[Article] It's all about confidence

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By Albert Lim
Investment
director, IPP
Financial Adviser

SEVERAL industry experts have written about the fear and greed that have wreaked havoc and caused billions of dollars to be wiped off from the capital markets. No doubt, most investors are fearful of the markets today. Enough said about the fears. Instead, let's review the situation to try to identify the fitting times to pick up investments of good value.

Down memory lane

The Bretton Woods Agreement was signed into effect in July 1944. Under the Bretton Woods system, each participating country had to adopt a monetary policy that maintained the exchange rate of its currency within a band of fixed value - resulting in a 'pegged rate' currency regime. In practice, the 'reserve currency' used is the US dollar. To boost faith in the US dollar, the US agreed to link its currency to gold at the rate of US$35 per ounce of gold. This allowed countries and central banks to exchange dollars for gold. By 1971, inflation and the cost of the Vietnam War had caused the US dollar to decline in value. The US began to find it more difficult to defend its fixed peg of US$35 per ounce of gold. The Bretton Woods system eventually ceased in February 1973. From that day on, the global financial system has collapsed as money is now backed up by nothing. Since then, every time we have a financial crisis, the only thing governments can do is to inject money and confidence into the system, which has given us a false sense of prosperity.

Ignoring value, fundamentals

The current financial crisis morphed from a credit crisis into a crisis of confidence. When Lehman declared bankruptcy on Sept 15, investors worldwide began to have great doubts in the credibility of financial institutions and whether the financial system will hold up. I think, technically, the real financial system failed when the Bretton Woods system perished in the 1970s. The real financial system collapsed back then when world leaders decided that the US dollar 'reserve currency' need no longer be pegged to gold. A currency backed by nothing tangible is simply an 'IOU' - no difference from the bond notes issued by corporations. The financial system has become a system of faith. We deal only with entities we have faith and confidence in.

Therefore, strictly speaking, the current crisis is really about confidence. Will the system be able to survive this horrible lashing by shaky investors? The answer is probably yes - for now.

With experience gained from the Great Depression, the Asian financial crisis, the bursting of the dotcom bubble and after the 9/11 terrorist attacks, world leaders and central bankers have learned invaluable lessons. Thus far, government leaders and central bankers have been able to restore confidence among investors and in financial markets. Leaders have observed that swift and coordinated action by various governments and central banks is important in re-establishing confidence. However, this time, with new financial innovations, super-leveraged instruments, derivatives and indiscriminate lending, the financial markets are flush with toxic 'assets'. The market size for one type of derivative instrument alone - credit default swaps - was US$62 trillion at the end of 2007. In comparison, world GDP was only US$54 trillion in 2007. This is why financial markets need a lot more money and probably a lot more time to repair the system and restore confidence.

When credit seizes up

The credit squeeze is not only affecting the financial sector, the drying up of liquidity has also affected the real economy. There is hardly any inter-bank lending. This, in turn, means businesses who approach banks for loans are not getting them. Both strong and weak companies that depend on credit are becoming victims. For example, the shipping industry, which relies on letters of credit, is stuck. The Baltic Dry Index has fallen an alarming 90 per cent since January 2008.

Deleveraging effects

The financial markets need to go through a huge amount of deleveraging. Past several years of easy credit and ready access to funding has fuelled a boom in investment management industry, housing and consumer spending. We will be going through a period of clean-up, where people revert to buying property priced at a level they can afford, consume within their means and invest with care.

Where the economy is going

The real economy undoubtedly will go through a slowdown. However, the equity markets are traditionally a leading indicator, racing ahead before the real economy. Value and opportunities are coming into view in Asia and emerging markets. In terms of fixed income, those with shorter duration will benefit with more interest rate cuts to come. Some companies are trading at 1x PE, yet hardly anyone is interested in them. Fundamentals are being ignored now. Everyone is fearful of further horrible fallout. To get a grip on our fears, perhaps we should put our risk appetite and investment horizon into perspective.

When do we invest?

Recently, I have been using this analogy a lot when communicating with clients about when to invest. Imagine this scenario: you are a prospective house buyer and you have your eyes on a lovely house in a charming neighbourhood. Do you buy:

    * 1) When the house is on fire and at risk of being razed to the ground?
    * 2) When a large part of the fire has been put out, but there are kindlings that may erupt into flames?
    * 3) When the fire has been put out and renovation works begins?
    * 4) When the house if fully renovated?

If you choose (1), you will likely get your house at a fire-sale price but you are taking very high risk. If you choose (2), you will likely get a cheap price but there is still a risk of a new fire restarting. However, the large fire has been mostly put out. If you choose (3), you will still get a bargain but the risk lies in the possibility of the renovation taking a long time. If you choose (4), you pay full price for a renovated house.

