Arctic: Shipping Daily - A Travel Letter from Marine Money, LPG, Tankers, HKY

Research evidence excerpt

Arctic: Shipping Daily - A Travel Letter from Marine Money, LPG, Tankers, HKY

● Balance sheet conservatism across the industry. With macro uncertainty elevated, BW

runs ~20% leverage at the group level and targets ~20% LTV at subsidiary level. In our view,

this conservatism appears widespread across shipowners, which may structurally reduce the

amplitude of future shipping cycles.

● The real challenge: asset prices and fleet renewal. This was perhaps the most significant

message of the session. Asset values are high, and BW, which last ordered newbuilds in

2019 before its most recent program, is increasingly aware of the cost of underinvesting.

Shipyard orderbooks are stretching further out, and Sohmen-Pao does not expect yard prices

to normalise for at least four to five years. He was direct: a return to VLCC newbuild prices in the

80s is "extremely unlikely." Using Hafnia as a case study, he noted the fleet will require roughly

USD 2bn of reinvestment over the next decade (10 years of depreciation) simply to stay flat in

size. Waiting for cheaper yards may prove more expensive than ordering today.

LPG: The ARB is dropping

The implied ARB was down 17% yesterday to USD ~115.4k/d. Meanwhile, US Gulf to Japan

decreased 3.0% to USD ~147.8k/d. As highlighted in the past, this does not reflect Panama Canal

auction fees, nor the longer trade route around COGH, meaning that the actual TCE is lower. With

the oil price continue to slide, the ARB and thereby rates should fall further. Ton-miles are actually

up since the war started while volumes are down. In other words, a volume rebound from the

Middle East could actually be bad for ton-miles.

Tankers: China and India’s contrasting trends