Macro overview The end of an era? Jon Hille-Walle,
Jon Hille-Walle So someone in China decided to «support» the stock market:
Chinese Gross Domestic Product Growth has come down form previous stellar levels Still, 7% sounds rather good? Jon Hille-Walle
China, some reasons to worry Credit growth has been high, large parts of which in the unregulated «shadow bank system» Levels of debt are now high by any comparison Indications that industrial production is slowing down. Jon Hille-Walle
…and some more: Jon Hille-Walle
Where are we coming from? Jon Hille-Walle
Chinese GDP Investments have historically been a large, and growing part of GDP. Currently constitutes 45% of GDP. Net Exports is about 5% Public and private consumption makes out the remaining 50%. The official growth rate of 7% is made out of roughly 3% points investments and 4% points consumption. Is this a problem? Jon Hille-Walle
What is the problem with continued high investments? Over time there is a risk of diminishing returns That risk is not smaller in a planned economy Jon Hille-Walle
This has happened before Anyone remember the Asian Crisis in 1998? Back when investments stalled… Jon Hille-Walle
Why we don’t think China is headed for a hard landing (at least not today or tomorrow...) Lots of «dry gun powder» in the shape of: Monetary policy (interest rates) Fiscal policy State controlled banks, with high margins (for now), and large reserves. Limited capital movement abroad High domestic savings Continued urbanisation Jon Hille-Walle
The way forward China will invest MUCH less aggressively The economic growth will be driven by consumption, but at a significantly lower rate than today. This is bad news for commodity prices. Jon Hille-Walle
Currencies – Can anyone spot a trend? Jon Hille-Walle
Oil - demand Over the past 15 years +, increase in demand has come from the non-OECD part of the world. Reason: weaker economic growth in OECD coupled with efficiency gains, environmental challenges and substitutive technology Jon Hille-Walle
Oil – Supply – Plenty of oil US-onshore (shale) oil has increased production by roughly 1 million barrels per day, per year since Iraq is coming back on stream Finally – Saudi Arabia got tired of defending the oil price by cutting its own production to balance supply-demand and decided to fight for market share. Jon Hille-Walle
Jon Hille-Walle Oil – US production They just won’t quit…
Jon Hille-Walle Oil – will low investments reduce output and support prices? Yes – but that takes time
Implications for shipping Jon Hille-Walle
The good – Oil transport, product & chemicals Low price triggers increased demand. High oil-volumes to be shipped Increasing distances in major trades Spill over effect to smaller tank, product and chemicals And hey; bunker is low! Jon Hille-Walle
The good – LPG High US oil production generates excess LPG. High supply drives prices down. This generates a large arbitrage to Asia and currently ship owners take all the profits. What’s next – Ethane export? Jon Hille-Walle
The bad - Bulk The China investment party coming to an end. Construction is currently 50% of steel demand, infrastructure is 8%. The dry bulk fleet is relatively young, and low speed puts a roof on rates. The super cycle is over. Jon Hille-Walle
The ugly – Oil / Offshore / Seismic Jon Hille-Walle
Oil companies spending Jon Hille-Walle
What does the fixed income part of the word think? Jon Hille-Walle Offshore Supply and AHTS companies
Drilling companies Jon Hille-Walle What does the fixed income part of the word think?
Seismic companies Jon Hille-Walle What does the fixed income part of the word think?
Shipping companies Jon Hille-Walle What does the fixed income part of the word think?
Luckily it’s not all about China Jon Hille-Walle ROW: bln USD, 64% USA: 17,419. bln USD, 22% China: bln USD, 13%
The oil burden on the global consumer Jon Hille-Walle bln USD * 2,5% = bln USD
Thank you! Jon Hille-Walle