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Macro overview
The end of an era?
Jon Hille-Walle, 01.09.2015
Jon Hille-Walle • 01.09.2015
2 •
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 • 01.09.2015
3 •
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 • 01.09.2015
4 •
…and some more:
Jon Hille-Walle • 01.09.2015
5 •
Where are we coming from?
Jon Hille-Walle • 01.09.2015
6 •
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 • 01.09.2015
7 •
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 • 01.09.2015
8 •
This has happened before
• Anyone remember the Asian Crisis in 1998? Back when investments stalled…
Jon Hille-Walle • 01.09.2015
9 •
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 • 01.09.2015
10 •
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 • 01.09.2015
11 •
Currencies – Can anyone spot a trend?
Jon Hille-Walle • 01.09.2015
12 •
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 • 01.09.2015
13 •
Oil – Supply – Plenty of oil
• US-onshore (shale) oil has increased production by roughly 1 million barrels per day, per year since 2010.
• 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 • 01.09.2015
14 •
Jon Hille-Walle • 01.09.2015
15 •
Oil – US production
They just won’t quit…
Jon Hille-Walle • 01.09.2015
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Oil – will low investments reduce output and support prices?
Yes – but that takes time
Implications for shipping
Jon Hille-Walle • 01.09.2015
17 •
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 • 01.09.2015
18 •
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 • 01.09.2015
19 •
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 • 01.09.2015
20 •
The ugly – Oil / Offshore / Seismic
Jon Hille-Walle • 01.09.2015
21 •
Oil companies spending
Jon Hille-Walle • 01.09.2015
22 •
What does the fixed income part of the word think?
Jon Hille-Walle • 01.09.2015
23 •
Offshore Supply and AHTS companies
Drilling companies
Jon Hille-Walle • 01.09.2015
24 •
What does the fixed income part of the word think?
Seismic companies
Jon Hille-Walle • 01.09.2015
25 •
What does the fixed income part of the word think?
Shipping companies
Jon Hille-Walle • 01.09.2015
26 •
What does the fixed income part of the word think?
Luckily it’s not all about China
Jon Hille-Walle • 01.09.2015
27 •
ROW: 50.090. bln USD, 64%
USA: 17,419. bln USD, 22%
China: 10.360. bln USD, 13%
The oil burden on the global consumer
Jon Hille-Walle • 01.09.2015
28 •
77.869 bln USD * 2,5% = 1.679 bln USD
Thank you!
Jon Hille-Wallejon.hille-walle@nordea.com
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