Stefanos Kazantzis speaks about VLCC Asset Market Contango

Posted by Joseph R. Fonseca
Sunday, May 04, 2014
Stefanos Kazantzis, Financial Advisor of McQuilling Services Marine

Stefanos Kazantzis, Financial Advisor of McQuilling Services Marine in an interveiw discusses the recent upswing in VLCC asset prices and current developments in the asset markets. Excerpts:

About Asset Contango:

Asset Contango is a situation where the future price of an asset is trading at a higher level than the spot price. We can see this in commodities viz oil represented by the future contracts. Coming back more specifically to the VLCC asset market we view new building as future assets price and secondhand tonnage represents the current asset environment.
               .
Going forward from October 2013:

Back in October 2013 we saw prices for new buildings on VLCC prices at $ 87 million and at the same time the prices for five year old vessels were well above $ 57 million. Over the next few months there was a short rise in the price of new building up until about April of 2014 where the current pricing of new building just about $ 103 million. So that upswing is around 20%. At the same time current prices for five year old asset was $ 65 million a 14% rise from October 2013. Looking more closely at the period we saw that in the fourth quarter the prices for new building accelerated at a more rapid pace. Actually five old assets had a small dip which was represented with a weaker TC and its environment and they generally recovered just about February of this year when they had a nice upswing pace in a short term pace on the market. So we compared them side by side and saw that the rate of growth for the VLCC new building was far greater than one for the five year old asset, which for us represented as an asset Contango.

The upgrade on price forecast helps to better project asset Contango:

I don’t know many analysts who I know of who could have better projected the recent run up in the prices of new builds. It was quite am impressive run. Coming back to the tanker market outlook in what we do in our forecasting methodology is that we take a quantitative based approach. We use a regression model which looks at the TCE earnings as our main independent variable, and for new buildings we also include the price of steel that is the largest cost in production of an asset and for secondary tonnage we also include liabor as another explanatory variable. Unfortunately we were not able to predict the recent rise in VLCC new buildings but we believe that there are certain other factors at play. We could give a little more closer attention.

Elaborating the factors:

One of the things we are seeing quite a bit of and I believe it started in 2012- 2013 period was that there was re-emergence of institutional capital by which we mean private equity. Private equity has been the main driver recently in focusing the new tonnage and the way the evaluations are done from the private equity as investor perspective is that it is more on the income based approach. In the income based approach it looks are the future potential cash flow of an asset and uses a discount rate approach for the investor to discount the rate appropriate for the investor to discount them back and come up with the present evaluation.  I think there are some trickily elements in the discounted cash methodology particularly when you are looking at some of the longer term earning potential. You have to I think make some tricky assumption in. Those can vary significantly with what the potential are for an asset. Other things we are looking into are some of the fuel efficient vessel that are in the water and beginning to deliver results in terms of efficiency and these things will play a role in the earnings and environment and what we think is the potential earning that come forward.
 
Reasons for this approach:

We want to make sure that our clients when they look at our tanker market outlook we give a very fundamental sound story as to why we think certain asset behave in a certain way. This methodology eliminates lot of the market noise or sentiment that is prevalent in the market place. We believe that it helps to understand better what potential that exists. Ultimately, earnings are going to be the main driver in the asset prices. We are happy to look at other components such as the income based approach, try to qualify some of this sentiments and noise, but ultimately we believe in our fundamental story. It is not always easy to be little more cautious in predicting or projecting asset values especially when the environment is really very vibrant and we see lot of new entrants into the space. We try to temper that and try to kind of rely on the quantitative approach. Two years from now we are hopefully that we can look back and that we delivered to our clients a very reasonably and sound offer.



 

Maritime Reporter August 2015 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

Contracts

Keppel Delivers Jackup to UMW-OG

Keppel FELS, a wholly owned subsidiary of Keppel Offshore & Marine (Keppel O&M) has delivered UMW Naga 8, a KFELS B Class jackup rig, to Malaysia’s UMW Oil & Gas Corporation Berhad (UMW-OG).

Rolls-Royce to Design, Equip Canadian Stern Trawler

The shipbuilding company VARD Group AS in Norway has received an order from a Canadian company for a shrimp stern trawler to be designed and equipped by Rolls-Royce,

Egypt Picks Jordan LNG Cargo Winners

Egypt has picked Shell, Vitol and Trafigura in a tender to supply four cargoes of liquefied natural gas (LNG) via Jordan's Aqaba import terminal, trade sources said.

