Monday, December 29, 2008
The Baltic Exchange Index Explained
The Baltic Exchange is a global marketplace of shipbrokers, ship owners and charters, based in London, England. The Baltic Exchange provides freight indices and route assessments and also operates as a maker of markets in freight derivatives, specifically a type of forward contract known as forward freight agreements (FFAs) that are traded over the counter. The Freight Indices and Futures Committee (FIFC) at the Baltic Exchange is responsible for production of the Index and other freight indices published by the Baltic Exchange, utilizing the professional assessments made by a panel of reporting shipbrokers on the prevailing open market levels. In compiling any of the sub-indices, the FIFC
selects the component routes and determines their weightings with a goal of producing a weighted basket of routes which is as representative as possible of the world's principal bulk cargo trades for that sub-index. The daily level of the sub-index is based on the average assessment made by all reporting panelists of the current market rate with respect to each route included in the sub-index and the applicable weighting for such route.
The publication of the Index and other freight indices of the Baltic Exchange is governed by the following rules.
Publication
The component sub-indices of the Index and the Index will normally be published by the Baltic Exchange at approximately 1 p.m. London time on each business day.
The Baltic Exchange may delay or cancel publication of the indices and routes if considered necessary or desirable. The Baltic Exchange provides route and index data only if it is fully satisfied that sufficient assessments from an adequate quorum of its reporting panelists have been received. If there are not sufficient panelists able or willing to report their assessments on any route or index then the Baltic Exchange has the right not to report on that day or any subsequent days until an adequate quorum has been assembled.
The Panel
The Baltic Exchange appoints a panel of shipbroker companies from its members. The Baltic Exchange may change the number of panelists and the composition of the panel at any time but aims to have panels consisting of at least seven panelists per index. As of July 2007, the number of panelists on each of the four sub-indices of the Index ranges from 12 to 22.
The Routes
The Baltic Exchange has the right to decide which routes are to be included and may alter the composition of the routes from time to time. Since September 2002,
All panelists' returns have been included in establishing the average assessment on dry routes. Prior to that date, both the highest and lowest returns were included.
Weightings
The Baltic Exchange from time to time decides the weighting applied to any route for the purpose of ascertaining its contribution to an index.
Weighting Factors
For the purpose of calculating the indices, the average rate for each route will be multiplied by the weighting factor for that route. The weighting factor for each route is ascertained by the Baltic Exchange and may be adjusted by the Baltic Exchange to take account of alterations to routes or route weightings.
Alterations to the Indices
No more than one route will be removed from an index at any one time. If a route is removed, one or more routes may be substituted for it.
The weighting of an existing route will not be altered by more than an amount equal to 25% of its existing weighting or 2.5% of the index at the date of the decision to make the alteration, whichever is the larger. No such limitation will apply to routes that are removed from or added to an index.
Any one alteration to an index will not result in an adjustment of more than 5% in the regional or commodity composition of a given index. The meaning of "region" and "commodity" for this purpose will be in the absolute discretion of the Baltic exchange.
When an alteration is made, a revised set of weighting factors will be applied to the routes, so that the new index will have the same level as the old index at the date of the alteration. The dry cargo freight market is sensitive to a variety of external variables, the most important of which include the following:
o Fleet supply: The number and types of ships available have a significant impact on the dry cargo freight market. The recent short supply of bulk ships, even as compared to oil tankers or container
ships, has driven up the dry bulk cargo rates.
o Commodity demand: The level of industrial production significantly
affects the dry cargo freight market. The pace of industrial
development in China, India and other developing countries has
compelled those countries to look farther for resources.
o Seasonal pressures: The weather has a meaningful impact on the dry cargo freight market, from the size of agricultural harvests to river
levels or presence of ice in ports that can cause delays.
o Fuel prices: With bunker fuel accounting for between one quarter and one third of the cost of operating a vessel, oil price movements
significantly affect the dry cargo freight market.
Formerly soaring global trade suddenly comes to a halt
A ship waits to unload at the Port of Long Beach, Calif. With economies in the USA, Europe and Japan slowing simultaneously, the World Bank says global trade will shrink next year by more than 2%.
Enlarge image Enlarge By Susan Goldman, Bloomberg News
A ship waits to unload at the Port of Long Beach, Calif. With economies in the USA, Europe and Japan slowing simultaneously, the World Bank says global trade will shrink next year by more than 2%.
The unstoppable force has stopped.
With economies in the United States, Europe and Japan slowing simultaneously, the World Bank says that global trade will shrink next year by more than 2%. That will mark the first time in more than a quarter century that the seemingly inexorable tide of globalization will be in retreat.
"Trade tends to be extra responsive to changes in income. When the world economy contracts, trade contracts even more rapidly," says economic historian Douglas Irwin of Dartmouth College.
The trade slump is both symptom and cause of the current global economic distress. For the U.S. economy, which just a few months ago was getting almost all of its forward momentum from net exports, "Trade will be a substantial drag on … growth," Ian Shepherdson, chief economist of High Frequency Economics, told clients in a recent research note.
Compounding the recessionary gloom, trade is being choked by the credit crunch, which is drying up routine export financing. Entering 2009, the open trading system that has delivered low-cost goods to American consumers while lifting tens of millions of people in developing countries out of poverty faces the danger of protectionism in countries such as China, Russia, France and, potentially, the U.S.
Trade's turnaround has been abrupt. As recently as 2006, global trade was surging at an annual rate of nearly 10%. This year, the total volume is still expected to grow more than 6% to about $14 trillion. But, with the Economist Intelligence Unit forecasting 29 national economies will shrink next year, demand will slump for products worldwide.
"Everything is down significantly, across the board in all sectors," says Peter Keller, president of the North American operations of NYK Line, a 123-year-old Japanese shipping company. "The trenches are ugly."
Until recently, trade was virtually the sole bright spot in the U.S. economy, with net exports responsible for most second-quarter growth. But the global slowdown is taking its toll. In October, U.S. goods exports fell for the third-consecutive month to $120.8 billion, almost 14% below July's level. And there are signs that new orders are melting amid the economic tumult.
