Shipping Giants Work Together To Overcome Slump

apag-Lloyd AG signed a binding agreement to take over most of Chilean rival Cia. Sud Americana de Vapores SA (VAPORES)’s assets and become the fourth-largest container shipping company in the world.

CSAV, controlled by Chile’s billionaire Luksic family, will own a third of the shares in the new company that combines Hapag-Lloyd’s 151 vessels with CSAV’s fleet of about 50, according to a Chilean regulatory filing yesterday. The Luksics, German billionaire Klaus-Michael Kuehne and the City of Hamburg will own 75.5 percent and control the new company.

Kuehne and the Luksics are combining to compete on more equal terms with industry leader A.P. Moeller-Maersk A/S after an oversupply of vessels coincided with slowing demand to produce a prolonged slump in the container shipping business.

Hapag-Lloyd, which had a loss of 97.4 million euros last year ($135 million), will reap annual savings of about $300 million, CSAV Chief Executive Officer Oscar Hasbun said on March 21. The companies signed a memorandum of understanding in January. The combined company, with annual revenues of $12 billion, will strengthen its presence on Europe-Latin America and Latin America-Asia routes.

Hapag-Lloyd CEO Michael Behrendt, who retires at the end of June, has said an IPO may take place in 2015 once conditions in the shipping industry normalize. German tour operator TUI AG (TUI1), which holds a 22 percent stake in Hapag-Lloyd, may use the stock sale as an exit, as the Hanover-based company has repeatedly said it wants to divest the holding.

TUI Strategy

With the deal reducing its stake, TUI is getting closer to an exit from the container shipping business, CEO Fritz Joussen said in an internal statement obtained by Bloomberg News. TUI has a “binding understanding” with the other Hapag-Lloyd shareholders to list the shipping company next year and has the right to sell stock in a private placement in the run-up to the IPO, Joussen said.

CSAV will buy shares worth 259 million euros in a 370 million-euro capital increase that will boost its stake in Hapag-Lloyd to 34 percent from about 30 percent. The German company will carry out a second sale of new stock for 370 million euros coinciding with the IPO on the German exchange.

Shares in CSAV rose 0.5 percent to 27.7 pesos in Santiago.

Shipping Sector Smacked by Dow and BDI Decline

We live in the hope that we will see a sustained recovery in the BDI

AND the world economy – but it ain’t happening. Worries about the anemic U.S. recovery, the crisis in the Ukraine, a slowdown in China

all combine to hurt our AMP Watchlist – but not our investment returns. We have a list of stocks that will benefit when the three sisters unite – in the meantime we have to be content to know that someday when the turn occurs we will be purchasing our portfolio at substantially better prices because of our patience.

Here is my comment on Seeking Alpha

The real regret is getting in too early . The real problem of a falling Baltic Index and slowdown in China means heightened risk in a sector not yet in supply/ demand balance with still too many new vessels on order. Keep to the sidelines until a turn in fortunes happens – too many fortunes are reduced by trying to read the future

 

 

Right now the DOW is off 129 points – following a decline of 158 points on Friday.

 

The Baltic Trade Index continues to slide and defies all the prophets of shipping profits:

Baltic Dry Index (BDI)    -19   1186 
Rates

BCI

(Cape index)

BPI

(Panamax index)

BSI

(Supramax index)
INDEX

2293

-13

812

-10

982

-21

SPOT 4 TCE AVG (USD)

16210

-241

6548

-83

10270

-222

YESTERDAY (USD)

16451

6631

10492

YEAR AGO (USD)

4297

8674 9488

Here is a portion of an article posted today – notice how many caveats the author had to add to hedge any bets of a revival anytime soon:

Shipping company DryShips’ (DRYS) shares have fallen off a cliff this year. The stock is down a substantial 25%, as the shipping industry has fallen upon tough times, and there could be tougher times ahead. However, we shouldn’t ignore the positive moves that DryShips is making that could help it make a comeback in the long run.

Even though DryShips turned in a weak performance last quarter as a result of a decline in shipping rates for cargo, a comeback cannot be ruled out in the future. The prospects of the shipping industry are expected to improve, according to analysts, and DryShips could also witness a turnaround.

