Equities researchers at Goldman Sachs increased their price objective on shares of RPC (NYSE:RES) from $26.00 to $27.00 in a research report issued on Thursday. Goldman Sachs’ price target indicates a potential upside of 17.29% from the company’s current price.
Choking Smog Puts Chinese Driver in Natural Gas Fast Lane
By Bloomberg News - Jul 3, 2014
Powering vehicles with natural gas, a cleaner alternative to diesel fuel and gasoline, is catching on faster in China than in any other nation as President Xi Jinping seeks to reduce smog.
About 3.8 million cars, trucks and buses in China, the world’s biggest energy consumer and emitter of greenhouse gases, will be filling up with compressed or liquefied natural gas by 2020, according to Bloomberg New Energy Finance. That’s almost double the current number, making Asia’s largest economy the fastest-growing market.
The emergence of natural gas as a motor fuel emitting 32 percent less than diesel is buttressed by China’s network of almost 4,900 refueling stations and a $400 billion gas import deal with Russia. The fuel is also about 30 percent cheaper than its diesel equivalent as LNG trades at a three-year-low in Asia. Chinese Premier Li Keqiang has promised to ban dirtier vehicles as smog in the capital, Beijing, increasingly exceeds World Health Organization limits and forces residents to don masks outdoors.
“Natural gas vehicles have significant growth potential in China because they’re more economical than conventional models and because the government is committed to fighting pollution,” Ricky Wang, an analyst at ICIS-C1 Energy, a Shanghai-based commodity consultant, said by phone on July 1. “Gas demand from the transport sector is booming.”
India, Pakistan and Iran are among other fast-growing markets for natural gas-powered vehicles, said Tony Regan, founder of Tri-Zen International Inc., a Singapore-based consultant with clients including Royal Dutch Shell Plc and OAO Lukoil. The U.S., enjoying a rising supply of low-cost natural gas because of the boom in hydraulic fracturing, or fracking, was one of the first to use LNG as a truck fuel.
In China, leaders are starting to heed demands for cleaner air in the nation, which the World Bank estimates has 16 of the planet’s 20 most-polluted cities.
Exposure to PM2.5 pollution, the small particles that pose the greatest risk to human health, contributed to an estimated 8,572 premature deaths in Beijing, Shanghai, Guangzhou and Xi’an in 2012 and more than $1 billion of economic losses, according to a study by Greenpeace and Peking University’s School of Public Health.
China is now the largest and fastest-growing market for LNG used in trucking, Regan said. By 2015, 220,000 heavy trucks and 40,000 buses in China are expected to run on LNG, he said in an e-mail July 2.
“While natural gas has been used as a fuel for vehicles since the 1930s, this was mainly for cars and taxis,” Regan said. “CNG was the first way to use gas as a motor fuel, but there is growing awareness of how much cheaper LNG is than diesel and how suitable that is to fuel trucks, trains and buses.”
Even so, China’s ability to switch drivers to natural gas will be constrained. The country is far behind the U.S. in using fracking to expand domestic production of gas. In the U.S., the technology has unlocked natural gas trapped in formations like the Marcellus shale. China’s electricity makers also are competing for gas to replace coal, meaning the nation will face a long-term shortage, according to Charlie Cao, a Beijing-based analyst at New Energy Finance.
“The lack of fueling infrastructure has been the single largest constraint to the natural gas vehicle market,” Cao said. “Drivers have to compete for already limited gas supplies, especially in the peak heating season, when the tight gas flows are prioritized for residential use.”
China will have 200 million vehicles running on all types of fuel by 2020, according to the China Association of Automobile Manufacturers. That means natural gas will fuel only about 2 percent of the total even as the use of gas surges.
Compressed natural gas, or CNG, currently dominates China’s market and accounts for 97 percent of vehicles running on natural gas, Cao said. LNG has a smaller share in transport because of higher costs for liquefaction and a shortage of infrastructure for deliveries.
Still, transportation is forecast to surpass manufacturing as China’s biggest downstream consumer of LNG by 2016, Gordon Kwan, the regional head of oil and gas research at Nomura Holdings Inc. (8604) in Hong Kong, said in an e-mail last month.
China’s LNG-powered fleet will more than double to 180,000 vehicles and use 5.3 million metric tons for a 40 percent share of LNG consumption by 2016, Kwan said.
“Natural gas vehicles are more economically attractive and technically mature than other new-energy vehicles,” Cao said. “Electric or hybrid vehicles, for example, still requires government subsidies to compete with the gasoline and diesel-fueled passenger vehicles. Building the gas fueling stations is also less capital-intensive than the charging networks.”
While China is struggling to keep up with demand, it had 51 percent more natural gas refueling stations at the end of 2013 than the year before, ICIS-C1’s Wang said. She expects about 6,000 natural gas pumps at the end of 2014, up 24 percent from last year.
China National Offshore Oil Corp., the nation’s biggest operator of LNG receiving terminals, plans to triple its filling stations supplying the fuel to 400 this year. China will have more than 12,000 such stations by 2020, with Cnooc taking 20 percent of market share, it said on April 2.
Shaanxi Automobile Group, western China’s largest truck maker, and Dongfeng Yangste Motor Co., the region’s biggest bus manufacturer, are among those producing natural gas vehicles that are outwardly indistinguishable from conventional models.
China signed a 30-year deal in May to import natural gas from Russia through a new pipeline. The agreement with OAO Gazprom, Russia’s pipeline-gas monopoly, is forecast to provide 38 billion cubic meters of gas annually, according to Alexey Miller, Gazprom’s chief executive officer. China is set to increase imports via Turkmenistan as well.
LNG costs 30 percent less than China III-standard diesel as of May this year, according to ICIS-C1 Energy.