Bright spot no more
After 70 consecutive months of expansion, the Institute for Supply Management export index released Dec. 1 showed falling orders in both November and October. A few weeks ago, Keller's ships were mostly full, thanks to orders placed months ago. Then, business tanked. Now there are mounting worries about retailers' plans for post-holiday orders. NYK announced last week that it would defer plans to purchase 60 ships as it seeks to trim capacity.
Trade's rise and fall can be traced on the Baltic Dry index, a measure of shipping demand. The index more than quadrupled from the end of 2005 through May of this year, reaching a high of 11,793 on May 20. Since then, as demand for container vessels and cargo ships evaporated, it has dropped an astonishing 94%.
It's not just slumping demand that explains traders' woes. Exporters are finding it difficult to obtain the letters of credit and insurance needed to ship goods between countries. "The subprime crisis has resulted in a liquidity crunch and, hence, bank finance for trade has decreased," said an October report from Celent, a financial consultancy.
Latin American exporters were the first to feel the chill, in September. In countries such as Brazil, companies found they couldn't obtain financing from New York banks that were feverishly reducing their credit exposure amid the worsening crisis.
Some of the affected trade even involved cases in which the International Finance Corp., the private sector arm of the World Bank, had signed contracts to provide the trade financing. The deals fell through because the money wasn't available from the U.S. banks, according to Hans Timmer, lead economist for the World Bank's global trends unit.
Since then, the problem has spread to other top emerging markets, such as India, according to the World Bank. Even companies in the U.S. and Europe shipping to customers in emerging markets face difficulties. Today's more volatile environment has prompted many companies to move away from so-called open-account or pay-on-delivery trade to the use of letters of credit, in which banks guarantee a customer's payment.
But even as demand for such bank guarantees has surged, the supply has been pinched by the overall credit crunch.
"Now even for corporations with long relationships, trust is not there anymore. … It's affecting almost everyone," says Axel Pierron, Paris-based senior vice president at Celent.
Long a financial backwater, trade finance is drawing increased attention from policymakers: The U.S. Treasury and the Chinese government agreed earlier this month to jointly make available $20 billion to facilitate their companies' sales to emerging markets. That move followed a $3 billion initiative announced last month by the International Finance Corp.
"There's been an aggressive intensification of the crisis over the past five or six weeks. Especially in emerging markets, credit is just drying up," says Harvard University's Kenneth Rogoff, former chief economist for the International Monetary Fund.
The frozen trade credit market is attracting new financial players, Pierron says. A handful of hedge funds, seeing prospects for attractive investment returns elsewhere vanishing, are considering getting involved in trade finance, he says.
Last month, at the Washington summit on financial markets and the world economy, leaders of the Group of 20 nations promised to refrain from erecting new barriers to trade or investment for the next 12 months. Left unsaid was what would happen in the 13th month. The last thing the already enfeebled global economy needs is a trade war.
Ebbing enthusiasm
Many industry representatives are apprehensive about the new year. With unemployment rising, the new Democratic-controlled Congress is expected to be less amenable to new trade agreements than was its predecessor. Public Citizen's Global Trade Watch says the ranks of trade liberalization opponents had a net gain of 28 votes in the House and six in the Senate, figures business community representatives, such as the National Foreign Trade Council, dispute.
Still, there is little argument over the fact that enthusiasm for further trade expansion along the lines of the agreements pursued by both parties in recent years is at low ebb. A trio of bilateral trade deals with Colombia, Panama and South Korea, continue to idle in Congress. And the Doha Round of global trade talks sputtered to a halt this month when WTO Director General Pascal Lamy opted not to convene a last-ditch negotiating session in Geneva.
The U.S. recession — the economy is shrinking in the fourth quarter by an estimated 4% to 6% — provides a potentially receptive environment for anti-trade measures. "As time goes on and the jobless rate goes up everywhere, we will see a growing trend toward protectionism," says Sung Won Sohn, an economist at California State University.
The Doha Round's failure also means countries will be free to impose tariffs that could shrink global trade volumes by $728 billion to $1.7 trillion, according to a new report by the International Food Policy Research Institute.
Countries typically apply lower tariffs than are permitted by the last global trade agreement, the Uruguay Round. They could legally increase them at any time.
Other arguments will come into play. Already one prominent U.S. economist, Dani Rodrik, has pointed out on his blog that the Obama administration's planned economic stimulus would pack a greater punch if the U.S. raised import tariffs to make sure the money is spent here and not on goods from abroad.
A $1 trillion shot of economic adrenaline, for example, would boost gross domestic product by $1.8 trillion, assuming consumers spent 20 cents of every dollar on imports. If tariffs, by raising the price of imported goods, encouraged them to buy only made-in-the-USA goods, the economic gains would rise to $2.8 trillion.
But Rodrik also says a coordinated international effort to stimulate spending would be a better option than raising tariffs, which would invite retaliation by other countries and risk a 1930s-style trade war.
What happened in the '80s
The last time the U.S. faced a severe recession, the early 1980s, it imposed import limits to protect the domestic auto, steel and textiles industries. Will a similar pattern unfold next year?
Not necessarily, Irwin says. The dollar was strong in the early '80s, so there was more pressure on domestic companies from foreign products. And U.S. manufacturers were not as globalized as they are today, with cross-border ownership stakes and supply chains that span the globe.
"Globalization has really defused a lot of protectionist pressures. Stopping trade at the border won't help as it did in the '80s," he said. "Things might be different this time."
Or they might not.
Shipping Bust Succeeds A Big Boom
Oxford Analytica, 12.29.08, 06:00 AM EST
Rates in the global shipping market have fallen sharply from a record high.
The Baltic Dry Index, which tracks freighter charter costs, is at a 22-year low. Rates in the global shipping market have fallen precipitately from a record high to levels last seen after the 1970s oil price shocks.
