LNG Sea Tankers Are a Rare Bright Spot In Shipping Right NowMay2

Daily Intelligence Briefing

Identifying Change-Driven Investment Themes

Thursday, May 2, 2019

Shipping

Ship Orders Fall to Lowest Level in 15 Years

Ship orders world-wide have shrunk to the lowest level in 15 years as vessel owners struggle with excess capacity that has kept freight rates well below break-even levels. There were 3,200 vessels of a combined 81 million gross tons ordered globally in the first quarter, the lowest figure since 2004, marine data provider Clarksons PLC said in a report released Friday.

Crude tankers and bulkers made up around two thirds of all orders a decade ago, Clarksons said, but this year the share has dropped to 42% as volatility in commodity markets and changes in global energy consumption have triggered shifts in ocean-going trade. Ship types like liquefied natural gas, or LNG, carriers now make up a bigger portion of orders.

The 141 LNG carriers on order represent 13% of the total order book, compared to just 2% a decade ago, Mr. Warner said. The LNG market is surging on growing demand from countries including Japan, China and India, which are turning to gas rather than coal for power generation and heating.

Seaborne LNG cargo markets also are being fueled by growing U.S. gas exports, as extraction costs in the U.S. are about a third less on average than those in other production centers including Russia and the Middle East. Cruise ship orders also make up a bigger part of the mix, comprising 12% of the global order book, compared with 2% a decade ago, according to Clarksons.

Read the full article from The Wall Street Journal +

Shipping

What Sinking Ship Finance Means To Future Ocean Freight Markets

Two key indicators of vessel finance – securities sales by U.S.-listed ship owners and global marine syndicated loan activity – are both flashing red. Ocean freight markets should see both short- and long-term consequences.

Ship owners began going public in New York in significant numbers in the early 2000s. Since the industry’s Wall Street debut, there has never been a full quarter when these companies did not raise at least some cash via offerings of equity or debt securities – until now.

On April 24, Teekay Corporation announced plans for a private placement of $300 million in debt securities. Assuming the Teekay deal goes through, it will mark the first securities offering by a U.S.-listed ship owner (excluding time-to-time sales of shares under pre-existing equity distribution programs) since the mid-November 2018 sale of $100 million in perpetual preferred equity by GasLog Partners.

In general, as capital becomes more expensive and difficult to find, returns must inevitably improve to cover those expenses. For vessel categories exposed to escalating capital costs, capacity would eventually have to decline in relation to cargo demand and freight rates would have to rise.

Read the full article from Freight Waves +

Shipping

Over 100 shipowners back speed limits to reduce GHG emissions

Over 100 shipowners, with a strong Greek representation, have publicly backed mandatory speed limits for shipping to reduce greenhouse gas emissions in an open letter to member states of IMO. The letter called on parties to support the move for mandatory speed limits as way of meeting GHG reduction targets of at least 40% by 2030 and for total emissions to be cut by at least 50% by 2050.

Of course as well as reducing GHG emissions speed limits would act to significantly reduce overcapacity in shipping, something which has dogged the industry since the global financial crisis in 2008. Indeed the letter noted that slow steaming, which was practised in the wake of the global economic crisis by shipowners in an effort to manage overcapacity, had signficantly reduced GHG emissions.

Read the full article from Seatrade Maritime News +

Shipping

Euronav Sees Positive Signals From the Tanker Market

Hugo De Stoop, CFO of Euronav said: “There are positive signals from the tanker market at present. Firstly, Euronav delivered VLCC rates of USD 35,000 per day (same as Q4) despite 1.2m bpd OPEC cuts and 28 new VLCC equivalents entering the global fleet during Q1. Secondly, US crude exports are running around 30% higher year on year. Thirdly, asset prices which historically have been a key valuation indicator for investors, continue to rise in both new build and secondhand values”. The key focus of this rise has been on second hand tonnage. This is important as historically tanker equity values have had a stronger correlation with asset prices than earnings.

We expect vessel supply to be disrupted by IMO-motivated retrofitting of scrubbers with VLCC and Suezmax tankers each expected to be absent from the market during this retrofit process reducing fleet capacity by potentially up to 2%. In addition to this, there is the potential for more Iranian VLCC vessels to be removed from the fleet depending on the scope of US waivers and their renewal from May 2019.

