Even with the very weak current IMO regulations, UNCTAD expects the fleet to slow by 6.7% this decade. An extra ~1% of new ship capacity per year will be needed to offset in addition to ~2% per year to replace old ships. Compare this to a #drybulk orderbook of just 5.6% today.
#Drybulk demand grew at a CAGR of 4.7% per year since China was admitted to the WTO. Even if this slows SIGNIFICANTLY to 2.5%, this means to maintain the very tight supply/demand balance we see today, we will need 5%+ of new ship capacity to deliver each year this decade.
In DWT (capacity terms) this 5%+ per year of new ships needed is equivalent to ~50M DWT. This is more ship capacity than has been built in each of the past 8 years. Although not a problem in isolation, shipyards are already full through 2023 ships from other fast growing sectors
Over the same 8 year period shipbuilding capacity has actually been contracting and expected to contract further. All other sectors will need the same extra ~1% of new capacity per year to offset slow steaming and shipbuilding capacity is already sold out before this effect.
With shipbuilding capacity for large ships sold out through 2023 despite one of the lowest cross-sector orderbooks in history on a percentage basis of the global fleet, it is clear that shipbuilding capacity will be grossly insufficient by 2024.
Despite persistently high rates in the last cycle starting in 2003, it took many years to build enough shipbuilding capacity and then many more years to build enough ships to meet demand leading to a 7 year period of very high #drybulk shipping profits.
Although every cycle is different and this is NOT the last cycle, many of the same forces are at work. I expect an extended period of high profitability as forces constraining supply will cause supply to consistently lag demand making shipping a top performer in the coming years.
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1/ If it weren't for the recent merger of the two largest US listed tanker cos $EURN and $FRO, $NMM would be the by far largest US listed shipping co by # ships.
But whereas $EURN and $FRO trade at >$.90 per $1 of NAV, $NMM trades at just ~$.27 per $1 of NAV and a fwd PE of ~1X
2/ $NMM has traded at a huge discount to both NAV and its peer group due to management concerns and skepticism that huge profits would ever be returned to shareholders.
With the $NM hangover resolved, and a $100M buyback (~15% of shares) authorized this discount seems overblown.
3/ Sure, buyback authorized vs used are two very different things, but seeing as $NMM shares would need to double to approach its most heavily discounted and much smaller peers, my bet is that they use it and buy their shares back for <$.30 on the $1. Risk/reward asymmetry huge.
Pundits will tell you there won't be a port strike and there likely won't be. Strikes are so 1970. The new thing is work slowdowns that caused gridlock in the 2014/15 negotiation. No strike for the government to end and workers still get paid but containers don't move.
1/ 2022 is on pace to see the lowest level of ship demolition since 2008.
This is into a global merchant fleet that has more than doubled in size over the same period.
High rates have ships out trading longer which means the fleet is getting older... for now.
2/ Although high shipping rates are likely to keep demolition muted for the balance of 2022, at some point this trend will need to reverse as 22% of the global fleet is now over 15 years old.
3/ Very few of these ships over 15 years old will comply with new IMO carbon efficiency regulations take effect January 1 2023. Costs to retrofit are prohibitive and are likely to result in early retirement of older ships even with high rates.
1/ Ok... so $BTU had an epically bad quarter. Negative cash flows, shareholder dilution, yada yada. BAD.
Still trying to understand what I am missing here.
$462 million of cash outflows in Q1 were hedges and working capital all of which comes back with shipments + hedge unwind
2/ About 1/3 of the hedges unwind in Q2 and if inventory ships and normalizes, this will be >$200m of added cash flow to Q2 in addition to normal cash generation so >$500M in FCF in Q2 easy?
3/ Compare this >$500M Q2 FCF to the $1.1B of debt, ~$800M of which needs to be repaid prior to shareholder returns. So sometime in Q3 at this rate with more of the hedges rolling off?
Shipbuilding capacity still decreasing. Many second tier yards are unable to build the modern designs and sizes required. 129 second tier yards that delivered a ship in 2021 *did not receive any new orders in 2021*. These yards will most likely cease to exist in coming years.
Drybulk fleet detail. Orderbook to fleet acutely low in small sizes.