Fundamental Prospecting - time for another gold rush? Dr Adam Kent - Maritime Strategies International (MSI) 30th Annual Marine Money Money Week New York City June 19 th to 21 st 2017
Agenda Fundamental Prospecting - time for another gold rush? 1. Mining the Demand Data 2. Supply Overburden 3. Earning Seekers 4. Price Formation 5. Panning for Prospects Gold Bullion or Fools Gold? Maritime Strategies International 2
Fundamental Prospecting Mining the Demand Data Maritime Strategies International
Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Strengthening Product Tanker Market in H2 2017 MR Tanker TC2 NW Europe to United States Index 1.2 Jan Forecast Feb Forecast Mar Forecast 1.0 Apr Forecast May Forecast Actual 0.8 0.6 0.4 Model based on trade, refining and pricing signals 0.2 0.0 Based on MSI and WoodMac Forecasting Model Maritime Strategies International 4
Incremental Product Imports Improving macro position High stocks IMO bunker regulation Maritime Strategies International 5
Bulker Incremental Cargo Growth Limited new iron ore capacity, coal squeezed Steel production increases Maritime Strategies International 6
Coal - Major Demand Risks & Rewards China Coal Imports Risks dependent on: Price Domestic production Policy Environmental regulation Energy efficiency India Coal Imports Maritime Strategies International 7
Eur-Afr Eur-LAM Eur-ME/ISC FE-Afr FE-Eur FE-LAM FE-ME/ISC FE-Oceania intra-asia intra-europe intra-lam intra-me/isc intra-nam NAM-LAM NAM-Oceania Pendulum South-South Transatlantic Transpacific k TEU Jun-16 Jun-17 800 Container Panamax Plight 700 600 Cascade coming back into play 500 400 300 200 100 0 Maritime Strategies International 8
Intra Asia Deployment 40% Share of total intra-asia 35% 30% Trade Deployment 25% 20% 15% 10% 5% 0% intra-se Asia SE Asia- China China Domestic SE Asia Cabotage NE Asia- China NE Asia-SE Asia Other NE Asia Cabotage intra-ne Asia Maritime Strategies International 9
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Vessel Demand on Intra Asia 3.0 2.5 2.0 Mn TEU Deployed SE Asia-China SE Asia Cabotage Other NE Asia Cabotage NE Asia-SE Asia NE Asia-China intra-se Asia intra-ne Asia 1.5 1.0 0.5 0.0 Maritime Strategies International 10
Organic Chemical Growth 2017-21 Imbalance will drive trade Maritime Strategies International 11
Seaborne Cargo Growth - Positive Cargo growth positive across the board Maritime Strategies International
Fundamental Prospecting Supply Overburden Maritime Strategies International
Supply has been the Party Pooper Supply Supply Supply Supply Maritime Strategies International 14
Oil Tanker Bulker Chemical LPG LNG FCC General Cargo RoRo/RoPax Cruise ship PCTC Orderbook Improving Picture for most % of Fleet 45% 40% 35% 30% 25% 20% 15% 10% 5% Orderbook dwindling across main sectors mid-2015 mid-2017 0% Maritime Strategies International 15
Oil Tanker Bulker Chemical LPG LNG FCC General Cargo RoRo/RoPax Cruise ship PCTC Orderbook Replacement Tonnage 40 Mn GT 20+ Year Old Orderbook Old as % of Orderbook % of Old Fleet 300% 35 250% 30 200% 25 150% 20 Replacement requirement 100% 15 50% 10 0% 5-50% 0-100% Maritime Strategies International 16
Success is in their Hands? Old Tonnage by CoD Oil Tankers Bulkers Containerships Gas Carriers Maritime Strategies International 17
2015-Q1 2015-Q2 2015-Q3 2015-Q4 2016-Q1 2016-Q2 2016-Q3 2016-Q4 2017-Q1 2017-Q2 Contracting Depression Mn GT 25 Cruise PCTC RoRo MPP Container Gas Bulkers Tankers 20 15 10 5 0 Maritime Strategies International 18
Tanker Bulker Container Supply Side Developments Annual Average Fleet Growth 2017-20: +2.4% +0.6% +2.6% Includes MSI s current assumptions on scrapping, contracting, slippage and cancellations Maritime Strategies International
Fundamental Prospecting Earnings Expectations Maritime Strategies International
Crude and Product Tanker OSVs LPG Carrier Rigs LNG MPP Container Chemical Tanker PCTC Bulker RoRo Where on the Earnings Cycle Are We? Maritime Strategies International
At Todays Prices it makes Sense for Some Based on 60% financing of a 5 Year Old Maritime Strategies International
Earnings Outlook - Generally Positive Maritime Strategies International 23
Fundamental Prospecting Price Formation Maritime Strategies International
The Complete Pricing Jigsaw Maritime Strategies International 25
Shipyard Cover is Still Weak +1 Year Out South Korea China Japan Other Maritime Strategies International 26