Shipping is an industry of peaks and troughs, usually in three-year cycles. Rising commodity prices, disrupted trading patterns and rapid gross domestic product growth raise charter rates. This prompts orders of new-builds. Older ships continue trading to take advantage of good rates. As the new-builds are delivered over the next 12 to 18 months, rates collapse. Older ships are sent for breaking and the cycle starts again. Cyclical trough. Since 2003, a five-year "super-cycle" has appeared, with rates climbing steadily, particularly in "dry" trades connected with the steel industry, but also for container vessels and energy carriers. Global GDP has grown for a prolonged period at an annual 4% to 4.5%, led by industrialization in China, which has been growing at rates approaching 10% a year for five years. The global financial crisis terminated this, though no one was prepared for the rapidity of the collapse, with the Baltic Exchange's dry bulk index going from 11,793 on May 20 to 715 on Nov. 28.
Fleet structure. The new-build order book to 2012 may decline by at least 10%--and more if the slump is prolonged. The financing necessary to complete the order book has been estimated at about $500 billion, of which only about half was in place before the global banking crash.
The resale value of modern vessels has fallen. Scrapping is increasing, but prices have fallen by more than 20%, with breakers looking for larger vessels that are easier to dismantle. Smaller bulkers built in the 1980s and 1990s are being sold to Far Eastern interests for one-third to one-half the price they would have fetched recently. This could have long-term effects for such leading European maritime nations as Greece and Norway.
Market sectors. The dry market has been hit harder than the "wet," where rates have varied widely depending on route and whether crude oil, gas oil or petrol was carried:
--Dry bulkers. In late November, cancellations were reported for 241 bulkers for delivery in 2009, with "massive" cancellations expected for 2010-2012.
--Containers. For almost a year, liner companies have been amalgamating routes and slow steaming to reduce costs. As ships on period contracts have come off charter, rates have been renegotiated substantially downward, with most owners of new-builds accepting work in order to meet financing costs.
--Tankers. Freight rates have fallen with the oil price, as users, their storage capacity full, must first draw down stocks before they can buy cheaper product. The world tanker fleet was being modernized to meet the requirement for all crude- and product-carrying vessels to be double-hulled by 2010; only the newest vessels can still command a premium.
Fall-out. Many shipyards set up to supply the super-cycle boom will fail. Even older-established yards face lean times. Plunging ship values have wiped out the collateral value on many ship loans, exacerbating the parlous state of banks with shipping exposure.
The crisis may have a long-term effect on derivatives markets. The forward freight agreements market has grown larger than the physical market, a highly secretive market, in which counterparties ordinarily do not know one another prior to trades being completed. In October, leading players agreed to a netting process, whereby the names of counterparties were revealed in order to introduce greater transparency in hopes of reducing losses.
The slump has preempted a pending downturn, because of over-ordering by newcomers seeking to cash in on the boom, affecting mainly weaker companies without the resources to sustain cash flows, but also damaging traditional relationships between shipowners and their financiers.
Remedial launches first ESV at COSCO Nantong Shipyard
Monday, 29 December 2008
Remedial Offshore marked the launch of its first Elevating Support Vessel on December 16 when the ESV unit was skidded onto a quayside barge at the COSCO Nantong Shipyard. The launch ceremony celebrated a major milestone in construction of the world’s first ESV vessel, the “Remedial ESV Solutions.” The innovative ESV design is optimized for well intervention in water depths to 325 feet (100 meters). Each ESV unit (two are under construction) combines capabilities of a jackup platform, an ocean-going vessel, a workover drilling rig, heavy-lift cranes and an offshore accommodations platform in a single package.
Launching the vessel onto the barge allows its three 3,500-HP thrusters to be installed and further commissioning work to continue prior to moving the unit downstream to another COSCO shipyard where the remaining sections of its 425-foot (130-meter) legs can be installed. These are the last steps before the vessel enters sea trials for an expected March 2009 delivery.
Elevating Support Vessel (ESV™) units are self-propelled jack-up well intervention vessels rated for service in 325 ft (100m) water depths, carrying a dedicated electric workover rig.
Remedial Offshore's innovative ESV™ concept offers offshore oil & gas operators a unique way to combine the capabilities of jack-up rigs with the self-contained efficiencies of ocean-going vessels. Our robust ESV™ units improve the logistics and economics of conducting remedial work offshore.
Each ESV™ unit uses an industry-first design that allows elevated operations up to 75 ft (22 m) away from the well structure, neutralizing concern over existing leg footing contours ("spud can holes") on the sea floor.
Our unique vessels provide 14,000 ft2 (1300 m2) available deck area for quipment rig-up, plus a high-capacity pedestal crane (300-ton/280 MT) mounted on a moveable structure. With structure stand-off and longitudinal travel, the ESV™ main crane can place 110-ton (100 MT) loads at 158 ft (48 m) from the vessel's transom.
The 250-ton (227 MT) modular electric “doubles” workover package is fully deployable (in either tender-assist or cantilever-supported mode) within three crane lifts for faster rig-up.
As adapted from Scand Oil
Zhanjiang Port entitled as a 100 million-ton port
Monday, 29 December 2008
As China's main passageway accessing the sea to the southwest, the Zhanjiang Port has successfully realized the goal of becoming a 100 million-ton port. Up till December 24, the Zhanjiang Port had handled 102.15 million tons of cargo, therefore ranking as the nation's 15th 100 million-ton port and the sole 100 million-ton port among China's southwestern coastal ports. At present, the Chinese government and Guangdong Province have already listed the Zhanjiang Port as one of the national and provincial major development projects. The Ministry of Transport designated the Zhanjiang Port to be the major port among the southwestern coastal ports in the National Coastal Ports Arrangement Planning.
As adapted from People's Daily Online
India November Iron-Ore Sales Rise as China Increases Purchases
Monday, 29 December 2008
India’s iron-ore exports in November rose from the previous month as China, the world’s biggest buyer of the steelmaking raw material, increased purchases. Shipments were 8.74 million tons compared with 4.14 million tons in October, the Federation of Indian Mineral Industries, a group of iron-ore miners, said in a statement today. Chinese mills are buying more from India because they want suppliers such as BHP Billiton Ltd. and Rio Tinto Group to cut prices, said R.K. Sharma, secretary general of the association.
“This is a way of putting pressure on Rio and BHP,” he said by telephone from New Delhi.
China may ask Rio Tinto and rivals to accept an 82 percent price cut after steel prices fell to 1994 levels, Shan Shanghua, secretary in general of the China Iron and Steel Association, said earlier this month.
