuters
BUZZ-Dry bulk shippers: Stocks fall on lower capesize rates** Shares of dry bulk shippers down 1.2-5.5 pct

** The capesize index down 1.59 percent at 372 points

** Average daily earnings for capesizes, which typically transport 150,000-ton cargoes such as iron ore and coal, fell $60 to $3,922

** Reports of laid up capesizes have started to mount and the BDI rates (rates for ships carrying dry bulk commodities) are showing no signs of recovery, Morgan Stanley analysts Fotis Giannakoulis says

** Star Bulk Carriers Corp down 5.5 pct; DryShips Inc down 4 pct; Navios Maritime Holdings Inc down 3 pct; Scorpio Bulkers Inc down 1.7 pct; Knightsbridge Shipping Ltd down 1.5 pct; Safe Bulkers Inc down 1.2 pct


Above Average
As of 19 Mar 2015 at 10:05 AM EDT.


Open 0.7500 P/E Ratio (TTM)
Last Bid/Size 0.7250 / 2 EPS (TTM) -0.10
Last Ask/Size 0.7258 / 11 Next Earnings 20 May 2015
Previous Close 0.7595 Beta 2.61
Volume 1,624,275 Last Dividend
Average Volume 5,072,012 Dividend Yield 0.00%
Day High 0.7595 Ex-Dividend Date
Day Low 0.7200 Shares Outstanding 670.0M
52 Week High 3.70 # of Floating Shares 551.8972M
52 Week Low 0.7200 Short Interest as % of Float 1.29%
DRIP Eligible No

Consensus Recommendation Provided by Thomson Reuters

Strong Sell
Strong Buy


DryShips Inc. (DryShips) is a provider of marine transportation services. The Company is the owner of drybulk carriers and tankers that operate across the world. The Company provides its services to dry bulk and petroleum cargoes. Through its owned subsidiary, Ocean Rig UDW Inc., DryShips owns and operates 13 offshore ultra deepwater drilling units, consisting of 2 ultra deepwater semisubmersible drilling rigs and 11 ultra deepwater drillships


Oil-Storage Deals Seen Eluding Tankers

Oil Tanker
The industry’s biggest tankers could earn $35,000 a day this year, about $10,000 less than previously estimated
Oil Tanker
The oil tanker BW Luck is berthed near Chemoil Energy Ltd. storage tanks on Jurong Island in Singapore. It costs about $1.10 a barrel to store oil for a month on supertankers, ships known within the industry as very large crude carriers. Photographer: Munshi Ahmed/Bloomberg

(Bloomberg) — Rates for supertankers could be lower than anticipated as the incentive to store oil at sea diminishes, freeing up the vessels to compete for charters, according to RS Platou Markets A/S.
The industry’s biggest tankers could earn $35,000 a day this year, about $10,000 less than previously estimated, the Oslo-based investment bank said in a report on Monday. The higher figure assumed 1 percent of the global fleet would store crude, a trend that’s yet to materialize, said Frode Moerkedal, an Oslo-based analyst at Platou Markets.
Crude prices have plunged as the U.S. pumps the most in three decades and OPEC, supplier of about 40 percent of the world’s oil, keeps its own production steady to retain market share. That’s helped create what’s known as contango, where commodities for immediate supply are so much cheaper than in future months that it rewards traders to store.
“You would only store on a vessel if the onshore inventories were full,” Moerkedal said by phone on Monday. “It seems that the pace of onshore buildouts are slower than expected.”
The global oil market has 377 million barrels of spare onshore storage capacity available, Michael Wittner, the head of oil market research in New York for Societe Generale SA, wrote in an e-mailed report on March 14. That’s an increase of 73 percent from the firm’s February estimate of 218 million spare barrels of capacity available for global land storage. The numbers includes unused storage in China and India and exclude 120 million barrels of pipeline space in U.S.
Demand Gain
It costs about $1.10 a barrel to store oil for a month on supertankers, ships known within the industry as very large crude carriers. Brent for June costs about $1 a barrel more than it does in May, according to data on the ICE Futures Europe exchange compiled by Bloomberg.
Brent for May settlement was 13 cents higher at $54.07 a barrel at 11:48 a.m. Singapore time.
For storage to work, the contango needs to exceed storage costs. A narrowing has prevented an increase in floating storage, the International Energy Agency said in a March 13.
The IEA raised its 2015 estimate of global oil demand by the most since it was introduced in July. Demand will rise this year by 1 million barrels a day, or 1.1 percent, to an average of 93.5 million a day.
While contango for Brent is narrowing, it’s at the widest for almost four years for West Texas Intermediate crude, the U.S. benchmark. This has prompted interest in floating storage in the U.S. Gulf for traders who have licenses to export cargoes to Canada, according to a report e-mailed by shipbroker Charles R Weber on Monday.
Any filling of land storage in the U.S. should only be temporary as refinery throughputs typically rise by a million barrels a day between March and May as refiners return from maintenance before the summer driving season, FBR Capital Markets said in a research note. A reduction in the number of rigs drilling for oil in the U.S. should begin to “affect production by as early as this summer,” it said.