LNG in northeast Asia dropped in the week ended June 30 to $11.25 per million British thermal units, the lowest price since March 2011, New York-based Energy Intelligence Group said on its World Gas Intelligence website.
Switching from diesel to natural gas for trucks and buses can pay for itself after 12 to 15 months and it saves 686,000 yuan over a lifetime of 10 years, Cao said.
“The growth of gas in the transportation sector is expected to be significantly faster for the foreseeable future,” said Thomas Chhoa, Shell’s Singapore-based general manager for Global LNG to transport. “Natural gas for mobility is widely available, cleaner burning than other conventional transportation fuels, cost competitive and technically ready,” he said in a webcast hosted by the company in April.
Substantial discount for LNG-powered ships in the Port of Gothenburg
Sam Jermy Sam Jermy - Logistics - 21 hours ago
Ships powered by liquefied natural gas (LNG) can expect a substantial reduction in the port tariff when they call at the Port of Gothenburg in the future.
A discount will come into effect in 2015 and will continue for three years. The aim is to induce more shipping companies to switch to cleaner fuel. Magnus Kårestedt, Chief Executive at the Port of Gothenburg, said: "It has been our firm belief for a long time that LNG is the fuel of the future.
“This initiative is entirely in line with our ambition to reduce the environmental impact of shipping and create a sustainable Scandinavian freight hub."
LNG-powered ships receive a total tariff discount of 30 percent when they call at the port. The discount will apply until December 2018. In one year alone this would represent a substantial saving for ships that call at the Port of Gothenburg on a regular basis.
There are considerable environmental benefits to be gained from using LNG in shipping and industry. Sulphur and particle emissions are reduced to almost zero, nitrogen emissions by 85-90 per cent and carbon dioxide emissions by 25 percent.
Carl Carlsson of the Swedish Shipowners' Association said: "It's not technology that is the limiting factor, it's the financial considerations. Working within the framework of the Zero Vision Tool project, we will attempt to convince other ports in the Baltic to offer the same type of support."
New sulphur regulations
From January 1, 2015, conditions for shipping in the Baltic and North Sea will change with the introduction of new, stricter regulations governing sulphur emissions. In response, the Port of Gothenburg will revise its port tariff.
Ships that maintain a high level of environmental performance will be recompensed. Two indexes will be applied as a basis for discounting – Environmental Ship Index, which is used by many ports around the world, and Clean Shipping Index, which is an environmental index where the freight-owners' make demands on the shipping industry.
At the same time, ships that switch from oil to LNG will receive a further discount.
LNG terminal underway in Gothenburg
Preparations are currently being made for the construction of a terminal at the Port of Gothenburg that will supply both shipping and industry with liquefied natural gas. The terminal is part of a collaborative venture between Rotterdam and Gothenburg to build an infrastructure for LNG, an initiative that is also supported by the EU.
Cut & paste from Navios Acquisition (nna)
Benefits Crude Oil Tankers.
Jefferies Analyst Doug Mavrinac wrote: Even though we believe the condensate export volumes are likely to be limited, any increase in export volumes should have a net positive impact on the crude oil tanker market, even if minimal. That being said, because the volumes are likely to be minimal, we would expect any heavy condensate volumes exported out of the U.S. to be carried out on either Aframax crude oil tankers and/or Panamax crude oil tankers.” Less
U.S. Ruling Loosens Four-Decade Ban On Oil Exports
Shipments of Unrefined American Oil Could Begin As Early As August
By CHRISTIAN BERTHELSEN And LYNN COOK CONNECT
June 24, 2014 5:14 p.m. ET Wall Street Journal
The Obama administration has quietly cleared the way for the first exports of unrefined American oil in four decades, allowing energy companies to chip away at the long-standing ban on selling U.S. crude overseas.
Federal officials have told two energy companies that they can legally export a kind of ultra-light oil that has become plentiful as drillers tap shale formations across the U.S. With relatively minimal processing, oil shipments could begin as early as August, according to one industry executive involved in the matter.
Using a process known as a private ruling, the U.S. Commerce Dept.'s Bureau of Industry and Security is allowing Pioneer Natural Resources Co. of Irving, Texas, and Enterprise Products Partners LP of Houston to export ultra-light oil known as condensate to foreign buyers who could turn it into gasoline, jet fuel and diesel.
Both companies confirmed they had received the rulings.
Under current rules, companies can export refined fuel, such as gasoline and diesel, but not oil itself. The Administration's new approach, which hasn't been publicly announced, redefines some ultra-light oil as fuel after it has been minimally processed, making it eligible for sale abroad.
The Commerce Department said the companies have improved the processing of the crude in a way that qualifies it for export, even though the oil wouldn't count as being traditionally refined. Exactly how the agency defines condensate and remains unclear.
The first shipments are likely to be small, but could ultimately encompass a lot of the 3 million barrels a day of oil that energy companies are pumping from shale, industry experts say, depending on how regulators define what qualifies for export.
-After oil, natural gas may be next on North American rails
By Edward McAllister
NEW YORK, June 16 (Reuters) - As politicians debate the dangers of a massive increase in oil carried by rail in North America, railroads and energy producers are considering the same for natural gas.
Buoyed by the unexpected success of crude by rail, companies are beginning to consider transporting natural gas as remote drilling frontiers emerge beyond the reach of pipelines, executives said.
Natural gas by rail is years away and likely to face strong public resistance after a series of explosive crude-by-rail accidents. But the potentially multibillion-dollar development could connect gas-rich regions like North Dakota with urban centers, presenting an opportunity for railroads, drillers and tank car makers already cashing in from hauling oil on trains.
It could also be a cure for environmentally unfriendly flaring, a growing problem in far-flung areas where more than $1 billion of natural gas produced alongside oil is burned off each year for lack of processing plants or pipelines that can take years to build.