Still, total exports in November were lower than last year’s 10.16 million tons, the association said.
India produced 160 million tons of iron ore in the year ended March 31. Two-thirds of the output was sold to China, according to the group.
As Adapted from Bloomberg
Kingdom shipping firm on track to double VLCC fleet
Monday, 29 December 2008
The National Shipping Company of Saudi Arabia ruled out any plan to cancel orders and it is all set to double the size of its fleet by 2011. Saleh A Al-Shamekh, president of NSCSA, said “we are shipowners who have embarked upon an ambitious plan, which called for doubling our fleet in 2006. We didn’t know that the financial crisis would hit everybody. But we are still continuing with our strategic plan.”
He said the company will have 50 VLCCs and chemical tankers by 2011 and will continue to hire crew to man these ships.
Earlier reports said the company had originally planned to have a fleet of 20 VLCCs by 2010, but reduced it to 17 when the price of new builds skyrocketed in the earlier months. It also aims to have 32 chemical tankers by 2011.
It received two VLCCs last year and is expecting another four to be delivered next year. The double-hulled vessels have a capacity of 2.1 million barrels and a deadweight tonnage of more than 300,000.
Including the new builds, the fleet’s total capacity will increase to 5,250 million deadweight tonnage.
-Al-Shamekh said the NSCSA has been affected by the financial crisis but is still optimistic the waves will turn for better in the mid term, Bloomberg report said.
On the sidelines of the Middle East Money & Ships conference in Dubai, he said “earnings for VLCCs have held up despite the downturn in shipping at large. Revenue wise, this year has been good. I can say this is a record year and it will surpass our growth last year.”
He added that tanker operators have been adversely affected by lower crude output and forecast of further slowdown in demand. He said that “OPEC production is the main driver for our businesses in the VLCCs. The changes in the IEA and EIA forecasts that oil demand will stop growing in the second half of 2009 will also affect us.”
He further said “it remains to be seen how the financial market turmoil will shake up the industry. We are afraid that too many ships have been ordered. The liquidity crisis can cause some orders to be cancelled if there is not enough to transport.” But looking at the brighter side, he added that the drop in the bunker price the lowest since 2005 has also cut the cost of operations. Some have also used the tankers for storage purposes.”
The report added that NSCSA acquired a 30 percent stake in Petredec Ltd, an LPG trader and shipowner which operates a fleet of more than 50 LPG vessels with a total cargo volume of 795,000 m3, including two VLGCs each with a capacity of 83,000 cubic meters.
The deal was sealed in 2003. It also has an 80 percent stake in the National Chemical Carriers, which has 12 chemical carriers and another 10 are under construction an order that was expanded to 16 vessels for delivery from 2009 to 2011.
As adapted from Saudi Gazette
Shipping rates dip on commodity bust
Monday, 29 December 2008
Ever since there has been a fall in demand for commodities, Indian shipping companies have been witnessing a crash in their charter rates. It is now felt that the worst is yet to come as a further decrease is expected in both earnings and book values when the new ships are delivered. These ships were ordered at the height of the shipping boom. According to Shipping Corporation of India (SCI) director Umesh Grover, the shipping capacity tonnage on order due over the next three years stands at 72% of the existing dry bulk fleet. Moreover, Indian shipping companies with an average fleet size in excess of 20 years will be in bad shape as the demand for new vessels increases.
Indian shipping majors such as SCI, Great Eastern (GE) Shipping already idle some of their vessels and also have plans to mothball their other vessels too.
“The situation is reaching a stage where shipping companies are unable to earn even the operating cost of vessels. The Capesize vessels, which were earning in excess of $1,50,000 per day, are not in a position to cover even their basic operating expenses of $6,000-7,000 per day,” said Mr Grover.
In addition, there are interest payments that are not a part of this. Moreover, the time charter period rates and contract freight rates are now under renegotiation. Some contracts are being unilaterally cancelled, he added. In such a scenario, older ships are likely to find their way to the scrap yards. According to Mr Grover, prices of dry bulk ships have, however, fallen by more than 50% and there are hardly any buyers even at these prices.
Industry analysts point out that the collapse in freight and time charter rates has reduced the flow of new and second-hand building deals. Overall, trading volumes are thin accompanied by many cases of distress sales. Mr Grover said that even if there was some demand coming from tankers or in the offshore segment, it has become difficult to secure trade finance.
Investors have stopped giving shipping companies any credit for earnings or assets. The situation is expected to be worsen in the time to come as the sudden absence of a large quantity of cargo that has been piling up at the exporter’s docksides has reduced the spot earnings market to zero.
Source: Economic Times
Weakness of scrap prices delays ship demolition deals
Monday, 29 December 2008
The last week of the year was marked by relative calmness, according to the latest report on the demolition market, compiled by GMS. Since the beginning of October the world market has been characterized by an aggressive supply of tonnage, followed by intense sale and purchase activity in scrapyards around the world, as ship owners looked to offload older tonnage. With freight rates dropping near all-time lows by November, one of the options that owners looked to exploit, in order to raise funds and increase their liquidity was to scrap older tonnage, even at significantly lower prices. This past week though was noted with modest activity. According to GMS, “with the shipping community busy with Christmas celebrations, except for a few last minute pre?Christmas deals, the general attitude was to delay further sale and purchase activities until after the holidays. After several weeks of anticipating a softening in scrap prices (due to the voluminous supply of vessels), the recycling industry was greeted with a weaker demand and price emanating from Bangladesh and Pakistan. India wobbled early in the week but ended the week pretty much where it closed last week. In addition to the holidays, weaker prices gave sellers an incentive to delay their negotiations. As a result, we saw relatively fewer fixtures this week as compared to the last two weeks”.
As one would expect the main “contenders” for a place in scrapyards were dry bulk carriers, which continue to dominate the majority of scrap sales. What’s notable is the return of capesize vessels, with at least two heading for scrap last week, while GMS predicts that another three will follow them next week. India remains ahead of the competition, managing to maintain its lead over Bangladesh. “If this pace continues, we are likely to see India outrun Bangladesh in terms of both volume and LDT of ships being recycled. Of course, India has almost seven times more recycling capacity than that of Bangladesh. Therefore, this one market can come to the rescue of the increasing global supply of vessels for scrapping.
