subject: The Tsitsiringos Story – Part 2 "Shipping and the market, where are they going?" [print this page] In part 1 of the Tsitsiringos Story we spoke about the Lingering Factor, and its causes and effects. In Part 2, Dr. Tsitsiringos examines the state of the shipping industry, and his projections for the next ten years. One should remember his predictions for the current decade were surprisingly correct, even predicting the current situation in Greece, as shipping's former world headquarters. For a point of reference, this interview was made in Athens, Greece on August 28th, 2010
SK Dr. Tsitsiringos, can you tell us why shipping has such a background in Greece and why the Greeks were so successful at it?
Dr.T First of all, shipping is an axiocratic business, and in order to do the jobyou must be confident and be ableto understand the Macroeconomic aspects of the business. Greeks have had this historically, but also Greeks were able to offer a perfect management. These are the basic reasons they were successful at it in the past.
SK Can you tell us where shipping and the markets in general are going from the last quarter of 2010 and beyond?
Dr.T - I am watching the N.A. The markets are, on the whole, defensive and unsettled as to the direction of the economy. The underlying trend, supported by the data, and the bond market is one of weakness. Amid concerns about the global macro outlook for Q4, money is being dumped into bonds/Government Treasury Bills. In the last 18 months in the US $513 Billion has gone into bond funds and some $200 Billion has been pulled out of equities. For some, this week's resumption of purchases of US T-Bills by the US Fed is a warning sign that rates will be kept artificially low. The issue is a potential 'bond bubble' with unwelcome future consequences for both interest rates and the financial markets.Also the IMF calculates that to close the US fiscal gap would require a near doubling of US tax revenue starting now - which is politically impossible. The next few months could be difficult as September will set the tone and direction for the balance of 2010.
SK What about the petroleum markets in general?
Dr.T- On theoil front the latest US Dept..of Energy's Information Administration EIAforecast expects OPEC crude production to rise by 1 million b/d in 2010 and 1.2 million b/d in 2011. Surplus capacity is expected to remain right around 5 million b/d, with about 4.5 million b/d attributed to Saudi Arabia.
Global consumption is expected to increase by 1.6 million b/d in 2010, most of this growth coming from China, Saudi Arabia, and Brazil. EIA projects that global consumption in 2011 will rise another 1.5 million b/d. Obviously not all demand growth translates into seaborne ton mile growth as China is increasing its pipeline imports from Russia and Central Asia for example for security reasons. US consumption is expected to rise by 150,000 b/d in 2010 and by the same amount again in 2011.
The interesting bit here is that Saudi Arabia's demand for crude is expected to grow and the country's net exports are expected to fall. One analyst expects Saudi production to decline by 5% consumption to rise by 2% and net exports to decline by 15%.
The Saudis also see crude demand from emerging markets peaking in the next 10 to 15 years. This is not good news for the Saudis, who get about 90% of government revenues from oil and 60% of GDP from oil exports. Developed countries have already reached peak demand for oil according to the International Energy Agency.
SK And finally the dry bulk shipping market?
Dr.T the dry bulk market will soften and likely remain somewhat soft in 2011 given the massive scheduled deliveries set against a slowing macroeconomic environment and a slow down in global GDP and correspondingly global trade the run-up in box ships could also soften. This will no doubt impact the banking sector as various dry bulk groups - depending upon when they purchased the assets and the degree of leveraged used - could well start to breach their loan to value covenants again and the banks will not be as accommodating this time. Obviously a more negative dry bulk market will impact the psychology relative to available capital from the banks to finance tankers. The MR tanker side has continued to remain very soft and will likely stay this way for at least 2011, compounding matters as there are a lot of forward deliveries.
SK Thank you for your very enlightening view
The Tsitsiringos Story Part 2 "Shipping and the market, where are they going?"
