AllThingsVentured Profile picture
Apr 17, 2022 10 tweets 4 min read Read on X
1/ I'm going to pound the table a bit more about and show that shipbuilding capacity is insufficient to replace scrapping let alone accommodate trade volume growth.

But this time we will look at the global aggregate merchant fleet including all sectors.

🧵...
2/ Across all sectors, the global orderbook is only ~10% of the active fleet compared to ~8% that is already beyond economic life in the new high fuel cost/low emissions requirement paradigm. It the time it takes the ~10% to deliver, ~14% more will approach end of economic life.
3/ In 2022, ships reaching critical decision age whether to scrap or repair for compliance increases significantly and continues to increase each year this decade.

Notice in 2022 and beyond, the capacity of ships delivered fails to match capacity hitting the new 20 year wall.
4/ The only way owners pay the huge repair and compliance bill keep these old uneconomic assets operating is with very high rates: high enough to amortize a $1.5M per year repair schedule, 30% worse fuel economy, a rate uncertainty premium, and a ROIC cash financing premium.
5/ At high enough rates to keep these old assets trading, modern fuel efficient ships that can be financed will make truly exceptional profits. The largest modern scrubber fitted ships currently earn ~$20k per day more than their oldest equivalents.
6/ Capital investment and constraints on ship ordering drives shipping cycles. Ship ordering lags rates, ship deliveries lag orders ~3 years, and new shipbuilding capacity lags years after that.

We are still losing shipbuilding capacity today:
7/ The last cycle was demand driven with China joining the WTO and shipbuilding playing catch up for a decade. This one will be supply driven as capacity is now insufficient to replace ships from the last boom and meet more stringent emissions regulations.

Where are we at?
8/ But this cycle is different. It is a NO BRAINER. Who could have predicted the crazy demand increase in the 2000s cycle?

This time we have the visibility to see that supply is insufficient even under a pessimistic demand scenario of multi-decade low trade growth.
9/ What other capital intensive business that has grown consistently with global GDP do you have such visibility of 3+ years out of shrinking supply in lieu of high rates?

There is no short-cycle shale patch to ruin this party.

Only global economic and geopolitical tail risk.
10/ I will point out again that in addition to aggregate shipbuilding capacity being insufficient to keep up with replacements for the global fleet, today's orderbook is heavily skewed toward container and gas carriers.

#tanker and #drybulk deliveries are grossly insufficient.

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More from @AllVentured

Dec 5
The main reason #tanker rates and equities have sold off from their June highs?

➡️Huge global inventory drawdowns⬅️

The 150mm bbl drawdown since early June represents 30 VLCC equivalents that went unemployed vs a flat inventory counterfactual.

thread 🧵
2/ With inventories at bottom of 5 year averages, it seems unlikely that inventories decline meaningfully from here. Just returning to flat inventories adds back the +30 VLCCs of demand. Adding the expected 1mm b/d supply/demand growth in 2025 requires another +30 VLCCs.
3/ Therefore my base case for 2025 sees +60 VLCC equivalents employed vs levels seen since June.

This is vs a fleet of ~900 VLCCS so +7% utilization relative to recent months.
Read 8 tweets
Oct 8
1/ Buried under all of the Middle East and port strike chaos headlines, a very important debate about a carbon tax on shipping is ongoing at IMO meetings this week.

ft.com/content/407307…
2/ Support for a carbon tax is gathering momentum as it would be one of the most simple, economic, and effective ways to lower carbon emissions in the shipping industry. On the other side of the debate are middle income countries responsible for the lion's share of world trade
3/ These major exporters oppose it because it will increase the cost of traded goods which is partially borne by the producer and partially borne by the consumer. Image
Read 8 tweets
Feb 23
🚨 Breaking 🚨

Biden Admin sanctions 147 vessel Sovcomflot fleet as foretold in the below thread.

A nice gift on a Friday. If history is a guide and we can use COSCO sanctions as a proxy, Tanker longs should do exceptionally well next week.
Image
These sanctions actually DO work.

What few vessels the US has sanctioned due to Russian oil prior to Sovcomflot have been mostly stranded due to the sanctions.
Image
Image
I never trade after hours but felt compelled to today. Picked up a good chunk of $IMPP (had already been buying this dip earlier this week) and $TNK at fair prices. Tried for some $TNP as well but only got a bit.

I count 42x aframax and 15x suezmax in the sovcomflot fleet. If all of these are sidelined, I expect midsize rates to benefit the most which is why I bought the above. $NAT also a good option but already bid up much higher after hours.
Read 5 tweets
Oct 9, 2023
1/ Just like with the Russia/Ukraine conflict #tankers are likely to be the #1 beneficiary of renewed enforcement on Iran oil sanctions and associated changing trade patterns 🧵:

2/ The Biden Admin is in a tough spot. If Iran orchestrated the latest conflict in Israel, they will have to respond. How to do this without impacting oil prices? After all, turning a blind eye to existing sanctions has allowed Iran to increase exports by a huge ~500kb/d over the past year keeping a lid on prices.
Image
3/ Just like Russia/Ukraine, the strategic objective of the Biden admin will be to keep the oil flowing but limit the economic benefit gained from it by Russia/Iran as attempted with the price cap. Now that we know that price caps don’t work, what better way to do this than to drive up the cost to ship it?

Read 8 tweets
May 9, 2023
1/ Even if Biden succeeds at forgiving up to $20k of student loan debt and the Supreme court rules it as legal, it only eliminates $430B of the $1.6T of student loan balances currently in forbearance and scheduled to begin repayment by the end of August. Image
2/ Even though 71% of borrowers will still have a balance after $10k-$20k forgiveness or will not receive any forgiveness due to income, ALL eligible federal student loans currently remain in forbearance until this is resolved. Image
3/ Are those that know that they do not qualify or will have a remaining balance after forgiveness still making payments?

🚨🚨 NO 🚨🚨

Just 1.16% of borrowers continued making payments when 71% will still owe EVEN IF forgiveness goes through. Image
Read 9 tweets
Apr 28, 2023
I had previously speculated that China's impressive >10% growth rate in coal production was unsustainable.

YOY production growth continued to decelerate in March and is now being outstripped by power demand leading to a near doubling of imports YTD.

breakwaveadvisors.com/insights/2023/…
In prior years which saw abnormally large % increases in coal production like 2011 and 2015, the following year tended to be flat to down. Meanwhile China just approved the most new coal fired power gen capacity since 2015. ImageImage
Similarly India, the world's second largest producer and consumer of coal, managed a highly unusual and completely unsustainable increase in coal production last year to keep up with demand: reuters.com/markets/commod…
Read 7 tweets

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