Sunday, December 28, 2008
Central bank official: China's economic fundamentals "in good shape "
2008-12-26 20:58:29
BEIJING, Dec. 26 (Xinhua) -- Yi Gang, a senior official of China's central bank, said Friday that the nation's economic fundamentals are "in good shape" and urged people to have faith in the country's growth.
Yi, vice governor of the People's Bank of China (PBOC), said his assessment is based on the balance sheets of residents, enterprises, the financial sector and the government, which are all in a "healthy" state.
Bank savings of residents have exceeded 20 trillion yuan (2.9 trillion U.S. dollars), while their loans, including those for cars and housing, added up to merely 3.7 trillion yuan, Yi told a financial forum here.
Deposits of Chinese residents stood at 20.8 trillion yuan at the end of September.
"This indicates that the debt level of Chinese households is quite low and such balance sheets are very healthy, compared with those for U.S. and European households, making it possible to create room for development," he said.
Zhou Xiaochuan, PBOC governor, who also attended the China Finance Forum 2008, said the country needs to expand domestic consumption at the same time as it increases investment, to achieve the goal of spurring domestic demand.
Yi said corporate finances are also relatively healthy.
"The average debt to assets ratio of 5,000 non-financial enterprises monitored by the central bank is 55 percent," which is below previous figures, he said.
Yi added the country's lenders as a whole have a very high capital adequacy ratio with a low non-performing loan ratio, and he stressed that the financial sector is capable of supporting the economy.
Saturday, December 27, 2008
Japan mulls sending ships to Somalia coast
Friday, 26 December 2008
Japan is considering sending military ships to fight pirates off the coast of Somalia, officials said Wednesday."We have to do something against pirates. We are considering various options, including sending Self-Defense Force ships or patrol vessels," said Foreign Ministry official Mitsuhiro Kobayashi. The Japanese military is known as the Self-Defense Force. Japan is considering the deployment of military ships after the U.N. Security Council in early December extended for another year its authorization for countries to enter Somalia's territorial waters, with advance notice, and use "all necessary means" to stop acts of piracy and armed robbery at sea, Kobayashi said.
Piracy has taken an increasing toll on international shipping, especially in the Gulf of Aden, one of the world's busiest sea lanes. Pirates have made an estimated $30 million hijacking ships for ransom this year, seizing more than 40 vessels off Somalia's 1,880-mile (3,000-kilometer) coastline.
Japan's government said no Japanese ships have been hijacked this year, but pirates fired at three Japanese vessels. No one was injured.
There are over a dozen warships guarding Somalia's waters. Countries as diverse as Britain, Iran, America, France and Germany have naval forces off the Somali coast or on their way there.
China was also to send warships on Friday to protect its vessels and crews from pirates. The warships are armed with special forces and helicopters and China plans to share information with other countries working in the area.
Somalia, a nation of about 8 million people, has not had a functioning government since warlords overthrew a dictator in 1991 and then turned on each other. The current government, formed in 2004 with the help of the U.N. and backed by Ethiopia, has failed to protect citizens while it battles a growing Islamist insurgency.
As adapted from Associated Press
Frozen ports sign of gloomy months
Friday, 26 December 2008
Chris Lytle, chief operating officer of the port of Long Beach, California, took in a panorama of the slumping world economy from his rooftop observation deck one day this month. Shipping cranes stood still, truck traffic trickled and a cargo vessel sat idle, moored to a pier. "You never see that," Lytle said. "It’s quiet. Too quiet. Port traffic has slowed from North America to Europe and Asia as a recession erodes consumer demand and the credit crisis chokes off loans to export-dependent companies. International trade is set to fall by more than 2 percent next year, the most since the World Bank began measuring it in 1971. Idle ports around the globe are showing how quickly a collapse in trade can spread, undermining growth in each country it reaches.
"Everybody expects 2009 to be a bleak year," said Jim McKenna, chief executive officer of the Pacific Maritime Association, a San Francisco-based group representing dock employers at U.S. West Coast ports. "Now, it looks like 2010 is going to be just as bleak."
Coal is piling up at the Mozambique port of Maputo. Brazil’s exports of cars, household appliances, machinery and furniture fell in November from a year earlier. The port in Singapore posted its first month-over-month decline in seven years in November, at 1.5 percent.
Shipping rates fall
The Baltic Dry Index, a measure of shipping costs for commodities, is down 93 percent from a record in May, a sign that traders expect export volumes to stay depressed.
Slowing trade is both a cause and an effect of the first simultaneous contraction in the world’s largest economies since World War II. Throughout this decade, trade grew by 12 percent a year to $13.6 trillion in 2007, propelling growth in nations from Germany to China and Chile. Now the evaporation of financing and fall in demand threaten an activity that accounts for a quarter of the $54 trillion global economy.
"We are having this dramatic reversal," said Michael Finger, a trade economist in Geneva since the early 1970s. "I’m a long time in this business, but this is unique."
Governments and international lenders are stepping in to fill the gap. China and the U.S. pledged $20 billion to aid their exporters. The World Bank tripled funding for banks helping emerging-market companies to sell abroad, to $3 billion. South Korea pledged $16 billion for its exporters after banks there couldn’t secure international credit lines for them.
Stepped-up credit
"We are going to step up and provide credit to exporters," said Jeff Abramson, the U.S. Export-Import Bank’s executive vice president, in an interview. Without export finance, "the crisis can impact the real economy."
In Germany, the world’s top exporter, trade abroad slipped 0.5 percent in October, the fourth drop in six months. In China, exports fell 2.2 percent in November, which was the first monthly decline in seven years. They decreased a record 26.7 percent in Japan last month from a year earlier. U.S. shipments fell 2.2 percent in October to the lowest level in seven months.
The banking crisis means access to trade credit is becoming scarce. In recent months trade financing costs soared to more than six times pre-crisis levels, according to a report by HSBC.
"You take it for granted until it blows up," said Bernard Hoekman, trade economist at the World Bank. "Now it’s blowing up."