"Everyone is talking about moving gas by rail," said David Demers, chief executive officer of Westport Innovations , which is developing technology for natural gas-powered locomotives. "They see this as a large opportunity and have their pencils out to see how it could work."
Demers said Berkshire Hathaway's BNSF was one railroad considering the move.
BNSF declined to comment on its plans, but a spokeswoman said it would take time for any development of gas by rail.
Transporting gas by rail, most likely as cryogenic liquefied natural gas (LNG), faces obstacles. The technology is in its infancy, and so far no tank car is permitted to carry the fuel on U.S. rails. Nor are there enough plants that convert natural gas to LNG to support a robust gas-by-rail market, experts said.
More-volatile liquids like ethylene and propane already travel on the rails in growing volumes. But as concerns about the safety of crude by rail intensify, regulators are exercising extreme caution with uncertified fuels like LNG, said executives involved in developing the technology.
Stressing that it is too early to say, many of the major Class 1 railroads that have embraced crude by rail declined to speak about specific plans for gas by rail. Calgary-based Canadian Pacific Railway Ltd, for example, was just "monitoring any discussions in this area," a spokesman said.
Breitling Energy Corp CEO Chris Faulkner said he and other gas producers were discussing the idea, but his company was not considering it.
"I can only imagine the amount of pushback we're going to have on transporting gas by rail," Faulkner said. "The discussion isn't about safety and fact, it's about fear."
But as railroads team up with companies like General Electric Co and Caterpillar Inc to develop technology to run locomotives on LNG, many say that hauling the fuel as cargo is the next step as a drilling revolution transforms North American energy markets.
"A LOT OF MONEY"
LNG, natural gas cooled and shrunk to a liquid for shipping, already powers heavy-duty trucks and boats in the United States and Canada. A network of fueling stations is cropping up with backing from the likes of Royal Dutch Shell Plc and Clean Energy Fuels Corp.
Small-scale refrigeration plants that can turn gas to LNG are being built in drilling regions to reduce gas flaring. In remote North Dakota, one-third of the gas produced is flared.
Now, gas by rail is emerging as a possibility. Energy producers have approached Jacksonville, Florida-based CSX Corp about moving LNG by rail, said Louis Renjel, vice president of strategic infrastructure initiatives, but the company has no plans to do so.
Westport Innovations has been approached about developing fuel systems for tank cars that would haul LNG as cargo, according to Paul Blomerus, director of the company's high horsepower sector.
"They make a lot of money transporting oil, so it would make sense" to do the same with gas, Blomerus said.
BNSF is testing LNG-powered locomotives and million-dollar tank cars that would hold the fuel, the first step in a plan announced last year to wean trains off costly diesel.
Regulators and railroads last year established a task force to establish standards for LNG rail cars. A spokesman for the U.S. Federal Railroad Administration said there was no specified deadline for drafting actual rules.
Building these tank cars would be "a natural progression into hauling LNG, similar to what we do with crude oil," said Ken Webster, chief accounting officer at Chart Industries Inc .
Outside North America, steps have already been taken. Chart is developing an LNG tank car in Germany in a joint venture with Hamburg-based manufacturer VTG Aktiengesellschaft.
Japan Petroleum Exploration Co began transporting LNG by train in 2000 by loading specially designed tanks onto railcars, supplying local distributors in regions beyond the reach of gas pipelines. The company says the trains have proven cheaper than trucks in supplying LNG.
Crude by rail has been a lesson not just in how quickly a new transport can emerge but also in the dangers.
An unmanned train carrying crude oil from North Dakota's Bakken region exploded and killed 47 people in the center of the Canadian town of Lac Megantic in July.
Among a string of other accidents, 21 oil tank cars on a BNSF train caught fire after a crash in Casselton, North Dakota, in December.
As concerns grow, a movement against new crude train infrastructure has emerged.
This has "paced" if not slowed progress in rail transport of fuels, said Tina Donikowski, who heads a team developing gas-powered locomotives at General Electric.
"The Federal Railroad Administration is being very cautious," Donikowski said. "They most definitely feel the extra pressure with the problems of crude by rail." (Reporting by Edward McAllister; Editing by Jessica Resnick-Ault and Lisa Von Ahn)
Leading video and broadband gear manufacturer Arris Group Inc. (ARRS - Analyst Report) has entered into a deal with Austrian cable operator Liwest Kabelmedien GmbH to deploy its Converged Cable Access Platform (CCAP) equipment. Liwest will utilize Arris’ E6000 converged edge router (CER) to offer Inter services at a speed up to 250 Mbps. Liwest already deployed Arris’ TG682 cable modem system and plans to upgrade Internet speed up to 1 Gbps in the long-term.
In Oct 2012, Arris launched the innovative E6000 CER which acts as a powerful C4 cable modem termination system (CMTS) for the company and can be converted into a CCAP ecosystem as well. CCAP helps carriers maximize bandwidth, simplify operational structure and evolve according to subscriber demand.
To add to the benefits, E6000 integrates Arris’ edge QAM legacy video architecture with the CMTS DOCSIS IP network to offer cable TV operators a readymade integrated-IP platform. Arris’ CCAP equipment will also allow Liwest to expand services capacity and lower costs.
In May 2013, Casa Systems was the first company to commercially introduce an integrated CCAP device. The CCAP market is highly competitive with presence of the likes of Cisco Systems Inc. (CSCO - Analyst Report), Harmonic Inc. and CommScope Holding Co. Inc.
Recently, research firm, Infonetics Research Inc. reported that Arris has become the market leader in the CCAP and CMTS devices segment, outpacing former leader Cisco. Also, several analysts have estimated that the CCAP market opportunity may reach around $1.7 billion by 2018.
