John Faraclas
Midweek Market blues in all fronts whilst ultra-caution should be observed
The BDI (Baltic Dry Index) was down 12 points at 643 points; Geopolitics continue to be messy and the “conclusion” is that Coronavirus (COVID-19) “comes” as …manna from “nowhere” to cover the despicable bankrupt global sins the politicians, the business hooligans and their cronies created… John Faraclas’ brief midweek recap:
The BDI is on a downward mode with 661 – minus four points, on 27/4 and 655 – minus six on 28/4… All dry indices except the Supras’ BSI are in a mild downfall… and that’s a statement, a bad statement though!!!! We are 1,604 points below the level as of the end of Dec 2013 when the BDI stood at 2,247 points and that’s a fact; end of the hype, end of the story…
The Capes’ BCI stood at 926 points down 19 – 962 on 27/4 and 945 on 28/4…
The Panamaxes BPI lost 11 points and now reads 720!!! 741 on 27/4 and 731 on 28/4…
The Supras managed to survive even with single digit changes; the BSI now stands at 404 – over and above the 400-point threshold! Same was 392 on 27/4 and 397 on 28/4 – “not bad” eh!
The Handies BHSI falls dramatically and now stands at 239 points – minus two. On 27/4 the BHSI stood at 245 and on the 28/4 at 241…
The Wets too on a falling mode despite the fact that this fall doesn’t affect the earnings – yet! The last published BDTI (Dirties) and BCTI (Cleans) stood at 1,387 – minus 116 and 2,013 – minus 98 points respectively… On the 27th of April we had BDTI at 1,536 and BCTI at 2,190 respectively… On 28th of April 1,503 and 2,111 respectively.
Container trade stuck and many companies will find it difficult to continue… China will face its demons… too… If nations become more self-sustained China will be in trouble and its Silk Road will suffer too… We are observing a “movement” to revive the European Dream – Nation-wise even if the European Union is being dismantled!!!!! This is the greatest real hope!!!!
The WTI “recovered” following its crashing course… Tonight we see same closing just above the US$ 15.00 at US$ 15.06!! The previous two days, 27 and 28/4, we witnessed same going down to US$12.78 and US$12.34 respectively. Now pay attention to this: 7.7 billion people on Planet Ocean are “having” a virtual party ever since the WTI fell below the US$50 mark… Basically, the fall happened on the 4th of Feb 2020 when the WTI went down to US$ 49.6 and then the big dive on the 25th of Feb 2020 when we witnessed the WTI read US$49.9… Any objection…? Will the USA save Saudi Arabia but then who will really benefit, eh! Many people make all sorts of assumptions but they all ignore that News is what they don’t tell us.- The Brent too is in trouble waters… ended “up” tonight at US$ 22.54 having gone down to US$ 19.33 on the 21st of April !!! CAUTION as yesterday, BP’s profits fell 66 centum as COVID-19 hits oil demand… Await to see Shell and the other sisters…
Imagine what’s coming up when the alternative sources of energy are being the talk of every house!!!!
Meanime we have an excellent report from VesselsValue daewd 27/4 on:
Overzealous Valuation and Global Pandemic Bad for Offshore Market
Intro
The last five years have been one of the longest and most challenging downturns the offshore industry has ever experienced. Since the oil price drop of 2014/2015, the Offshore vessel market has been plagued by bankruptcies, consolidations, takeovers and mergers, forced fleet sales and most importantly a significant decrease in asset values.
Values
VesselsValue has always been conservative in terms of Offshore asset values compared to their competitors. In January 2019, Solstad Offshore were requested to revalue their fleet by Norwegian financial authority Finanstilsynet. At that time VesselsValue estimated the value of a five-year-old large PSV at USD 13.7 mil, down almost 22% year to date from USD 17.5 mil. By comparison other valuation providers were quoting valuations 20% higher.
In the months that followed, others believed the value of a five-year-old large PSV increased from c. USD 16 mil to c. USD 19 mil. By comparison, VesselsValue figures increase from USD 13.5 mil to USD 14.1 mil.
There were very few transactions within the market during this period to support such an aggressive increase. However, the market was seeing some positivity, both a stable and relatively high oil price, vessel rates increasing, layup figures decreasing, and handful of ships sold for demolition.
The VV algorithms use a combination of long and short-term rolling averages of the Brent Crude oil price to model sentiment in the absence of transactions. This is effective because the VV sentiment does not overreact to any short-term knee-jerk effects witnessed in the market unless there are enough supporting sale and purchase transactions to justify this.
2019 was not a bad year for the Offshore industry, however VV has always argued based on their data, and valuations that the market was not experiencing the upturn others believed.
2020 has seen the Covid 19 global pandemic and a significant decline in oil price. Tuesday 21st April saw Brent crude drop below USD 16/barrel, a 21-year all-time low. To put this into perspective, the lowest recorded oil price in last crisis was USD 23/barrel.
On the 31st March 2020 Solstad Offshore announced they has entered financial restructuring, citing Covid 19 and the continued poor Offshore market conditions. Such a large Norwegian Offshore owner entering restructuring is an important milestone for the sector. As of 23rd April 2020 VesselsValue values the Solstad fleet at USD 1,483.9 bil. See below table.