Chinese Shipyard White List No Guarantee Privately Owned State Backed Only 30 white list Chinese yards have taken orders in the last year Maritime Strategies International 27
Elapsed Days Between Contract & Delivery Maritime Strategies International 28
2012 2013 2014 2015 2016 2017 2018 2019 2020 Newbuilding Prices are Close to Bedrock % of Fleet 20% 15% Costs YoY Change Price YoY Change Yard Forward Cover (RHA) Years 3.0 2.5 10% 2.0 5% 1.5 0% -5% 1.0-10% 0.5-15% 0.0 Maritime Strategies International 29
Secondhand Prices Development 10 Year old Prices Maritime Strategies International 30
Fundamental Prospecting Panning for Prospects Maritime Strategies International
MSI - FMV MSI Forecast Marine evaluator (FMV) is the first web-based tool to provide forecast and historical price data covering virtually all of the deepsea shipping fleet. Data includes forecasts of newbuilding, second-hand prices, 1 year timecharter rates and operating costs for specific vessels. MSI FMV draws on MSI s proven, proprietary models and a consistent cross-sectional view across all principal shipping sectors. It puts asset values in the context of the near term market to enable reliable benchmarking with outputs based on annual averages. Coverage: Crude Oil Tanker Chemical Tanker Multi Purpose Product Oil Tanker LPG Carrier Containership Dry Bulk Carrier LNG Carrier PCC/PCTC AHTS /fmv PSV Maritime Strategies International 32
Where are the Biggest Nuggets? Maritime Strategies International 33
IRR Returns 5 Year Old Year of divestment Maritime Strategies International 34
MSI s ABS Shadow Rating Model Descriptive Statistics MSI Approach Traditional Shipping Expected softening of the markets increases likelihood of default Earnings forecasts (Cycles accommodated) Conditional (time varying) volatility Yes No Opex and scrap value forecasts (model derived) Yes Yes No Yes Ability to stress the forecasts with endogenous and exogenous scenarios Yes Only Proxy Based Stable calibration procedures Yes No Copula based dependency Yes No Model based Enforcement delays Yes No Increased likelihood of default Costs estimates for enforcements Model based (time varying) recovery estimates Yes Only anecdotal experience Risk based pricing tool for asset values Yes No Yes No Accommodate credit enhancements (cash cushions, dividend playouts etc.) Yes Subjective or experience based Sensitivity to input parameters Yes No Levered IRR's should be treated with caution due to a concentration of risk (PD) in a cyclical trough Maritime Strategies International Ltd. 35 The model is similar to those applied by rating agencies, but with enhanced data, econometrics and inputs. The model incorporates volatility wrapped around cyclical trends, enforcement and recovery scenarios and targeted optimisation of loan structure. The model provides a detailed view on the point-in-time, PD, LGD and EL and is used by banks towards IFRS9 compliance. Primary and secondary debt portfolios are also typically shadow rated using our models
Maritime Strategies International 36
MSI Background For over 30 years, MSI has developed integrated relationships with a diverse client base of financial institutions, ship owners, shipyards, brokers, investors, insurers and equipment and service providers. MSI s expertise covers a broad range of shipping sectors, providing clients with a combination of sector reports, forecasting models, vessel valuations and bespoke consultancy services. MSI is staffed by economists and scientists offering a structured quantitative perspective to shipping analysis combined with a wide range of industry experience. MSI balances analytical power with service flexibility, offering a comprehensive support structure and a sound foundation on which to build investment strategies and monitor/assess exposure to market risks. Maritime Strategies International 37
Disclaimer While this document has been prepared, and is presented, in good faith, Maritime Strategies International assumes no responsibility for errors of fact, opinion or market changes, and cannot be held responsible for any losses incurred or action arising as a result of information contained in this document. The copyright and other intellectual property rights in data, information or advice contained in this document are and will at all times remain the property of Maritime Strategies International. Maritime Strategies International 38
Maritime Strategies International Ltd 6 Baden Place Crosby Row London SE1 1YW United Kingdom Tel: +44 (0)207 940 0070 Fax: +44 (0)207 940 0071 Email: info@msiltd.com