Economy Maritime

Naira may depreciate to 386/dollar in H2 —PwC

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Written by Maritime First

…Tanker Market Hit from Both Sides -DHT***

The naira may depreciate against the United States dollar at the Investors and Exporters Window to 386 from the current average of 360, PricewaterhouseCoopers has said.

In its economic outlook for 2018, which was released on Tuesday, the professional services firm said increased foreign exchange demand ahead of the 2019 general election might make the local unit to weaken.

The report read in part, “With the outlook on the oil price and level of reserves accretion ($40.6bn), we expect that the CBN would maintain the exchange rate peg of 305/dollar at the CBN window.

“In H2’18, we estimate a seven per cent exchange rate depreciation in the I&E window to 386/dollar, as FX demand increases and foreign investments slow ahead of the 2019 elections.

“Overall, the CBN maintains its multiple exchange rate regime, sustaining its intervention in the various FX markets.”

According to analysts at PwC, exports are likely to outpace imports on strong oil export revenues and shrinking import demand this year

The real Gross Domestic Product growth is expected to reach two per cent year-on-year on improvements in net exports and domestic demand

The professional services firm said investments would benefit from an improving investment climate.

It, however, said that some of this growth would be offset by uncertainty usually associated with election cycles in Nigeria

On monetary policy projection, it said, “Moderating inflation, exchange rate stability and a fragile economic recovery provide room for a rate cut. We expect only one rate cut in 2018 which would likely be capped at 200bps. The need to keep rate differentials attractive means Open Market Operations issuances would become more aggressive

“To offset the impact of pre-election spending and currency volatility, we expect a 200bps increase in the MPR to 14 per cent at the September meeting.”

In the meantime, 2018 is not likely to bring much relief for tanker owners as both supply and demand continue to exert pressure on earnings.

“We are currently being hit from both sides,” Trygve Munthe, Co-CEO of DHT Holdings, said in a conference call on Tuesday.

“Demand for tanker transportation is hit by inventory drawdowns and on the supply side we are hit by deliveries of newbuildings exceeding retirements of older ships.”

As explained by Munthe, the main headache in the near-term continues to be the oil inventory cycle, mainly driven by OPEC cuts.

“But the good news is that we’re making meaningful progress towards the alleged goal of getting inventories back to five years historic averages. It has certainly been a tough period for tanker owners and we eye an end into the inventory drawdown phase in the not too distant future.”

The global demand for oil is robust and growing, Munthe added, noting that the main engines of growth are China, India, and Southeast Asia.

“Further, the increased export of U.S crude is becoming an important factor in the tanker market.”

On the supply side, there are some signs of encouragement, as more VLCCs are being sent to scrap yards. Just in January this year five VLCCs were sent for demolition.

In addition, the number of likely candidates which are turning 20 in the next couple of years will reach 37 in 2020.

DHT expects that many of these, if not the majority, will be retired from the trading fleet.

On the newbuilding front, the leading shipyards are now fully committed for 2019 and have consequently revised their prices upwards.

Speaking on the acquisition opportunities in 2018, Svein Moxnes Harfjeld, Co-Chief Executive Officer of DHT, explained that from an asset price perspective, “it has moved sideways. It’s not marginally upward.”

The company availed of the asset prices last year and acquired BW Group’s 11 strong VLCC fleet.

According to Harfjeld, there seems to be no room for such acquisitions this year.

“I think from a DHT standpoint, our balance sheet does not allow us to really make any growth efforts this year,” he noted.

“We take the liberty to suggest that you should expect a continued disciplined execution as the market evolves over time. “

DHT Holdings reported a net loss of USD 7.5 million in the fourth quarter of 2017, against a net income of USD 17.8 million seen a year earlier. For the full year, the company’s net income reached USD 6.6 million.

Punch with additional report from world Maritime News

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