Read the full article from Hellenic Shipping News +

LONG

ASEAN Markets

LONG

Electric Utilities

LONG

Lithium

LONG

Obesity

LONG

Solar

LONG

Value Over Growth

LONG

3D Printing

SHORT

Autos

LONG

Gold & Gold Miners

SHORT

Long-Dated U.S. Treasuries

LONG

Oil & U.S. Energy

SHORT

U.S. Housing

LONG

Video Gaming

Fed Holds Rates as Expected, Reaffirms Patience Approach

The Federal Reserve kept the target range for the federal funds rate at 2.25 percent to 2.25 percent during its May meeting, saying that inflation has weakened despite that the economic activity has been rising at a solid rate and a strong labour market. The Committee also reaffirmed its position to be patient about future adjustments to the target range.

Click here to access the data +

US 10Y Bond Yield Hits 4-week Low

United States 10 Year Government Bond Yield decreased to a 4-week low of 2.4587%.

Click here to access the data +

US Companies Add More Jobs than Expected: ADP

Private businesses in the United States hired 275 thousand workers in April 2019, more than an expected 180 thousand gain and compared to March’s upwardly revised 151 thousand increase. It was the largest payroll increase since July last year.

Click here to access the data +

US Mortgage Applications Fall for 4th Week: MBA

Mortgage applications in the United States decreased 4.3 percent in the week ended April 26th 2019, following a 7.3 percent fall in the previous week, data from the Mortgage Bankers Association showed.

Click here to access the data +

US Construction Spending Unexpectedly Falls

US construction spending decreased 0.9 percent from a month earlier to a seasonally adjusted annual rate of USD 1.28 trillion in March of 2019, following a downwardly revised 0.7 percent rise in the previous month and missing market expectations of a 0.1 percent gain.

Click here to access the data +

US Manufacturing Activity Growth Revised Higher: Markit

The IHS Markit US Manufacturing PMI was revised higher to 52.6 in April 2019 from the previous month and preliminary reading of 52.4. The reading pointed to the second softest expansion in factory activity since June 2017.

Click here to access the data +

US Factory Activity Growth at 2-1/2-Year Low: ISM

The ISM Manufacturing PMI in the US fell to 52.8 in April 2019 from 55.3 in March, below market expectations of 55. The latest reading pointed to the weakest growth in factory activity since October 2016.

Click here to access the data +

US Crude Oil Inventories Rise the Most in Over 5 Months

Stocks of crude oil in the United States rose by 9.934 million barrels in the week ended April 26th 2019, after a 5.479 million increase in the previous week and well above market expectations of a 1.485 million gain. It is the biggest gain since the week ended November 9th 2018.

Click here to access the data +

Construction & Real Estate

Homebuilders

Construction spending tumbles in March as housing takes it on the chin

Construction spending fell 0.9% in March to a seasonally adjusted annual rate of $1.282 trillion, the Commerce Department said Wednesday. That was a bigger decline than the median forecast of a 0.4% decline from economists surveyed by MarketWatch.

The downshift in spending in March was broad based, but housing took it on the chin. All residential construction was lower by 1.8% for the month, and 8.4% for the year. Private-sector construction of all types was 0.7% lower compared to last month and 3.6% lower compared to the same period in 2018. Public-sector outlays were 1.3% lower for the month, but 8.6% higher than last year.

In March, the Commerce Department revised previous’ months data, a task that hadn’t been done so far this year because of the government shutdown in December and January. The agency now estimates that construction outlays through the first three months of the year are 0.2% lower than during the same period in 2018.

The pace of housing construction has been mediocre for some time. And the pace of private investment is also slowing.

Read the full article from MarketWatch +

Infrastructure

Democrats, Trump Agree to Aim for $2 Trillion Infrastructure Package

Democratic congressional leaders said President Trump agreed to aim for a $2 trillion infrastructure package in a White House meeting on Tuesday, though the two sides didn’t discuss how it would be paid for, and Capitol Hill Republicans are unlikely to go along. “I like the number you’ve been using, Nancy,” Mr. Trump told House Speaker Nancy Pelosi (D., Calif.), according to a Democratic aide. “Two trillion.”

In unusually positive comments about negotiations with the president, Mrs. Pelosi and Senate Minority Leader Chuck Schumer (D., N.Y.) said that the meeting was productive, and that they had agreed to return in three weeks to hear Mr. Trump’s ideas about how to pay for an infrastructure bill. “There was goodwill in this meeting, and that was different than some of the other meetings that we’ve had,” Mr. Schumer said. Mrs. Pelosi said the two sides had “come to one agreement: that the agreement would be big and bold.”

Republican lawmakers—who control the Senate—are unlikely to support a $2 trillion infrastructure bill. They have warned that a major new federal infrastructure program would increase the federal deficit and deepen local governments’ reliance on the federal government.