Notably, Arris has stated that its E6000 CER currently support more than 5 million cable TV subscribers globally. Comcast Corp. (CMCSA - Analyst Report) and Liberty Global plc. (LBTYA - Analyst Report) are major E6000 CER customers. Furthermore, this latest deal with Liwest should boost Arris’ position in the budding CCAP equipment market. Currently, Arris has a Zacks Rank #1 (Strong Buy).
EPD Update on Seaway
NEW YORK, June 10 (Reuters) - Enterprise Product Partners will complete its Seaway Loop crude oil pipeline by the end of this month with only station checkouts and hydro-testing work remaining, the company said on Tuesday in a presentation to investors.
The parallel pipeline running alongside the 400,000-barrel-per-day (bpd) Seaway line will increase takeaway capacity from storage hub Cushing in Oklahoma by another 450,000 bpd and take oil to Houston.
Enterprise had said before that the line would be completed in the first half of this year or in May or June.
Since it reversed Seaway in May 2012, the pipeline had been the only major line taking oil out of the clogged-up Cushing hub to Gulf Coast area refineries. Inventories at Cushing peaked to all-time highs of 52 million barrels at the start of 2013.
TransCanada's Gulf Coast pipeline began operations at the start of this year, adding relief to Cushing inventories with a capacity of 700,000 bpd, although it has run at roughly half that capacity on average.
While these pipelines have helped reduce stocks at Cushing by half since the start of the year to around 21 million barrels, inventories in the country remain at very high levels after hitting a historical record of just under 400 million barrels at the end of April.
The stocks reflect the buoyancy of U.S. oil production thanks to the shale oil revolution on the one hand and the almost total ban on crude oil exports imposed by the government in the 1970s on the other hand.
The Energy Information Administration said on Tuesday that crude production in May reached its highest level in 26 years at 8.4 million bpd and will hit its highest levels since 1972 next year at 9.27 million bpd, according to its latest projections.
The export of refined products, however, is not banned and energy logistics companies such as Enterprise are increasingly building out facilities to export more distillates, gasoline and liquefied petroleum gases (LPGs).
In the latest such development, Enterprise said it had begun loading distillates at its Beaumont, Texas, facility in May and will begin loading gasoline in the third quarter of this year.
The facility can load Panamax vessels at a rate of 15,000 barrels an hour and includes storage of 2.9 million barrels.
Wood Mackenzie sees Eagle Ford crude output at 2 mln bpd by 2020
Wed Jun 4, 2014 6:14pm GMT
HOUSTON, June 4 (Reuters) - Energy consultancy Wood Mackenzie expects crude and condensate output from the Eagle Ford shale formation in Texas to double through 2020 to 2 million barrels per day (bpd), on par with output from the entire North Slope of Alaska at its peak.
The consultancy, in an update of its forecasts for U.S. shale fields on Wednesday, also said it now believes the Bakken field in North Dakota holds 21 billion barrels of recoverable crude. That is well above the 7.5 billion the government estimates.
The gaping difference stems from assumptions about the greater density of wells that operators will bore in the field and recent production data.
About 70 percent of crude now leaves the Bakken by rail, but the consultancy expects that to dip towards half by 2016 as new pipelines come online to handle growing onshore production that is moving the United States closer to energy self-sufficiency.
While projecting continued strong growth in the Permian Basin of Texas, especially the Wolfcamp shale, Wood Mackenzie also expects the Marcellus and Utica shales of Appalachia to grow further.
It sees output from the Marcellus rising to 20 billion cubic feet per day (bcf/d) of natural gas in 2018 from some 12-14 bcf/d now. For the Utica, it sees output climbing fivefold to 5 bcf/d through 2018. (Reporting By Terry Wade; Editing by Bernard Orr)
© Thomson Reuters 2014
They could also be people that want to pick up some shares. My opinion.
Seaspan: The plane truth about box shipping
Vancouver: Today’s Maritime CEO comes from our sister title, SinoShip, the leading media outlet for all things China maritime. On the cover of the tenth issue of SinoShip magazine is Gerry Wang, the head of Seaspan.
Anyone who has ever met Wang cannot fail to have clocked his true enthusiasm for the sector he is in, container shipping. He’s quick to engage, discuss, and even argue points of view on the industry he is so passionate about.
As one of the most successful players in the container segment of the last dozen years, Wang’s world view is decidedly optimistic.
“The container industry is a global infrastructure industry connecting manufacturers with consumers, the cornerstone of globalisation,” he insists. “Without container shipping there is no globalisation, there is no Walmart. Container ships make up the new Silk Road connecting China with the rest of the world.”
Wang is quick to dismiss talk of overcapacity in the industry when we meet up.
The total orderbook is some 22% of the extent fleet, he points out, which spread over three years is little more than 7%. “That is not much,” says arguably the world’s best-known container tonnage provider. Wang claims the orderbook today is actually near a historic low. Moreover, when one takes into account effective loading of a typical boxship, a fifth can be knocked off that figure, he maintains.
“Certain tradelanes have an imbalance, but overall there is no oversupply,” he stresses.
So then, why the lousy freight rates, if there is not overcapacity? Here, Wang is in his element, quick as a flash, with a lengthy reply on the travails of the industry and the solutions at hand.
“The industry has structural problems that it must deal with,” he says. Pointing to the creation of the P3 alliance between Maersk, CMA CGM and MSC, Wang says such collaboration is the way ahead. “The industry is going towards a more systematic approach to business,” he says. “Container shipping is not like dry bulk or tankers, it is more like the airlines,” he says, noting how airlines cope with capacity much better and how they work better through alliances.
Wang reckons the container industry is now in the process of copying what the airline industry has done and this should address the structural problems it has.
“Lines need to work together and learn their lesson from the past,” he says, adding: “They need to become more united to make better economic returns. This industry cannot survive if they continue to lose like money like they have.”
