Current And Future Global Market Trends: Mr. Ashish Niranjan, Head-Shipping and Operations, Nayara Energy
It’s a fascinating time at this juncture of the year to talk about the markets with it being the beginning of the year. The tone of the year is yet to set in, and right now, we have a lot of uncertainties going on with the IMO regulations and various other factors impacting the shipping industry. Mr. Ashish Niranjan, Head of Shipping & Operations, Nayara Energy Ltd.,
spoke about the “Current & Future Global Market Trends”, presenting what is predicted for the future of the industry at the “India Tanker Shipping & Trade Summit 2020”. The event was organised by The Shipping Tribune at Holiday Inn, Mumbai.
“Those who do not learn history are doomed to repeat it.”, wise words by Mr. Niranjan as he started off by analysing the past. The following are figures from the past 30 years of the journey of the tanker trade markets, starting with 1990,
Source: Clarksons SIN
The following analysis will be using VLCC as a benchmark of all the segments as they currently lead the market. Looking at the decade of 1990-1999, the table summarizes the tanker earnings per day, year wise, for the decade and the average was $26,000 a day. The next decade; 2000- 2009, the average earnings were $60,000 a day for the entire decade. This is a notable rise from the previous decade. However, The last decade of 2010 to 2019 averaged out to $31,000 a day. Is it possible to decipher a trend emerging here?
Taking the clean markets into consideration;
During 2000 to 2009, the LR was at $27,000 a day and the MR was at $21,000 a day.
For the decade of 2010- 2019, the LRs were back to $14,000 a day and MRs to $12,000 a day. The lesson to be understood is in table below,
The decade of 1990-1999 was a Burst cycle, the earnings were very depressed. The next decade, 2000-2009, was a Boom cycle. Shipping is said to be a cyclical business, which is evident in the performance of the following decade with 2010- 2019 being another Burst cycle. Does this indicate that 2020- 2029 will be another Boom Cycle?
We need to look at what's happening now and what's likely to happen in the next 10 years. Moving from to the past to the present, the following graph represents the current market;
The market took a very high turn during the 4th quarter of 2019. There were so many geo-political uncertainties which kept on impacting the market and the impact started happening close to September. Until august- September, the markets were nearly flattish, they were weak and moderate. There were also the US and Iran issues, Attacks on some of the ships in the red sea, The assassination of the Iranian general, A ban on COSCO ships, amongst other significant events. As visible in the graph above, on the 25th of September, the market went up to more than $300,000 a day on VLCCs. This happened in less than a span of two weeks, which was unheard of.
“In the last 22 years, that I have been in the industry, I have not seen a market like this. Clarkson’s stopped reporting their assessment on a daily basis, because it is too volatile to report. There are many factors contributing to this, Geo- Politics being the main driver.”
The way the fundamentals are placed have to be analysed. Technical factors can take the market up and down like any other market, whether it is the stock market or an oil market. It is essential to understand how the fundamentals are placed.
What happened to the spread between VLSFO and HSFO?
It went up to more than $400 per tonne and it is now back to $230-$240 per tonne.
How is it likely to behave in the future? Looking at its performance so far, Q4 has been very rewarding for the shipowners. It’s been very volatile and uncertain until recently and the market was still very strong when it started to fall.
In terms of demand, the global economic outlook is not very positive. The world economy is not likely to grow beyond 3% or possibly less. The growth of GDP in China is likely to be close to around 6% and maybe 5% or less in India. US data also shows a decelerating economy; putting further pressure on global GDP. UK Brexit, weak German manufacturing demand has been adversely impacted, all signaling towards “ Weaker Demand”.
We’ve seen the past and we’ve taken a look at the present. Where do we go from here?
One of the prime factors currently impacting the market repeatedly is Geopolitics. “Now wherever you've got crude, you've got some kind of a civil strife, or an international strife or a dispute going on in most of the regions of the world.”
The Environment plays a big role today, “It’s not just the IMO regulations, it is also the concerns which the developed world and the developing countries are having towards the environment. The young generation has become very conscious of the environment which is going to have a long term impact.”
“IMO is likely to introduce more measures going forward in the next decade of 2020 to 2030. Measures to reduce the greenhouse gases, CO2, etc. We will have to wait and watch. The spread between VLSFO and HSFO which was talked about earlier; If you look at the futures, it is being projected to be less than $100 a tonne and to be less than $69-$70 a tonne by 2022. The question is not with the spread, the question is will HSFO be available in all the regions to fit all the ships that are already having scrubbers or will the world gravitate towards VLSFO?”
The markets will be much more volatile than they have been in the past. Instead of a 10 year cycle for a bust or a boom, there are likely to be shorter cycles due to environmental concerns, technology is a guiding factor and uncertain geo politics.
New trade routes will eventually emerge. In an oversupplied market, even a 10% addition on the different segments on the ships is a lot. “Very soon you’ll be talking about 1000+ VLCCs, which is too high a number. In my opinion, from 2020 to the next three years the markets will be weak in general. Does it mean we will be at $16k a day? I'm not putting a number to it. The markets will still have peaks of over $50k, $70k, but average earnings will be on the weaker side for the next three years. 2023-2026, in my estimate, will be likely to be a fairly strong market.”
There is no consensus as yet, but it is likely that by 2050, the importance of oil as transportation fluid will at least be half of what it is today. A lot of countries have been advocating that they will stop using oil as transportation fluid by 2030-2035. Whether the demand for oil completely fades out or not, it is certain that it will reduce to a large extent.
To conclude, “The future is very uncertain as we stand here today but very interesting at the same time. A lot of opportunities can open up. The early bird advantage will always lie with the shipowners who made the first move.
The next two to three years is going to be quite a weak freight market. There will be opportunities for charterers to take long term time charters and opportunities for owners to diversify.
Crisis always throws off opportunities, we are possibly in the mid phase of the next decade to be a strong freight market. A volatile market keeps all of us on our toes, a trader loves volatility in the market. Let's hope for a future which is greener and at the same time which brings in opportunities for all of us maybe from one segment to another segment.”
Source: Kavita Mishra (TST Newsdesk)