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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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Friday, 28 September 12
DRY BULK SECOND HAND VESSELS ON HIGH DEMAND - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
Despite the demise of the dry bulk market and the collapse of freight rates since the beginning of 2012, on the back of record breaking newbuilding ...
Thursday, 27 September 12
MINING RE-COMMENCES AT ORPHEUS' B2 EAST KALIMANTAN COAL PROJECT
- B2 project overburden removal completed and coal exposed
- Coal getting has commenced with target production of 30,000tpm
- Orpheus to re ...
Thursday, 27 September 12
HANDY: THE PACIFIC MARKET IS GETTING WEAKER WITH UPCOMING GOLDEN WEEK HOLIDAYS - FEARNLEYS AS
Handy
Yet another week with rates softening in all trades. Especially owners with ships open Continent struggle to find employment paying decent mo ...
Thursday, 27 September 12
DRY BULK MARKET LOSES STEAM - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The rise of the BDI (Baltic Dry Index), the dry bulk industry’s benchmark during the course of the previous week, proved to be short-lived, as ...
Wednesday, 26 September 12
NEWBUILDING ORDERING ACTIVITY REMAINS SUBDUED ON GLOBAL MARKET UNCERTAINTY - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
Newbuilding ordering activity has been on the down side during the past few weeks, a trend also noticeable during the course of the past few days, a ...
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- Billiton Holdings Pty Ltd - Australia
- Trasteel International SA, Italy
- Deloitte Consulting - India
- Coalindo Energy - Indonesia
- Therma Luzon, Inc, Philippines
- SN Aboitiz Power Inc, Philippines
- The Treasury - Australian Government
- Cement Manufacturers Association - India
- Singapore Mercantile Exchange
- Carbofer General Trading SA - India
- Globalindo Alam Lestari - Indonesia
- Global Green Power PLC Corporation, Philippines
- Semirara Mining Corp, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Indian Oil Corporation Limited
- Kepco SPC Power Corporation, Philippines
- Sarangani Energy Corporation, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Parliament of New Zealand
- Sinarmas Energy and Mining - Indonesia
- Ministry of Transport, Egypt
- Port Waratah Coal Services - Australia
- Sakthi Sugars Limited - India
- Semirara Mining and Power Corporation, Philippines
- Meenaskhi Energy Private Limited - India
- PowerSource Philippines DevCo
- Siam City Cement - Thailand
- Xindia Steels Limited - India
- VISA Power Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Sical Logistics Limited - India
- Baramulti Group, Indonesia
- Indogreen Group - Indonesia
- CIMB Investment Bank - Malaysia
- Bulk Trading Sa - Switzerland
- SMG Consultants - Indonesia
- Orica Mining Services - Indonesia
- Merrill Lynch Commodities Europe
- Energy Development Corp, Philippines
- Tamil Nadu electricity Board
- CNBM International Corporation - China
- Sree Jayajothi Cements Limited - India
- Price Waterhouse Coopers - Russia
- Power Finance Corporation Ltd., India
- Latin American Coal - Colombia
- Kumho Petrochemical, South Korea
- Minerals Council of Australia
- Renaissance Capital - South Africa
- Mercator Lines Limited - India
- Aditya Birla Group - India
- Grasim Industreis Ltd - India
- Chamber of Mines of South Africa
- Georgia Ports Authority, United States
- Gujarat Mineral Development Corp Ltd - India
- Uttam Galva Steels Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Planning Commission, India
- South Luzon Thermal Energy Corporation
- Thai Mozambique Logistica
- Bhoruka Overseas - Indonesia
- Jindal Steel & Power Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- The State Trading Corporation of India Ltd
- Goldman Sachs - Singapore
- Rio Tinto Coal - Australia
- Anglo American - United Kingdom
- Bhushan Steel Limited - India
- White Energy Company Limited
- Coastal Gujarat Power Limited - India
- Meralco Power Generation, Philippines
- Eastern Coal Council - USA
- Commonwealth Bank - Australia
- Interocean Group of Companies - India
- Sindya Power Generating Company Private Ltd
- Kapuas Tunggal Persada - Indonesia
- Simpson Spence & Young - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Metalloyd Limited - United Kingdom
- Banpu Public Company Limited - Thailand
- Straits Asia Resources Limited - Singapore
- Global Coal Blending Company Limited - Australia
- Intertek Mineral Services - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Bahari Cakrawala Sebuku - Indonesia
- Borneo Indobara - Indonesia