Wang was born in China’s Anhui province in 1962. Educated at Shanghai Maritime University and then the London School of Economics, he started out with China Merchants Group in Hong Kong. In 1990 he moved to Vancouver and a few years later joined Seaspan, owned by the billionaire Ted Washington. It was here that he linked up with China Shipping to get their containerline up and running by taking leases from Seaspan. From there, the leasing model he established snowballed. Seaspan went public in 2005, raising $700m.
Seaspan’s fleet now numbers 87 ships with a total capacity of 606,300 teu. The largest ships on its books at the moment at 14,000 teu, and Wang acknowledges even larger ships are a necessity, an “unstoppable trend”.
“You have no choice,” he says. “You have to get them as they give you economical means. Whoever has the economical means wins the battle.”
This battle for scales of economy is also bringing in an era of consolidation for the sector, something that does not surprise Wang at all.
“It is all about per teu costs. It is all about survival, arriving at the lowest teu costs,” he says. “If you can partner with someone to reduce your costs then go ahead.”
As for Seaspan itself, don’t expect this Canadian firm to hang around.
“We will continue to grow,” Wang says. “This industry is simple – if you don't grow you will be left behind. My investment theory is whatever works to become stronger, more profitable.”
Seaspan has stuck with the same philosophy over the past decade, he says, namely chasing long-term contracts with reliable, financially secure clients and always seeking the latest, modern, fuel efficient ships. “It’s a recipe for success,” says Wang with a knowing chuckle. [19/05/14]
If I'm not mistaken, that's business as usual in shipping. You have to trust management.
S&P: Navios Maritime Acquisition Expected to Achieve Credit Ratios Consistent with Higher Rating, Prompting Upgrade
May 16, 2014 12:11:00 (ET)
The following is a press release from Standard & Poor's:
-- Marshall Islands-registered tanker shipping company Navios Maritime
Acquisition reported improving earnings and cash flow generation in 2013, and
we expect this trend to continue through 2015.
-- We forecast that Navios Maritime Acquisition will achieve credit
ratios that are consistent with a higher rating and are therefore removing the
negative comparable ratings analysis notching.
-- We are consequently raising our rating on Navios Maritime Acquisition
to 'B+' from 'B'.
-- The stable outlook reflects our base-case assumption that Navios
Maritime Acquisition will achieve rating-commensurate credit measures,
underpinned by its expanding vessel fleet and gradual recovery in charter
FRANKFURT (Standard & Poor's) May 16, 2014--Standard & Poor's Ratings Services
today said it raised its long-term corporate credit rating on Marshall
Islands-registered tanker shipping company Navios Maritime Acquisition Corp.
(Navios Acquisition) to 'B+' from 'B.' The outlook is stable.
Our upgrade reflects a sustained improvement in Navios Acquisition's earnings
and credit ratios, which we expect will continue over the next two years. As a
result, we have removed the downward one-notch adjustment for our negative
comparable ratings analysis that we applied to our initial analytical outcome,
or "anchor", as defined in our criteria, to reflect Navios Acquisition's weak
credit ratios. Under our base-case operating scenario, the company will be
able to achieve a core ratio of Standard & Poor's-adjusted funds from
operations (FFO) to debt of 8%-9% in 2014, subsequently strengthening to more
than 12% in 2015, which we consider to be commensurate with a 'B+' rating.
Furthermore, given its demonstrated track record of proactive treasury
management and access to capital markets amid difficult industry and lending
conditions, we continue to believe that Navios Acquisition will preserve its
"adequate" liquidity profile.
Under our base-case operating scenario, we project the improvement in earnings
to be underpinned by a moderate and sustained recovery of charter rates for
product tankers and very large crude carriers, which will be accompanied by an
increasing number of vessel-available days, as new tankers enter Navios
Acquisition's fleet. We estimate a resulting improvement in Navios
Acquisition's EBITDA to about $170 million-$180 million in 2014 and about $220
million-$230 million in 2015, from about $115 million in 2013.
We take into account Navios Acquisition's high contracted revenues, which
provide good earnings visibility, and consequently, good downside protection.
As of May 14, 2014, about 89% of Navios Acquisition's vessel-operating days
were fixed for 2014, about 45% for 2015, and about 22% for 2016. We understand
that the average charter rates in these contracts are above Navios
Acquisition's cash flow break-even rates (including capital repayments) and
that the vast majority of contracts include a profit-sharing provision, which
will allow Navios Acquisition to benefit if charter rates recover to more than
the contracted rate.
We forecast that Navios Acquisition's Standard & Poor's-adjusted debt will
reach its peak in 2014, after the company has paid the bulk of installments
for vessels on order, and gradually decline thereafter. This is assuming that
the company makes no acquisitions of additional vessels beyond the current
$280 million capital expenditure program, which includes eight vessels to be
delivered by June 30, 2015.
We forecast that Navios Acquisition will gradually improve its credit ratios
over 2014-2015, thanks to steady growth in EBITDA and declining debt from
2015. We note that because 2014-2015 will continue to be an expansion period
for the company, its credit ratios will continue to be distorted by cash flow
and debt mismatches. In general, we consider 2015 to be a more representative
year for Navios Acquisition's credit ratios than 2013-2014 because by then,
six of the eight vessels yet to be delivered will have been operating, and
therefore generating cash flows, for 12 months.
According to our base case, we arrive at the following credit measures:
-- A weighted average ratio of Standard & Poor's-adjusted FFO to debt of
10%-12% in 2014-2015, up from 5.2% in 2013.
-- A weighted average ratio of adjusted debt to EBITDA of about 6.0x in
2014-2015, down from 9.5x in 2013.
