Wärtsilä CEO: COVID-19 Uncertainty Weighs On Markets
By Jack Burke17 July 2020
Wärtsilä CEO Jaakko Eskola told analysts during the company’s first-half earnings call that he saw a tough second half of the year ahead, in large part because of uncertainty over COVID-19’s continued impact on the global economy.
The company saw orders decrease by 19% in the first six months of 2020 to 2.3 million.
“The adverse impact of COVID-19 on both our own operations and those of our customers increased during the second quarter,” Eskola said in a statement. “This was clearly visible in the decrease in orders received across all businesses. The decline in demand was especially strong in the cruise industry, as travel bans and other mitigation measures have kept most passenger vessels idle for the past few months.”
The company said vessel contracting declined to 312 registered contracts in the first six months of the year (420 in the corresponding period last year, excluding late contracting), reflecting uncertainty in the newbuild markets.
In the service markets, the decline in fleet utilization and mobility restrictions have reduced spare part consumption and maintenance activities across several vessel segments. The cruise and ferry segment has been severely impacted by reduced sailings and temporary vessel lay-ups, as travel bans and other mitigation measures have kept most passenger vessels idle throughout the second quarter.
The negative impact of COVID-19 on the power generation market weighed on gas demand. Orders for liquefied natural gas (LGN) carriers slowed and freight rates softened due to low LNG prices and surplus vessel capacity in the spot market. Nevertheless, Qatar Petroleum recently announced an agreement to reserve capacity at Korean shipyards for the construction of more than 100 LNG carriers by 2027.
In the containership segment, newbuild investments were affected by a weakening trade outlook and supply chain disruptions, while reduced consumer activity increased the number of vessels lying idle. The operating environment for oil and product tankers was mixed in the second quarter. While the increased number of vessels being used for floating storage boosted freight rates temporarily, the sharp decrease in oil demand caused tanker contracting to decline. The collapse in oil prices resulted in the postponement and cancellation of offshore-related investments, as well as a notably negative impact on earnings and utilization levels in the offshore drilling and offshore support vessel segments.
The price spread between low sulfur and high sulfur fuels stagnated at just above USD 60 per metric tonne in the second quarter as a result of the turmoil in global oil markets caused by the COVID-19 pandemic. This has substantially prolonged the payback time for scrubber technology investments and has led to decreased demand, particularly for retrofit installations. Demand for newbuild scrubbers has also been subdued due to the low order level of new vessels. Governments worldwide have announced relief packages to respond to the economic distress caused by the COVID-19 pandemic. In many cases, the packages are linked to the development of greener infrastructures. This is anticipated to incentivize the decarbonization of the maritime sector, and increase interest in alternative fuels, electric and hybrid-battery propulsion, as well as in digital solutions across the industry.
The COVID-19 pandemic and the resulting slowdown of economic activity negatively impacted global liquid and gas fueled power plant markets, as well as the energy storage business, in the second quarter of 2020. Mobility restrictions are creating disruptions and increasing costs throughout the business, from sales and sourcing to deliveries and lifecycle services, despite the recent easing of restrictions in certain countries. Furthermore, the decrease in power demand has had a negative impact on the operating hours of power plants, despite costs decreasing because of lower oil and gas prices.
In the emerging markets, weakening currencies are contributing to investments in new capacity additions being postponed. The energy transition is expected to slow temporarily as a result of delays in project deliveries and investment decisions, cheaper fossil fuels, as well as the continued focus on containing the virus spread and mitigating the business impact. However, decreasing power demand, combined with higher levels of renewable energy, is highlighting the increased need for flexibility in power systems. The allocation of financial stimulus packages by governments and monetary institutions to the energy sector will further support investments in green energy.
Wärtsilä’s market share in the up to 500 MW market segment decreased slightly to 8% (9), while global orders for natural gas and liquid power plants increased by 1% to 17.8 GW during the twelve-month period ending in March 2020 (17.6 GW at the end of December). Global orders include gas turbine and Wärtsilä orders with prime movers over 5 MW in size. The data is gathered from the McCoy Power Report.