South Korean container carriers have joined forces to form a cooperation body named Korea Shipping Partnership aimed at strengthening the country’s shipping industry.
The move comes amid overall stagnation of the South Korean shipping market which has had its reputation marred following the collapse of Hanjin Shipping.
The 14 national carriers, including Hyundai Merchant Marine (HMM) and SM Line, launched a cooperation council in order to overcome the crisis jointly and seek new business opportunities in the market.
Among the measures being sought are route rationalization, the opening of new joint routes, fleet expansion cooperation, partnerships on joint services at international terminals along with consultation on the reduction of operating costs all with the objective of boosting the competitiveness of the nation’s container carrier sector.
As informed by the Korea Shipowners’ Association, the consortium plans to form operational rules by the end of the year and start operations as of next year.
The dry bulk market’s recovery looks to be sustainable this time around, as the market is looking set to break from the usual trading patterns once more. Additionally, demand is much more solid and more than enough to compensate for the new vessels added to the fleet. In a recent weekly report, shipbroker Allied Shipbroking noted that “we have seen a fair amount of strength in the dry bulk freight market during the months of June and July take place although the overall Baltic Dry Index has still kept below the psychological level of 1,000 points. Despite the fact that the summer season has been traditionally seen as a point of softening in the market (a big exception was 2015 where we noted one of the most impressive market rallies during a summer period), as demand typical subsides during this three-month period. This year seems to also be breaking out of typical patterns with China’s great appetite helping to drive the market even during low seasonal points”.
According to George Lazaridis, Head of Market Research & Asset Valuations with Allied, “amid numerous environmental inspections that are currently undertaken in China’s mines, processing plants and mills, disruptions in operations have helped generate a surge in imports and have brought back a bullish view amongst most with regards to the iron ore, steel and coal trades. In the midst of this we have seen China’s iron ore futures surge by nearly 8% today, hitting their trade limit-up and their best daily performance since November 2016. With Steel mills in the region continually showing increased activity, they now hold an insatiable appetite for raw materials, driving demand for imports of both iron ore and coking coal” he said.
Lazaridis added that “on this basis, we have also seen most commodity analysts make upward revisions on their near-term expectations for iron ore and coal prices, while the majority still hold doubts as to how the market will move after that point. What drives the point home is the fact that during the same period we have seen a activity in China’s construction sector climb to the highest level it’s been in more than three and a half years, while the Purchasing Manager’s Index (PMI) for the steel sector has risen to 54.9 in July (anything above 50 represents a growth) the fastest pace it has shown since April 2016. Through this rally we have seen activity rise on routes that are typically not related to this trade, with the U.S. noting its biggest jump in coal exports as the upward drive in prices has allowed U.S. supplies to compete in Asia. Given that U.S. sourced coal is largely price dependent, it plays more of the role of a swinger supplier, while at the same time its typical direction is towards India rather than the world’s largest importer, namely China. This has explained the increased activity and rise in freight rates that we have seen from the U.S. these past couple of weeks”.
“Given that during the first 6 months we have seen a growth in the dry bulk fleet of 1.68% while more particularly the Capesize and Panamax fleets have risen by 2.1% and 1.58% respectively, the growth in demand has been more than ample to cover the new vessels entering active service, while given that the rate of growth in the fleet should slowdown during the latter half of the year and with most viewing a further strengthening in Chinese steel and iron ore demand from infrastructure and real estate and the complementing of this by solid growth in global activity ex-China, the fundamentals look ripe for very good performance to take place during the second half of the year and more particularly during the final quarter which is also usually a seasonal high point in the year. Despite all these positive points, it seems to be a very difficult case to manage to break and hold above the 1,000-point mark on the BDI during the next month. Though managing to keep at fairly good levels for this time of the year will in theory help feed a stronger rally come end September early October”, Allied’s analyst concluded.
South Korea’s Hyundai Heavy Industries Group is on solid recovery path as its faithful compliance with self-prescribed restructuring program coupled with revived overseas demand improved both its bottom line and balance sheet.
The country’s top shipbuilding conglomerate that accumulated losses of near 5 trillion won ($4.4 billion) in 2014 and 2015 turned out a profit for the last six consecutive quarters. Its balance sheet showed more dramatic turnaround as it shed non-core assets as planned.
The preliminary earnings released on Tuesday showed the company’s operating profit down 7.2 percent on quarter and 13.7 percent on year at 151.7 billion won, while sales fell 3.7 percent on quarter and 23.8 percent on year to 4.63 trillion won on a consolidated basis as it has become separate from three other non-shipbuilding entities through a demerger.