Today, we are at the stage where the main fire, which represents the credit system seize-up, is largely extinguished. But there are still some small fires to deal with. The global stock market is rebounding not because of improved fundamentals but rather for the reason that the financial system is still intact. I think that investors who have a mid to long-term horizon and can take on some risk should choose option (2) or (3). At the end of day, investments come with risk. We should be taking calculated risk, be comfortable with it and understand it.

This article was first published in The Business Times on November 08, 2008.

http://business.asiaone.com/Business/My%2BMoney/Building%2BYour%2BNest%2BEgg/Investments%2BAnd%2BSavings/Story/A1Story20081110-99559.html

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via : http://seekingalpha.com/article/110758-baltic-dry-index-rally

The Baltic Dry Index has been getting some attention recently after rallying more than 15% from its lows. One headline we came across even said that shipping companies were benefiting from the "revival" of the Baltic index. Revival? While the Baltic index is indeed up from its lows, it is still down 93.5% from its highs in May, and as the chart below illustrates, the recent gain is barely even visible to the naked eye.

Global shipping rates will bottom at some point, and may have already done so, but to call the action of the last two weeks a revival seems a bit premature.

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when you have something like the BDI that goes 90% down south and even when a 15% rally does nothing to help confidence. this is the sh!te... or as some put it. it's only the smell. you ain't in the sh!t yet.

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an article from 2007.

Frontline, Teekay Crash Nears Amid Tanker Glut, Crude (Update3)

By Alaric Nightingale and Todd Zeranski
Enlarge Image/Details

Oct. 22 (Bloomberg) -- The record increase in oil prices and the unprecedented number of new tankers transporting crude is a stock market crash waiting to happen.

That, at least, is the growing consensus among analysts who say the widening gap between West Texas Intermediate crude and the rate for supertankers shipping Middle East oil to Asia means industry titans Frontline Ltd., Overseas Shipholding Group Inc. and Teekay Corp. have unsustainable valuations.

The Bloomberg Tanker Index has risen 41 percent in the past two years, even as freight rates sank 51 percent. The price of marine fuel, the biggest cost for shipowners, has advanced 44 percent in that time, reaching a record $446.50 a metric ton on Oct. 17. The number of ships available is close to a record.

``It doesn't look good at all,'' said Andreas Vergottis, who helps manage $1.2 billion at Isle of Man-based Tufton Oceanic Ltd., the world's biggest hedge fund dedicated to shipping. ``We've got a wall of worry and a wall of new buildings flooding the market ahead of us.'' He said the stocks are 30 percent overvalued.

Frontline, the world's biggest operator of supertankers, reached a record low of 3.80 kroner in December 1998. The stock has risen 29 percent, after falling 2.9 percent today in Oslo to 231 kroner. The gain has helped make Chairman John Fredriksen into Norway's richest man, with a fortune that Forbes magazine estimates at $7 billion.

Too Many Ships

The looming decline for tanker stocks is a legacy of the biggest tanker construction program in history. Teekay, Frontline and Overseas Shipholding in 2004 earned a combined $2.2 billion, triple the level of a year earlier, because of a jump in world oil demand. They used that profit to help order 522 tankers from builders including Hyundai Heavy Industries Co. and Samsung Heavy Industries Co.

The size of the oil tanker fleet expanded 3.8 percent this year, overwhelming the 1.7 percent increase in crude oil demand estimated by the International Energy Agency. The fleet will increase by as much as 32 percent during the next five years, estimates Lloyd's Register-Fairplay, the company that assigns ship registration numbers.

Tankers are being built at the fastest rate ever, according to Clarkson Plc, the world's largest shipbroker, which began collecting industry data in 1852.

Tankers capable of hauling 1.2 billion barrels of crude, equal to about two weeks of global oil consumption, will enter service in the six years that end in 2009, according to Clarkson. The total is 1 percent higher than the previous record, from the 1970s.

Straight to Scrapyards

Ship demand at that time slowed, and newly built tankers were sent straight to demolition, said Per Mansson, a shipbroker for Nor Ocean Stockholm AB, a former second mate and executive at Frontline before Fredriksen bought the company. Some tankers hauled one cargo from Asian shipyards to northwest Europe, only to be laid up in the fjords of Norway, he said.

``It got so bad that, on one voyage from Sweden to Venezuela, we turned the engine off and went with the current down to the Caribbean because fuel was so expensive,'' said Mansson, 55. ``We got a telegram from Exxon to go at 7 knots, so we just floated down.''

