MOODY'S CUTS GLOBAL SHIPPING OUTLOOK TO NEGATIVE, ESTIMATES 30 PER CENT DROP IN EBITDA

By Harizah Hanim Mohamed

MANCHESTER, March 20 -- Moody’s Investors Service has revised its outlook for the global shipping industry to negative from stable following the rapid and widening spread of the COVID-19 outbreak and the deteriorating global economic outlook.

In a research note today, Moody's said that earnings before interest, taxes, depreciation, and amortisation (Ebitda) for shipping companies globally could decline by 25 per cent to 30 per cent this year amid sharply reduced demand for shipping services in the wake of the coronavirus. 

The rating agency said the expected decline was similar to levels last seen in 2016 when Hanjin Shipping Co Ltd of South Korea went bankrupt in one of the recent failures in the sector.

“Our outlook for the global shipping industry had been stable since May 2017; however, due to the expected impact of the outbreak on Chinese manufacturing output and demand for coal and iron ore in China, especially during the first half of 2020, as well as related economic disruption, we foresee Ebitda to be affected,” it said.

Commenting on individual segments, namely container shipping, dry bulk and tanker, the agency said the supply-demand balance was expected to tilt towards oversupply for the container shipping and dry bulk segments, especially in the first half of this year. 

"The situation, however, is more positive for tankers at the moment given the recent sharp drop in oil prices. We had previously expected demand and supply growth to be largely balanced across these three key shipping segments in 2020. The revised supply and demand forecasts reflect our expectations for the conditions in the specific industry sectors taking into account historical industry trends as well as the likely effect of the coronavirus," it added.

The outlook for the container shipping segment had changed to negative from stable, said Moody's, which recently revised down its 2020 baseline growth forecasts for all G-20 economies as COVID-19 could hurt economic growth in many countries through the first half of 2020 and hamper trade.

“Our view of the segment also takes into account both the significant slowdown in Chinese manufacturing of containerised goods and the more recent reports of store closings that are likely to lead to reduced inventories. Positively for container shipping companies, the recent drop in oil prices will help offset fuel costs, especially in light of the IMO (International Maritime Organisation) 2020 low sulphur fuel regulations that came into effect in January,” it said. 

The outlook for the dry bulk segment has changed to negative from stable, whereby the slow resumption of manufacturing operations in China is a plus because it suggests improved demand for coal and iron ore, two key dry bulk commodities.

"China is the largest importer of dry bulk commodities and the sharp reduction of Chinese demand sent the Baltic Dry Index (BDI), a key benchmark for dry bulk shipping, toward historical lows. though the BDI has been rising in recent weeks. Still, as the coronavirus takes its toll on countries globally, other large importers of dry bulk goods are either already affected," the rating agency said.

Meanwhile, the outlook for the tanker segment remains stable, as the negative pressure on tanker shipping companies from reduced demand for oil and oil products because of the coronavirus outbreak has been unexpectedly mitigated by the recent sharp drop in oil prices.

According to Moody’s, both spot and charter rates have risen significantly in the past week and are likely to remain at elevated levels through April following the announcement of discounts on oil sales by Saudi Arabia.

“Still, the longer-term picture remains uncertain for the tanker sector and, given the global slowdown in growth, we do not expect a large increase in demand for tankers in the medium term," it added.

-- BERNAMA