The rating on Navios Acquisition remains constrained by our view of the
company's financial risk profile as "highly leveraged," reflecting the
company's high adjusted debt as a result of the underlying industry's high
capital intensity and Navios Acquisition's large expansionary investments. The
key consideration in our assessment of Navios Acquisition's "fair" business
risk profile is our view of the shipping industry's "high" risk. This, we
believe, stems from the industry's capital intensity, high fragmentation,
frequent imbalances between demand and supply, lack of meaningful supply
discipline, and volatility in charter rates and vessel values. We see further
constraints in the prolonged weak charter rate environment. However, this
should continue its recovery in 2014 and 2015, as the industry's demand and
supply imbalance tightens. The company's relatively narrow business scope and
diversity, with a focus on the tanker industry, and its concentrated, albeit
good-quality, customer base also constrain the rating.
We consider these risks to be partly offset by Navios Acquisition's
competitive position, which we assess as "satisfactory" and which incorporates
the company's profitability, which we assess as "strong." This reflects low
volatility of EBITDA margins and returns on capital, thanks to the company's
conservative chartering policy, competitive operating break-even rates, and
limited exposure to fluctuations in prices of bunker fuel through time-charter
contracts, which largely counterbalance the industry's cyclical swings. We
also think that Navios Acquisition's competitive position benefits from its
attractive fleet profile, supported by a relatively large, modern, and
We assess Navios Acquisition's management and governance as "strong" which
leads to a positive one-notch adjustment to our "anchor," as defined in our
criteria. We think that Navios Acquisition has a strong management team with
substantial industry experience and expertise and a demonstrated track record
in operational effectiveness, in particular during the prolonged industry
Our rating reflects Navios Acquisition's stand-alone credit quality. Although
the company is partly owned by and shares links with Navios Maritime Holdings
Inc., these companies have different shareholder groups and are separately
listed. Furthermore, management has informed us that, financially, each
company operates on a stand-alone basis.
The stable outlook reflects our view that Navios Acquisition's EBITDA, and
therefore its operating cash flow, will continue increasing, thanks to the
company's expanding fleet and competitive cost structure. Consequently, we
believe that the company will achieve rating-commensurate credit ratios,
further underpinned by a gradual recovery in time-charter rates and
profit-share income from the employed vessels, as estimated in our base case.
We forecast that Navios Acquisition will achieve a weighted average adjusted
ratio of FFO to debt of about 10%-12% in 2014-2015, which we consider to be
commensurate with the 'B+' rating on the company. This also reflects our
assumption that Navios Acquisition will significantly curb its fleet expansion
and use free operating cash flow to reduce debt in 2015 and thereafter. Given
the inherent volatility in the underlying sector, we consider the company's
consistently "adequate" liquidity profile to be a critical and stabilizing
We could consider an upgrade if Navios Acquisition delivered sustained EBITDA
growth, pursued a balanced investment strategy, reduced debt, and improved its
core credit ratios to the level that we consider commensurate with a higher
rating, such as a core ratio of adjusted FFO to debt of more than 12% on a
A negative rating action would primarily stem from unexpected downward
pressure on charter rates and asset values. We consider that persistently
depressed charter rates would likely prevent Navios Acquisition from achieving
favorable employment for vessels not yet delivered and contracted, and those
up for recharter. They would also hinder the company from earning a
profit-share income from the employed vessels, resulting in weak credit ratios
and potential liquidity pressure. Moreover, rating pressure could arise if
Navios Acquisition's debt were to increase significantly on account of
additional investments in new vessels beyond the current order book. The
rating may come under pressure if we regard management's operating strategy
and its stance toward the company as no longer consistent with our "strong"
management and governance assessment.
Focus on operating efficiency and keep a tight control on costs and the rewards will come, was the advice Seaspan CEO and co-chairman Gerry Wang had for container line operators, who he said are too focused on freight rates and supply and demand.
In an interview with the JOC in Hong Kong, Wang said the supply-demand imbalance will be around for years as larger vessels dominate the order books, but operating efficiency is the way to manage this glut of new capacity.
“I was with one of the top 10 majors last week, and after dinner I asked how their first quarter was, as typically the first quarter is the money-losing one. He said the line had saved 90,000 tonnes of bunker fuel in Q1 versus last year through the efficient operation of new ships,” Wang said.
“At $600 a tonne, that is $54 million savings for a slow season. If the carrier could continue at that rate, the fuel savings could be a few hundred million dollars. The liner executive concluded that he had wasted three years focusing on the market and hoping demand would have come back instead of focusing heavily on fuel saving,” he said.
“That is what the carriers are talking about, and it is after Maersk led the way,” Wang said. “Not because of its focus on freight rates or on the demand-supply situation, but because of its cost control. All the majors are now entirely focused on operating efficiency — while they cannot control the market, they can control their costs.”
Even as the new tonnage enters service, Wang believes efficient operation of the new vessels is the answer.
“It is not that there are too many new ships,” he said. “There are too many old ones. Vessels 20 and 30 years old are just not efficient anymore. And think about it: To be able to save 90,000 tonnes of fuel in one quarter is incredible.”
Seaspan Ship Management Ltd. is the world’s third-largest non-operating container shipowner, according to Alphaliner, with a fleet of 110 vessels, including 35 newbuildings scheduled for delivery to Seaspan and third parties by the end of 2016. Wang founded the company in 2000 with partner Graham Porter.
Through the ups and downs of the container market, he has continued to invest, and while global shipping lines were battling to stay in the black, Wang was reaching for his checkbook. Seaspan spent $3.5 billion on new ships in the past two years to take advantage of falling ship prices, financing costs at historical lows and improved ship designs.
“We love the bad years. The bad years are wonderful for asset lovers like us. In the good years I focus on improving my golf handicap, and in the bad years that’s when we really do some damage,” Wang said. “When everyone starts getting excited, that’s probably the time we will look at disposal of assets.”
The company’s 10- to 12-year charters with major container lines have enabled it to ride through the ups and downs of the industry, and Wang said the company’s secured cash flow and strong balance sheet are what allow Seaspan to grow during downturns while others struggle to survive.