The Bloomberg Tanker Index has gained 28 percent this year, outpacing a 5.7 percent increase in the Standard & Poor's 500 Index, and a 6.2 percent drop in U.S. government 10-year bonds. Oil is up 40 percent and reached a record $90.07 a barrel in New York Mercantile Exchange trading on Oct. 19.

Teekay has appreciated 27 percent this year and fell 4.2 percent today to $55.31 on the New York Stock Exchange, valuing the Bahamas-based company at $4.08 billion. New York-based Overseas Shipholding fell 3.3 percent to $69.23, reducing its gain for the year to 23 percent.

Demolitions

Shares of Frontline are heading for an 11 percent decline, according to Henrik With, the DnB Nor Markets analyst whose advice on Frontline gave clients a 91 percent gain in the past year. Teekay may decline 26 percent, he forecasts. Among all analysts tracked by Bloomberg, at least 70 percent say the two stocks aren't worth buying.

Frontline Chief Executive Officer Bjoern Sjaastad in an interview said oil carriers will be sold and converted to haul bulk commodities, easing the ship surplus. Also, the speed of demolitions ``will go a lot faster than many people think,'' bolstering freight rates, he said.

Teekay spokeswoman Alana Duffy said the company can't comment before an earnings release at the end of the month. Overseas Shipholding spokeswoman Jen Schlueter said CEO Morten Arntzen wasn't immediately available for an interview.

Time Charters

Shipowners can protect against a drop in the single-voyage market by leasing vessels on so-called time charter contracts that can last months or years, while paying a fixed amount.

About 40 percent of Frontline's ships had such protection for 2007 and 2008, according to an Aug. 22 statement. Seventeen percent of Teekay's 111 carriers had such contracts, while none of Overseas Shipholding Group's biggest carriers had such deals.

Teekay protects itself against increases in the cost of marine fuel. Frontline and Overseas Shipholding don't. The industry's pricing mechanism, known as Worldscale, is updated once a year to reflect changing fuel prices.

Demand for single-voyage charters is ``stuck in a rut'' because the soaring price of oil is squeezing refiners and discouraging purchases, said Omar Nokta, an analyst at Dahlman Rose & Co. in New York. He advises investors hold their Frontline shares.

Losing Money

Refineries are losing 63 cents on each barrel they process in Europe, compared with a profit of $7.86 in May, because crude costs are rising faster than prices for gasoline and diesel, according to data compiled by Bloomberg.

``All this weakness is stemming from refineries not being in the market,'' said Nokta, whose call on Frontline during the past year led to a 35 percent profit for investors.

Analysts value shipping stocks in relation to the cost of second-hand tankers. From December 2003 through July 2007, those ship values more than doubled, according to data from the London-based Baltic Exchange. Since then, ship prices have dipped, exchange data show.

``Asset values will fall and dividend payments must be cut,'' said DnB Nor Markets' With. ``Too much fleet capacity coming on stream will put pressure on earnings from 2008 to 2010.''

Freight Rates

Falling freight rates and record fuel costs have given shipowners their longest string of losses in five years, according to Citigroup Inc., the third-largest lender to the shipping industry. So-called very large crude carriers, which transport about 2 million barrels, are losing more than $13,000 a day in the market for day-to-day charters. Shipowners are spending more on fuel and debt payments than they collect in rent.

Suezmax vessels, the biggest tankers that can navigate Egypt's Suez canal while full, are losing more than $10,000 a day. Owners of aframaxes, 600,000-barrel carriers that usually haul crude within the same continent, are losing about $13,000 a day, Citigroup estimates.

Thirty of the largest tankers may be sold and converted into carriers for grain, coal and iron ore, markets where freight rates are at a record high, Frontline's Sjaastad said.

``For the next 15 months, there isn't going to be substantial additions to the fleet, you'll have depletions going to dry bulk,'' said Dahlman Rose's Nokta. ``If you have the demand push, then they'll be able to absorb the vessels. Demand would keep a natural floor.''

China's economy is growing at almost 12 percent a year and India's by 9.3 percent, spurring demand for oil, steel, iron ore and coal.

No Cargoes

Some 50 supertankers have failed to find cargoes in the past month, and vessels will compete for consignments in November, extending declines for owners, forecasts Paris-based shipbroker Barry Rogliano Salles.

Relief may not come until 2010, when the United Nations' shipping agency, the International Maritime Organization, adopts a ban on single-hull tankers, those at greatest risk of spilling oil in the event of an accident. Once the policy takes full force five years later, the only tankers plying the oceans must have two steel hulls.

``Everything now is about what happens between today and 2010,'' says Ole Stenhagen, an analyst at SEB Enskilda in Oslo. ``We are in for a real dip in rates and a rough environment.''