Baltic Dry Index and Ship Building Indicate Hard Times Will Last

KEY: Shipping operates with an extra lag since shipowners respond to higher commodity demand. New ship orders more than trebled between 2012 and 2013. But it may not be just supply that is to blame; the WTO has been cutting its forecasts for world trade growth.

Abandon ship?

THE latest non-farm payrolls – 295,000 jobs were added in February, while the unemployment rate fell to 5.5% – will reassure investors about the health of the US economy, while simultaneously provoking concerns about the likely date of the first Federal Reserve rate increase.

But what about the global economy? There are four things that might give investors pause. The first is the direction of central bank policy. The Fed might be thinking of pushing up rates but many more central banks have been cutting; India and Poland were the latest to join the trend. That doesn’t suggest confidence in a global recovery. The second is bond yields. Euro zone 10-year yields are now on a par with their Japanese equivalents at 0.38%; the US has the highest yields in the G7 at 2.2%. Of course, one can argue that these yields have been manipulated by central banks, although both the Fed and the Bank of England reduced or stopped QE a while ago. The third and fourth measures are commodity prices and the Baltic Dry index, a measure of shipping rates (see chart, which is on a log scale). Both dipped in 2008-2009 and recently but the Baltic Dry’s decline is much more precipitous; it recently hit a 30-year low.

One would expect there to be some kind of link between the two. After all, commodities are exactly the kind of product – bulky, imperishable – that companies are going to send by ship. And these indices are, of course, driven by the balance of supply and demand. Commodity markets operate with a lag – it takes time to develop new oil fields and dig new mines – so the risk is that the price may have dropped by the time the extra supply comes on stream. Shipping operates with an extra lag since shipowners respond to higher commodity demand. New ship orders more than trebled between 2012 and 2013. But it may not be just supply that is to blame; the WTO has been cutting its forecasts for world trade growth.

The head of Maersk, the shipping group, recently talked of slower global trade growth, adding that

The economies in Europe are still very sluggish. Brazil, Russia and China: those three economies used to drive a lot of growth, and right now we are not really seeing that to the same extent. The only real bright spot is the US, and even the US is good but not great

One should be pretty cautious about overinterpreting the Baltic Dry’s movements; its sheer volatility over the long term suggests it can hardly be an exact forecaster of the economy. In some respects, its fall may even be good news, as some commenters point out. However the index’s slump hardly suggests a boom either. And another bellwether is Korean exportswhich fell 3.4% year on year in February (although seasonal factors played their part).

The big question is whether lower oil prices and interest rate cuts will eventually act to give the economy a second wind, or whether both developments are merely a symbol of incipient weakness. The equity markets clearly favour the benign interpretation, and indeed one can partly explain rate-cutting and low bond yields with respect to the effect of falling commodity prices on inflation. As always, we need more data; first quarter GDP numbers from the emerging markets (out next month) will be the next test.


Here is our recent letter:

Managed Accounts Year End Review and Forecast

November 2014 – 40 % cash position

Shipping Sector / Bulk ShippersYou can review our stock market letter athttp://www.amp2012.com to follow our profits in the shipping sector before our retreat as overcapacity has yet to effect continued overbuiding. In 2008-9 rates-  illustrated by the Baltic Dry Index – were at their peak. The BDI hit over 10,000. Today it is roughly 10 % of that benchmark and the sector slide continues. We have an impressive watchlist of former ” darlings” – but we are content to watch and wait.

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