Liquid Bulk Shipping: The Start Of A Brutal Down Cycle

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Liquid Bulk Shipping: The Start Of A Brutal Down Cycle

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Ongoing Overcapacity

The global crude-oil shipping sector continues to be affected by the overcapacity that is plaguing the container and dry bulk shipping sectors also. Vessels ordered during the boom years continue to come online, and although the ordering appears to have slowed, there is much extra tonnage still scheduled to be floated. Despite reported increased demand from Japan in the wake of the country's nuclear scare in March, and the ever-growing needs of China and other emerging markets, BMI does not believe that demand growth will be sufficient to absorb the tonnage, especially given the flat growth we project in the OECD countries this year. As such we agree with leading tanker operators in projecting a continued period of pain for the sector, especially for the larger vessels.

Drivers Key Views

• Global oil supply and demand to grow, though not sufficiently to absorb tonnage.

• Increased Saudi production potential lifeline for tanker industry.

• US oil imports to fall, China to take up some of the slack.

• Non-OECD countries will drive demand growth.

• Short-term risk to oil import demand from the IEA stockpile release.

Capacity Key Views

• Liquid-bulk sector to continue to suffer from overcapacity in the market.

• Very few vessels remain to be scrapped.

• Slow-steaming on ballast legs is becoming industry practice.

• New orders slowing, but tonnage still coming online.

Rates Key Views

• Rates on key index and benchmark tanker routes will continue to fall.

• Tanker operators will struggle to maintain their bottom lines.

• Larger companies already looking forwards to after the slump; smaller operators to suffer.

Executive Summary ............. 7

Overview . 7

Ongoing Overcapacity ............... 7

Drivers ..... 7

Key Views ............. 7

Capacity ... 7

Key Views ............. 7

Rates ........ 7

Key Views ............. 7

Liquid Bulk Shipping: The Start Of A Brutal Down Cycle ................... 8

A Gloomy Outlook.......... 8

Overview............... 8

Drivers...... 8

Key Views.............. 8

Exports To Grow.... 8

Demand Driven By Non-OECD Countries........ 9

CHART: OPEC Leading The Way..9

BMI Oil Supply Forecast To 2015

CHART: Chinese Imports Solace For Tanker Operators........... 10

US & China Oil Imports

IEA Stockpile Release To Hit Industry............ 10

Capacity.. 10

Key Views............ 10

All Scrapped Out?11

Overcapacity Still An Issue As Deliveries Keep Coming......11

Methods To Combat Overcapacity................ 12

CHART: Idling Up...12

Idled Vessels (mn dwt)

Rates....... 12

Key Views............ 12

CHART: Far From 2008 Highs.13

Baltic Dirty Tanker Index, US$

Opportunities For Some........... 13

Company Profiles ............ 14

Frontline. 14

Overview............. 14

Strategy............... 14

SWOT: Frontline company profile swot....................14

Financials 2011.... 14

Excess Supply And Falling Rates.................. 15

Outlook Gloomy... 15

2010.................... 15

Latest Activity .............. 16

Share Price Hit By IEA Announcement.......... 16

Early Terminations.................... 16

Teekay........... 17

Overview............. 17

Strategy............... 17

Financials 2011.... 17

2010.................... 17

SWOT: Teekay company profile swot..... 17

Latest Activity ............. 18

Share Price Hit By IEA Announcement.......... 18

Mitsui OSK Lines (MOL ) Tankers............. 19

Overview............. 19

Strategy .............. 19

Financials 2010 .. 19

SWOT: MOL company profile swot..........19

Lastest Acticity.............. 20

MOL To Pay US$1.2mn Fine To Settle Allegations............. 20

MOL And Hafnia To Participate In New LR1 Pool............... 20

Nippon Yusen Kaisha (NYK Line) ........... 21

Overview............. 21

Strategy............... 21

SWOT: NYK company profile swot........... 21

More LNG Carrier Orders Placed As Demand Soars.......... 21

Financials.................... 22

NYK Lowers Profit Forecast Following Earthquake And Tsunami - 2011. 22

2010.................... 22

Latest Activity.............. 23

Rewarded For Green Steel...... 23

Overseas Shipholding Group (OSG)....... 24

Overview............. 24

Strategy............... 24

SWOT: OSG company profile swot........... 24

Financials 2011.... 24

2010.................... 24

Lastest Activity ............. 25

Share Price Hit By IEA Announcement.......... 25

Global Assumptions .......... 26

Global Outlook............. 26

Second Half Risks ................... 26

TABLE: GLOBAL ASSUMPTIONS ..26

Indicators: Real GDP Growth (%) - US, Eurozone, Japan, China, World

Consumer Inflation (ave) - US, Eurozone, Japan, China, World

Interest Rates (eop) - Fed Funds Rate, ECB Refinancing Rate, Japan Overnight Call Rate

Exchange Rates (ave) - US$/EUR, JPY/US$, CNY /US$

Oil Prices (ave) - OPEC Basket (US$/bbl ), Brent Crude (US$/bbl )

Developed States .................... 27

Table: EMERGING MARKETS AGGREGATE GR OWTH ........ 27

indicators: Emerging Markets Aggregate Growth, Latin America - Argentina, Brazil,

Mexico Middle East - Saudi Arab ia, UAE, Egypt Africa - South Africa, Nigeria

Emerging Asia - China, Hong Kong, India*, Indonesia, Malaysia, Singapore, South Korea,

Taiwan, Thailand Emerging Europe - Russia, Turkey, Czech Republic, Hungary, Poland

Emerging Markets ................... 28

Table : DEVELOPED STATES REAL GDP GROWTH FORECAST ............... 28

indicators: Developed States Aggregate Growth - G7, Eurozone, EU -27

Selected Developed States - Australia, Austria, Belgium, Canada, Denmark, Finland,

France, Germany, Ireland, Italy, Japan, Netherlands, Norway, Portugal, Spain, Sweden,

Switzerland, United Kingdom

Table : REAL GDP GROWTH CONSENSUS FORECASTS .....28

indicators: 2011 - Bloomberg Consensus, BMI 2012 - Bloomberg Consensus, BMI

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