Exporters worldwide are short $25 billion in trade financing that either isn’t available or costs too much, according to Pascal Lamy, the head of the World Trade Organization.
"The market for trade finance has deteriorated ... particularly since September," he said last month.
Trade credit insurance, which protects sellers against losses and typically covers as much as 40 percent of trade in Europe and 5 percent in the U.S., is also harder to get.
Atradius, an Amsterdam-based insurer that covers a third of global trade receivables, is raising prices by as much as 50 percent and reducing coverage on thousands of companies. That includes 12,000 in the U.K. and all the suppliers to the biggest U.S. automakers.
"We’ve taken a hard look at 50 percent of our coverage and changed our action on about half of it," said Brett Halsey, the Baltimore-based director for Atradius’s contracts with U.S. companies.At the adjacent ports of Long Beach and Los Angeles, together the largest in the U.S., trade has slowed about 10 percent this year, a record drop. In 2007, volumes slid for the first time in more than a quarter century.
As adapted from Hurriyet
Thursday, December 25, 2008
Investing In Shipping At Low Tide
Thursday, 25 December 2008
Oil is plumbing new depths close to $32 a barrel, the global economy is on its knees and freight rates have been plummeting over the past few months as a result. On Christmas Eve, the shipping industry's benchmark Baltic Dry index posted its fifth consecutive drop, falling 1.3% to 774 points. Not a cheery market context for investors, but some are sniffing opportunity There is a good chance that the shipping market will rebound to a degree in 2009, as a dearth of new ships and increased consolidation in the sector tighten up capacity. Shipbuilders are canceling projects as demand slumps and financing runs dry, which could lead to a shortage if international trade and the world economy picks up next year. With an upswing in freight rates now expected, it might not be a bad idea to make a bullish call on shipping futures, known as forward freight agreements.
"It's a good time for entering into this kind of an asset class," said Anshuman Jaswal, a Bangalore-based analyst with research firm Celent. He told Forbes.com that industry surveys were estimating a pickup in freight rates in the first quarter of 2009, and that a recovery could be well underway after the middle of next year.
It is unlikely that there will be much joy for shipping bulls if the rest of the world economy does not perk up, with Asia a particularly important hotspot for the industry. How China fares will be crucial: the country's recent slowdown has given many economists a fright, and the effectiveness of the government's stimulus efforts will be under close inspection in the new year.
But if there is a recovery next year, shipping is sure to feel the benefit. Small shipping firms will struggle to survive, leaving more of the market to fewer rivals, while there will be fewer ships than expected to cope with demand.
Celent's Jaswal also said the shipping derivatives market was worth looking at because it was becoming more advanced and transparent, with more electronic trades involved and more financial players putting their money in.
As adapted from Forbes
Coal price may rise 10% in 2009
Thursday, 25 December 2008
The coal contract price for power generation in 2009 is expected to rise about 10 percent, said a source attending the annual coal prices negotiation conference in Fuzhou, Fujian province. The official with China Coal Transport and Distribution Association, who declined to be named, said price talks were at a stalemate, as coal miners seek higher prices while power plants hope to lower them.
"The increase in the 2009 coal contract price will not be very sharp. It will be at most equal to last year's level, which is 15 to 20 percent on average," the source said.
Coal companies at the conference want to increase next year's term prices by 4 percent to pass along their higher taxes and other rising costs. But power plants hope to cut prices by 50 yuan per ton, to ensure that they will not be pushed into losses in 2009, the Shanghai Securities News reported.
Sources said Shenhua Group, China's largest coal company, had reached an agreement with Guangdong Yudean Group Co for a 15-percent rise next year. However, Shenhua yesterday declined to comment.
"There will not be a large increase in next year's coal contract price, as China will see slowdown growth in energy demand," said Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University.
China will face a temporary energy glut because of dwindling demand in the global financial crisis, Wang Siqiang, an official with the National Energy Administration, told a forum earlier.
Each year, China's coal producers and power companies sit together to negotiate for the next year's coal prices. It has long been a bone of contention.
Electricity giants continue to insist that rising coal prices have undermined their profits. Compared with the coal prices, which are more market-oriented, the nation's electricity prices are still controlled by the government.
Profits of China's power companies this year have taken a hit due to rising coal prices and caps on power tariffs, with the coal-fired sector expected to report losses in 2008 of more than 70 billion yuan, according to Xue Jing, director of the statistics department at the China Electricity Council.