Here is the market verdict this morning:

DRYSHIPS INC(DRYS:NASDAQ, US)

BuySell
3.16USDDecrease0.10(-3.07%)Volume: 
Above Average

SAFE BULKERS INC(SB:NYSE, US)

BuySell
8.88USDDecrease0.30(-3.27%)Volume: 
Above Average
As of 07 Apr 2014 at 12:12 PM EDT.

DIANA SHIPPING INC(DSX:NYSE, US)

BuySell
11.67USDDecrease0.46(-3.79%)Volume: 
Above Average
As of 07 Apr 2014 at 12:13 PM

 

Some Good News For Shipping Sector Despite BDI

27 March 2014

Seanergy Maritime +27% on Q4 earnings, leads shipping names higher • 11:40 AM

  • Seanergy Maritime (SHIP +27.1%) shares are surging after the dry bulk shipper reported Q4 net earnings of $7.5M vs. a $117M loss in the prior-year quarter.
  • SHIP says 2013 saw a significant reversal in dry bulk market conditions, as increased China imports of iron ore and the expected slowdown in vessel deliveries over the next years led to higher freight rates in Q4, and sees continued strength in 2014; time charter equivalent rose 7% in the full year to $8,006 from $7,465 in 2012.
  • Other shipping names are mostly higher: GNK +9.2%EGLE +3.2%SBLK +2%BALT +1.1%SB +0.9%NM+0.2%DSX +0.2%FREE -0.6

Baltic Dry Index (BDI)    -84   1412 
Rates

BCI

(Cape index)

BPI

(Panamax index)

BSI

(Supramax index)
INDEX

2579

-182

1018

-44

1139

-41

SPOT 4 TCE AVG (USD)

19853

-2043

8210

-351

11914

-426

YESTERDAY (USD)

21896

8561

12340

YEAR AGO (USD)

4678

9412 9866

DRYSHIPS INC(DRYS:NASDAQ, US)

BuySell
3.17USDDecrease0.055(-1.71%)Volume: 
Above Average
As of 27 Mar 2014 at 1:53 PM EDT.

 

QUOTE DETAILS

Open 3.25 P/E Ratio (TTM)
Last Bid/Size 3.16 / 533 EPS (TTM) -0.58
Last Ask/Size 3.17 / 352 Next Earnings
Previous Close 3.22 Beta 2.67
Volume 8,701,280 Last Dividend
Average Volume 9,474,303 Dividend Yield 0.00%
Day High 3.32 Ex-Dividend Date
Day Low 3.10 Shares Outstanding 432.7M
52 Week High 5.00 # of Floating Shares 396.9353M
52 Week Low 1.65 Short Interest as % of Float 2.59%
chart

DIANA SHIPPING INC(DSX:NYSE, US)

BuySell
11.88USDIncrease0.13(1.11%)Volume: 
Average
As of 27 Mar 2014 at 1:54 PM EDT.

 

QUOTE DETAILS
Open 11.71 P/E Ratio (TTM)
Last Bid/Size 11.87 / 2 EPS (TTM) -0.27
Last Ask/Size 11.88 / 7 Next Earnings 19 May 2014
Previous Close 11.75 Beta 1.62
Volume 397,917 Last Dividend
Average Volume 577,176 Dividend Yield 0.00%
Day High 11.91 Ex-Dividend Date
Day Low 11.56 Shares Outstanding 82.8M
52 Week High 13.93 # of Floating Shares 68.14085M
52 Week Low 9.00 Short Interest as % of Float 2.88%
chart

SAFE BULKERS INC(SB:NYSE, US)

BuySell
9.05USDIncrease0.12(1.34%)Volume: 
Below Average
As of 27 Mar 2014 at 1:55 PM EDT.

 

QUOTE DETAILS

Open 8.89 P/E Ratio (TTM) 8.5x
Last Bid/Size 9.03 / 1 EPS (TTM) 1.05
Last Ask/Size 9.05 / 1 Next Earnings 12 May 2014
Previous Close 8.93 Beta 1.80
Volume 119,606 Quarterly Dividend 0.0600
Average Volume 557,620 Dividend Yield 2.65%
Day High 9.19 Ex-Dividend Date 6 Mar 2014
Day Low 8.80 Shares Outstanding 83.4M
52 Week High 11.48 # of Floating Shares 35.96139M
52 Week Low 4.59 Short Interest as % of Float 1.03%

China Data Sinks Shipping Sector

Good morning! Here’s what you need to know.

