Fundamental Prospecting - time for another gold rush? 3 1425... · Fundamental Prospecting - time for another gold rush? Dr Adam Kent - Maritime Strategies International (MSI) 30

Fundamental Prospecting - time for another gold rush? Dr Adam Kent - Maritime Strategies International (MSI) 30th Annual Marine Money Money Week – New York City June 19th to 21st 2017

© Maritime Strategies International www.msiltd.com 2

Fundamental Prospecting - time for another gold rush?

Agenda

1. Mining the Demand Data 2. Supply Overburden 3. Earning Seekers 4. Price Formation 6. Panning for Prospects

Gold Bullion or Fools Gold?

Mining the Demand Data

Fundamental Prospecting

© Maritime Strategies International www.msiltd.com

Strengthening Product Tanker Market in H2 2017


0.0

0.2

0.4

0.6

0.8

1.0

1.2Ja

n-16

Feb-

16

Mar

-16

Apr

-16

May

-16

Jun-

16

Jul-1

6

Aug

-16

Sep-

16

Oct

-16

Nov

-16

Dec

-16

Jan-

17

Feb-

17

Mar

-17

Apr

-17

May

-17

Jun-

17

Jul-1

7

Aug

-17

Sep-

17

Oct

-17

Nov

-17

Dec

-17

Index

Jan ForecastFeb ForecastMar ForecastApr ForecastMay ForecastActual

Based on MSI and WoodMac Forecasting Model

MR Tanker TC2 – NW Europe to United States

Model based on trade, refining and pricing signals

Incremental Product Imports


High stocks

Improving macro position

IMO bunker regulation

Bulker – Incremental Cargo Growth


Steel production increases

Limited new iron ore capacity, coal squeezed

Coal - Major Demand Risks & Rewards


China Coal Imports

India Coal Imports

Risks dependent on: • Price • Domestic production • Policy • Environmental regulation • Energy efficiency

Container Panamax Plight


0

100

200

300

400

500

600

700

800Eu

r-A

fr

Eur-

LAM

Eur-

ME/

ISC

FE-A

fr

FE-E

ur

FE-L

AM

FE-M

E/IS

C

FE-O

cean

ia

intr

a-A

sia

intr

a-Eu

rope

intr

a-LA

M

intr

a-M

E/IS

C

intr

a-N

AM

NA

M-L

AM

NA

M-O

cean

ia

Pend

ulum

Sout

h-So

uth

Tran

satla

ntic

Tran

spac

ific

k TEU Jun-16 Jun-17

Cascade coming back into play

Intra Asia Deployment


0%

5%

10%

15%

20%

25%

30%

35%

40%

intra-SEAsia

SE Asia-China

ChinaDomestic

SE AsiaCabotage

NE Asia-China

NE Asia-SEAsia

Other NEAsia

Cabotage

intra-NEAsia

Share of totalintra-Asia

Trade

Deployment

Vessel Demand on Intra Asia


0.0

0.5

1.0

1.5

2.0

2.5

3.020

11

2012

2013

2014

2015

2016

2017

2018

2019

2020

Mn TEU Deployed

SE Asia-ChinaSE Asia CabotageOther NE Asia CabotageNE Asia-SE AsiaNE Asia-Chinaintra-SE Asiaintra-NE Asia

Organic Chemical Growth 2017-21


Imbalance will drive trade


Seaborne Cargo Growth - Positive

Cargo growth positive across the board

Supply Overburden



Supply has been the ‘Party Pooper’