It is expected to outperform its fund-raising plan for this year, expecting to raise over 3.5 trillion won once it sells off stake in HI Investment & Securities Co. in addition to its sales of interests in Hotel Hyundai earlier this year.
Through the stake sales and deleveraging efforts, its debt-to-asset ratio was brought down to 94 percent by the end of June from 134 percent six months ago.
Shares of Hyundai Heavy Industries finished Thursday at 178,000 won, up 500 won or 0.28 percent from the previous session.
The shipbuilder has been recovering at a faster pace than other shipyard majors. The three dockyards under the group – Hyundai Heavy Industries Co., Hyundai Samho Heavy Industries Co., and Hyundai Mipo Dockyard Co. – won a combined 81 orders valued at $4.5 billion in the first half of this year, outdoing its record of 81 shipbuilding orders worth $5.9 billion in full 2016
Industry watchers predict new orders at the Hyundai Heavy Industries Group’s three shipbuilders would double last year’s value at around $12.0 billion by the end of this year.
The pipeline is more than enough to keep the shipyards busy next year and beyond, and the backlog will pick up in 2018 and sales in 2019, said Hwang Uh-yeon, an analyst at Shinhan Investment Corp.
Hyundai Heavy Industries Chairman Choi Gil-sun in group business meeting with President Moon Jae-in last week said the Gunsan Dockyard, idle since early this year due to lack of work, will be able to be reactivated in 2019.
Hyundai Heavy Industries is hopeful of delivering additional mega-size orders within the next two weeks.
Yeo Yong-hwa, vice president at Hyundai Heavy Industries, in a conference call following the release of second-quarter earnings on Tuesday said the shipbuilder is waiting for a final decision on an order for a fleet of 20,000-TEU class containerships from a European client. The order reportedly has an option to deliver up to nine vessels.
The industry needs to redouble its commitment to comply with and enforce the IMO Marpol VI Regulations despite prevailing economic challenges, according to SEA\LNG, the multi-sector industry coalition promoting adoption of liquefied natural gas (LNG) as a marine fuel.
In that context, the coalition has called upon the Port State Authorities to play their part to ensure even handed and consistent enforcement of the IMO regulations.
“Now is the time for all IMO members to understand the importance of this regulation and ensure that it is implemented and enforced as envisioned,” the coalition said.
Touching upon the challenging economic environment amid stringent and increasing environmental regulations, shipowners face a complex investment decision matrix of risks when considering how to comply with the global sulfur cap of 0.5% from 2020, the organization further noted. Hence, they must make decisions that remain viable into the future and make choices between a limited number of options; LNG, scrubbers, or low sulfur fuels.
“All parties, especially the Port State Authorities must play their part. Effective and consistent enforcement, across all jurisdictions of the IMO emissions regulations, will be essential to ensure more environmentally friendly shipping and a level playing field for all shipping companies. Flag states and port authorities have a clear and key responsibility in ensuring compliance.
“If we do not collectively commit to compliance and enforcement, then we will continue to miss a tangible and viable opportunity to eradicate harmful emissions such as Sulphur Oxide (SOx), Nitrogen Oxide (NOx), and Particulate Matter (PM). This seems unacceptable given the opportunity we have readily at hand,” SEA\LNG Chairman Peter Keller commented.
SEA\LNG added that in addressing the primary concerns of cost and compliance, LNG as a marine fuel provides a means of negating current and potential future local emissions challenges, and is a step in the right direction towards reducing greenhouse gas (GHG) emissions from maritime transport.
“LNG far exceeds alternative options in terms of emissions reductions. It emits zero sulfur oxides (SOx) and virtually zero particulate matter (PM). Compared to existing heavy marine fuel oils, LNG emits 90% less nitrogen oxides (NOx) and through the use of best current practices and appropriate technologies to minimize methane leakage, offers the potential for up to a 25% reduction in GHGs. Advancements in dual fuel technology and propulsion, enhanced control systems, and future use of gas turbine technologies present further opportunity for increased GHG reductions,” Keller added.
As explained, the energy transition is moving in a clear direction, as the vast majority of the world’s top ten bunkering ports offer LNG bunkering or have firm plans to do so by 2020. By the end of 2017, six LNG bunker vessels will be in operation – expanded from one at the start of the year.
These vessels are described as the key to scaling-up demand for LNG as a marine fuel and delivering fuel in a way that is “normal” for shipowners. Added to which, new bunkering hubs are developing which will leverage existing bulk LNG infrastructure.
