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Thursday, 13 September 12
FUEL EFFICIENT SHIPS MAY BE MORE EXPENSIVE, BUT THEY MAKE FINANCIAL SENSE SAYS ANALYSIS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
 The latest trend in shipbuilding is the so called "Eco" ship, i.e. ships which offer much better fuel consumption and are more cost-effective in that sense. On the plus side, they help ship owners who order meet the latest regulations on shipping emissions, which are becoming ever so demanding. But, these vessels come at a heftier price tag, as much as 25% premium over regular ones. So one has to wonder, if the ship owners will his money back?
According to a relative analysis by Bimco's chief shipping analyst Peter Sand, this premium is financially and commercially viable. According to Sand, "our calculations show that, should you choose to invest in an ECO MR2-tanker, you could pay up to 25% more for your vessel before settling for a non-ECO MR2-tanker”. BIMCO has been looking at the basic economics of this development and can conclude that a fairly large premium can be paid on newbuildings to operate ECO ships instead of traditional ships. The calculations that are based on our assumptions, disclose that a 15% savings on fuel, potentially enables the owner of the ECO ship to charge extra up to the amount that is saved in fuel – which is USD 2,197 more per day than what a regular vessel can ever get obtain. The extra income means that a ship-owner can pay up to USD 8.31 million more for an ECO ship, for the investment to be equally good or better off as compared to a standard tanker. That is a premium of 25% when the standard vessel is priced at USD 33 million" he said.
Peter Sand also mentioned that "in the same way and based on the same fuel consumption and fuel prices assumptions, a ship-owner can pay up to USD 5.5 million more for an ECO ship for every 10% of fuel savings – or 17% more when a standard vessel is priced at USD 33 million. An obtainable premium to the market-given time charter rate (USD per day), where the charterer pays the fuel, is implied to be equal to an obtainable cost deduction on a market-given voyage charter rate (USD per tons) where the owner pays for the fuel".
So, what happens when one factors in the effect of fuel prices? "If the bunker prices go up the fuel-savings premium increases, making investments in ECO ships more viable. For each increase of USD 100 per tons in bunker prices the premium goes up by USD 338 per day, improving the net present value (NVP) of the investment by USD 1.3 million. A change to the fuel price tends to affect time-charter rates directly, but we fix the rate at USD 12,750 per day in the following calculations, which is the latest 1-year time-charter rate for a 47-48k products tanker according to CRSL. If the bunker price stays on the current level of USD 651 per ton the fuel-savings premium will not be high enough to make investment in an ECO ship profitable for a ship-owner; even the psychological barrier of USD 1,000 per ton will not make the investment sustainable with a negative net present value of USD 0.7 million. The bunker price has to exceed USD 1,060 per tons to make a new ECO ship an investment, with a positive NPV, if the ECO ship is priced at USD 33 million. In other words, bunker prices would have to increase by two-thirds ceteris paribus to make the investment viable under the circumstance of a fixed time-charter rate and OPEX level going forward" said the report.
It continued by mentioning that "at the current 1 year time-charter rate of 12,750 USD/day, a standard vessel does not meet its cash-breakeven rate making the investment unprofitable with an NPV loss of USD 13.5 million – more than the initial equity outlay. Even if we were able to secure the ECO ship at a cost of USD 33 million the investment will still be unprofitable, despite being able to charge a fuel-savings premium of 2,197 USD on top of the time-charter rate, making an NPV loss of USD 5.2 million.
The cash-breakeven cost for a vessel priced at USD 33 million is USD 13,928 a day covering the daily operating and financial expenses, but not return to equity, which explains why the time-charter rate plus the fuel-savings premium is not enough to make the investment in an ECO ship profitable in the current environment.
The effect of new-building prices
As stated above the current time-charter rates at a fixed level for the next 20 years are not high enough to sustain investments in new vessels at present new-building prices.
Returning to the benchmark case of 15% fuel savings and time-charter rates of 12,750 USD/day for a standard vessel, an ECO ship must not cost more than USD 27.8 million to be a profitable investment for a ship-owner. Comparably a standard vessel must cost as little as USD 19.5 million to be profitable in today’s market. “The current newbuilding prices reflect some optimism in the shipping industry. Higher freight rates are expected to be part of not too distant future. From our calculations two results are striking; Firstly, newbuilding prices are not as closely related to the present market condition as they normally are – and secondly, ECO ships seem to be the best profitable choice for the future fleet” adds Peter Sand.
The effect of time-charter rates
"Instead of changing the new-building prices, we now examine how high the time-charter rates must go before the purchase becomes profitable. For a standard vessel priced at USD 33 million, time-charter rates must be as high as USD 16,328 per day for the purchase to be sustainable – but rates have not been this high since mid-2009. If the ECO ship costs USD 33 million, the ship also needs to make USD 16,328 per day before the purchase is profitable; but a portion of the rate reflects the fuel-savings premium. By deducting the premium of USD 2,197 per day, we can compare the rate to the historical values observed by a standard vessel. This means that the base rate needs to be USD 16,328-2,197=14,131 per day before an ECO ship becomes a profitable investment. By looking at historical freight rates, this is achievable. The 10-year average for 2003-2012 is USD 19,214 per day for a 1-year TC for a 47,000-48,000 DWT products tanker. It should be noted that we have assumed that the whole advantage of the investment would go to the ship owner" the report concluded.