Shipbuilding

Keppel Delivers Jackup to UMW-OG

Keppel FELS, a wholly owned subsidiary of Keppel Offshore & Marine (Keppel O&M) has delivered UMW Naga 8, a KFELS B Class jackup rig, to Malaysia’s UMW Oil & Gas Corporation Berhad (UMW-OG).

Rolls-Royce to Design, Equip Canadian Stern Trawler

The shipbuilding company VARD Group AS in Norway has received an order from a Canadian company for a shrimp stern trawler to be designed and equipped by Rolls-Royce,

Rapid Oil Spill Response Vessel Launched

Western Canada Marine Response Corporation (WCMRC) launched their newest oil spill response vessel in Burrard Inlet. The boat, named after former employee George Penman,

Ship Sales

China Shipping Line to Buy 10 Vessels

China Shipping Container Lines Co is planning to buy around 10 ultralarge container ships for around $1.5 billion, despite the shipping industry struggles with a capacity glut, reports WSJ.

CMES Establishes Subsidiary for Valemax

China Merchants Energy Shipping Co., Ltd (CMES), the dry and wet bulk arm of state conglomerate China Merchants Holdings (International) Company Limited, has set

Russian JV Close Acquisition of Prime Shipping

The Russian Joint Venture between Rosneft, Sberbank Investments and Pietro Barbaro S.p.A. closed the acquisition of the Pietro Barbaro Group shipping assets

Finance

Dry Bulk Recovery Still a Long Way Off

The dry bulk shipping market will remain in recession due to contracting demand for iron ore and coal, and any recovery is not expected until 2017, according to

Egypt Picks Jordan LNG Cargo Winners

Egypt has picked Shell, Vitol and Trafigura in a tender to supply four cargoes of liquefied natural gas (LNG) via Jordan's Aqaba import terminal, trade sources said.

Cameroon Awards Kribi Deepwater Contract

Cameroon has awarded a contract for its Kribi port to a consortium led by French logistics group Necotrans, the two parties said. The deepwater port will allow

News

Historic Steamship Towed to Buffalo for Restoration

A 113-year-old “Boblo Boat” SS Columbia is being towed from Toledo, Ohio to Buffalo, N.Y., where the historic vessel will be docked for the next year for restoration.

Offshore Operators Can Simplify Safety Equipment Logistics

Safety equipment manufacturer VIKING Life-Saving Equipment said its Offshore Safety Agreements are providing relief for offshore operators seeking to ensure compliance

Dry Bulk Recovery Still a Long Way Off

The dry bulk shipping market will remain in recession due to contracting demand for iron ore and coal, and any recovery is not expected until 2017, according to

Vessels

Historic Steamship Towed to Buffalo for Restoration

A 113-year-old “Boblo Boat” SS Columbia is being towed from Toledo, Ohio to Buffalo, N.Y., where the historic vessel will be docked for the next year for restoration.

New Cutter Suction Dredge: Modern and Efficient

Ellicott Dredges, LLC has debuted a new design 20” (500 mm) cutter suction dredge, the Series 2070 Dragon dredge.    Aiming to take advantage of modern, up-to-date

Boat with 40 African Migrants Arrives on Spanish Island

A boat containing around 40 African migrants including a toddler girl landed on a beach on the Spanish island of Gran Canaria, sea rescue services said on Wednesday.

People in the News

USCG Rescues Unconscious Boater

The Coast Guard rescued an individual from a marsh flat in Barataria Waterway located approximately six miles north of Grand Isle, Tuesday. Coast Guard Sector

Drilling Down into Risk Management

Afloat or ashore, we cannot eliminate risk, but it can be sensibly managed to a tolerable level. It begins with a hypothetical, but worryingly authentic, tale

Joe Pyne Joins DHT Holdings’ Board of Directors

Crude oil shipper DHT Holdings, Inc. announced today that it has appointed Joseph H. Pyne to its board of directors, expanding the board from three to four independent directors.

 
 
Maritime Careers / Shipboard Positions Maritime Standards Naval Architecture Offshore Oil Port Authority Ship Electronics Ship Repair Ship Simulators Shipbuilding / Vessel Construction Winch
rss | archive | history | articles | privacy | contributors | top maritime news | about us | copyright | maritime magazines
maritime security news | shipbuilding news | maritime industry | shipping news | maritime reporting | workboats news | ship design | maritime business

Time taken: 0.2223 sec (4 req/sec)