Supply

Supply

Supply

Supply

Orderbook Improving Picture – for most


0%

5%

10%

15%

20%

25%

30%

35%

40%

45%O

il Ta

nker

Bul

ker

Che

mic

al

LPG

LNG

FCC

Gen

eral

Car

go

RoR

o/R

oPax

Cru

ise

ship

PCTC

% of Fleet

mid-2015 mid-2017

Orderbook dwindling across main sectors

Orderbook Replacement Tonnage


-100%

-50%

0%

50%

100%

150%

200%

250%

300%

0

5

10

15

20

25

30

35

40O

il Ta

nker

Bul

ker

Che

mic

al

LPG

LNG

FCC

Gen

eral

Car

go

RoR

o/R

oPax

Cru

ise

ship

PCTC

% of Old Fleet Mn GT 20+ Year Old Orderbook Old as % of Orderbook

Replacement requirement

Success is in their Hands? – Old Tonnage by CoD


Oil Tankers Bulkers

Containerships Gas Carriers


0

5

10

15

20

2520

15-Q

1

2015

-Q2

2015

-Q3

2015

-Q4

2016

-Q1

2016

-Q2

2016

-Q3

2016

-Q4

2017

-Q1

2017

-Q2

Mn GT Cruise PCTC RoRo MPP Container Gas Bulkers Tankers

Contracting Depression


Supply Side Developments Ta

nker

Bulk

er

Con

tain

er

Annual Average Fleet Growth 2017-20:

+2.4% +0.6%

+2.6%

Includes MSI’s current assumptions on scrapping, contracting, slippage and cancellations

Earnings Expectations



Where on the Earnings Cycle Are We?


Cru

de a

nd P

rodu

ct T

anke

r

LPG

Car

rier

OSV

s

PCTC

Bu

lker

LNG

M

PP

Con

tain

er

Che

mic

al T

anke

r

RoR

o

Rig

s


Based on 60% financing of a 5 Year Old

At Todays Prices it makes Sense for Some


Earnings Outlook - Generally Positive

Price Formation



The Complete Pricing Jigsaw


Shipyard Cover is Still Weak +1 Year Out


South Korea China

Japan Other


Chinese Shipyard White List No Guarantee

Privately Owned State Backed

Only 30 white list Chinese yards have taken orders in the last year

Elapsed Days Between Contract & Delivery


Newbuilding Prices are Close to Bedrock


0.0

0.5

1.0

1.5

2.0

2.5

3.0

-15%

-10%

-5%

0%

5%

10%

15%

20%20

12

2013

2014

2015

2016

2017

2018

2019

2020

Years % of Fleet

Costs YoY ChangePrice YoY ChangeYard Forward Cover (RHA)


Secondhand Prices Development 10 Year old Prices



Panning for Prospects

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

Product Oil Tanker

Dry Bulk Carrier

Chemical Tanker

LPG Carrier

LNG Carrier

Multi Purpose

Containership

PCC/PCTC

www.msiltd.com/fmv AHTS PSV

http://www.msiltd.com/fmv

Where are the Biggest Nuggets?



Year of divestment

IRR Returns – 5 Year Old

MSI’s ABS Shadow Rating Model

35 © Maritime Strategies International Ltd. www.msiltd.com

Descriptive Statistics MSI Approach Traditional

Shipping

Earnings forecasts (Cycles accommodated) Yes No

Conditional (time varying) volatility Yes No

Opex and scrap value forecasts (model derived) Yes 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

Costs estimates for enforcements Yes Only anecdotal experience

Model based (time varying) recovery estimates Yes No

Risk based pricing tool for asset values Yes No

Accommodate credit enhancements (cash cushions, dividend playouts etc.) Yes Subjective or

experience based

Sensitivity to input parameters Yes No

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

Increased likelihood of default

Expected “softening” of the markets increases likelihood of default

Levered IRR's should be treated with caution due to a concentration of risk (PD) in a cyclical trough


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.

MSI Background


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.

Disclaimer


6 Baden Place Crosby Row

London SE1 1YW United Kingdom

Tel: +44 (0)207 940 0070 Fax: +44 (0)207 940 0071

Email: [email protected]

www.msiltd.com

Maritime Strategies International Ltd

Documents

Fundamental Prospecting - time for another gold rush? 3 1425... · Fundamental Prospecting - time for another gold rush? Dr Adam Kent - Maritime Strategies International (MSI) 30