Scrubber count above 3,700

Scrubber uptake suggests more than 3,700 units on the water by end-2020, but leaves considerable room for more orders in 2020 if 2019 installations of c2,250 are any indication. We estimate 23% of HFO would be preserved with the current scrubber uptake in 2020e.

Rates on the rise, but we see risks

LNG spot rates are on the rise, up USD5k/day on Friday to USD72k/day, and we forecast a Q4 headline rate of USD130k/day. LNG prices are USD5.4/mmBtu YTD (-45% YOY) on record-high new LNG volumes combined with the top four importers reporting flat demand YOY. China and India risk being fully utilised on regas capacity in the high season and China is now storing up to reduce its dependence on LNG imports during the peak season at a time when the Russian pipeline is set to start, while Europe’s i...

LPG likely hit more than crude

We believe the volume of LPG production outages in Saudi Arabia following this past weekend’s attacks could weigh on the VLGC market as the US struggles to fill demand due to capacity issues, despite soaring oil prices which could widen the US-Asia arbitrage. For crude tankers, the available inventories in Saudi Arabia should be an adequate buffer for a production shortfall near-term, while potential US volumes could be a positive if outages are not repaired in 2–3 weeks’ time and be a pos...

Update on US-China tariffs

The US-China trade war has hurt US exports of crude, LNG, and LPG to China. In H1 2018 China imported 25% of all US crude exports, 14% of LNG, and 9% of LPG, while in H1 2019, China imported only 4% of US crude exports, 2% of LNG, and 1% of LPG. Accordingly, new tariffs on oil would have less impact as the trade has already been affected. We believe there will be a further escalation in the trade war in the next 12 months (in line with DNB Market’s macro view), hence the trade war should conti...

Flex LNG (Buy, TP: NOK109.00) - Aligned on changes to utilisation

We reiterate our BUY recommendation, but have cut our target price to NOK109 (NOK138). FLEX LNG’s outlook on changes to 2019–2020 fleet utilisation corresponds to DNB Markets’ forecasts.

Northern Lights

Flex LNG Minor model adjustments

We have updated our estimates, owing to reducing our TCE for Q2 from USD55k/day to USD52k/day after a challenging H1. We expect the key focus on the earnings call will be an update on management’s timecharter strategy with regard to the spot market amid growing LNG market uncertainty, as well as earnings guidance for H2. We do not consider our estimate changes to be material, and we have not changed our BUY recommendation or our NOK138 target price.

Potential impact of Paris Accord

We analysed the potential impact by 2040 on shipping of the IEA’s three energy mix scenarios, with 5-year intervals. If contracting stays low (2019 YTD), we see the global order book falling 35% by 2020 from already 15-year lows, but if ordering picks up, asset lifecycles will being cut by 25% to meet the Paris Agreement goals.

Northern Lights

Flex LNG (Buy, TP: NOK138.00) - Stock likely up on news from April

We believe FLEX LNG’s share price is strong today on re-circulated news (originally from 24 April) about anti-terrorism measures on Japanese nuclear utilities, which could be a potential catalyst for H2 2020 tonne-mile demand.

2020 installations up 50%

The latest data from DNV GL indicates an interest to book scrubbers for installation also beyond 2019, as June additions added 50% to 2020 installations and brought the end-2020 total to above 3,500 units. Orders are closing in on our estimates for tankers and dry bulk, but the uptake in containers since our November forecasts has been more than twice our expectations, leading to 23% of HFO demand currently being covered after IMO 2020.

Flex LNG Minor model adjustments

We have updated our estimates following the Q1 results, mainly due to Q1 operating costs coming in somewhat above our estimate. However, we do not consider these changes to be material. We recently lowered our freight rate forecast and target price arising from slower tonne-mile demand growth due to the US-China trade war and top two growing importers facing regas import bottlenecks during peak seasons. BUY recommendation and NOK138 target price reiterated.

India/China near full regas capacity

We have cut our LNG rates as two out of the top three importers are set to reach full regas utilisation, resulting in lower tonne-mile and low gas prices. We forecast rates to double by Q4 2019, and utilisation to peak in 2020 ahead of a decline in utilisation until 2022.

Northern Lights

Flex LNG (Buy, TP: NOK162.00) - Rates pointing up

We are 14% below consensus EBITDA ahead of the Q1 report, due before the market opens on 31 May. After a challenging start to the year, we believe seasonal headwinds are about to set in, with freight rates improving 28% since late-March. We forecast LNG vessel demand to outstrip supply in 2019 and this market recovery coincides with the delivery of LNGC #5 and #6 for Flex LNG. BUY recommendation and NOK162 target price reiterated.

No agreement in sight

After positive signals since February, last week was a big step back for those who believed US–China trade relations were improving. Tariffs remain at 25% for LPG, were lifted to 25% for LNG, and remain at zero for crude. We estimate a -1.8% tonne-mile impact for LPG and -0.4% for LNG and crude; we see limited downside, and significant upside should an agreement be reached.

Seasonal freeze set to ease

LNG shipping rates are down ~80% since November but up 7% in the past 10 days. Global LNG prices collapsed from Q4 into Q1, but Asian LNG futures have risen 15% in the past few days, thus we see fundamentals turning positive. With the current LNG pricing, gas is priced lower than coal in Chinese el production, likely not sustainable in our view, which in turn should reopen the US-Asia LNG price arbitrage, boosting tonne-mile, rates, and utilisation. We favour FLEX LNG at a ~8% discount to newbui...

2019e installations now at 2,000+

According to the latest DNV GL data, end-2020 scrubber uptake will be 3,169 (we forecast c3,700). We see room for more in tankers and bulkers, while container has already exceeded our estimate. Some 2018 installations have slipped into 2019, which now looks set for more than 2,000 installations.

20% of HFO demand scrubbed

The latest data on scrubber uptake showed an acceleration in uptake after two slower months. The main reason was a few large producers updating their reported numbers, but an all-time high uptake for 2020 installations shows scrubbers are still in demand. Current uptake implies c20% of HFO demand is set to stick, as numbers are closing in on our estimates.

Recovery story continues

Shipping (, ) - Recovery story continues (2 pages)