To contact the reporters on this story: Alaric Nightingale in London at Anightingal1@bloomberg.net .; Todd Zeranski in New York at tzeranski@bloomberg.net
Last Updated: October 22, 2007 17:27 EDT

via : bloomberg.com

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have a read on the Baltic index since 1985.
http://www.balticexchange.co.uk/media/pdf/a%20history%20of%20baltic%20indices%20131108.pdf

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so, it's the start of the year.

how's the confidence level? it started off great in the first couple of days.... the feeling of the new year, a fresh start. but it did not last long. the dark clouds are still overhanging. (like the weather lately.)

something to read.

I hate to see the mainstream media starting to report on the collapse.  The denial of the talking heads is the only thing propping up our fake print and spend economy.  An economy that makes nothing that someone else cannot make better and cheaper.  An economy that is essentially a giant printing press pumping out worthless paper notes.

That, and our new banker-installed President to be who wants us to 'spend our way out of the recession' - - it would be funny if not so sad and ignorant.   

Once the five corporations give the green light to start reporting things the way they really are it is game over.  The good news for those that have prepared is it will still be horrific, but the unprepared might as well buy a rusty gun and one bullet.  A friend of mine that sold 50% of her company for three million dollars in 2004 thanked me up and down today.  I told her back then this was coming and hammered her down over many lunch breaks working there - poor lady ... wait ... lucky lady!   She is living an enjoyable 'traveling' lowkey lifestyle now with her husband,  and is up 25% or more on her investments.  She owned zero stocks in 2008 except shorts.  The company she left behind is hanging on by its fingernails.  Had 60 employees in 2005, now has four.  It will have a bankruptcy sign on the front door very soon, or so I am told.

Everyday I talk to 3-4 business owners via my company and they all are saying the same thing.  Do I trust the talking heads or the real people?  Today I talked with the top salesperson at a commercial truck dealership.  He sold an average of 12 trucks a month for the last three years.  In Nov and Dec 2008 he sold two used trucks.  Their huge dealership has laid off over half their people in the last 30 days.  The people that are staying get a 25% across the board pay cut.

Also - just today - I talked to my engineering buddy at Stern's Pinball.  I am a big pinball fan and have owned dozens of games.  He said they just got a 33% pay cut.  Most were laid off.  The pinball business just died.  They can't even sell them wholesale direct to people's homes.  That is how desperate they are to find buyers.  When one game sells they all clap aloud.

What else?  Oh yeah - I installed a large communications system for an insurance company 10+ years ago.  It died.  They are dead in the water.  Offered a $5k used solution.  No can do.   Can't afford it.  So an answering service takes the calls and they call back on their cell phones.

Forgive my negativity, but anyone who is out there in the trenches will see it is BAD and getting much worse.  Start asking people about it.  Don't depend on the government liars and BS media to tell you how it really is .... although sometimes they slip and do just that ....

 Unemployment could get 'truly gruesome', analysts predict - USATODAY.com

via : http://www.lotustalk.com/forums/f68/economic-predictions-65419/index16.html

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Shipyards, rig builders fall on news of order cancellations
Analysts warn 2009 may be bleak for Keppel, Cosco and SembMarine

By VINCENT WEE

THE market did not like it and neither did analysts when Keppel Corp chose to announce late last Friday night that its units had lost some of the contracts it had warned were under review.


Keppel said on Friday that it has lost two of the three contracts it said were under review in November.