Forced removals
A condition of Solstad’s restructuring deal is they must remove 37 vessels. Although the exact vessels to be sold are not yet known, it will most likely be the laid up, older smaller units.
Utilising VesselsValue fleet search and recency of AIS function, VesselsValue are able filter PSVs, AHTs and OCVs within the Solstad fleet that have not signalled in 1 week or more, i.e. are inactive / laid up. These 34 vessels could represent a large portion of the possible 37 sales candidates. The below table shows the inactive vessel breakdown, for full list CLICK HERE
Please note:
1) Demolition value is based on vessels LDT current price for steel Indian Subcontinent
2) VesselsValue assumes vessels are in seaworthy condition and fair survey position.
If Solstad were to remove all the 34 outlined vessels from their fleet, the new VesselsValue fleet value would be USD 1,362.8 bil. See below.
The Future
It is unknown how long this current economic situation will last, but what is known is that the Offshore industry is in retraction and the outlook will be extremely testing for everyone from oil majors to small service providers and all those in between.
All signs points to another period of restructuring, forced vessel sales, mergers and consolidations and therefore declining asset values.
As always with periods of austerity, data driven valuations are critical to keep the market moving forward and prevent it from making the same mistakes of the past.-
Let us have your views on the above!!!
Maritime Tourism, part of Tourism, which include the Cruise Industry in its entirety and Yachting is on the edge. Billions of Dollars at stake affecting also Aviation… CAUTION!!!
On the Geopolitical front now: nothing much has changed; the MIGRANTS issue remains – in particular, Turkey and its Coast Guard continues to “assist” all “desperate” migrants and “push” them to Greece and its Islands, a very provocative method, thanks to the apathy and treacherous behaviour of German run European Union and NATO. A very dangerous situation escalates. CAUTION as amongst other issues no one knows the state / condition of health of these MIGRANTS nor its intentions as there are also elements of dubious past, including terrorists .
Moreover Turkey not only continues to violate Greeces’ and Cyprus’ airspace and EEZ – which is also that of the European Union, but goes even beyond that… CAUTION as you never ever know what might happen in this region – which is part of the faulty line from Gib to Afghanistan and from the Caucuses to the Horn of Africa and as Turkey opened another front in Libya and with the Syrian mess still on what might come out of it. You can add also Turkey’s bankruptcy which might prompt Erdogan’s desperation and make it more messy… Russia too for its own designs endorses Turkey’s actions.
BREXIT looks quiet but you never ever know if the UK and the EU will develop any agreement within the timeframe initially envisaged…
The EU is in a mess for a long time now and its cohesion is a stake…
At the other side of the Atlantic and given the November USA’s election developments there will surprise all on Planet Ocean…
In the Central and South Latin America the economic situation is at stake and things might get sour… Watch out Brazil….
Africa hasn’t changed an iota and wonder what will happen with these 1.3 billion people there, half of whom do not have electricity…
The Subcontinent too has many issues and the Far East with North Korea being once again the epicentre of many developments affecting all there…
China begins its testing time whilst Japan is watching everybody there protecting its vesting interests…
Oceania lives in another World order…
On the Coronavirus despicable developments and uncertainty, ultra-CAUTION should be observed. In the absence of medicines, and the manna from havens vaccine, as well as an undisciplined global public, all things being equal, expect the unexpected with asymmetrical repercussions for all nations. Our humble view is to wait until we are sure the virus is “contained” in a way and doesn’t spread more… It is too early to start easing the lockdown!!!! Whoever masterminded this attack must seat in the dock…
In addition to the already bankrupt Planet Ocean, the Coronavirus effect will lift the Global debt from US$ 257 (Twohundredandfiftyseven) trillion to US$300 (threehundred) trillion very soon.
To paraphrase John Foster Dulles’ maxim*: “Coronavirus does not have friends; it has interests (to destroy somebody’s enemies)…”
We can reconfirm that 2020 is the Year of Reckoning**; we can also reconfirm that life on Planet Ocean is not the same and will never ever be the same. We are optimistic though that something favourable, something good and positive to all who will remain unscathed will happen – same applies for companies. Be innovative, be disciplined, adapt to the new norm and learn to survive.
Mind the rising unemployent factor; same will reach at least 50 (fifty) centum of the global workforce. What Governments and companies can do? CAUTION as we need to avoid any social upturn… Following the 2008 collapse, the new reality will finish off many and people will have to do whatever it needs to survive.
Congratulations to UK’s PM Boris Johnson and his fiancée Carrie Symonds who gave birth to a baby boy, the third one of a serving PM following the Blairs (2000) and Camerons one (2010).
Congratulations to all medical staff worldiwide for doing their utmost, even losing their lives to save patients from the Coronavirus anathema!!
Have a nice evening and remain on guard from actions emanating from Pirates, Terrorists, Criminals and Business Hooligans whatsoever wherever you are on Plane Ocean. Indeed we are living in interesting times.
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*”The United States of America does not have friends; it has interests.”
** See our 7th of Nov 2019 prediction
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Uploaded 23:45 BST
Updated 23:55 BST
