13 minute read
A good year for Raben
TAKE A BREATHER
MARKET • THE FUNDAMENTALS LOOK GOOD, BUT WHY IS THE CHEMICAL TANKER MARKET NOT BENEFITTING? AND WHY ARE THERE SO FEW NEWBUILDINGS BEING ORDERED?
The chemical tanker market has had what might be termed a desultory year, with recent earnings releases largely flat at best, despite the emergence of new trade flows and increasing demand for vegoils and fats transport. The lack of any significant upward impact on revenues for tanker operators may be due to an overall lack of confidence within the sectors they serve, as political and economic uncertainties have led to a decided note of caution.
Nonetheless, the fundamentals are sound. The chemical industry continues to expand, most especially in emerging economies, and demand for both chemicals and for vegoils remains strong. Furthermore, the arrival of the ‘IMO 2020’ rule on sulphur oxide emissions from all ships, together with new rules on ballast water management, often encouraged owners of older tonnage to scrap their ships during the past two years, rather than invest in bringing them up to standard to meet the new rules. Allied to comparatively restricted fleet growth through newbuildings, this has brought the market back towards a more balanced position, even if the early part of 2020 has seen some contracting activity at the yards.
As a result of those factor, broker Banchero Costa calculates, fleet growth over the course of 2019 was expected to come out at 2 per cent in the sub-30,000 dwt segment, compared to 3 per cent in 2018, although this is mostly concentrated in the 20,000 to 30,000 dwt range. It forecasts another 2 per cent growth in 2020 but no growth at all in 2021. These figures compare favourably with the 6.4 per cent growth recorded in the fleet in 2018, according to Barry Rogliano Salles.
PRICES AND DEMAND One indicator of the lack of intense interest in expanding the chemical tanker fleet can be seen in newbuilding prices, which picked up a little in 2019 but are still well below the levels seen ten years earlier. Prices then were still on a high after the rush of newbuilding contracting seen up until the 2007/08 crash; those newbuildings were still being delivered after demand had collapsed, leading to an oversupply position that badly affected earnings through much of the decade beginning in 2010 and that is only now beginning to unwind.
Banchero Costa also points to rising import demand for certain products. For instance, it says that methanol imports into China increased tenfold in the decade to 2018 but growth has slowed, though demand increases in India have taken over. Nevertheless, the
IT IS A BRAVE OWNER THAT BUILDS SHIPS TODAY broker also notes that both countries have drawn much of their methanol imports from Iran and US sanctions may have an impact on the volumes that they are willing to take from this source – then again, if they buy from Trinidad instead, it will add significantly to tonne-mile demand. The US is also beginning to export increasing volumes of methanol, which jumped by nearly 60 per cent in 2018 alone. Perhaps it is no surprise that some vessel owners are beginning to look at methanol as a potential fuel for their ships, with Proman Stena Bulk last year lining up a two-ship order for 50,000-dwt methanol fuelled tankers at Guangzhou Shipyard.
WHAT’S BEHIND IT ALL So while the fundamentals appear to point to a bullish outlook, external factors are hampering development. Speaking this past November at the Tanker Shipping & Trade Conference, consultant Charles Lawrie had this to say: “I do not recall a period in time when we have had so many external pressures on the market. It has been barely noticed outside of the chemical tanker trades, but there is a hugely influential trade dispute between South Korea and Japan taking place at the moment. Far more talked about is the US – China Trade War, and then there is the series of tanker incidents and threats to trade in the Middle East. Not to mention Venezuela and Libya. The word ‘uncertainty’ underplays the geopolitical outlook.”
Furthermore, while there are some encouraging signs in terms of import demand – not only in China and India but also South Korea and Taiwan – these are being accompanied by falling import demand in other countries, not least the US (as a result of increasing domestic production) and Japan.
But from the supply side, Lawrie pointed out that what is holding back newbuilding activity is not so much questions of demand but questions about what the ships of tomorrow will need to look like to meet environmental regulations. Owners are asking what propulsion systems will be needed to meet the 2030 deadline for reducing carbon intensity and the 2050 target for a net-zero carbon shipping industry. Bearing in mind that chemical tankers are usually expected to trade for at least 25 years, those being built today need to meet the regulations of tomorrow.
BACKING UP
RESULTS • STOLT-NIELSEN’S PROGRESS STALLED IN A YEAR MARKED BY ECONOMIC AND POLITICAL UNCERTAINTY AND MARKET CAUTION, AFFECTING ALL PARTS OF THE SUPPLY CHAIN
STOLT-NIELSEN HAS reported revenues of $2.04bn for its financial year to end-November 2018, down from $2.13bn in the previous year, with operating profit off by 6.4 per cent at $175.1m. Weakness was experienced across all its three main operating divisions in the chemical supply chain: annual operating profit was down 15 per cent at Stolt Tankers, 10 per cent at Stolthaven Terminals and 21 per cent at Stolt Tank Containers.