Read the full article from The Wall Street Journal +

Services

Cannabis

Curaleaf Bets Nearly $1 Billion on Weed Oil in U.S. Pot Deal

Curaleaf Holdings Inc., the most valuable U.S. marijuana company, is making a big bet on cannabis oil. The Massachusetts-based company is buying the regulated cannabis business of Cura Partners Inc., a maker of oil for vape pens, in a stock deal valued at about $950 million. That makes it the largest acquisition so far between U.S. cannabis companies.

Cura, based in Portland, Oregon, sells its Select brand marijuana products in more than 900 dispensaries, including in California, which is home to the world’s largest legal weed market. It had revenue of about $117 million last year. Acquiring Select gives Curaleaf a popular West Coast brand it can sell at its dispensaries around the U.S., according Boris Jordan, the company’s chairman.

Curaleaf shares jumped as much as 11 percent in Toronto after the news. The stock has more than doubled so far in 2019.

A wave of consolidation has hit the American pot industry in recent weeks, with large multistate operators gobbling up smaller companies as they race to build a national presence even as marijuana remains illegal at the federal level. Creso Labs Inc. and Harvest Health & Recreation Inc., two Curaleaf competitors, each announced deals worth more than $800 million in the last two months.

Read the full article from Bloomberg +

Technology

5G

Huawei to challenge Samsung, Apple electronics lead with 5G TV

Huawei Technologies plans to introduce the world’s first 5G television as early as this year and aims to be a top five PC maker in three years as the Chinese tech giant looks to challenge Samsung Electronics and Apple in the market for high-end consumer electronics.

The TVs will be equipped with a 5G module as well as a high-end 8K resolution display, sources familiar with the plan told the Nikkei Asian Review. This means they will be able to use the new generation network to download data-heavy content, such as 360 degree videos in which viewers can watch in every direction, and virtual reality programs. There are questions, however, over how soon the wider ecosystem for such services will be available.

Huawei’s first attempt to make TV sets is fueled by a desire to complete its “ecosystem” of consumer electronics — which already includes everything from smartphones to wearable devices — even as analysts voice doubts over the strength of its brand image.

Among the potential benefits of a 5G TV is the fact it would not require the fiber optics or cable boxes that traditional cable or satellite broadcast services do. The TV could also act as a router hub for all other electronic devices in a home.

Read the full article from Nikkei Asian Review +

AI Chips

This chip was demoed at Jeff Bezos’s secretive tech conference. It could be key to the future of AI.

Until now, AI software has largely run on graphical chips, but new hardware could make AI algorithms more powerful, which would unlock new applications. New AI chips could make warehouse robots more common or let smartphones create photo-realistic augmented-reality scenery.

Vivienne Sze’s chips are both extremely efficient and flexible in their design, something that is crucial for a field that’s evolving incredibly quickly. The microchips are designed to squeeze more out of the “deep-learning” AI algorithms that have already turned the world upside down. And in the process, they may inspire those algorithms themselves to evolve. “We need new hardware because Moore’s law has slowed down,” Sze says.

The high stakes attached to investing in next-generation AI chips—and maintaining America’s dominance in chipmaking overall—aren’t lost on the US government. Sze’s microchips are being developed with funding from a Defense Advanced Research Projects Agency (DARPA) program meant to help develop new AI chip designs.

The real opportunity, says Sze, isn’t building the most-powerful deep-learning chips possible. Power efficiency is also important because AI also needs to run beyond the reach of large data centers, which means relying only on the power available on the device itself to run. This is known as operating on “the edge.” “AI will be everywhere—and figuring out ways to make things more energy-efficient will be extremely important,” says Naveen Rao, vice president of the artificial intelligence products group at Intel.

Read the full article from MIT Technology Review +

Transportation

Shipping

Ship Orders Fall to Lowest Level in 15 Years

Ship orders world-wide have shrunk to the lowest level in 15 years as vessel owners struggle with excess capacity that has kept freight rates well below break-even levels. There were 3,200 vessels of a combined 81 million gross tons ordered globally in the first quarter, the lowest figure since 2004, marine data provider Clarksons PLC said in a report released Friday.

Crude tankers and bulkers made up around two thirds of all orders a decade ago, Clarksons said, but this year the share has dropped to 42% as volatility in commodity markets and changes in global energy consumption have triggered shifts in ocean-going trade. Ship types like liquefied natural gas, or LNG, carriers now make up a bigger portion of orders.

