Economic Outlook & the Impact on Shipping · Economic Outlook & Impact on Shipping Emerging...

European Dry Bulk Shipping Market Outlook

Economic Outlook & Impact on Shipping

Economic Outlook & the Impact on Shipping

Gary Morgan

Lloyd’s Register

IMSF 2008 Gdansk, Poland


A few points before we proceed

Globalisation is further complicating the balance of trade

–

Dislocation between production & consumption

–

The term “decoupling”

is a contradiction in terms

Very strong global economic growth since 2001…..

High domestic demand in emerging economies has supported trade thus far in 2008

–

Productivity gains through integration into global economy

–

Improving macroeconomic framework

But…………–

Liquidity crisis settling down but fallout has been monumental–

OECD predicts sub prime losses to hit $420bn


Global economic growth

Global Economic Growth - Advanced Economies Vs Emerging Economies

0

1

2

3

4

5

6

7

8

9

1990–99

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2013

an

nu

al

cha

ng

e (

%)

Advanced economies Emerging and developing economies

Data source: International Monetary Fund

Commodity intensive & export led economic growth


Advanced economies…..Focus on US

Advanced economies exercising less control over price due to location of manufacturing and raw materials

Key economies suffering from Sub-Prime lending effects

US export base expansion is sharp contrast to US domestic demand slowdown

–

Weak dollar

–

Housing crisis……link between house price movement and consumer activity is strong……price falls => reduction in consumer activity

Still contribute to most of global GDP growth


Emerging economies

High economic & population growth fuels increasing demand for energy–

Account for 90% of increased levels of consumption since 2002

–

Supporting commodity intensive growth (exporters)

Inflation is a key problem (most emerging economies raising interest rates)

Intra regional trade rising substantially

They are source of expansion in oil trades and dry markets

Depending upon the location of supply and demand the required deadweight values are being pushed upwards (gross impact)

BRIC accounted for 44% of global GDP growth during 2007


China……“Maintain Strong Economic Growth”

Domestic growth fuelling further demand for commodities and energy

Yangtze river development is a vital “artery”–

Inner China to economic development–

River, Roads and Railways

Inward & Outward FDI

¾ of GDP derived by imports & exports activity

–

proportion of trade with US falling (32% to 22%)–

Trading more intensively with Middle East, Latin America, Africa–

60% growth in trade between BRIC during 2007

Inflation a REAL risk => 7% (main source is food)

(1)

prevent over heating

(2)

Control food price inflation (20%yoy)

Tight Monetary Policy


Risks of an economic slowdown…

Impact on trades

What has happened in the past?


World output Vs World Trade

World Output Versus World Trade Volumes

0

2

4

6

8

10

12

14

90 - 99(av)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

% c

ha

ng

e

0

1

2

3

4

5

6

% c

ha

ng

e

Volume of Trade World GDP Growth



Oil Trade

The health of the global economy is key


Oil

22 April 2008 => $119.9 per barrel……………why?

–

Supply

–

OPEC stance

–

Violence & political instability in oil producing nations

–

Weak dollar……investors look to oil and other commodities

–

Increased demand (double edged…..investment & price)

–

Refinery capacity (shortage)

–

Demand growth from emerging economies

Why isn't price driving up increased production? After all, oil investment grew 70% from 2004 to 2006!!!


Crude oil prices ($/bbl)

Commodity Prices - Crude Oil

0

20

40

60

80

100

120

1990

-01

1991

-01

1992

-01

1993

-01

1994

-01

1995

-01

1996

-01

1997

-01

1998

-01

1999

-01

2000

-01

2001

-01

2002

-01

2003

-01

2004

-01

2005

-01

2006

-01

2007

-01

2008

-01

$/b

bl

Arab Light Brent

Gulf War

9/11Asian Financial Crisis

Iraq War

Lebanon Conflict

Data Source: Clarkson Research


World Oil Production 1997 to 2012

Data source: MSI ltd

World Oil Production

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

mil

lio

ns

of

ton

ne

s

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

% c

ha

ng

e (

yea

r o

n y

ea

r)

oi l production change low (change) high (change)


Oil production 1991 to 2008

Global & North American Oil Production

4

5

6

7

8

9

10

19

91

-01

19

91

-07

19

92

-01

19

92

-07

19

93

-01

19

93

-07

19

94

-01

19

94

-07

19

95

-01

19

95

-07

19

96

-01

19

96

-07

19

97

-01

19

97

-07

19

98

-01

19

98

-07

19

99

-01

19

99

-07

20

00

-01

20

00

-07

20

01

-01

20

01

-07

20

02

-01

20

02

-07

20

03

-01

20

03

-07

20

04

-01

20

04

-07

20

05

-01

20

05

-07

20

06

-01

20

06

-07

20

07

-01

20

07

-07

20

08

-01

mil

lio

n b

arr

els

pe

r d

ay

40

45

50

55

60

65

70

75

80

85

90

mil

lio

n b

arr

els

pe

r d

ay

North American Oil Production (LH Axis) Global Oil Production

Global trend of increasing oil production driving up tanker fleet required deadweight.......good for employment!