Keller concluded that existing barriers and limitations can be overcome by joining forces across the board.
“We do, however, require a greater sense of urgency and commitment.”
SEA\LNG’s membership, which spans the LNG value chain, stands at 28 organisations.
It seems that there are still deals to be made in the newbuilding contracting market, as several ship owners are looking to commit to new vessels. In its latest weekly report, shipbroker Allied Shipbroking noted that “despite being well into the summer period which notes a typical slow down in new ordering and despite the fact that we had seen a fair softening in activity over the past couple of weeks, things seemed to have sparked back into life this past week, with a fair amount of deals emerging. A number seemed to be still on the LOI stage though it is clear that in their majority potential buyers are seeking to secure any TIER II slots looking to take advantage of the lower price being offered against what is being offered for the newer TIER III designs. Beyond this, it has become ever more clear that appetite has re-emerged amongst owners, though hopefully it is still under a fair amount of conservatism and the volume of new orders that will amount in total during the remainder of 2017 will still be limited in number compared to what we had seen in previous years. The demand/supply balance in the freight market is still relatively fragile and it is vital that the future orderbook does not become once again an overshadowing burden for the market”.
In a separate newbuilding note, Clarkson Platou Hellas this week said that “there is one tanker order to report this week, with Torm signing a contract for four firm plus four optional 50,000 DWT MR Tankers with CSSC Offshore Marine (GSI). It is understood that the deliveries for the four firm units will be within 2019. In Dry, Jiangsu New YZJ have received an order for three firm plus three optional 180,000 DWT Capesize Bulk Carriers with a JV between Cargill and Mitsui, Great Wave Navigation. Delivery of the firm vessels is similarly due in 2019”, the shipbroker noted.
Meanwhile, in the S&P market, Allied said that “on the dry bulk side, activity was on the rise this week, showing a complete turn around in market conditions, with buying interest once again on the rise. Prices have yet to reflect this with most sales still remaining fairly in line with similar transactions that we have been seeing. On the tanker side, limited activity to be seen, with only a handful of MR tankers changing hands this week. With a notable amount of difficulties still being noted in the freight market and uncertainty as to the future prospects currently prevailing amongst owners and potential buyers, it seems as though most have put things on hold for now”.
VesselsValue, a ship valuations’ expert noted that “tanker values have remained stable this week. Suezmax vessels Gener8 Horn (159,500 DWT, Jun 1999, Daewoo) and Gener8 Phoenix (153,000 DWT, Aug 1999, Halla) were sold en bloc for USD 20.4 mil vs VV USD 20.4 mil keeping values stable. The MR2 Tamarin (51,000 DWT, Nov 2008, SPP) sold for USD 17 mil vs VV USD 18.2 mil which has softened mid age MR tonnage”.
In the dry bulk market, VV added that “bulkers values have firmed this week. The Capesize Blue Island (152,400 DWT, May 2000, Koyo Dock) sold for USD 8.2 mil vs VV USD 6.0 mil. The Panamax Atlantic Prime (82,200 DWT, Sept 2011, Tsuneishi Zosen) sold for USD 19 mil vs VV 18.5 mil, firming values. In older tonnage the CSE Harmony Express (76,700 DWT, Nov 2002, Imabari) sold for USD 9.0 mil, VV value USD 8.15 mil. The Supramax Christine B (58,100 DWT, Dec 2009, Tsuneishi Zhoushan) sold for USD 13.8 mil, VV value USD 12.32 mil. Firming values for mid age tonnage. Handy values have remained stable this week. The Ephesus III (31,800 DWT, Oct 2004, Hakodate Dock) sold to Manta Shipping Transport for USD 6.75 mil, VV value USD 5.83 million”, VV concluded.
Three new members, Mitsui & Co., Ltd., Novatek Gas & Power, and Sumitomo Corporation, have joined the multi-sector industry coalition SEA\LNG committed to accelerating adoption of LNG as a marine fuel.
The three companies join a growing list of global members working towards breaking down the commercial barriers to the adoption of LNG as a clean and economically viable alternative to traditional bunker fuels.
“Each of the global organisations brings with them a wealth of knowledge and experience that will be invaluable to SEA\LNG as we work to realise our goal of making LNG an important maritime fuel,” Peter Keller, SEA\LNG chairman and executive vice president, Tote, said.
“Our aim since inception was to form a coalition that unites key players from across the entire LNG value chain, and the addition of our three new members further strengthens our organisation,” Keller added.