China PMI. China PMI fell to an eight-month low of 48.1. That was also short of expectations for 48.7. “The HSBC Flash China Manufacturing PMI reading for March suggests that China’s growth momentum continued to slow down,” Hongbin Qu, HSBC China’s chief economist said in press release. “Weakness is broadly-based with domestic demand softening further.”

Softer landing. AFP now says Chinese authorities are likely to begin enacting stimulus measures to tone down any threat of a hard landing. ” ‘The government needs to take quick action in view of its growth target of about 7.5 percent,’ Barclays Capital said in an analysis of the PMI data. Zhang Zhiwei, economist at Nomura International in Hong Kong, expected leaders to cut the amount of funds banks must keep in reserve in the second half of the year — a step they have used in the past to boost liquidity. He also forecast fiscal policy to turn ‘expansionary’ in the second quarter to prevent gross domestic product growth from falling below 7.0 percent.”

DryShips Inc(DRYS:NASDAQ, US)

BuySell

3.33USDDecrease0.15(-4.31%)Volume: 
Above Average
As of 24 Mar 2014 at 12:35 PM EDT.

Quote Details

Open 3.50 P/E Ratio (TTM)
Last Bid/Size 3.33 / 481 EPS (TTM) -0.58
Last Ask/Size 3.34 / 152 Next Earnings
Previous Close 3.48 Beta 2.66
Volume 8,861,932 Last Dividend
Average Volume 9,807,127 Dividend Yield 0.00%
Day High 3.52 Ex-Dividend Date
Day Low 3.25 Shares Outstanding 432.7M
52 Week High 5.00 # of Floating Shares 396.9353M
52 Week Low 1.65 Short Interest as % of Float 2.23%
chart
Diana Shipping Inc(DSX:NYSE, US)

BuySell


12.08USDDecrease0.35(-2.82%)Volume: 
Above Average
As of 24 Mar 2014 at 12:36 PM EDT.




Quote Details

Open 12.48 P/E Ratio (TTM)
Last Bid/Size 12.08 / 9 EPS (TTM) -0.27
Last Ask/Size 12.09 / 7 Next Earnings 19 May 2014
Previous Close 12.43 Beta 1.61
Volume 449,483 Last Dividend
Average Volume 534,741 Dividend Yield 0.00%
Day High 12.51 Ex-Dividend Date
Day Low 11.90 Shares Outstanding 82.8M
52 Week High 13.93 # of Floating Shares 68.14085M
52 Week Low 9.00 Short Interest as % of Float 2.85%

Drybulk shipping rates continue to move higher, led by capesize rates

  • Drybulk shipping rates are up big during past five weeks and rose again overnight.
  • The Baltic Dry Index rose 3.2% overnight and has surged 49% since Feb. 12; the BDI has gained in 24 of the last 26 sessions, led by a 211% rise in capesize rates.
  • Capesize rates climbed 6.9% (or $1,664/day) overnight to $25,659/day, while panamax rates rose $4/day to $9,019/day and supramax rates added 0.4% ($48/day) to $12,598/day.
  •  G20 March 2014 

  • Baltic Dry Index (BDI)    +51   1621  Rates

    BCI

    (Cape index)

    BPI

    (Panamax index)

    BSI

    (Supramax index)
    INDEX

    3129

    +147

    1120

    No change

    1205

    +5

    SPOT 4 TCE AVG (USD)

    25659

    +1664

    9019

    +4

    12598

    +48

    YESTERDAY (USD)

    23995

    9015

    12550

    YEAR AGO (USD)

    5048

    9616 10125

    Related drybulk equities include DRYS,NKPRGNDSXFREEULTR,EGLENMNMMSBLKKEXSBSINOBALTSHIPDCIX.

The main portfolio choices of Jack A. Bass Managed Accounts

Safe Bulkers Inc(SB:NYSE, US)

BuySell

 

9.39USDIncrease0.01(0.11%)Volume:
Below Average
As of 20 Mar 2014 at 12:44 PM EDT.