Likewise, the shares of rival rig builder Sembcorp Marine and Cosco Corp (Singapore) were also hit after they also announced order cancellations or payment deferments.
Keppel yesterday closed 44 cents or 8.9 per cent lower at $4.48, SembMarine lost 23 cents or 12.5 per cent to close at $1.61, while Cosco fell six cents to end the day at 81.5 cents.
Keppel said on Friday that it has lost two of the three contracts it said were under review in November, SembMarine said that its PPL Shipyard unit and Seadrill have agreed to revised terms on a two-jack-up-rig contract signed in June 2008 and Cosco lost half of an order for four bulk carriers.
None of the news was unexpected. Nonetheless, it was concrete proof of investors' fears.
'The cancellations totalled US$455.4 million, of which 22 per cent would have been recognised in FY09, 38 per cent in FY10 and the remainder in FY11. This would reduce our FY09's and FY10's revenue forecasts by 1.5 per cent and 2.4 per cent, as well as our FY09's and FY10's net profit estimates by 1.6 per cent and 2.6 per cent, respectively,' said DMG and Partners analyst Serene Lim in a research report released yesterday.
'We had expected Scorpion Offshore to cancel the semi-sub contract with Keppel, but not Seadrill given that no formal announcement was made by SembMarine earlier. We also received verbal confirmation from SembMarine that the Seadrill contracts were intact. Therefore, we had deduced that Keppel's similar jack-up orders with Seadrill would remain unchanged,' said CIMB-GK Research.
Both houses kept their neutral and underperform ratings and $4.53 and $4.20 price targets respectively, but on the revised payment terms, DMG warned that 'we think the revised terms are not in Keppel's favour, indicating a shift in bargaining power from yard owners to rig owners'.
'We believe Keppel would be taking on asset pricing risk. This will be a concern if the values of jack-ups fall significantly. We also think it may set precedent and trigger more contracts to be renegotiated on similar terms,' Ms Lim added.
She also cautioned that 'Singapore yards, including Keppel, may continue to face potential cancellations from highly-geared rig owners that have difficulty to finance out of future operating cashflows. Owners building semi-submersibles on speculative intent are most at risk. With six semi-submersibles constructed at Keppel's yard, three of which are not built on the back of period hire contracts, Ensco International is one such example'.
On Cosco, Macquarie Research reckons about $600 million of revenue has been affected by various order cancellations and deferrals. It further warns: 'That the affected orders were all won in mid-2007 is all the more alarming given that orders placed in 2008 would be less expensive to cancel for Cosco's clients. We expect further cancellations and/or deferrals through the remainder of 2009.'

via : http://www.singsupplies.com/showthread.php?t=14754

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rather expected with the massive drop in shipping volume. it was an over 90% drop. this cancellation is only a very small part... there's bound to be more. just when you think the rain is going to stop, it pours.

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hear on the radio in the morning that the various shipping company laying up some of their ships in a bid to reduce overheads n supply.

if so, then there's no need/requirement to be building new ones at this period of time.

China export drop by 2.8%. is it going to drop more? if so, the shipping n related business is in for rough seas.

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locally,
the confidence level is just went down a foot.

NODX just went down 20.8%.
1/5. that's a lot. even as a layman.

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Singapore NODX n NORI
http://www.celicasg.org/index.php?topic=1869.msg51939#msg51939

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more cancellation.

Sunday January 18, 11:23 AM
Cancellations hit oil rig builders as global downturn bites

Singapore's once-roaring oil rig industry has been hit by contract cancellations due to weaker energy demand and as plummeting crude prices dampen exploration. Until the global financial crisis worsened last year, oil rig builders had been riding on soaring oil prices to reap a multi-billion-dollar bonanza. Orders piled up as drillers expanded into deeper offshore waters to search for more oil and gas to meet surging demand from dynamic economies. But exploration and production activities have slowed as the worsening economic gloom hurt energy demand, forcing drillers to go slow on new orders and to cancel or renegotiate existing contracts. "We are forecasting a slowdown in the new rig-building orders in 2009 followed by a recovery in 2010 as sector fundamentals reassert themselves," Swiss banking giant Credit Suisse said in a market analysis. Keppel Corp, the world's biggest maker of offshore oil rigs, said that two contracts which had been under review had been cancelled, while a third deal had been renegotiated. The company said it had agreed with Bermuda-based oil rigs operator Scorpion Offshore to terminate a 405 million US dollar oil rig contract on mutually acceptable terms. Keppel and Lewek Shipping, a subsidiary of Singapore-listed Ezra Holdings, are also currently working towards an amicable, mutual termination of a contract. However, Keppel said it had agreed with Seadrill Jack-ups Ltd to continue building two jack-up rigs worth 420 million dollars on revised terms. Excluding the Scorpion and Lewek contracts, Keppel said it still has an order book of about 10.8 billion Singapore dollars (7.25 billion US) extending through to 2012. Another Singapore-based rig maker, Sembcorp Marine, said that its subsidiary, PPL Shipyard, and Seadrill Jack-ups Ltd had agreed to revised terms on two jack-up rigs ordered in June 2008. The contract value of the two oil rigs remains at 430 million US dollars, Sembcorp Marine has said. A jack-up rig -- similar to a floating barge, with legs that can be lowered to the seabed -- is suitable for shallower waters and can take about 26-28 months to build. Semi-submersibles are designed for exploration at water depths of up to 10,000 feet (3,000 metres) and can take 28-30 months to build. Macquarie Research said some oil drillers are also deferring fresh orders in anticipation that prices of oil rigs will fall further due to a sharp drop in raw materials used in making the gigantic structures. "Steel can account for as much as 25-30 percent of the total cost of a deepwater project. Therefore drillers will hold out until prices drop, which may take six to 10 months," it said. Macquarie said oil's frenzied rise to 147 dollars a barrel attracted investments of "hot money" into the sector. But as oil prices fell at an even faster rate, these investors bailed out quickly, resulting in projects being cancelled or deferred, it added. Even if oil prices, currently at around 35 dollars a barrel, recover to between 70 and 90 dollars over the next three to five years, any increase in exploration and production budgets will be slow and spread out, it said. Order cancellations and postponements have spread into the ship-building sector. China-linked shipping firm Cosco Corp has announced a series of ship-building cancellations and deferments and has warned shareholders to expect lower profits. Macquarie said the two cancellations and 10 deferments are equivalent to the sum total of all ship-building orders won by COSCO in 2008. The "outlook for the shipbuilding sector continues to deteriorate with continued build in customer cancellation, further lowering earnings and cash flows visibility," Macquarie said. "Demand for new-build vessels is unlikely to turn around in the near term, as global freight rates are sharply lower on slowing demand."