“As the IMO’s global sulphur cap approaches in 2020, we continue to continuously advocate for cleaner energy, including the promotion of LNG as a marine fuel. We look forward to leveraging our company’s position to work with our fellow members towards promoting sustainable LNG bunkering operations,” Kenichiro Yamaguchi, General Manager of Gas Business Development Division at Mitsui & Co., Ltd., said.
This announcement continues the steady stream of new members to join SEA\LNG, following the recent addition of Yokohama-Kawasaki International Port Corporation (YKIP), Marubeni Corporation, Toyota Tsusho Petroleum, JAX LNG, and Petronet LNG.
Earlier in March, SEA\LNG, which currently has 28 members, signed a memorandum of understanding (MoU) with the Society for Gas as Marine Fuel (SGMF), creating a framework for how the two complementary organisations will work together to achieve their common goal of making LNG the fuel of choice for the shipping industry.
Drewry expects that dry bulk shipping charter rates will continue to recover with firm demand and controlled fleet growth, according to the latest edition of the Dry Bulk Forecaster, published by global shipping consultancy Drewry.
Drewry has revised its charter rates forecast in the short term as the date to implement ballast water management systems (BWMS) has been postponed by two years, bringing down the forecast for demolitions that will eventually support fleet growth. Despite the increased fleet supply, charter rates will strengthen because demand will grow faster. The recovery in rates will become more prominent in 2019 and 2020, when the IMO regulations will be implemented.
Tonne mile demand will grow at a healthy pace of around 3% annually over the next five years while fleet supply is expected to expand at a rate of just 1% a year over the same period. The slowdown in fleet growth can be credited to low deliveries because of a thin orderbook and high demolitions resulting from the upcoming environmental regulations.
Demand will improve with the strengthening of iron ore, coal, grain and minor bulk trades. The rise in infrastructure activities in China will support imports of iron ore and other minor bulk commodities.
Among the major events that will decide the future of the dry bulk market, India’s re-emergence as a significant iron ore exporter stands at the forefront. Indian iron ore exports are making a silent comeback from a mere 4 million tonnes in 2015 to more than 20 million tonnes in 2016 and expected to be more than 30 million tonnes this year.
“We believe India’s return to the seaborne iron ore market will have wide implications for the dry bulk trade in the coming quarters. Iron ore exports from India to China that resumed at a fast pace, could reclaim a part of their lost share from Brazil and Australia,” commented Rahul Sharan, Drewry’s lead analyst for dry bulk shipping.
Drewry believes increased iron ore exports from India will provide additional employment opportunities to Supramax and Panamax fleets, and marginally to the Capesize fleet. “Many Indian ports have been dredged further to accommodate Capesizes, but a large part of the ore will still be carried on smaller vessels, providing employment and higher utilisation to smaller segments,” added Sharan.
In its analysis of the product tanker market, the shipowner said that during the second quarter of the year, “product tanker spot rates remained on average close to historically low levels during the second quarter of 2017. On the supply side, increased tonnage availability continued to apply downward pressure on rates, with year on year product tanker fleet growth estimated at 5.2% as of the end of the second quarter. The pressure on rates was further exacerbated by limited arbitrage opportunities, as OECD oil product inventories remained close to historically high levels. In the West, the market was supported by solid exports from the U.S., which reached seasonally new record levels, on the back of increased U.S. refinery throughput and increased demand from Latin America. Nevertheless, this was insufficient to reduce the supply-demand imbalance in the market. In the East, refinery maintenance in the first part of the quarter and decreased Chinese products exports had a negative impact on chartering activity. The market modestly recovered in June on the back of a rebound in Chinese exports and as refineries returned from maintenance, but rates remained overall at subdued levels on most trading routes. In the period market, rates for Medium Range (“MR”) product tankers have seen a modest improvement compared to the previous quarter with the bulk of fixtures currently being short-term, as owners remain reluctant to fix longer period”, Capital Product Partners said.
Meanwhile, on the supply side, despite somewhat increased activity in terms of new orders for product tankers, the MR product tanker orderbook currently stands at 7.1%, the lowest level on record. In addition, product tanker deliveries continued to experience significant slippage during the first half of 2017, as approximately 32% of the expected MR and handy size tanker newbuildings were not delivered on schedule. Analysts estimate that net fleet growth for MR product tankers will amount to 3.0% in 2017, below the 2016 growth rate of 4.9%. On the demand side, analysts expect overall product tanker demand growth of 2.4% in 2017, largely supported by growth in imports into Latin America and Asia and continued growth in U.S. exports”.