Commenting on the results, Niels G Stolt-Nielsen, CEO of Stolt-Nielsen Ltd, says: “Excluding the impact of the previously reported incident on Stolt Groenland and fewer operating days, Stolt Tankers’ fourth quarter results improved as deepsea utilisation increased and fuel costs decreased. The fourth quarter was also the first quarter since 2016 in which we saw an increase in average contract rate renewals, while also achieving full recovery of cost increases related to the IMO 2020 low-sulphur fuel regulations.
“Stolthaven’s results decreased in the quarter, mainly due to the $5.5m write-off of capitalised expenses at the Stolthaven Newcastle terminal and market softness, particularly in Asia-Pacific,” he continues. “Results at Stolt Tank Containers were up, mainly due to reduced shipping costs and higher demurrage revenue.”
SOFTNESS IN TANKERS Stolt Tankers reported fourth quarter revenue of $274.8m, down from $291.8m in the third quarter. Deepsea revenue declined by 6.1 per cent in the quarter, driven mainly by a decrease in operating days, partly due to the incident involving Stolt Groenland at the end of September 2019. Regional fleet revenue decreased by 4.8 per cent in the latest period, primarily due to weak spot market conditions in Europe and fewer operating days due to drydockings of regional ships.
Fourth-quarter operating profit of $14.6m was slightly off the $15.0m reported for the third quarter. Results reflected higher deepsea margins due to a combination of improved results on bunker hedges and higher utilisation, mainly offset by the increase in off-hire days and a $1.7m decrease in equity income from joint ventures, resulting from losses on two ships held for sale in a regional joint venture. The latest quarter’s profits were, though, well up on the $7.7m reported for fourth quarter 2018.
For the full year, gross profit from Stolt Tankers’ deepsea activities slipped 14 per cent to $95.5m, while regional fleet gross profit was down only 2 per cent at $42.8m. During the fourth quarter, Stolt’s deepsea fleet numbered 66 ships, compared to 71 a year earlier, while the wholly owned regional fleets expanded by one ship to 58.
“Looking forward in 2020, we continue to anticipate a gradual upturn in the chemical tanker market as the year unfolds,” says Niels G Stolt-Nielsen. “A continued strong clean products (CPP) market has drawn swing tonnage away from the chemical markets, supporting a further firming of spot rates. Subsequent to the quarter-end, we have continued to see rate increases in our contract renewals.”
OTHER BUSINESS Weakness was also evident in Stolt-Nielsen’s other main operating divisions. Stolthaven Terminals saw operating revenues slip slightly from $252.0m in 2018 to $250.8m, while gross profit actually improved by 4 per cent to $87.5m. However, extraordinary gains booked in 2018 meant that operating profit was down 10 per cent.
For the fourth quarter, results reflected overall stability with some weak spots. Revenue slipped from $62.9m in the third quarter to $61.7m, with utilisation rates at its wholly owned terminals dipping from 91.0 per cent in the third quarter to 89.4 per cent; there was also a 7.4 per cent decline in the volume of product handled. On the other hand, average storage and throughput revenue per cubic metre of leased storage remained stable during the quarter.
Stolthaven Terminals reported fourth quarter operating profit of $11.7m, down from $19.5m in the third quarter, mainly due to a $5.5m impairment. The third quarter included a $0.6m gain on the sale of Stolthaven’s terminal in Altona, Australia. Equity income from joint ventures was up marginally in the quarter, driven mainly by an increase in product handled at Stolthaven’s joint-venture terminal in Ulsan, South Korea.
“Stolthaven’s results decreased in the quarter, mainly due to the $5.5m write-off of capitalised expenses at the Stolthaven Newcastle terminal and market softness, particularly in AsiaPacific,” comments Niels G Stolt-Nielsen. “Despite the recent market softness and the effects of the US-China trade dispute, we expect improvements in operational performance to continue to strengthen results.”
TWEAKING TANKS Stolt Tank Containers continues to experience the impact of price competition following the recent years of expansion in the sector. Revenues for the year were down 4 per cent at $528.6m, with gross profit 10 per cent off at $122.1m; operating profit fell from $70.9m in 2018 to $56.1m.
For the fourth quarter, revenues of $133.4m were slightly behind the prior period’s $135.2m despite a minor increase in shipments. Overall, transport revenue fell by 4 per cent as a result of a higher proportion of intra-regional shipments, which generate less revenue. The decline was partially offset by a $1.6m increase in demurrage revenue. Performance for the quarter reflected continued price competition and softness in markets overall. Operating profit for the quarter increased to $15.7m from $12.1m in the third quarter, due to a $5.9m fall in operating expenses, driven mainly by lower freight costs from the higher proportion of intra-regional shipments, and lower repositioning and other move-related costs. The total number of tanks in STC’s global fleet was essentially unchanged in the fourth quarter at 40,513, up from 39,202 a year earlier.