Quote Details

Open 9.30 P/E Ratio (TTM) 9.0x
Last Bid/Size 9.38 / 4 EPS (TTM) 1.05
Last Ask/Size 9.39 / 1 Next Earnings 12 May 2014
Previous Close 9.38 Beta 1.79
Volume 146,727 Quarterly Dividend 0.0600
Average Volume 828,629 Dividend Yield 2.56%
Day High 9.48 Ex-Dividend Date 6 Mar 2014
Day Low 9.26 Shares Outstanding 83.4M
52 Week High 11.48 # of Floating Shares 35.96139M
52 Week Low 4.59 Short Interest as % of Float 0.73%
chart
DryShips Inc(DRYS:NASDAQ, US)

BuySell
3.56USDDecrease0.025(-0.70%)Volume:
Below Average
As of 20 Mar 2014 at 12:45 PM EDT.

Quote Details

Open 3.58 P/E Ratio (TTM)
Last Bid/Size 3.55 / 262 EPS (TTM) -0.58
Last Ask/Size 3.56 / 94 Next Earnings
Previous Close 3.58 Beta 2.65
Volume 4,063,923 Last Dividend
Average Volume 10,660,836 Dividend Yield 0.00%
Day High 3.60 Ex-Dividend Date
Day Low 3.51 Shares Outstanding 432.7M
52 Week High 5.00 # of Floating Shares 396.9353M
52 Week Low 1.65 Short Interest as % of Float 2.23%
chart
Diana Shipping Inc(DSX:NYSE, US)

BuySell
12.33USDDecrease0.17(-1.36%)Volume:
Below Average
As of 20 Mar 2014 at 12:46 PM EDT.

Quote Details

Open 12.46 P/E Ratio (TTM)
Last Bid/Size 12.33 / 8 EPS (TTM) -0.27
Last Ask/Size 12.34 / 1 Next Earnings 19 May 2014
Previous Close 12.50 Beta 1.61
Volume 189,933 Last Dividend
Average Volume 598,192 Dividend Yield 0.00%
Day High 12.49 Ex-Dividend Date
Day Low 12.28 Shares Outstanding 82.8M
52 Week High 13.93 # of Floating Shares 68.14085M
52 Week Low 9.00 Short Interest as % of Float 2.85%

China’s Cooling Economy Hits Shipping Sector / Copper

The growth  numbers are astounding – for the United states – but for china are said to be a ” cooling’. The result will be a decrease in imports of the goods that need ships to carry iron ore , coal and copper.

The BDI = Baltic Trade index fell  March 2014
Baltic Dry Index (BDI)    -127   1453 Rates

BCI

(Cape index)

BPI

(Panamax index)

BSI

(Supramax index)
INDEX

2600

-445

1102

-2

1159

+10

SPOT 4 TCE AVG (USD)

20472

-4602

8872

-13

12118

+104

YESTERDAY (USD)

25074

8885

12014

YEAR AGO (USD)

4989

9105 9440

 

Spot 4 TC Average = The Average Value of the Four Main Shipping Routes applicable for each of the 3 types of Ships BDI=The Weighted Composite Index of BCI/BPI/BHMI

Wednesday – and that took down recent gains that had stretched back more than a week.

Here is Bloomberg’s story

China Data Show Economy Cooling

By Bloomberg News Mar 13, 2014 12:36 AM PT

Photographer: Tomohiro Ohsumi/Bloomberg

Customers browse clothing inside a store in Wuhan, China.

Customers browse clothing inside a store in Wuhan, China. Close

Close
Open

Photographer: Tomohiro Ohsumi/BloombergCustomers browse clothing inside a store in Wuhan, China.

Related

China’s industrial-output, investment and retail-sales growth cooled more than estimated in January and February, signaling an economic slowdown that makes the government’s 2014 expansion target harder to reach.

Factory production rose 8.6 percent in the two-month period from a year earlier, the National Bureau of Statistics said today in Beijing, the weakest start to a year since 2009. Retail sales advanced 11.8 percent, the slowest pace for the period since 2004, while the 17.9 percent increase in fixed-asset investment was a 13-year low for the months.