In the Suezmax market, Capital Product Partners noted that “Suezmax spot earnings softened in the second quarter of 2017 compared to the preceding quarter. The existing agreement between a joint committee of OPEC and Non-OPEC oil producers to cut oil production continued to limit demand for Suezmaxes, while activity further waned in June as we entered the traditionally weak summer season. In addition, increased Suezmax newbuilding deliveries combined with weak rates across other crude tanker segments added pressure on the market. On the positive side, Chinese crude imports remained at firm levels. The soft spot market had a negative impact on period activity as well as period charter rates, which declined when compared to the previous quarter”.
Similarly, the shipowner said that “on the supply side, the Suezmax orderbook represented, at the end of the second quarter of 2017, approximately 13.1% of the current fleet. Contracting activity continues to be limited, as 14 Suezmax tankers have been ordered since the start of the year. Analysts estimate that slippage for the first half of 2017 amounted to 31% of the expected deliveries. In terms of demand, Suezmax tonne/miles are expected to be supported by rising long-haul exports from the U.S. and growing crude import demand in India. Overall demand for the sector is projected to expand by 5.3% in 2017”, the ship owner concluded.
Spot rates in the Asia to Middle East market are seeing the most traction as container shipments on the route improved by 1.6% year-on-year in May, according to shipping consultancy Drewry.
Although volumes registered in the first five months of 2017 were down by 2.6% to 1.3 million TEU, freight rates were on the up as westbound shipments improve from Asia to the Middle East and in particular to South Asia. Drewry said that prices in both lanes “should at the very least hold firm over the coming months.”
Despite the lacklustre start to the year, annual trade growth could rebound back in 2017, by potentially as much as 3%.
The Asia to South Asia market continues to expand. The latest Container Trades Statistics (CTS) data puts westbound volumes up by 6.4% after five months, following a massive 16% jump in May. It is very possible that demand could rise by as much as 7% this year to surpass the 2016 growth rate of 4.9%.
“There will inevitably be some seasonal drop-off in cargoes in the third quarter in comparison to the second quarter but, with both Ocean and THE now including Asia to Middle East in their vessel-sharing agreements, an opportunity exists for a more co-ordinated approach to balance trade-level supply with demand,” Drewry said.
“Spot rates on the Asia to Middle East trade have been somewhat erratic with large monthly gains quickly snuffed out.”
That was the case in May when Shanghai to Jebel Ali 40ft spot rates shed USD 600 to wipe out most of April’s hike. Spot rates on the same corridor then spiked again in June to reach USD 1,920/40ft. Ignoring the volatility, rates have trended upwards for a year and June’s benchmark was double that of the same month last year.
Freight rates on the Asia to South Asia tradelane are also trending upwards, although they lack the wild swings of the Middle East, Drewry informed. The benchmark rate for Shanghai to Nhava Sheva hit a 30-month high in June, gaining over USD 200 in a month to USD 1,290/40ft. Again, this is more than double the price of the same one year ago.
Japan’s shipping firm Mitsui O.S.K. Lines (MOL) is expecting an improvement in its earnings for the current fiscal year, as it witnessed a stronger first quarter.
MOL said its net income for the first quarter of the fiscal year reached JPY 5.2 billion (USD 47 million), compared to JPY 1.4 billion (USD 12.6 million) seen in the same period a year earlier. The company’s operating profit for the quarter stood at JPY 1.14 billion, representing a turnaround from an operating loss of JPY 3.5 billion reported in the previous year. MOL’s revenues for the period also increased reaching JPY 403.2 billion from JPY 360 billion reported in the first quarter of the previous fiscal year.
For the first six months of the fiscal year from April 1, 2017 to September 30, 2017, the company said it expects its net income to reach JPY 13 billion from JPY 7 billion previously expected. The company’s operating profit is also expected to be at JPY 10 billion, compared to the earlier expected JPY 4 billion, while its revenue outlook was revised to JPY 820 billion from the earlier expected JPY 805 billion.
Although the tanker business is expected to perform below the assumption, the company said that it made the upward revision for the first six months of the fiscal year mainly due to improved profits in the containership business, resulting from strong cargo trades and operational cost reductions.
For the fiscal year from April 1, 2017 to March 31, 2018, the company now expects its net income to reach JPY 12 billion, up from JPY 10 billion announced in its earlier outlook. Operating profit is set to be at JPY 18 billion from the earlier expected JPY 9 billion, while its revenue was revised to JPY 1.615 trillion from JPY 1.610 trillion.
MOL revised its full year outlook as it anticipates that the positive trends will continue throughout the fiscal year.