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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, 31 August 12
ADVERSE SHIPPING MARKET CONDITIONS SHORTENS LIFE SPAN OF VESSELS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The adverse conditions which have been put in place in the world's freight markets, means that ship owners are forced to scrap vessels of a much yo ...
Thursday, 30 August 12
INDO-INDIA, LARGE ECO SUPRA NOW FIXED AT USD 7K FOR DELIVERY SINGAPORE - FEARNLEYS AS
Handy
The Supra market continued its negative trend with little fresh business entering the market. Continent positions fixed around USD 4k for tri ...
Thursday, 30 August 12
DRY BULK MARKET STILL LOOKING OUT FOR BETTER DAYS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
With things in China moving slowly this week, as a result of holidays, it’s no surprise that the latest positive trend in the dry bulk market ...
Wednesday, 29 August 12
COLOMBIA'S MINING BOOM: PART TWO - JOSEPH KIRSCHKE
One of the most prominent casualties of Canada's entry into the Colombian mining sector has been a priest named Jose Reynal-Restrepo. Last Septembe ...
Wednesday, 29 August 12
COLOMBIA'S MINING BOOM: PART ONE - JOSEPH KIRSCHKE
COALspot.com - Colombia stands before one of the potentially largest, most diversified mining booms in the world. Untold reserves of gold, coal, cop ...
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- SMG Consultants - Indonesia
- Larsen & Toubro Limited - India
- Intertek Mineral Services - Indonesia
- Heidelberg Cement - Germany
- The State Trading Corporation of India Ltd
- LBH Netherlands Bv - Netherlands
- Pendopo Energi Batubara - Indonesia
- Port Waratah Coal Services - Australia
- Jindal Steel & Power Ltd - India
- Directorate Of Revenue Intelligence - India
- Australian Coal Association
- Global Business Power Corporation, Philippines
- AsiaOL BioFuels Corp., Philippines
- Simpson Spence & Young - Indonesia
- Orica Mining Services - Indonesia
- Uttam Galva Steels Limited - India
- Dalmia Cement Bharat India
- Altura Mining Limited, Indonesia
- Parry Sugars Refinery, India
- Leighton Contractors Pty Ltd - Australia
- Manunggal Multi Energi - Indonesia
- Sarangani Energy Corporation, Philippines
- IHS Mccloskey Coal Group - USA
- Bahari Cakrawala Sebuku - Indonesia
- Timah Investasi Mineral - Indoneisa
- South Luzon Thermal Energy Corporation
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Savvy Resources Ltd - HongKong
- Mintek Dendrill Indonesia
- The University of Queensland
- Wood Mackenzie - Singapore
- Bayan Resources Tbk. - Indonesia
- Meralco Power Generation, Philippines
- Banpu Public Company Limited - Thailand
- IEA Clean Coal Centre - UK
- Planning Commission, India
- Maheswari Brothers Coal Limited - India
- Electricity Authority, New Zealand
- Price Waterhouse Coopers - Russia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Makarim & Taira - Indonesia
- Borneo Indobara - Indonesia
- Tamil Nadu electricity Board
- Gujarat Mineral Development Corp Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- VISA Power Limited - India
- Coastal Gujarat Power Limited - India
- GAC Shipping (India) Pvt Ltd
- Chettinad Cement Corporation Ltd - India
- Kobexindo Tractors - Indoneisa
- Global Green Power PLC Corporation, Philippines
- Rashtriya Ispat Nigam Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Videocon Industries ltd - India
- Bharathi Cement Corporation - India
- Kapuas Tunggal Persada - Indonesia
- Parliament of New Zealand
- Vizag Seaport Private Limited - India
- Anglo American - United Kingdom
- London Commodity Brokers - England
- Cigading International Bulk Terminal - Indonesia
- Binh Thuan Hamico - Vietnam
- Offshore Bulk Terminal Pte Ltd, Singapore
- Gujarat Sidhee Cement - India
- Eastern Energy - Thailand
- Sindya Power Generating Company Private Ltd
- Deloitte Consulting - India
- ICICI Bank Limited - India
- Attock Cement Pakistan Limited
- Holcim Trading Pte Ltd - Singapore
- Semirara Mining and Power Corporation, Philippines
- Thai Mozambique Logistica
- Baramulti Group, Indonesia
- Aditya Birla Group - India
- Lanco Infratech Ltd - India
- McConnell Dowell - Australia
- European Bulk Services B.V. - Netherlands
- SMC Global Power, Philippines
- Indian Oil Corporation Limited
- MS Steel International - UAE
- Meenaskhi Energy Private Limited - India
- Electricity Generating Authority of Thailand
- Coalindo Energy - Indonesia
- Edison Trading Spa - Italy
- Agrawal Coal Company - India
- PowerSource Philippines DevCo
- Rio Tinto Coal - Australia
- Jorong Barutama Greston.PT - Indonesia
- Sical Logistics Limited - India