Hong Kong stocks fell and copper extended declines following the data, which came two hours after Premier Li Keqiang indicated he was confident the nation would meet what he said was a flexible growth target of “about” 7.5 percent. The slowdown may test the Communist Party’s commitment to give market forces a bigger role in the world’s second-largest economy while confronting overcapacity, debt and pollution.

“This is a very fast deceleration,” said Yao Wei, China economist at Societe Generale SA in Hong Kong, ranked as the most accurate forecaster of China’s gross domestic product by Bloomberg. “This is really beyond the tolerance of the Chinese government. As a result, I think they will cut the required reserve ratio quite soon or do some easing.”

Such a reduction could happen “within a few days” if the government wants to achieve 7.5 percent expansion, Yao said.

Stock Markets

Hong Kong’s Hang Seng Index (SHCOMP) fell 0.7 percent at 3:16 p.m. local time after rising as much as 0.6 percent earlier in the day. The Shanghai Composite Index, which pared gains after the reports, closed 1.1 percent higher.

China combines data for industrial output, retail sales and fixed-asset investment for January and February, citing distortions from the weeklong Lunar New Year holiday, whose timing differs each year.

Factory-production growth compared with the 9.5 percent median projection of analysts surveyed by Bloomberg News and a 9.7 percent advance in December. Retail sales were projected to rise 13.5 percent. They increased 13.6 percent in December.

The median estimate for fixed-asset investment growth was 19.4 percent, after a 2013 full-year pace of 19.6 percent and 21.2 percent in the first two months of last year.

‘Dramatic Slowdown’

“The fairly dramatic slowdown is unusual in Chinese economic history of the last decade” and today’s figures are “shockingly weak,” Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong, said in a note. “It points to a major deceleration of momentum in the beginning of 2014.”

Previously released data for February showed exports unexpectedly plunged by the most since the global financial crisis, producer-price deflation deepened and credit growth trailed estimates.

Data today from the statistics bureau also showed that the value of homes sold fell 5 percent from the same two months a year earlier. That compared with an almost doubling in sales in the first two months of 2013.

China Lodging Group Ltd. (HTHT), a Shanghai-based hotel-chain operator, said its occupancy rate dropped to 90 percent in the fourth quarter from 92.1 percent a year earlier, mainly due to a “soft and still recovering” economy, according to a March 11 statement.

Flexible Target

“Since we say the GDP growth target is about 7.5 percent, ‘about’ means it has a certain degree of flexibility,” Li said at a press briefing in Beijing today after the end of the annual meeting of the National People’s Congress, referring to gross domestic product. “A bit higher or a bit lower, we have a level of tolerance here.”

The government cares more about jobs and ensuring people’s livelihoods rather than the pace of growth, Li said.

Credit Agricole’s Kowalczyk said Li’s highlighting of the “soft nature” of the target “will give him some flexibility to absorb the current slowdown without automatically reaching for stimulus measures as he would have in the past.”

China was able to realize last year’s economic targets without using short-term stimulus measures, Li said today. “Why will we be unable to do so this year?” he asked.

Li said earlier this month that pollution is a major concern, pledging to “declare war” on smog and close coal-fired furnaces. The country will reduce emissions and impose a ceiling on energy consumption, Li said in his work report to the NPC.

Weaker Yuan

The yuan has weakened about 1.4 percent against the dollar this year, while the benchmark money-market rate this week touched the lowest level since March 2013. Yuan trading in Hong Kong’s offshore market trimmed gains to 0.07 percent following today’s data, after rising as much as 0.23 percent earlier.

China’s seven-day repurchase rate rose today, halting a five-day decline, after the central bank stepped up draining of excess cash from the financial system. The rate climbed 28.5 basis points to 2.51 percent as of 2:49 p.m. local time.

“Premier Li will have to allow further policy easing,” said Liu Li-Gang, head of Greater China economics at Australia & New Zealand Banking Group Ltd. in Hong Kong, estimating the data suggest growth about 7 percent. “It is perhaps the time” for the central bank to contemplate cutting interest rates or banks’ reserve requirements, since it’s unclear if China can sustain easier conditions in money markets and a weakening of the exchange rate, Liu said

 

 

Summary of Shipping Sector Outlook

I want to recommend a recent  article that captures not only Dryships but an overview of the outlook for the sector.