As adapted from China Daily
Wednesday, December 24, 2008
Baltic Exchange Daily Summary of Baltic Exchange Dry Indices - 24 December 2008
Baltic Exchange Dry Index 774 (DOWN 10)
Baltic Exchange Capesize Index 1337 (DOWN 8)
Baltic Exchange Panamax Index 558 (DOWN 13)
Baltic Exchange Supramax Index 421 (DOWN 9)
Baltic Exchange Handysize Index 281 (DOWN 3)
Daily Summary of the Baltic Exchange Time Charter Routes
Rate($/Day) Change
BCI
Average of the T/C routes $8889 (DOWN 63)
BPI
Average of the T/C routes $4476 (DOWN 105)
BSI
Average of the T/C routes $4405 (DOWN 91)
BHSI
Average of the T/C routes $4113 (DOWN 45)
++
Baltic Exchange Capesize Index TM - 24 December 2008
Baltic Exchange Capesize Index 1337 (DOWN 8)
Rte
Num Description Weight Avg. Move
====== =============================================== ====== ====== ======
C2 160000lt Tubarao -Rotterdam 10 5.125 -0.039
C3 150000mt Tubarao - Beilun/Baoshan 15 8.850 -0.092
C4 150000mt Richards Bay - Rotterdam 5 6.195 -0.010
C5 150000mt W Australia - Beilun/Baoshan 15 5.500 -0.032
C7 150000mt Bolivar - Rotterdam 5 5.510 -0.058
C8_03 172000mt Gibraltar/Hamburg trans Atlantic RV 10 6880 -79
C9_03 172000mt Continent/Mediterranean trip Far East 5 11350 -215
C10_03 172000mt Pacific RV 20 11054 19
C11_03 172000mt China/Japan trip Mediterranean/Cont 5 6273 23
C12 150000mt Gladstone - Rotterdam 10 10.289 -0.031
Average of the T/C Routes 8889 -63
6+
Baltic Exchange Panamax Index TM - 24 December 2008
Baltic Exchange Panamax Index 558 (DOWN 13)
Rte
Num Description Weight Avg. Move
====== ============================== ====== ==== ====
P1A_03 74000mt Transatlantic RV 25 4458 -89
P2A_03 74000mt SKAW-GIB/FAR EAST 25 8043 -85
P3A_03 74000mt Japan-SK/Pacific/RV 25 2913 -150
P4_03 74000mt FAR EAST/NOPAC/SK-PASS 25 2490 -95
Average of the T/C Routes 4476 -105
++++
Baltic Exchange Supramax Index TM - 24 December 2008
Baltic Exchange Supramax Index 421 (DOWN 9)
Rte
Num Description Weight Avg. Move
=== ================================== ====== ==== ====
S1A Antwerp - Skaw Trip Far East 12.5 5614 -97
S1B Canakkale Trip Far East 12.5 5713 -168
S2 Japan - SK / NOPAC or Australia rv 25 3945 -50
S3 Japan - SK Trip Gib - Skaw range 25 3971 -29
S4A US Gulf - Skaw-Passero 12.5 5793 -270
S4B Skaw-Passero - US Gulf 12.5 2286 -36
Average of the T/C Routes 4405 -91
The route(s) below do not form part of the index calculation
S5 W.Africa via ECSA to FarEast 0 5829 -42
S6 Jpn-SK trip via Aus/India 0 3975 -72
S7 EC India - China 0 9940 -100
++
Baltic Exchange Handysize Index TM - 24 December 2008
Baltic Exchange Handysize Index 281 (DOWN 3)
Rte
Num Description Weight Avg. Move
=== ================================================== ====== ==== ====
HS1 Skaw - Passero trip Recalada - Rio de Janeiro 12.5 3233 -3
HS2 Skaw - Passero trip Boston / Galveston 12.5 3325 7
HS3 Recalada / Rio de Janeiro trip Skaw / Passero. 12.5 6100 -178
HS4 US Gulf trip via US Gulf or NCSA to Skaw / Passero 12.5 5367 -68
HS5 SE Asia trip via Australia to S'pore / Japan 25 3731 -33
HS6 S Korea / Japan via NOPAC to S'pore-Japan 25 3707 -26
Average of the T/C Routes 4113 -45
++
Baltic Exchange Daily Fixture/Index List 24/12/2008
BDI 774 (DOWN 10) BCI 1337 (DOWN 8) BPI 558 (DOWN 13)
BSI 421 (DOWN 9) BHSI 281 (DOWN 3)
Last published BDTI 1252 (No change) BCTI 839 (DOWN 1)
TIMECHARTER
'Alpha Action' 1994 150790 dwt dely S.Japan spot 3/5 months trading redel worldwide $10500 daily - Noble
'Betis' 2004 76801 dwt dely aps Cape Henry 10/20 Jan trip redel Brazil $3750 daily + $115000 daily - cnr
'Astrale' 2000 75933 dwt dely Ennore 26/28 Dec trip via EC India redel China $8000 daily - cnr
'Great Eagle' 2005 74143 dwt dely Tilbury in d/c early Jan trip via Murmansk redel UKC approx $4000 daily - Cargill
'Angela Star' 1998 73798 dwt dely Skaw early Jan trip via Port Cartier redel Fos $7000 daily - Cargill
'Premnitz' 1994 72873 dwt dely Hong Kong spot trip via EC India redel N.China $2000 daily - Brownstone
'Golden Joy' 1994 70000 dwt dely Nantong 30/31 Dec trip trip via EC India redel China $2500 daily - Uniwell
'Cumbria' 1994 69043 dwt dely Hong Kong 24/27 Dec trip via India redel China $3000 daily - Uniwell
'Star Cosmo' 2005 52247 dwt dely aps Cape Henry 10/20 Jan trip redel Brazil $5950 daily - cnr
ORE
'Alpha Century' 2000 160000/10 Port Hedland/Qingdao 15/25 Jan $5.90 fio scale/30000sc - BHP Billiton
'ZOSCO Zhoushan' 1994 140000/10 Goa/China 12/20 Jan $6.00 fio 20000dc-15000sc/30000sc - Noble
GRAIN
'Mega Doner' 55000/10 hss US Gulf/China 1/5 Jan $21.00 fio 10000sx/10000sx - Sinochart
Tuesday, December 23, 2008
Economou-nics Drags Down DryShips
Tuesday, 23 December 2008
DryShips’ chief executive is steering an erratic course for his company, seemingly one that benefits his own privately held concern more than the public company's shareholders.. CEO George Economou was quoted Monday as saying DryShips is “likely” to cancel the purchase of nine large dry-bulk ships that it agreed to purchase from his own private fleet just a few months ago. Although the cancellation would be balance-sheet friendly in the current environment -- where empty ships are almost literally a dime a dozen -- DryShips shares plunged 11.3%, or $1.27, to $9.96, in afternoon trading.
Even with spot charter rates plummeting, DryShips announced in October it planned to take over nine vessels that had been owned by Economou’s private company, Cardiff Marine.
DryShips was to pay 19.4 million of its shares, worth $689.6 million at the time, for the ships. It would also have assumed $478.3 million of debt.
But on Monday Economou dropped a bomb on DryShips shareholders. In an interview he said DryShips is likely to cancel the acquisition. When the purchase was originally announced, investors were outraged at what seemed like the exorbitant price DryShips would be paying for Cardiff’s ships. Yet the ships were to be purchased with a stock that is now worth just $193.2 million, so what once looked expensive for DryShips is now looking cheap -- thus a bad deal for Economou's Cardiff.
If the company’s cancellation of four smaller vessels earlier this month is any indication, DryShips shareholders will be paying the price. On Dec. 10 DryShips said it failed to get bank financing for a $400.0 million transaction announced in July and that Economou's companies would keep $55.0 million in deposits. To add fuel to the fire, DryShips paid an additional $105.0 million for the cancellation as well as an exclusive option to buy the ships for $160.0 million. The option expires Dec. 31.