http://www.singsupplies.com/showthread.php?t=15224

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it's a simple effect.

1 dollar taken off here usually equates to around 2-5 downstream. double, triple whammy effect.

as the ships/rigs dun get build, the shops surrounding the yards suffer. the uncle n auntie that sell food n drinks kana also as the workers eat lesser, or gets shipped home.

classic spiral effect.

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Container shipping business may remain slow till end-2010
By Desmond Wong, Channel NewsAsia | Posted: 13 January 2009 2157 hrs
 
SINGAPORE: The world's largest container shipping line, Maersk, has said it does not expect a quick recovery in freight rates. It also said the container shipping business will likely remain depressed until end-2010.

Maersk CEO Nils Smedegaard Andersen said the company is taking all necessary measures to weather slowing demand and overcapacity.

The container shipping industry has been in rough waters for several months due to the global economic downturn.

Maersk said it could join its rivals to lay up more ships if the economic situation continues to hit global trade. Last month, the firm announced that it was laying up eight mega vessels due to a drop in demand.

"The problem at the moment is that the market has been severely oversupplied with new ships and there will be a continued flow of new ships over the next couple of years, so during that time, the market will be challenging," said Mr Andersen.

Maersk has unveiled several measures to cut costs. Among them is a plan to streamline its management processes and to reduce its reliance on banks.

Mr Andersen said: "We've reduced investment levels down to what we can find inside our own cash flows over a two-year period, and that means we don't have to go out and seek additional financing."

Maersk expects net profits for 2008 to hit US$4 billion to US$4.3 billion, while 2009 projections indicate a net profit of US$3 billion.


- CNA/so

via : http://www.channelnewsasia.com/stories/singaporebusinessnews/view/402155/1/.html

Article on new ships.

Frontline, Teekay Crash Nears Amid Tanker Glut, Crude (Update3)

By Alaric Nightingale and Todd Zeranski
Enlarge Image/Details

Oct. 22 (Bloomberg) -- The record increase in oil prices and the unprecedented number of new tankers transporting crude is a stock market crash waiting to happen.

That, at least, is the growing consensus among analysts who say the widening gap between West Texas Intermediate crude and the rate for supertankers shipping Middle East oil to Asia means industry titans Frontline Ltd., Overseas Shipholding Group Inc. and Teekay Corp. have unsustainable valuations.

The Bloomberg Tanker Index has risen 41 percent in the past two years, even as freight rates sank 51 percent. The price of marine fuel, the biggest cost for shipowners, has advanced 44 percent in that time, reaching a record $446.50 a metric ton on Oct. 17. The number of ships available is close to a record.

``It doesn't look good at all,'' said Andreas Vergottis, who helps manage $1.2 billion at Isle of Man-based Tufton Oceanic Ltd., the world's biggest hedge fund dedicated to shipping. ``We've got a wall of worry and a wall of new buildings flooding the market ahead of us.'' He said the stocks are 30 percent overvalued.

Frontline, the world's biggest operator of supertankers, reached a record low of 3.80 kroner in December 1998. The stock has risen 29 percent, after falling 2.9 percent today in Oslo to 231 kroner. The gain has helped make Chairman John Fredriksen into Norway's richest man, with a fortune that Forbes magazine estimates at $7 billion.

Too Many Ships

The looming decline for tanker stocks is a legacy of the biggest tanker construction program in history. Teekay, Frontline and Overseas Shipholding in 2004 earned a combined $2.2 billion, triple the level of a year earlier, because of a jump in world oil demand. They used that profit to help order 522 tankers from builders including Hyundai Heavy Industries Co. and Samsung Heavy Industries Co.

The size of the oil tanker fleet expanded 3.8 percent this year, overwhelming the 1.7 percent increase in crude oil demand estimated by the International Energy Agency. The fleet will increase by as much as 32 percent during the next five years, estimates Lloyd's Register-Fairplay, the company that assigns ship registration numbers.

