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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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- White Energy Company Limited
- GMR Energy Limited - India
- Anglo American - United Kingdom
- Sindya Power Generating Company Private Ltd
- Jindal Steel & Power Ltd - India
- Toyota Tsusho Corporation, Japan
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- Planning Commission, India
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- Indian Energy Exchange, India
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- Energy Link Ltd, New Zealand
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- Electricity Authority, New Zealand
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- Rashtriya Ispat Nigam Limited - India
- Ministry of Mines - Canada
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- European Bulk Services B.V. - Netherlands
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- Sinarmas Energy and Mining - Indonesia
- TeaM Sual Corporation - Philippines
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- PTC India Limited - India
- Billiton Holdings Pty Ltd - Australia
- Sree Jayajothi Cements Limited - India
- Wood Mackenzie - Singapore
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- Timah Investasi Mineral - Indoneisa
- The State Trading Corporation of India Ltd
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- Aboitiz Power Corporation - Philippines
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- AsiaOL BioFuels Corp., Philippines
- Kaltim Prima Coal - Indonesia
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- Minerals Council of Australia
- Kalimantan Lumbung Energi - Indonesia
- Posco Energy - South Korea
- SN Aboitiz Power Inc, Philippines
- Formosa Plastics Group - Taiwan
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- Price Waterhouse Coopers - Russia
- Petron Corporation, Philippines
- Deloitte Consulting - India
- Coastal Gujarat Power Limited - India
- Altura Mining Limited, Indonesia
- Central Electricity Authority - India
- Sakthi Sugars Limited - India
- Chettinad Cement Corporation Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Latin American Coal - Colombia
- Jaiprakash Power Ventures ltd
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Bhushan Steel Limited - India
- Metalloyd Limited - United Kingdom
- Semirara Mining and Power Corporation, Philippines
- Globalindo Alam Lestari - Indonesia
- Bangladesh Power Developement Board
- Petrochimia International Co. Ltd.- Taiwan
- CNBM International Corporation - China
- IEA Clean Coal Centre - UK
- Port Waratah Coal Services - Australia
- Ministry of Transport, Egypt
- Salva Resources Pvt Ltd - India
- Star Paper Mills Limited - India
- Commonwealth Bank - Australia
- San Jose City I Power Corp, Philippines
- Kapuas Tunggal Persada - Indonesia
- Bulk Trading Sa - Switzerland
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Indonesian Coal Mining Association
- Straits Asia Resources Limited - Singapore
- Rio Tinto Coal - Australia
- Kohat Cement Company Ltd. - Pakistan
- Savvy Resources Ltd - HongKong
- The University of Queensland
- Samtan Co., Ltd - South Korea
- Sojitz Corporation - Japan
- Directorate Of Revenue Intelligence - India
- Marubeni Corporation - India
- Banpu Public Company Limited - Thailand
- Agrawal Coal Company - India
- Neyveli Lignite Corporation Ltd, - India
- Intertek Mineral Services - Indonesia
- Antam Resourcindo - Indonesia
- Karaikal Port Pvt Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Electricity Generating Authority of Thailand
- Manunggal Multi Energi - Indonesia
- Gujarat Sidhee Cement - India
- Wilmar Investment Holdings
- Gujarat Electricity Regulatory Commission - India
- Cigading International Bulk Terminal - Indonesia
- Economic Council, Georgia
- Meralco Power Generation, Philippines
- Mintek Dendrill Indonesia
- Alfred C Toepfer International GmbH - Germany
- Independent Power Producers Association of India
- Bayan Resources Tbk. - Indonesia
- Dalmia Cement Bharat India
- GN Power Mariveles Coal Plant, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- McConnell Dowell - Australia
- Standard Chartered Bank - UAE
- Tata Chemicals Ltd - India
- Merrill Lynch Commodities Europe
- Eastern Energy - Thailand
- Thiess Contractors Indonesia
- Renaissance Capital - South Africa
- CIMB Investment Bank - Malaysia
- Barasentosa Lestari - Indonesia
- Aditya Birla Group - India
- Thai Mozambique Logistica
- Heidelberg Cement - Germany
- SMC Global Power, Philippines
- PNOC Exploration Corporation - Philippines
- IHS Mccloskey Coal Group - USA
- Makarim & Taira - Indonesia
- Videocon Industries ltd - India
- Semirara Mining Corp, Philippines
- South Luzon Thermal Energy Corporation
- Bukit Asam (Persero) Tbk - Indonesia
- Grasim Industreis Ltd - India
- Kepco SPC Power Corporation, Philippines
- Larsen & Toubro Limited - India
- Krishnapatnam Port Company Ltd. - India
- Global Business Power Corporation, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- MS Steel International - UAE
- Directorate General of MIneral and Coal - Indonesia
- Bhatia International Limited - India
- Bhoruka Overseas - Indonesia
- Bukit Baiduri Energy - Indonesia
- New Zealand Coal & Carbon
- Coal and Oil Company - UAE
- Offshore Bulk Terminal Pte Ltd, Singapore
- London Commodity Brokers - England
- Leighton Contractors Pty Ltd - Australia
- Global Green Power PLC Corporation, Philippines
- Goldman Sachs - Singapore
- GVK Power & Infra Limited - India
- Eastern Coal Council - USA
- Australian Commodity Traders Exchange
- Maheswari Brothers Coal Limited - India
- Baramulti Group, Indonesia
- Ministry of Finance - Indonesia
- Ind-Barath Power Infra Limited - India
- Edison Trading Spa - Italy
- International Coal Ventures Pvt Ltd - India
- Parliament of New Zealand
- Global Coal Blending Company Limited - Australia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Meenaskhi Energy Private Limited - India
- Singapore Mercantile Exchange
- Siam City Cement PLC, Thailand
- Holcim Trading Pte Ltd - Singapore
- GAC Shipping (India) Pvt Ltd
- Indika Energy - Indonesia
- Central Java Power - Indonesia
- Australian Coal Association
- Indo Tambangraya Megah - Indonesia
- Georgia Ports Authority, United States
- Siam City Cement - Thailand
- Maharashtra Electricity Regulatory Commission - India
- Ambuja Cements Ltd - India
- Binh Thuan Hamico - Vietnam
- Borneo Indobara - Indonesia
- Interocean Group of Companies - India
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- The Treasury - Australian Government
- Malabar Cements Ltd - India
- Africa Commodities Group - South Africa
- Mjunction Services Limited - India
- Indian Oil Corporation Limited
- Therma Luzon, Inc, Philippines
- Sarangani Energy Corporation, Philippines
- Energy Development Corp, Philippines
- Bharathi Cement Corporation - India
- Kartika Selabumi Mining - Indonesia
- Xindia Steels Limited - India
- Trasteel International SA, Italy
- Romanian Commodities Exchange
- Coalindo Energy - Indonesia
- Kideco Jaya Agung - Indonesia
- LBH Netherlands Bv - Netherlands
- Vijayanagar Sugar Pvt Ltd - India
- SMG Consultants - Indonesia
- PowerSource Philippines DevCo
- Madhucon Powers Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Cement Manufacturers Association - India
- Vedanta Resources Plc - India
- Orica Mining Services - Indonesia
- India Bulls Power Limited - India
- Ceylon Electricity Board - Sri Lanka
- ASAPP Information Group - India
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