Danish Ship Finance Optimistic About Future Prospects of Shipping Industry, But Says Shipping Banks Focus on Strong Ship Owners

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Shipping financier Danish Ship Finance said this week that the shipping industry is marching into a more prosperous future. However, it also said that major shipping banks are still focusing on stronger ship owners, as Asian financing is still pretty competitive. In its note, it said that “there are some bright spots on the horizon for the shipping industry. First of all, the global order book as a percentage of the operating fleet has dropped to below 10%. In some segments, the order book remains very high, including large container vessels, but overall the situation has improved. Secondly, the market is generally quite upbeat about the prospects for economic growth in the coming years. Lastly, the implementation of new environmental requirements for vessels is widely 4 expected to lead to the scrapping of older vessels on a greater scale than would otherwise have been the case”.

However, Danish Ship Finance also noted that “the slightly positive outlook is dimmed by the excess supply of tonnage currently weighing on most vessel segments. Consequently, if the market is to return to a period of even acceptable earnings, it is pivotal that the inflow of new orders is kept to a minimum in the next few years. The tanker market witnessed a downward trend in the first half of 2017, partly as a result of OPEC’s decision to marginally cut oil production, partly due to the large inflow of newbuildings to an already well-supplied market. The dry bulk market has continued the slightly positive trend since bottoming out in the spring of 2016. However, the market is by no means stable and could quickly lose momentum. The container market has experienced an increase in box rates but is facing a challenging period as the inflow of very large vessels in particular is set to continue for the next 18- 24 months. There are a few signs of recovery in the offshore segment, but full vessel employment remains a distant prospect. With the summer season drawing to a close, many vessels will soon be laid up again. A large inflow of vessels to the LPG market during the past two years has squeezed rates to a low level”.

Meanwhile, in the shipping financing market, “competition in the market remained fairly constant relative to the past few years. A small group of shipping banks have retained capacity for lending, and they are all focused on the stronger shipowners that have made it through the shipping crisis. The phasing in of already adopted and upcoming banking regulation should, other things being, point to higher borrowing costs for shipowners. However, with competition remaining quite strong, prices have not changed to any noticeable extent in recent years. Many of Asia’s export credit institutions are still quite competitive in the market for financing newbuildings from the countries of their origin”, Danish Ship Finance said.

In its outlook for the second half of the year, the shipping financier said that “measured in lending currencies, Danish Ship Finance expects a small loan portfolio increase in the second half of 2017. Earnings on new loans are expected to be on a level with average earnings on existing loans. The company continues to expect a lower net profit for the year before loan impairment charges than in 2016. As expected, lending measured in Danish kroner will on average be lower than in 2016, adversely affecting the company’s earnings. This development was amplified by the depreciation of the US dollar in the first six months of 2017. Danish Ship Finance cannot provide more specific financial guidance given the potential impact from loan impairment charges, market value adjustments and fluctuations in the USD/DKK exchange rate, which are the principal risk and uncertainty factors facing the company during the remaining six months of the financial year. The capital ratio is expected to be at a high level at the end of the year. The company only publishes full-year and half-year reports as it is believed that more frequent reports would not affect the pricing of the bonds issued”, it conluded.

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