Go to Seeking Alpha

Type in DRYS in the symbol search

Article : DryShips’ Balanced Approach Will Help It To Offset Spot Price Volatility

Author Marsha Robe

Date March 7,2014

Extract:

DryShips (DRYS) is feeling the impact of falling dry bulk shipping spot rates. Year to date, the company’s stock price has fallen around 4% due to lower spot prices. However, the situation is going to improve after March, this year because dry bulk commodities’ demand will increase in coming quarters.

Global dry bulk shipping market scenario

2013 was a good year for dry bulk shippers, as dry bulk commodities’ shipment volume increased by 5.4% over 2012. However, in the first quarter of this year, dry bulk commodities’ shipment like iron ore, coal, steel, and grains in volume have dropped by 8.8% over last quarter, which has negatively affected the dry bulk shipping spot rates.

The Baltic and International Maritime Council (BIMCO) forecasted spot rates of different categories of vessels for first quarter of this year. Following is the forecast for three types of vessels that DryShips owns:

Vessel Type Feb/Mar Spot rates per day
Capesize Vessel $4,500 to $10,000
Panamax Vessel $5,000 to $11,000
Supramax Vessel $7,000 to $11,000

However, BIMCO expects that demand drop is due only to seasonal factors, and after the first quarter the market will recover. Overall, fundamentals are good for the dry bulk market, and the demand of various dry bulk commodities are expected to increase in coming quarters, which will push dry bulk shipping spot rates up.

Shipping Sector Update

Sector Returns From the Near Dead

solid returns – Baltic Index Remains on upturn

06 March 2014
Baltic Dry Index (BDI)    +89   1480 Rates

BCI

(Cape index)

BPI

(Panamax index)

BSI

(Supramax index)
INDEX

2830

+234

1056

+3

1122

+6

SPOT 4 TCE AVG (USD)

22295

+3026

8502

+26

11727

+61

YESTERDAY (USD)

19269

8476

11666

YEAR AGO (USD)

4476

8898 8908

 

Spot 4 TC Average = The Average Value of the Four Main Shipping Routes applicable for each of the 3 types of Ships BDI=The Weighted Composite Index of BCI/BPI/BHMI

Sector selections of Jack A. Bass Managed Accounts

Safe Bulkers Inc(SB:NYSE, US)

BuySell

 

10.99USDIncrease0.28(2.61%)Volume:
Above Average
As of 06 Mar 2014 at 10:18 AM EST.

Quote Details

Open 11.07 P/E Ratio (TTM) 10.0x
Last Bid/Size 10.98 / 6 EPS (TTM) 1.08
Last Ask/Size 11.00 / 21 Next Earnings 12 May 2014
Previous Close 10.71 Beta 1.78
Volume 414,170 Quarterly Dividend 0.0600
Average Volume 668,763 Dividend Yield 2.18%
Day High 11.09 Ex-Dividend Date 6 Mar 2014
Day Low 10.85 Shares Outstanding 83.4M
52 Week High 11.25 # of Floating Shares 42.71572M
52 Week Low 4.01 Short Interest as % of Float 0.71%

DryShips Inc(DRYS:NASDAQ, US)

BuySell

Volume in one hour equal to average day

4.12USDDecrease0.02(-0.48%)Volume:
Above Average
As of 06 Mar 2014 at 10:19 AM EST.

 

Quote Details

Open 4.28 P/E Ratio (TTM)
Last Bid/Size 4.12 / 290 EPS (TTM) -0.58
Last Ask/Size 4.13 / 153 Next Earnings
Previous Close 4.14 Beta 2.64
Volume 10,384,746 Last Dividend
Average Volume 10,597,228 Dividend Yield 0.00%
Day High 4.37 Ex-Dividend Date
Day Low 4.08 Shares Outstanding 432.7M
52 Week High 5.00 # of Floating Shares 404.8276M
52 Week Low 1.65 Short Interest as % of Float 2.71%
chart
 Diana Shipping Inc(DSX:NYSE, US)

BuySell
13.52USDDecrease0.03(-0.22%)Volume:
Above Average
As of 06 Mar 2014 at 10:21 AM EST.

