Ratings specialist Moody’s sees shipping as stable for now, but sizable downside risks could tip the balance in no time at all
Global ratings agency Moody’s has reaffirmed its stable outlook for the shipping sector, anticipating low single-digit percentage aggregate year-over-year EBITDA growth for its rated shipping companies over the next 12-18 months.
However it noted the fundamentals of the industry remain weak, especially in the dry bulk business. Here, EBITDA growth is expected to be the lowest of the three sectors covered by its analysis – dry bulk, tankers and containers.
The analyst relates this dry bulk malaise to China’s economic slowdown which will keep demand low. By contrast, weak crude oil prices will continue to drive demand and EBITDA growth for tankers, said the report.
“This growth rate is lower than the mid-to-high single-digit range we expected earlier in the year because some companies have reduced their demand expectations and freight rates remain low amid oversupply,” commented Mariko Semetko, a Moody’s vice president and senior analyst.
“The fundamentals of the industry remain weak, especially in the dry bulk business”
“The EBITDA growth will be driven primarily by continued cost reductions stemming largely from weak oil prices, which reduce shipping companies’ fuel costs and keep demand high for oil tankers.”
The agency also anticipates continued low bunker prices in line with depressed crude oil price estimations.
In support of this, one of the world’s leading oil producers has said that it expects oil prices to stay around $50 per barrel until at least 2018, which will help shore up low returns. Speaking with CNBC Europe, Hans Jakob Hegge, chief financial officer of Statoil, said that the Norwegian oil major does not see a rebound in prices until 2018 at the earliest and is working to that in its planning assumptions.
However, for Moody’s downside risks remain high and it said it would consider changing its outlook to negative “if signs emerged that the growth in shipping supply will exceed demand growth by more than 2%, or that aggregate EBITDA will decline by more than 5% year over year”.
For an upgrade to a positive outlook, Moody’s would need to see a material decline in the oversupply of ships and aggregate year-over-year EBITDA growth in excess of 10%.
The industry outlook has been stable since April 2014, when Moody’s changed it from negative.