“It is a counter cyclical way of doing business,” he said. “The key is to take advantage of the down cycle for long-term development, and we are very efficient in managing cycles. We have no bad accounts, no bad debts, and we have not missed one charter through all the down cycles. Cash-flow stability is very strong, and that is important for a leasing company. We focus on good shipping line operators and government-controlled companies, such as MOL, ‘K’ Line, Yang Ming, Cosco, China Shipping.”
Wang said the utilization of its ships is over 99 percent, with the average age of the fleet just four-and-a-half years. The largest vessel on its books is 14,000 TEUs, and when asked whether Seaspan was considering ordering even larger vessels to satisfy an industry focusing on economies of scale, Wang said that is “definitely” in the plans.
Read more about mega-ships
“We are looking at 18,000-TEU ships for several key customers. We are talking about their requirements and are in private discussions with the shipyards and designers. It takes some time to develop and come up with the right design for a particular trade, but sooner or later you will see us ordering those 18,000- or 19,000-TEU vessels,” he said.
So how big will vessels get? Wang said 22,000 to 23,000 TEUs would probably be the limit. Once ports have upgraded or built infrastructure to handle the 18,000-TEU ships it would not require additional investment to handle 23,000-TEU vessels.
“The 18,000 TEU ship is around 437 yards long, and the maximum size per ship a port could handle is about 460 yards. The maximum beam to be able to go through the Suez Canal is around 68 yards, so you could still add one row of containers across todays ships. Technologically it will be no difficulty at all,” he said.
Wang said the 18,000- to 19,000-TEU ships are like the Boeing 747s introduced in the 1960s, variants of which remain the dominant aircraft today. “The Airbus 380 is the biggest and will be around for a long time, but for most trades the 747 will dominate, just like the 18,000- and 19,000-TEU ships will do for years,” he said.
Private equity-funded vessel splurge fuels risk to shipping sector
Fri, May 09 16:53 PM IST
* Pvt equity has pumped $32 bln into shipping in past 2 yrs-fund mgr
* Ships totaling 299 mln dwt to enter global fleet from May-analyst
* Some pvt equity-backed shipping IPOs have been put off on weak sentiment
By Keith Wallis
SINGAPORE, May 9 (Reuters) - The shipping industry faces a looming capacity glut as billions of dollars pumped into it by private equity have stoked a vessel-buying spree, threatening its prospects just as the sector is emerging from its worst downturn in three decades.
Backed by private equity and hedge fund financing, shipping companies have placed orders for thousands of new ships over the past two years, reminiscent of the ship-ordering binge of the mid-2000s that eventually led to overcapacity after the global financial crisis severely hit cargo demand.
The demand-supply equilibrium could tilt into overcapacity again from 2016, straining shipping companies' finances. It may also make private equity's exit from shipping less profitable, shipping experts said.
"Shipping is not a get-rich-quick business. By virtue of the capital that the private equity funds are pumping into shipping, they are in effect destroying the very prospects that they are chasing," said Jan Engelhardtsen, chief financial officer at Olso-listed tanker and terminals company Stolt Nielsen.
"Because the investment horizon for private equity is short-term and shipping is fundamentally long-term in nature, private equity's entry into shipping in most cases is never going to end well," Engelhardtsen told Reuters.
Private equity companies such as Oaktree Capital, Apollo Global Management and Blackstone Group have invested in tankers, container ships and bulk carriers, set up or acquired shipping companies and bought ships and shipping loan books from banks such as Germany's Commerzbank and British state-backed bank Royal Bank of Scotland.
Estimates vary, but maritime fund management company Tufton Oceanic says private equity has invested about $32 billion in shipping in the last two years.
Among major private equity shipping deals are Global Maritime Investments' move to invest in around 20 dry cargo ships. And Oaktree Capital Management bought into Star Bulk Carriers Corp last year, but later trimmed its holding. Star Bulk has 28 dry bulk ships, including 11 that are on order.
The current global ship order book is worth $297.6 billion although $110 billion remains unfunded, according to figures from Britain's Clarkson Research Services and Tufton Oceanic.
The investment will help create a surge in ship deliveries with ships totaling 299 million deadweight tonne (dwt) due to enter the global fleet from May compared with a current global fleet of 1.7 billion dwt, according to Clarkson data.
Global seaborne trade, including commodity shipments, is expected to grow 4 percent in 2014, Clarkson has forecast. If trade growth remains at similar levels in the next two years, it will potentially create a supply glut of tonnage from 2016.
Ng Siu-fai, chairman of Oslo-listed dry cargo ship owner Jinhui Shipping and Transportation, in a reference to private equity, said the company had seen new participants placing new orders "with a primary, if not only, objective of speculative gain in asset price appreciation rather than working these.....assets for long-term positive cashflow".
But Albert Stein of debt and restructuring specialist AlixPartners in London, which advises private equity among others, said shipowners must share the blame for the coming glut.
"You can't blame private equity alone. (look at) who sold them the idea that the market's going to expand," said Stein.
Private equity firms typically have a three- to five-year investment horizon and exit through asset sales or initial public offerings.
"PE firms come in all shapes and sizes and have varying investment horizons. However, they're all trying to generate returns of 15 percent plus per annum, which restricts them to relatively short investment periods," said one Hong Kong-based ship financier.
New ship prices have been volatile over the past six years. For example, the price of a new 320,000 dwt supertanker was $105 million in 2010, but dropped to $93 million in 2012, while the current price is $101 million, according to Clarkson figures. Second-hand ship prices now are generally lower than in 2010.
"The majority of the PE who purchased tonnage in 2009-2011 will see healthy returns in the high teens to mid twenties if they can monetise their positions within the next 24 months," said Randee Day, president and chief executive of Day and Partners, a U.S. maritime consulting and advisory firm.