- CNBM International Corporation - China
- Neyveli Lignite Corporation Ltd, - India
- Australian Commodity Traders Exchange
- Bukit Baiduri Energy - Indonesia
- Thiess Contractors Indonesia
- Bhushan Steel Limited - India
- Singapore Mercantile Exchange
- Tata Chemicals Ltd - India
- GMR Energy Limited - India
- Malabar Cements Ltd - India
- Sakthi Sugars Limited - India
- Sree Jayajothi Cements Limited - India
- Africa Commodities Group - South Africa
- Ambuja Cements Ltd - India
- Global Coal Blending Company Limited - Australia
- Miang Besar Coal Terminal - Indonesia
- Formosa Plastics Group - Taiwan
- Aboitiz Power Corporation - Philippines
- Economic Council, Georgia
- Ministry of Mines - Canada
- Bukit Makmur.PT - Indonesia
- India Bulls Power Limited - India
- Gujarat Electricity Regulatory Commission - India
- Bangladesh Power Developement Board
- Barasentosa Lestari - Indonesia
- Standard Chartered Bank - UAE
- Jaiprakash Power Ventures ltd
- Wilmar Investment Holdings
- Carbofer General Trading SA - India
- Xindia Steels Limited - India
- Energy Development Corp, Philippines
- Sinarmas Energy and Mining - Indonesia
- Trasteel International SA, Italy
- Renaissance Capital - South Africa
- Grasim Industreis Ltd - India
- Interocean Group of Companies - India
- Central Electricity Authority - India
- Kumho Petrochemical, South Korea
- Kalimantan Lumbung Energi - Indonesia
- Samtan Co., Ltd - South Korea
- Petrochimia International Co. Ltd.- Taiwan
- Krishnapatnam Port Company Ltd. - India
- GVK Power & Infra Limited - India
- Chamber of Mines of South Africa
- Riau Bara Harum - Indonesia
- Bhoruka Overseas - Indonesia
- Siam City Cement PLC, Thailand
- Petron Corporation, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- The Treasury - Australian Government
- Directorate General of MIneral and Coal - Indonesia
- Central Java Power - Indonesia
- Indonesian Coal Mining Association
- Latin American Coal - Colombia
- Power Finance Corporation Ltd., India
- Energy Link Ltd, New Zealand
- Billiton Holdings Pty Ltd - Australia
- Kartika Selabumi Mining - Indonesia
- Alfred C Toepfer International GmbH - Germany
- PNOC Exploration Corporation - Philippines
- Indika Energy - Indonesia
- Georgia Ports Authority, United States
- Karbindo Abesyapradhi - Indoneisa
- Globalindo Alam Lestari - Indonesia
- Iligan Light & Power Inc, Philippines
- Vedanta Resources Plc - India
- Eastern Coal Council - USA
- GN Power Mariveles Coal Plant, Philippines
- CIMB Investment Bank - Malaysia
- Toyota Tsusho Corporation, Japan
- Bukit Asam (Persero) Tbk - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Ind-Barath Power Infra Limited - India
- New Zealand Coal & Carbon
- OPG Power Generation Pvt Ltd - India
- Cement Manufacturers Association - India
- Kideco Jaya Agung - Indonesia
- Salva Resources Pvt Ltd - India
- Kepco SPC Power Corporation, Philippines
- PTC India Limited - India
- Indogreen Group - Indonesia
- White Energy Company Limited
- Kaltim Prima Coal - Indonesia
- Posco Energy - South Korea
- Orica Australia Pty. Ltd.
- PetroVietnam Power Coal Import and Supply Company
- Semirara Mining Corp, Philippines
- Merrill Lynch Commodities Europe
- Ministry of Transport, Egypt
- Indian Energy Exchange, India
- Medco Energi Mining Internasional
- San Jose City I Power Corp, Philippines
- Commonwealth Bank - Australia
- ASAPP Information Group - India
- Goldman Sachs - Singapore
- Straits Asia Resources Limited - Singapore
- Indo Tambangraya Megah - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Essar Steel Hazira Ltd - India
- TeaM Sual Corporation - Philippines
- Bhatia International Limited - India
- Coal and Oil Company - UAE
- Mercator Lines Limited - India
- Star Paper Mills Limited - India
- Karaikal Port Pvt Ltd - India
- SN Aboitiz Power Inc, Philippines
- Mercuria Energy - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- International Coal Ventures Pvt Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Sojitz Corporation - Japan
- Minerals Council of Australia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Romanian Commodities Exchange
- Ministry of Finance - Indonesia
- Therma Luzon, Inc, Philippines
- Ceylon Electricity Board - Sri Lanka
- Bulk Trading Sa - Switzerland
- Marubeni Corporation - India
- Madhucon Powers Ltd - India
- Siam City Cement - Thailand
- Antam Resourcindo - Indonesia
- Independent Power Producers Association of India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Mjunction Services Limited - India
- Oldendorff Carriers - Singapore
- Metalloyd Limited - United Kingdom
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