Commenting on the results, Niels G StoltNielsen remarks: “Stolt Tank Containers has seen an increase in bookings ahead of the
WITH THE CHEMICAL TANKER MARKET GOING THROUGH
A SLOW PERIOD, STOLT-NIELSEN’S INVESTMENT
PROGRAMME IS CURRENTLY FOCUSED ON SMALL-SCALE
Chinese New Year, which could eventually have a positive impact on utilisation.”
FOCUS ON GAS Taken overall, Stolt-Nielsen’s 2019 financial results paint a picture of a supply chain in a cautious mood, with uncertainty over political, economic and trade prospects hindering growth. It is perhaps not surprising, then, that StoltNielsen’s outstanding capital expenditure commitments have dropped from $111.7m at the end of the 2018 financial year to $96.2m, of which $36.0m relates to its jointventure activities in the gas sector.
Along with its partners in Avenir LNG, some $225.5m is to be spent on four 7,500-m³ and two 20,000-m³ LNG carrier newbuildings and the Higas LNG terminal in Sardinia. Stolt-Nielsen’s share of the investment is $105.6m, part of which has already been paid. The first two 7,500-m³ carriers are due for delivery from Keppel Singmarine, Shanghai early this year and the Higas terminal is scheduled for completion before the end of 2020. www.stolt-nielsen.com
LESS THAN ZERO
FUELS • ENERGY TRANSITION IN THE MARITIME INDUSTRY WILL INVOLVE A NUMBER OF PATHWAYS. HYDROGEN AND ELECTRICITY ARE THE OBVIOUS OPTIONS BUT WHAT ABOUT AMMONIA?
THE SHIPPING INDUSTRY has spent several years considering how best to meet the requirements imposed by the International Maritime Organisation (IMO) to reduce sulphur oxide emissions from its operations. Those efforts have been divided between the installation of exhaust gas scrubbers and the use of alternative fuels.
Now that the 2020 deadline has passed, attention is switching to the next phase of cleaning up the shipping industry: the reduction in carbon intensity and, ultimately, complete decarbonisation of marine fuels. Some of the alternative fuels already being employed – LNG, LPG and methanol, for example – offer a route to a lower-carbon future and are certainly sensible in applications where those products are also being carried as cargo.
However, further ahead, the focus on carbon-free fuels points at the moment to two options: either the use of (sustainably produced) electricity, either stored in batteries aboard or generated from fuel cells (probably using hydrogen), or hydrogen itself. Work is already well advanced on some hydrogen-fuelled vessel designs and there are some electric-powered vessels in use, particularly in some shortsea applications such as ferries. Making the transition will inevitably be costly, with some estimates putting the total bill for moving to a completely decarbonised industry at $1 trillion.
SEVERAL DIFFERENT INTERESTS ARE LOOKING INTO INTRODUCING AMMONIA Attention is also switching to the possible use of ammonia as a fuel; this is in effect a carrier for hydrogen, the benefit being that the only other element in the molecule is nitrogen – unlike LNG (methane), which includes carbon – and also that containment technology is relatively straightforward.
Last month, an alliance of interests was formed to look at developing an ammoniafuelled tanker to support the IMO’s emission targets for 2050, which, the partners say, requires commercially viable zero-emission vessels to be in deepsea operation by 2030.
The alliance involves MISC Bhd, Samsung Heavy Industries, Lloyd’s Register and MAN Energy Solutions, respectively bringing expertise from ship operation, shipbuilding, classification and design, and engine design.
The partners say they recognise that the shipping industry will need to explore multiple decarbonisation pathways and hope their collaboration will spur others in the maritime industry to join forces on addressing this global challenge.
“At MISC, we believe the global maritime industry needs to be more collaborative in defining our future together, rather than being confrontational and fragmented in our efforts,” says Yee Yang Chien, president and group CEO of MISC. “We need more shining examples of partnerships and collaborations in our industry and it is my hope that this will encourage our peers in the industry to also join hands with others to advance the zero-carbon agenda.”
Joon Ou Nam, president/CEO of Samsung Heavy Industries, adds: “We all know that the industry–wide movement is vital and new zero-carbon fuel technologies, such as ammonia fuel, are to be brought on the table in order to take action proactively on maritime GHG emissions in accordance with the IMO’s ambitious road map.”
“Low-speed diesel engines are the most efficient propulsion system for trans-oceanic shipping and already run on a sizable number of emission-friendly fuels,” notes Bjarne Foldanger Jensen, senior vicepresident of MAN Energy Solutions. “We look forward to adding ammonia to the list and welcome the opportunity to work with industry partners in this venture.”