The 141 LNG carriers on order represent 13% of the total order book, compared to just 2% a decade ago, Mr. Warner said. The LNG market is surging on growing demand from countries including Japan, China and India, which are turning to gas rather than coal for power generation and heating.

Seaborne LNG cargo markets also are being fueled by growing U.S. gas exports, as extraction costs in the U.S. are about a third less on average than those in other production centers including Russia and the Middle East. Cruise ship orders also make up a bigger part of the mix, comprising 12% of the global order book, compared with 2% a decade ago, according to Clarksons.

Read the full article from The Wall Street Journal +

Shipping

What Sinking Ship Finance Means To Future Ocean Freight Markets

Two key indicators of vessel finance – securities sales by U.S.-listed ship owners and global marine syndicated loan activity – are both flashing red. Ocean freight markets should see both short- and long-term consequences.

Ship owners began going public in New York in significant numbers in the early 2000s. Since the industry’s Wall Street debut, there has never been a full quarter when these companies did not raise at least some cash via offerings of equity or debt securities – until now.

On April 24, Teekay Corporation announced plans for a private placement of $300 million in debt securities. Assuming the Teekay deal goes through, it will mark the first securities offering by a U.S.-listed ship owner (excluding time-to-time sales of shares under pre-existing equity distribution programs) since the mid-November 2018 sale of $100 million in perpetual preferred equity by GasLog Partners.

In general, as capital becomes more expensive and difficult to find, returns must inevitably improve to cover those expenses. For vessel categories exposed to escalating capital costs, capacity would eventually have to decline in relation to cargo demand and freight rates would have to rise.

Read the full article from Freight Waves +

Shipping

Over 100 shipowners back speed limits to reduce GHG emissions

Over 100 shipowners, with a strong Greek representation, have publicly backed mandatory speed limits for shipping to reduce greenhouse gas emissions in an open letter to member states of IMO. The letter called on parties to support the move for mandatory speed limits as way of meeting GHG reduction targets of at least 40% by 2030 and for total emissions to be cut by at least 50% by 2050.

Of course as well as reducing GHG emissions speed limits would act to significantly reduce overcapacity in shipping, something which has dogged the industry since the global financial crisis in 2008. Indeed the letter noted that slow steaming, which was practised in the wake of the global economic crisis by shipowners in an effort to manage overcapacity, had signficantly reduced GHG emissions.

Read the full article from Seatrade Maritime News +

Shipping

Euronav Sees Positive Signals From the Tanker Market

Hugo De Stoop, CFO of Euronav said: “There are positive signals from the tanker market at present. Firstly, Euronav delivered VLCC rates of USD 35,000 per day (same as Q4) despite 1.2m bpd OPEC cuts and 28 new VLCC equivalents entering the global fleet during Q1. Secondly, US crude exports are running around 30% higher year on year. Thirdly, asset prices which historically have been a key valuation indicator for investors, continue to rise in both new build and secondhand values”. The key focus of this rise has been on second hand tonnage. This is important as historically tanker equity values have had a stronger correlation with asset prices than earnings.

We expect vessel supply to be disrupted by IMO-motivated retrofitting of scrubbers with VLCC and Suezmax tankers each expected to be absent from the market during this retrofit process reducing fleet capacity by potentially up to 2%. In addition to this, there is the potential for more Iranian VLCC vessels to be removed from the fleet depending on the scope of US waivers and their renewal from May 2019.

Read the full article from Hellenic Shipping News +

Logistics

Amazon launches digital freight brokerage site

Amazon quietly launched a digital freight brokerage website at freight.amazon.com, just on day after announcing Prime free shipping would transition from two days to one. FreightWaves was first to report the news.

The pricing offered on Amazon’s platform is roughly 30% below market rate, based on FreightWaves analysis. “Tap into the scale of Amazon as we extend our carrier network to give you best-in-class service at great rates,” reads the site. Amazon has yet to formally announced the service.

Amazon’s relationship to profitability has always fit the tech company mold rather than the retailer mold — where the new player undercuts competition sacrificing margin for years before eventually using scale and some price increases to regain profitability after achieving relatively quick market domination. The aggressive pricing, which FreightWaves concludes likely yields no or even negative margins, suggests Amazon wants a larger piece of the freight pie than what its trucks have extra time to deliver.

Amazon has been quietly but not inconspicuously building its logistics arsenal with trucks, vans and aircraft. Executives at the company have traditionally insisted this capacity is meant to supplement existing third-party freight and logistics service providers. Launching a freight brokerage platform suggests the company is changing that practice, boosting capacity beyond immediate need.

Read the full article from Supply Chain Dive +