"Sophisticated private equity will not remain in exposed positions over the next 18-24 months," she said.
Weak public investor sentiment has led to the postponement of several shipping IPOs although several more IPOs, backed by long-term shipowner interests, are planned. Wilbur Ross' Diamond S Shipping Group cancelled its tanker IPO in March and Greece's Stalwart Tankers scrapped its IPO last month.
Uncertainty over the success of IPOs and a rise in asset prices has led some private equity to lengthen their investment time horizons.
"I suspect some firms have extended their hold periods on existing investments because it would have been unprofitable to exit at the originally envisaged time - you have to suspect the Diamond S/Wilbur Ross deal is in this category," said the Hong Kong financier. (Editing by Muralikumar Anantharaman)
World Ore Glut Outweighs Slowest China Growth Since ’90
By Naomi Christie - May 8, 2014
There’s so much cheap iron ore flooding into China that rates for the ships that carry it are forecast to jump almost 70 percent by June, even as the world’s second-biggest economy grows at the slowest rate in 24 years.
Bookings of Capesize vessels, most of which haul the steelmaking commodity, surged 47 percent to 90 a month so far in 2014 compared with a year earlier, Morgan Stanley in New York estimates. Both the expansion and the average are the largest for the time of year since 2009. Freight rates will rise as high as $20,000 a day by the end of this month from less than $12,000 now, Arrow Shipbroking Group in London predicts.
Owners are securing the extra cargoes because project expansions started over the past several years by miners including Rio Tinto Group (RIO) and BHP Billiton Ltd. are now producing ore. While that’s creating a global glut and pushed iron ore into a bear market, global prices are undercutting China’s by the most in five years. The commodity will average the least since 2009 this year and fall every year through 2017, analyst estimates compiled by Bloomberg show.
“As long as Chinese growth doesn’t fall off a cliff and the iron ore price keeps falling, that’s going to boost the global dry-bulk market,” Erik Nikolai Stavseth, an analyst at Arctic Securities ASA in Oslo, whose recommendations on shipping companies returned 8.5 percent in the past year, said by phone May 1. “All the biggest producers are closing in on big supply additions this year and next.”
Rates for Capesizes rose 31 percent to $11,829 a day this month, the highest for the time of year since 2010, according to data from the Baltic Exchange in London. The $16,298 they made in the first quarter was the highest for the time of year since 2010. Freight swaps indicate the ships will earn $15,565 this quarter, the bourse’s data show.
International ore with 62 percent iron content at the Chinese port of Tianjin plunged 19 percent to $105.10 a dry metric ton in the past year. It fell into a bear market in March. The commodity currently costs about $20 a ton less than domestic Chinese supply, the biggest discount for the time of year since 2009, a formula from Bloomberg Industries shows.
“Smaller Chinese iron ore miners are being priced out of the market and this is only going to continue,” said Jeffrey Landsberg, president of Commodore Research & Consultancy, a New York-based adviser to owners. “Such a development is phenomenal for the shipping market. There’s going to be an even larger demand for iron ore imports.” He spoke in phone interviews April 24 and May 2.
Some Chinese iron ore mining companies with higher costs will probably be forced to close, Michiel Hovers, BHP Billiton’s vice president of iron ore marketing, said at a conference in Singapore yesterday. That won’t be the case for the biggest producers including Rio de Janeiro-based Vale SA, Rio Tinto in London and BHP in Melbourne, that have invested billions to expand output, betting on sustained demand growth in China.
The Capesize fleet will expand 3.9 percent this year, less than half global trade growth in iron ore, according to data from London-based Clarkson Plc (CKN), the world’s largest shipbroker. Growth in total ship capacity will slow to about 3.6 percent in 2015, it estimates.
Some vessel owners anticipated the acceleration in China’s demand, meaning a surge in freight rates could be short lived. Ship yards, almost all in Asia, have orders to build 258 Capesizes, about the highest in 2 1/2 years, according to data from IHS Maritime, a Coulsdon, England-based firm that maintains a database for the International Maritime Organization.
China’s growth is also not poised to quicken any time soon. The economy that creates demand for 69 percent of the world’s seaborne ore and 19 percent of its coal cargoes will grow by 7.3 percent this year, the lowest since 1990. Next year that will decline to 7.2 percent and be little changed the year after, according to the averages of economist forecasts compiled by Bloomberg.
For the time being, China’s slowing growth isn’t hindering the shipping market. Australia’s Port Hedland, the world’s biggest bulk-export terminal, shipped a record 28.9 million tons of ore to China in April.
The cargoes are adding to a global oversupply. Goldman Sachs Group Inc. estimates seaborne supply will exceed demand by 145 million metric tons next year, the most since at least 2009. The bank anticipates the price of the commodity will drop below $100 a ton in 2015.
“The baton falls on Chinese imports to soak up material,” Colin Hamilton, the London-based head of commodities research at Macquarie Group Ltd., wrote in an April 30 report.
China imported 83.4 million tons of iron ore in April, the highest for the month since records began in 1990 and up 24 percent from a year ago, according to customs data released today.
Shipments from Australia will rise 19 percent to a record 687 million tons this year, the country’s Bureau of Resources and Energy Economics said in March. More than half of Chinese production is uneconomic at today’s price levels, Jeremy Sussman, a research analyst at Clarkson Capital Markets in New York, said by phone April 30.
Rates for Capesize ships will probably rise as high as $20,000 by the end of this month, according to James Leake, managing director of research at Arrow Shipbrokers, who’s been a shipping analyst for 14 years.
“There’s so much more supply of iron ore, supply is pushing the price down,” Leake said. “There’s a structural upside for Capesizes.”
ARRIS Group Raised to Strong Buy From Outperform by Raymond James