China Crude Oil Production Vs Crude Oil Imports

0

50

100

150

200

250

300

350

400

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

mil

lio

n t

on

ne

s

Production Imports

China……..Production Vs Imports….......increasing required deadweight

Growing disparity between production and imports will drive required deadweight upwards. This is good for employment!


What about the role of pipelines?!


Tanker Market Fundamentals

Tanker Market Fundamentals

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

% c

ha

ng

e y

ea

r o

n y

ea

r

75%

80%

85%

90%

95%

100%

Em

plo

yme

nt

Ra

te (

%)

fleet supply growth employment (demand) growth Employment Rate

Asian Financial Crisis9/11

Acute over supply


Dry Bulk Trade

If China suffers from a US recession....dry bulk trades will suffer


China Steel Production

0

5

10

15

20

25

30

35

40

45

50

19

98

-01

19

99

-01

20

00

-01

20

01

-01

20

02

-01

20

03

-01

20

04

-01

20

05

-01

20

06

-01

20

07

-01

20

08

-01

mil

lio

n t

on

ne

s /

mo

nth

Steel production in China 1997 to 2008 24% ave. yoy growth since 2002

Average ore imports during 2007 were c.33 MnT month…. ……..meaning China alone requires

around 190 Capes every month

Data source: Clarkson Research

80% of global steel production growth down to China (2008-2012)


Iron Ore Trade…..vessel employment 2010

Iron Ore Trade and Vessel Employment

0

50

100

150

200

250

2003 2004 2005 2006 2007 2008 2009 2010

mill

ion d

eadw

eight

Capesize fleet development

Iron Ore Required Deadweight (Capes) Case 1

Iron Ore Required Deadweight (Capes) Case Miner

If China’s Iron Ore imports grow at same CAGR for 2003 –

2007 then the market can absorb the Capesize tonnage80% fleet in ore trade

Conversions


Capesize bulk carrier earnings (spot & TC)

Bulk Carrier Spot & TC Earnings since 2002

0

50,000

100,000

150,000

200,000

250,00020

02-0

1

2003

-01

2004

-01

2005

-01

2006

-01

2007

-01

2008

-01

$/D

ay

Modern Capesize Ave. Spot Earnings

1 Year TC Rate 170k dwt BC

3 Year TC Rate 170k dwt BC

Modern Capesize Earnings Tubarao / Baoshan 165k

1990-2000 15k $/day (av.)

2003 to date…

………65k $/day

Data source: Clarkson Research


Containerised Trade


Seaborne Unitised Cargo

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,50019

80

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

million t

onnes

0

50

100

150

200

250

300

% o

f 20

07 v

alue

Container market outlook –

demand growth

Orderbook is huge…….60% of fleet size

Containerised cargo is predicted to treble by 2020


Container demand growth highly correlated to economic growth by factor of 3 to 4


Container Ship Fleet Development

Size of Container Ship Fleet

0

5

10

15

20

25

30

35

40

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

million T

EU

0

2

4

6

8

10

12

14

16

18

FC Total Fleet (million TEU) An Gr Rate (%) RH Axis Ave An Gr (1980 to 2020)



Keep an eye on……..


Inflation -

the prognosis for 2008

Inflation - CPI

0

2

4

6

8

10

12

14

2000 2001 2002 2003 2004 2005 2006 2007 2008 (f)

cha

ng

e (

% y

ea

r o

n y

ea

r)

Developing Asia European Union Middle East Advanced Economies



The World in 2030………….

Long term economic outlook is key to shipping industry–

Export level to rise from $9tr to $27tr

–

World population to increase by 1.5bn

Globalisation and urbanisation will heavily influence the industry outlook –

Trade developments / requirements

–

Specialisation


Conclusions

Uncertainties are rife…………..–

Economic, Political & Environmental

–

The orderbook => how reliable beyond 18 months?

Strong demand growth will be essential for sectors where fleet supply growth rates are aggressive

Many challenges–

Shipbuilding expansion……Korea / China

–

Industry resources stretched => shortages……..

–

People & Expertise, Materials, Components & engines

–

Geo-Political & Environmental (Wars / Terrorism)

–

INFLATION!!!

Services are provided by members of the Lloyd’s Register Group Lloyd’s Register, Lloyd’s Register EMEA and Lloyd’s Register Asia are exempt charities under the UK Charities Act 1993.

The Lloyd’s Register Group works to enhance safety and approve assets and systems at sea, on land and in the air –because life matters.


Thank you for listening

Gary Morgan Market Analyst

BA (Honours) EconomicsMRes (Distinction) Marine Technology

Telephone

44 (0)207 423 2725Mobile

44 (0)777 926 9953E-mail

[email protected]

Economic Outlook & the Impact on Shipping · Economic Outlook & Impact on Shipping Emerging...

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