Tankers are being built at the fastest rate ever, according to Clarkson Plc, the world's largest shipbroker, which began collecting industry data in 1852.

Tankers capable of hauling 1.2 billion barrels of crude, equal to about two weeks of global oil consumption, will enter service in the six years that end in 2009, according to Clarkson. The total is 1 percent higher than the previous record, from the 1970s.

Straight to Scrapyards

Ship demand at that time slowed, and newly built tankers were sent straight to demolition, said Per Mansson, a shipbroker for Nor Ocean Stockholm AB, a former second mate and executive at Frontline before Fredriksen bought the company. Some tankers hauled one cargo from Asian shipyards to northwest Europe, only to be laid up in the fjords of Norway, he said.

``It got so bad that, on one voyage from Sweden to Venezuela, we turned the engine off and went with the current down to the Caribbean because fuel was so expensive,'' said Mansson, 55. ``We got a telegram from Exxon to go at 7 knots, so we just floated down.''

The Bloomberg Tanker Index has gained 28 percent this year, outpacing a 5.7 percent increase in the Standard & Poor's 500 Index, and a 6.2 percent drop in U.S. government 10-year bonds. Oil is up 40 percent and reached a record $90.07 a barrel in New York Mercantile Exchange trading on Oct. 19.

Teekay has appreciated 27 percent this year and fell 4.2 percent today to $55.31 on the New York Stock Exchange, valuing the Bahamas-based company at $4.08 billion. New York-based Overseas Shipholding fell 3.3 percent to $69.23, reducing its gain for the year to 23 percent.

Demolitions

Shares of Frontline are heading for an 11 percent decline, according to Henrik With, the DnB Nor Markets analyst whose advice on Frontline gave clients a 91 percent gain in the past year. Teekay may decline 26 percent, he forecasts. Among all analysts tracked by Bloomberg, at least 70 percent say the two stocks aren't worth buying.

Frontline Chief Executive Officer Bjoern Sjaastad in an interview said oil carriers will be sold and converted to haul bulk commodities, easing the ship surplus. Also, the speed of demolitions ``will go a lot faster than many people think,'' bolstering freight rates, he said.

Teekay spokeswoman Alana Duffy said the company can't comment before an earnings release at the end of the month. Overseas Shipholding spokeswoman Jen Schlueter said CEO Morten Arntzen wasn't immediately available for an interview.

Time Charters

Shipowners can protect against a drop in the single-voyage market by leasing vessels on so-called time charter contracts that can last months or years, while paying a fixed amount.

About 40 percent of Frontline's ships had such protection for 2007 and 2008, according to an Aug. 22 statement. Seventeen percent of Teekay's 111 carriers had such contracts, while none of Overseas Shipholding Group's biggest carriers had such deals.

Teekay protects itself against increases in the cost of marine fuel. Frontline and Overseas Shipholding don't. The industry's pricing mechanism, known as Worldscale, is updated once a year to reflect changing fuel prices.

Demand for single-voyage charters is ``stuck in a rut'' because the soaring price of oil is squeezing refiners and discouraging purchases, said Omar Nokta, an analyst at Dahlman Rose & Co. in New York. He advises investors hold their Frontline shares.

Losing Money

Refineries are losing 63 cents on each barrel they process in Europe, compared with a profit of $7.86 in May, because crude costs are rising faster than prices for gasoline and diesel, according to data compiled by Bloomberg.

``All this weakness is stemming from refineries not being in the market,'' said Nokta, whose call on Frontline during the past year led to a 35 percent profit for investors.

Analysts value shipping stocks in relation to the cost of second-hand tankers. From December 2003 through July 2007, those ship values more than doubled, according to data from the London-based Baltic Exchange. Since then, ship prices have dipped, exchange data show.

``Asset values will fall and dividend payments must be cut,'' said DnB Nor Markets' With. ``Too much fleet capacity coming on stream will put pressure on earnings from 2008 to 2010.''

Freight Rates

Falling freight rates and record fuel costs have given shipowners their longest string of losses in five years, according to Citigroup Inc., the third-largest lender to the shipping industry. So-called very large crude carriers, which transport about 2 million barrels, are losing more than $13,000 a day in the market for day-to-day charters. Shipowners are spending more on fuel and debt payments than they collect in rent.

Suezmax vessels, the biggest tankers that can navigate Egypt's Suez canal while full, are losing more than $10,000 a day. Owners of aframaxes, 600,000-barrel carriers that usually haul crude within the same continent, are losing about $13,000 a day, Citigroup estimates.