It is unclear if DryShips shareholders would have to pony up cancellation and other fees if in fact the nine ships are canceled.
Economou does own 30.2% of DryShips, so he stands to share some of the company's pain.
Last month, Genco Shipping & Trading announced it abandoned $53.0 million on deposit for the purchase of six new ships.
But Genco’s cancellation was with a third party, not its own CEO. Last week, Eagle Bulk Shipping announced it reached an agreement with Yangzhou Dayang Shipbuilding to cancel $363.0 million worth of ships.
Source: Forbes
Vale said to have put $240m down payment to keep Rongsheng VLOC orders
Shanghai: Brazil’s Vale, the biggest iron-ore supplier, paid an initial $240m to China’s Jiangsu Rongsheng Heavy Industry Group for 12 bulk carriers, allaying concern the orders would be canned, Bloomberg writes, quoting two executives.
Vale will pay another $240m to Rugao, Jiangsu province-based Rongsheng by the middle of next year as part of a $1.6bn contract, said one of the executives, who declined to be identified because the agreement is private.
The purchase signals that Rio de Janeiro-based Vale has enough cash to meet investment plans even as rivals Rio Tinto Group and Anglo American Plc slashed spending to conserve capital in the deepening financial crisis. As many as 50 percent of Chinese shipyards may be shuttered in the next year as cargo demand drops and orders get canceled or delayed, according to the Shanghai Securities News.
“There had been speculation in recent months that the order could be canceled because of the decline in iron ore demand and difficulties in getting loans secured,” said Cho In Karp, an analyst at Good Morning Shinhan Securities Co. in Seoul. “It still makes business sense for Vale to keep the order because China will continue to be a major buyer of raw material.”
Rongsheng Chairman Chen Qiang confirmed Vale had made a payment, which was reported by the Shanghai Securities News today. He declined to provide details in a telephone interview. Zhu Kai, Vale’s China manager, wasn’t immediately available for comment.
Privately-held Rongsheng, which counts Goldman Sachs Group Inc. as a shareholder, plans to increase capacity more than fivefold to eight million deadweight tons in three years.
The shipyard received a credit line of 7bn yuan ($1bn) from the Bank of China recently, bringing the total facility it has to 9 bn yuan this year, said Chen.
Vale ordered 12 vessels, each with the capacity to carry 400,000 metric tons of minerals, in August. The ships are scheduled to be delivered from early 2011 through the end of 2012 and will serve the China trade route. China is the world’s largest iron ore consumer
Of the $240m payment to be made by the middle of next year, $80m will be paid by the end of next week, one of the executives said. The executives didn’t say when the rest of the contract payment would be made. [23/12/08]
Skuld latest marine mutual victim of credit crisis
Jerry Frank - Tuesday 23 December 2008
Douglas Jacobsohn
NORWAY’S Skuld has emerged as the latest marine mutual casualty of the 2008 financial crisis, with plummeting investments almost halving its free reserve bulwark.
The Oslo club, which has clawed back to financial strength over the decade, today revealed a $90m investment loss over the first nine months from a $12m gain over the same period in 2007.
Douglas Jacobsohn, president and chief executive of Skuld, also warned that the protection and indemnity sector faces a likely loss of premiums — known as the churn effect — if 2009 brings a cull of veteran tonnage.
“If weak markets stimulate further scrapping of the oldest ships in fleets, the churn effect on club average premiums may be worsened,” Mr Jacobsohn said.
“The combination of likely renewal outcomes at February 2009, the churn effect and the dwindling investment return will represent a major challenge to nearly all clubs.”
Brokers have been warning that the International Group of P&I Club members have been relying on investment income in recent years, which has offset underwriting deficits.
Willis, in its recent P&I Market Review stated that the reliance on investment income has “become all too painfully clear following the global economic problems in the current year”.
Compatriot protection and indemnity specialist Gard, which also offers hull and energy insurance, last week was delivered a pre-Christmas outlook revision by rating agency Standard & Poor’s to negative from stable.
Gard is now recognised as the largest and one of the most financially strong of the P&I clubs, but S&P made its decision on the back of falling investments returns.
S&P credit analyst Peter McClean said: “Losses on Gard group’s investments have caused the level of capitalization, as measured by its free contingency reserves, to fall below that implied at this rating level.”
Gard chief executive Claes Isacson sadi that S&P’s decision was in the context of an industrywide review by S&P and rating action in the wake of the “exceptional volatility” in the financial markets.
“The imposition of the negative outlook only reflects unrealised investment losses,” Mr Isacson. Gard retained its A+ financial rating.
Gard reported a $49m deficit for the six months to 20 August down from a $11m surplus, while free reserves over this period dwindled to $532m from $580m on February 20. Investments were down to around $1.2bn from just over $1.3bn six months earlier.
Skuld said that its poor investment return for the first nine months of the year had sunk its bottom line to a $83m deficit, and reduced free reserves to $120m from $204m a year earlier.
But if a further measure is needed of the present volatility of financial markets Skuld said that its investments had taken a $20m improvement in the month since these were valued at $90m on November 20.
Mr Jacobsohn emphasised that free reserves remained within present solvency requirements and the estimated levels of the new regime due in 2012.
“The reduction in free reserves is unfortunate but shows that the club has the strength and resources to handle extreme volatility,” said Mr Jacobsohn.
“The level of free reserves is expected to recover in the long term without having to recourse to dramatic measures with our members.”
One note of optimism for Skuld is that its technical result, including underwriting incomes minus claims and expenses, over the first three quarters was almost $7m, compared with around a $5m loss at the same period last year.
Although Skuld and the other IG members are so far looking at a moderate 2008 pool claims year, it cautioned that the northern hemisphere winter and the tail-end of the policy year was “claims intensive” with some deterioration still expected.
* In yesterday’s article, Insurers have to write new chapter, it was reported that Dex was the hull facility of the Thomas Miller-managed UK Club. Dex is a separate insurance facility also managed by Thomas Miller and underwritten by Groupama.