Quote Details

Open 13.77 P/E Ratio (TTM)
Last Bid/Size 13.49 / 2 EPS (TTM) -0.27
Last Ask/Size 13.51 / 2 Next Earnings
Previous Close 13.55 Beta 1.60
Volume 318,886 Last Dividend
Average Volume 883,034 Dividend Yield 0.00%
Day High 13.93 Ex-Dividend Date
Day Low 13.40 Shares Outstanding 82.8M
52 Week High 13.93 # of Floating Shares 68.14085M
52 Week Low 8.38 Short Interest as % of Float 3.65%

 

 

 

 

The Shipbuilding Debate – Is 30% Output Cut Enough?

jackbassteam:

Shipbuilding is an extraordinary business. Over a century the epicentre has moved from the UK, which once built 60% of the world’s ships, to Europe, Japan, South Korea and now China. Incumbent yards don’t welcome newcomers who have to fight for market share, usually by offering rock bottom prices. Good for shipowners, but the battle often brings shipyard capacity problems in its wake.

Adjusting

Today’s newcomer, China, built market share much faster than its predecessors. In 2000 China only produced 1.3m CGT (a capacity measure, see graph) of new ships, but by 2010 production had surged to 19.4m CGT, exceeding Korea’s 16.0m CGT. To put this in perspective, Korea launched into shipbuilding in the early 1970s, but took 30 years to overtake Japan in 2003. It helped China that yards were quick to embrace new methods, but the real difference was the market. Korea’s launch ran through the 1980s shipbuilding depression, whereas China launched into a super-boom, with owners queuing up for contracts at fancy prices.

Back to Reality

That’s history and today’s big question is “How much of the 53m CGT peak production capacity does the industry need?”. Shipyards have already cut back from their 2010 peak output by 30% to 37m CGT. This involved reducing the active yards worldwide from around 1,200 to 700 and slowing throughput, so the capacity has probably fallen by about 20%.

It Takes Two to

But the real “driver” of shipyard capacity going forward is the ship investment community. In the shortterm they seem very responsive to earnings. In 2010, when bulker earnings picked up, total orders were placed for 46.9m CGT, enough to fill peak capacity. Then as the market wound down in 2011-12 orders halved to 25m CGT. But when bulker earnings improved again in 2013, total orders doubled to 50m CGT. In 2010-13 orders averaged out at 40m CGT pa, 75% of the peak output.

Positive Signals, Negative Drag

Will today’s reduced capacity be needed going forwards? The usual methodology is to estimate trade growth, calculate the ships needed to carry it, and add demolition. Last year trade grew 350mt, creating demand for about 60m dwt of ships. Meanwhile demolition was 45m dwt, so that’s 105m dwt “demand”. Since 2010 orders have averaged 113m dwt pa, pretty close to the requirement.

Limbo Dancing

So, taking one year with another, ordering trends for new ships are not far out of line with demand. But this leaves the issue of clearing the existing surplus capacity, which could be as much as 25% of the fleet. Until this happens, the shipping markets will be caught in limbo and vulnerable to the next “wobble” in the world economy. Not a life-threatening scenario, but not much fun either.

Tango

 

to the Cycles

 

Originally posted on Clarksons Research:

SIW1111Shipbuilding is an extraordinary business. Over a century the epicentre has moved from the UK, which once built 60% of the world’s ships, to Europe, Japan, South Korea and now China. Incumbent yards don’t welcome newcomers who have to fight for market share, usually by offering rock bottom prices. Good for shipowners, but the battle often brings shipyard capacity problems in its wake.

Adjusting to the Cycles

Today’s newcomer, China, built market share much faster than its predecessors. In 2000 China only produced 1.3m CGT (a capacity measure, see graph) of new ships, but by 2010 production had surged to 19.4m CGT, exceeding Korea’s 16.0m CGT. To put this in perspective, Korea launched into shipbuilding in the early 1970s, but took 30 years to overtake Japan in 2003. It helped China that yards were quick to embrace new methods, but the real difference was the market. Korea’s launch ran through…

View original 315 more words

Shipping Sector Recovery – Fragile

 

The shipping sector is highlighted in my new book  ” Stocks That Will Double ” – now in draft .