- Agrawal Coal Company - India
- Essar Steel Hazira Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Edison Trading Spa - Italy
- MS Steel International - UAE
- Maharashtra Electricity Regulatory Commission - India
- Chettinad Cement Corporation Ltd - India
- Aboitiz Power Corporation - Philippines
- ASAPP Information Group - India
- Heidelberg Cement - Germany
- Ind-Barath Power Infra Limited - India
- Holcim Trading Pte Ltd - Singapore
- Lanco Infratech Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Global Business Power Corporation, Philippines
- Gujarat Sidhee Cement - India
- Indo Tambangraya Megah - Indonesia
- The University of Queensland
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Cigading International Bulk Terminal - Indonesia
- Siam City Cement PLC, Thailand
- New Zealand Coal & Carbon
- Malabar Cements Ltd - India
- Mjunction Services Limited - India
- Australian Commodity Traders Exchange
- Romanian Commodities Exchange
- Rashtriya Ispat Nigam Limited - India
- Thiess Contractors Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Central Java Power - Indonesia
- Toyota Tsusho Corporation, Japan
- Wood Mackenzie - Singapore
- Indika Energy - Indonesia
- Electricity Authority, New Zealand
- Antam Resourcindo - Indonesia
- Iligan Light & Power Inc, Philippines
- Makarim & Taira - Indonesia
- IHS Mccloskey Coal Group - USA
- Salva Resources Pvt Ltd - India
- Barasentosa Lestari - Indonesia
- India Bulls Power Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Bharathi Cement Corporation - India
- IEA Clean Coal Centre - UK
- Indonesian Coal Mining Association
- Bukit Baiduri Energy - Indonesia
- Karaikal Port Pvt Ltd - India
- PTC India Limited - India
- Madhucon Powers Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Parry Sugars Refinery, India
- Kideco Jaya Agung - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Videocon Industries ltd - India
- Mintek Dendrill Indonesia
- Formosa Plastics Group - Taiwan
- Krishnapatnam Port Company Ltd. - India
- GMR Energy Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Timah Investasi Mineral - Indoneisa
- Vedanta Resources Plc - India
- LBH Netherlands Bv - Netherlands
- London Commodity Brokers - England
- Ministry of Mines - Canada
- Attock Cement Pakistan Limited
- Australian Coal Association
- Manunggal Multi Energi - Indonesia
- Pendopo Energi Batubara - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Bayan Resources Tbk. - Indonesia
- Maheswari Brothers Coal Limited - India
- Orica Australia Pty. Ltd.
- SMC Global Power, Philippines
- Petron Corporation, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- GAC Shipping (India) Pvt Ltd
- OPG Power Generation Pvt Ltd - India
- Medco Energi Mining Internasional
- Mercuria Energy - Indonesia
- Vizag Seaport Private Limited - India
- Independent Power Producers Association of India
- Savvy Resources Ltd - HongKong
- Kobexindo Tractors - Indoneisa
- Riau Bara Harum - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- PNOC Exploration Corporation - Philippines
- Directorate Of Revenue Intelligence - India
- Wilmar Investment Holdings
- Bank of Tokyo Mitsubishi UFJ Ltd
- Star Paper Mills Limited - India
- Ambuja Cements Ltd - India
- Electricity Generating Authority of Thailand
- Posco Energy - South Korea
- Samtan Co., Ltd - South Korea
- Binh Thuan Hamico - Vietnam
- TNB Fuel Sdn Bhd - Malaysia
- Eastern Energy - Thailand
- Altura Mining Limited, Indonesia
- Jaiprakash Power Ventures ltd
- San Jose City I Power Corp, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Sojitz Corporation - Japan
- Dalmia Cement Bharat India
- GVK Power & Infra Limited - India
- Standard Chartered Bank - UAE
- Coal and Oil Company - UAE
- McConnell Dowell - Australia
- Marubeni Corporation - India
- International Coal Ventures Pvt Ltd - India
- Ministry of Finance - Indonesia
- Kartika Selabumi Mining - Indonesia
- European Bulk Services B.V. - Netherlands
- Bukit Makmur.PT - Indonesia
- Bangladesh Power Developement Board
- Alfred C Toepfer International GmbH - Germany
- Karbindo Abesyapradhi - Indoneisa
- ICICI Bank Limited - India
- TeaM Sual Corporation - Philippines
- Economic Council, Georgia
- Energy Link Ltd, New Zealand
- AsiaOL BioFuels Corp., Philippines
- Oldendorff Carriers - Singapore
- Central Electricity Authority - India
- Bhatia International Limited - India
- Tata Chemicals Ltd - India
- Africa Commodities Group - South Africa
- Kaltim Prima Coal - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Indian Energy Exchange, India
- Larsen & Toubro Limited - India
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