New report: Go with the grain
● Seaborne global grain volumes are expected to rise 13% in the 2013/14 grain year, driven by a 20% increase in PRC imports, especially of soyabeans and wheat, as consumption exceeds domestic production. Full report.
● This will lift demand for the smaller vessel classes typically used to transport such commodities, as will changing patterns in global sourcing and demand. We now anticipate another 0.7% in global dry bulk demand growth in 2014, taking us > 7% vs. supply of 5%.
● The last time an environment as conducive to earnings prevailed (flat to falling fleet, rising minor bulk demand) was 2005-2007 when handysize freight rates were at least 80% higher on average than they were in 2013.
● OUTPERFORM-rated Pacific Basin and CSD have the greatest exposure of our covered universe to the handy segment and the fastest rates of fleet growth, with unrated Precious Shipping also expected to see an uplift. Our universe has 5% 2014E earnings sensitivity to every 5% annual rise in handysize/max rates, impacting COSCO (64%), Pac Basin (25%) and CSD (15%) most.
Grain goes global
China's demand for commodities is unambiguously the single most important factor affecting the dry bulk shipping industry. A huge country, it has vast resources of its own, so its demand for imported materials is often driven by price differentials where commodities sourced from lower cost producers abroad can be landed more cheaply than those that are "home grown". This factor drove demand for imported iron ore in 2013 and we expect to see it underpinning foreign grain imports in 2014 at a time when (particularly Brazilian exported) grains are getting cheaper and China's consumption exceeds its production capabilities. Dry bulk companies that operate the vessels typically used to transport these commodities (the smaller handysize and handymax vessels) are expected to be major beneficiaries, especially because the supply of handy tonnage has now been shrinking for the past quarter.
Unlike ore and coal, which were cornerstones of China's pre-GFC infrastructural build out, grain was not a "super-cycle" commodity, with China essentially being self-sufficient during this period. The year ahead, however, should see a global pick up in grain shipments with the stocks available for export rising 13%, driven by increased trade in coarse grains and soyabeans as the PRC hits its import quota ceiling.
We see three other factors that will also positively alter demand patterns for grain shipping tonnage in 2014:
● the impact of Typhoon Haiyan on (especially) Philippine rice demand will drive greater requirement for dry bulk tonnage;
● the rise of South America as an agricultural exporter and the number of additional tonne miles required to service its more distant load ports; and,
● increased congestion at the (typically smaller) ports that handle grain imports, especially in countries like China and India and which are only able to be serviced by handysize vessels.
This deeper analysis of the grain trade adds another Mt31 mn to the demand side of the equilibrium equation, lifting our total dry bulk demand growth estimate for 2014 from 6.5% to 7.3%...and this before we layer across any tonne-mile effect from longer sailing times or congestion. Assuming a 32,000 dwt average vessel size, this corresponds to an additional 977 handysize voyages a year, which (assuming that these take place between South America and China) is equivalent to demand for an extra 4.4% of handysize capacity.
Source/Extract/Excerpts/来源/转贴/摘录: Credit Suisse
Publish date: 08/01/14