Source: Nikos Roussanoglou, Hellenic Shipping
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Thursday, 04 October 12
CAPESIZE : IN SPITE OF THE HOLIDAYS IN CHINA, RATES ARE CLIMBING UP - FEARNLEYS AS
Handy
Atlantic market remains quiet due to lack of cargoes and more supply of ships. Rates from Continent to east Med were around USD 13k and Black ...
Wednesday, 03 October 12
BARCLAYS'S PRICE FORECAST FOR NEWCASTLE COAL HAS BEEN WRITTEN DOWN
“ The main story in the global coal markets has been the growth in supply, with all of the major exporters adding volumes into a market which ...
Sunday, 30 September 12
SUB-BIT INDONESIA COAL SWAPS: MIXED TREND
COALspot.com - Sub-Bit Indonesia coal swaps (FOB ) for November 2012 delivery lost 0.73 percent w-o-w but gained 0.41 percent d-o-d on Friday, 28 Se ...
Sunday, 30 September 12
INDONESIA HAS NO PLAN TO CAP COAL PRODUCTION
COALspot.com - “The current low coal prices were mainly due to a global oversupply condition, spurred by numerous mining exploitations in the ...
Sunday, 30 September 12
FREIGHT MARKET UNDER PRESSURE; OVERALL SENTIMENTS ARE STILL BEARISH
COALspot.com - The freight market seemed to have lost steam and all indices were down except for cape index.
The BDI was slightly down by 6 point ...
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- The State Trading Corporation of India Ltd
- Orica Australia Pty. Ltd.
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- Power Finance Corporation Ltd., India
- Global Coal Blending Company Limited - Australia
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- Parliament of New Zealand
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- Ministry of Transport, Egypt
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- Alfred C Toepfer International GmbH - Germany
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- MS Steel International - UAE
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- Vedanta Resources Plc - India
- Trasteel International SA, Italy
- Kalimantan Lumbung Energi - Indonesia
- Standard Chartered Bank - UAE
- SMG Consultants - Indonesia
- Uttam Galva Steels Limited - India
- Rio Tinto Coal - Australia
- Anglo American - United Kingdom
- Energy Link Ltd, New Zealand
- Metalloyd Limited - United Kingdom
- Billiton Holdings Pty Ltd - Australia
- Economic Council, Georgia
- Mercuria Energy - Indonesia
- Toyota Tsusho Corporation, Japan
- Directorate Of Revenue Intelligence - India
- International Coal Ventures Pvt Ltd - India
- Indika Energy - Indonesia
- Carbofer General Trading SA - India
- Wood Mackenzie - Singapore
- Coal and Oil Company - UAE
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- Australian Coal Association
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- Siam City Cement PLC, Thailand
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- Chamber of Mines of South Africa
- Gujarat Mineral Development Corp Ltd - India
- Singapore Mercantile Exchange
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Mintek Dendrill Indonesia
- Deloitte Consulting - India
- TNB Fuel Sdn Bhd - Malaysia
- Energy Development Corp, Philippines
- CIMB Investment Bank - Malaysia
- Sojitz Corporation - Japan
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- Thai Mozambique Logistica
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- Therma Luzon, Inc, Philippines
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- Aboitiz Power Corporation - Philippines
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- Maheswari Brothers Coal Limited - India
- Leighton Contractors Pty Ltd - Australia
- Binh Thuan Hamico - Vietnam
- Petrochimia International Co. Ltd.- Taiwan
- GAC Shipping (India) Pvt Ltd
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- Global Business Power Corporation, Philippines
- TeaM Sual Corporation - Philippines
- SMC Global Power, Philippines
- VISA Power Limited - India
- LBH Netherlands Bv - Netherlands
- GMR Energy Limited - India
- Barasentosa Lestari - Indonesia
- Electricity Generating Authority of Thailand
- Riau Bara Harum - Indonesia
- European Bulk Services B.V. - Netherlands
- Pipit Mutiara Jaya. PT, Indonesia
- Kapuas Tunggal Persada - Indonesia
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- Cement Manufacturers Association - India
- Indian Energy Exchange, India
- PetroVietnam Power Coal Import and Supply Company
- Bhoruka Overseas - Indonesia
- Mjunction Services Limited - India
- Eastern Energy - Thailand
- Price Waterhouse Coopers - Russia
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- Global Green Power PLC Corporation, Philippines
- Planning Commission, India
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- Simpson Spence & Young - Indonesia
- Orica Mining Services - Indonesia
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- The University of Queensland
- PowerSource Philippines DevCo
- Independent Power Producers Association of India
- Latin American Coal - Colombia
- Xindia Steels Limited - India
- Directorate General of MIneral and Coal - Indonesia
- The Treasury - Australian Government
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- Jaiprakash Power Ventures ltd
- Petron Corporation, Philippines
- Sakthi Sugars Limited - India
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- Baramulti Group, Indonesia
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- Coalindo Energy - Indonesia
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- Ministry of Mines - Canada
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