New orders threaten fragile shipping sector recovery:

9 hours ago – Reuters
New orders threaten fragile shipping sector recovery: surveyBy Jonathan Saul

LONDON (Reuters) – Overcapacity threatens to derail a fragile recovery in the global shipping sector as ship owners and investors place orders for new vessels betting on better times, a survey showed on Thursday.

Ship owners ordered large numbers of vessels between 2007 and 2009, just as the global economy sank into its biggest crisis since the 1930s.

In recent months, prospects have brightened as the sector absorbs the tonnage as well more positive signs for world trade. Investors including private equity players are eyeing prospects with a wave of new ship ordering taking place.

A survey of the transport sector by international law firm Norton Rose Fulbright found 40 percent of those polled cited overcapacity as the biggest threat to recovery in the industry.

“There is a real disconnect between those in the shipping sector who believe that the purchase of additional assets is the most beneficial investment for their business and those worried about overcapacity,” said Harry Theochari, global head of transport at Norton Rose Fulbright.

“While optimism is growing in the shipping sector, a further imbalance in supply and demand risks throwing the current fragile recovery off course.”

It normally takes three years on average for vessels to be delivered from yards. Data from online ship valuation and maritime intelligence provider VesselsValue.com showed the biggest number of ships were placed on order in various sectors last year since the slump.

In the oil products tanker sector, 233 medium-range (MR) tankers were ordered in 2013 – the biggest spike in orders since 2009. VesselsValue.com data showed 35 MRs were already ordered so far in 2014. The MR live fleet numbers 1,752 vessels at present.

In the dry bulk sector, there were 176 orders in 2013 for capesizes – among the biggest vessels in that segment – the biggest ordering spree since 2009. VesselsValue.com data showed in 2014, 56 capesizes were already on order. The capesize live fleet numbers 1,467 vessels at present.

The annual survey by Norton Rose Fulbright, now in its fifth year, is one of the transport sector’s leading barometers of market conditions, especially for the shipping community.

Shipping was the least optimistic transport sector in the survey, with 69 percent of respondents reporting positivity about market conditions compared with 81 percent in rail and 75 percent in aviation. The availability of funding was also a concern for shipping respondents.

The survey found anxiety in all transport sectors over a lack of suitably qualified people. Skilled personnel in the Middle East region was cited as the biggest challenge for transport businesses.

“The risk of a skills shortage developing in the transport sector has also been highlighted. Ensuring a skilled workforce is in place will be fundamental to the future growth of the transport sector,” Theochari said.

The survey canvassed views from over 850 participants from a range of companies involved in transport including financiers, ship owners and operators, manufacturers, government bodies and professional services firms. Of those polled, 380 were from the aviation sector, 215 from rail and over 260 from shipping.

DryShips Inc(DRYS:NASDAQ, US)

BuySell

3.56USDIncrease0.045(1.28%)Volume:

Average
As of 27 Feb 2014 at 10:52 AM EST.

Quote Details

Open 3.57 P/E Ratio (TTM)
Last Bid/Size 3.55 / 164 EPS (TTM) -0.86
Last Ask/Size 3.56 / 173 Next Earnings
Previous Close 3.51 Beta 2.83
Volume 2,000,903 Last Dividend
Average Volume 8,612,653 Dividend Yield 0.00%
Day High 3.59 Ex-Dividend Date
Day Low 3.53 Shares Outstanding 432.7M
52 Week High 5.00 # of Floating Shares 404.8276M
52 Week Low 1.65 Short Interest as % of Float 2.71%
chart
Safe Bulkers Inc(SB:NYSE, US)

BuySell
10.43USDIncrease0.16(1.56%)Volume:
Above Average
As of 27 Feb 2014 at 10:53 AM EST.

Quote Details

Open 11.10 P/E Ratio (TTM) 9.5x
Last Bid/Size 10.42 / 2 EPS (TTM) 1.08
Last Ask/Size 10.43 / 1 Next Earnings 12 May 2014
Previous Close 10.27 Beta 1.56
Volume 564,885 Quarterly Dividend 0.0600
Average Volume 382,244 Dividend Yield 2.30%
Day High 11.10 Ex-Dividend Date 20 Nov 2013
Day Low 10.20 Shares Outstanding 83.4M
52 Week High 11.25 # of Floating Shares 42.71572M
52 Week Low 3.80 Short Interest as % of Float 0.71%

 

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