Thirty of the largest tankers may be sold and converted into carriers for grain, coal and iron ore, markets where freight rates are at a record high, Frontline's Sjaastad said.

``For the next 15 months, there isn't going to be substantial additions to the fleet, you'll have depletions going to dry bulk,'' said Dahlman Rose's Nokta. ``If you have the demand push, then they'll be able to absorb the vessels. Demand would keep a natural floor.''

China's economy is growing at almost 12 percent a year and India's by 9.3 percent, spurring demand for oil, steel, iron ore and coal.

No Cargoes

Some 50 supertankers have failed to find cargoes in the past month, and vessels will compete for consignments in November, extending declines for owners, forecasts Paris-based shipbroker Barry Rogliano Salles.

Relief may not come until 2010, when the United Nations' shipping agency, the International Maritime Organization, adopts a ban on single-hull tankers, those at greatest risk of spilling oil in the event of an accident. Once the policy takes full force five years later, the only tankers plying the oceans must have two steel hulls.

``Everything now is about what happens between today and 2010,'' says Ole Stenhagen, an analyst at SEB Enskilda in Oslo. ``We are in for a real dip in rates and a rough environment.''

To contact the reporters on this story: Alaric Nightingale in London at Anightingal1@bloomberg.net .; Todd Zeranski in New York at tzeranski@bloomberg.net
Last Updated: October 22, 2007 17:27 EDT

via : bloomberg.com

via : http://www.celicasg.org/index.php?topic=1026.msg12989#msg12989

the die was set in 2007. and there's really nothing they could have done once they inked the order for the new ships.
like the titanic, many will sink.

with that, perhaps an ERA will end.

[zuoom]

regarding the confidence issue.

had a kopitam chat with 2 friends yesterday.

1st guy said in times of volatility, all the fundamentals and what-not can disregard.
he says it's all about sentiments. basically, it's a feel thing.

on the other hand, the 2nd guy stressed that the basic fundamentals lagi more important now.
when all else fail, it's back to basic. in which those with strong foundation will survive.

pretty interesting eh?

[zuoom]

via : http://www.bmw-sg.com/forums/lounge/30225-where-have-all-gone-scary.html

now, how would your confidence level be at when you see something like this?

where's your money? where did it go?

[zuoom]

Published March 4, 2009

Cargo traffic dries up at US ports

(LOS ANGELES) The international trade business is foundering faster than ever seen before, with some US seaports watching cargo traffic fall by more than a third.

It's gotten so bad that Los Angeles and neighbouring Long Beach are slashing cargo rates to keep old customers and lure new business.
Oakland, California's port has laid off 12 per cent of its staff and cancelled free tours for the public. The number of ships idled around the world is approaching three times the number that were out of work during the last big ocean trade collapse, in 2002.
'It's phenomenal how much things fell away even since December,' said Paul Bingham, managing director of global trade and transportation for IHS Global Insight, the business research company that monitors North America's biggest ports for the National Retail Federation.
'Assuming the stimulus package works, you end the free fall in the second quarter, when you no longer see this accelerated decline,' Mr Bingham said. 'If the stimulus does not work, I don't think we know where the bottom is.'
There's a huge ripple effect at the docks and roughly 4,047 hectares of maritime facilities at the ports of Los Angeles and Long Beach, the nation's busiest. The port complex is a trade gateway that employs more than 280,000 workers and annually handles US$357 billion in goods.



The effect is being felt in the loss of high-wage jobs and in spiralling real estate vacancies in inland warehouse and distribution districts, experts said.
As severe as the shift has been in Los Angeles and Long Beach, where February imports fell 18.1 per cent compared with the same month in 2008, it's worse in other places, according to the monthly cargo figures collected by IHS Global Insight.
Oakland is expected to be down 22 per cent in February, compared with a year earlier, as US consumers continue to rein in spending and as retailers cut factory orders to avoid building inventories that won't sell.
The February downturn is expected to be 29 per cent in Tacoma, Washington, and 39 per cent in Seattle when those ports finish tallying container movements.
Unlike the West Coast ports, which deal almost exclusively in trade to and from Asia, East Coast ports have a more diversified mix of trade with Asia, Europe and Latin and South America. Still, February trade is down at East and Gulf Coast ports ranging from 6.8 per cent at New York/New Jersey to 29.5 per cent at Charleston, South Carolina. -- LAT-WP

via : http://singsupplies.com/showthread.php?t=19786

====================

now, how would the confidence level be?

[zuoom]

notice some activities in the some of the financial stocks n the local housing market.

what's the current confidence level now? are people thinking it's turning for the better? (as in, how bad can it get after the drop in Oct till now...?)