Dry Bulk Shipping-An Opportunity or an Illusion - Yu Jiang Lisarain

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Dry Bulk ShippingDry Bulk Shipping-- anan OOpportunitypportunity

4th IRON ORE &4th IRON ORE & COAL “COAL “ World Shipping Summit 2012”World Shipping Summit 2012”

Lisarain Yu Jiang – Senior Consultant1 October 2012

Athens



2Drewry Will the dry bulk market recover as demand accelerates?

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Baltic Dry Index

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Baltic Dry Index

120.000140.000160.000180.000

Bulk Carriers TC Rates (US$pd)

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u arr ers esa e r ces

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Capesize 1-yr TC Panamax 1-yr TC

Handymax 1-yr TC Handysize 1-yr TC

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Handysize 10-yr Handymax 5-yr

Panamax 5-yr Capesize 5-yr

© Drewry 2011




Iron ore and coal contribute to 60% the total dry bulk trade

Dry bulk

Major bulk Minor bulk

Iron ore Coal Grains Aggregates Fertiliser Steel Products Forest Products Others

Historically, major bulk such as iron ore and coal witnessed

higher trade growth than that of the minor bulk cargoes.60%

70%

3.000

3.500

4.000

Iron ore and coal contribute to 60% of the total dry bulk

trade volume in 2011.

Major bulk trade is mainly driven by the steel and power

sectors in China, and to some extent India20%

30%40%

1.000

1.500

2.000

2.500

M i l l i o n

t o n

s

0%

10%

0

500

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2 0 1 1

© Drewry 2011

Major bulk Minor bulk % share of iron ore and coal (right axis)




Chinese steel and iron ore market

–

80

60

70

40

50

i l l i o

n t o n n e s

20

30

0

Source: UNCTAD, ABARE

Steel production Iron ore imports

© Drewry 2011




China steel production expected to continue to drive the market

2011 mt

180.0

86.2

271.1

EU‐15

USA

108.2

68.1

22.4

.

China

S.Korea

Taiwan

689.6

Others

189.2

93.5

119.2

469.4

EU‐15

2016 (mt)

31.7

117.7

JapanChina

S.Korea

Source : Drewry, MEPS 1064.1

88.5 a wan

India

Others

© Drewry 2011




India coal imports and upcoming coal-fired power plants

Indian coal imports 2004 – 2011

100

120

140

n e s

20

40

60

M i l l i o n t

o

0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

thermal coal coking coal

OPG Power Plant (300 MW)

Dahej i lVisa Power Plant (1,320 MW)

Adani Power Pl ant (4,620 MW)Tata Power Plant (4,000 MW)

Pipavav Energy Power Plant (1,200 MW)

Essar Power Plant (2,520 MW)

Amr eli

Jamnagar Mundra

Universal Suc cess TPP (1,980 MW)Pipavav

ThaneReliance Power Plant (1,200 MW)

Tata Power Plant (1,600 MW)

i l,

RatnagiriJSW Energy TPP (3,200 MW)Raigarh

Simhapuri Energy Private Ltd. (540 MW)

Madhucon and Malaxmi (540 MW)

Visakhapatnam

NTPC Power Plant (4,000 MW)Hinduja National TPP (1,200 MW)

Nayachara Island

New Mangalore Udupi Power Plant II (600 MW)

Tamilnadu UMPP (4,000 MW)

Thermal Powertech TPP (2,640 MW)

Krishnap atnam TPP (1,600 MW)

Reliance Power UMPP (4,000 MW)

Krishnapatnam

SRM Energy TPP (1,980 MW)Cuddalore

Nagapattinam Gemac Energy TPP (1,320 MW)

© Drewry 2011

Tuticorin TPP (800 MW)




India crude steel production to drive coking coal import

2011

180.0

86.2

271.1

EU‐15

USA

108.2

68.1

22.4

71.7 apan

China

S.Korea

Taiwan

689.6

Others

189.2

93.5469.4

EU‐15

2016

.

31 7

117.7

USA

Japan

China

S.Korea

Source : Drewry, MEPS

1064.1

88.5

.Taiwan

India

Others

© Drewry 2011




Overall demand outlook: 2012-2016Dry bulk tonne mile demand (btm)Drewry scenario

Major Bulk Minor Bulk

Milliontonnes

% GrowthMilliontonnes

%Growth

2011 1,959 1% 1,243 4% 4.000

6.000

8.000

10.000

12.000

o n

t o n n e m

i l e

2012 (f) 2,047 5% 1,292 4%2013 (f) 2,164 5% 1,340 4%

2014 (f) 2,312 5% 1,400 4%

2015 (f) 2,469 5% 1,465 5%

02.000

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2 0 1 6

B

i l l i

2016 (f) 2,638 5% 1,534 5%

Billion tonne

miles

%

Growth

Billion tonne

miles

%

Growth2011 12 212 3% 6 589 5%

Iron Ore Coal

5.0006.000

7.0008.000

n n e

m i l e

2012 (f) 12,964 6% 6,948 5%

2013 (f) 13,932 7% 7,317 5%

2014 (f) 15,125 9% 7,760 6%

2015 f 16 415 9% 8 242 6%0

1.0002.0003.0004.000

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B i l l i o n

t o

Overall CAGR of trade between 2012 and 2016: 5.2%.

2016 (f) 17,826 9% 8,758 6% 2 0

2 0

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2 0

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2 0

2 0

2 0

2 0

2 0

2 0

2 0

2 0

2 0

2 0

Grain Other Minor bulk

Overall CAGR in tonne mile demand between 2012 and 2016: 7.9% as distances are increasing.

Forecasts are subject to current economic uncertainties. A prolonged slowdown in many countries in Europe will lower the growth in dry

bulk demand. China and India growth rates are slowing.

Chinese overnment olicies to consolidate its steel industr cool down housin market and curb inflation will have direct im act on iron

© Drewry 2011

ore trade.

Whilst our outlook is optimistic , there is some downside risk to the growth in demand.




900200

Supply outlook: massive fleet growth continues

500

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t

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t

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0

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i m i l l i o

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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Deletion Delivery Fleet (right axis)

High delivery growth

Heav deliveries as a result of over orderin durin the 2006-2008 shi in boom.

Slippage of new building deliveries

Fleet growth based on scheduled deliveries and expected demolitions: 31% in 2011-2013

© Drewry 2011




Demolition age falling, economics and regulation putting further pressure

Number and dwt of demolition increasing:Dry bulk demolition

Total demolition 2009 (9.5 mdwt), 2011 (24.2 mdwt)

Demolition age falling: Capes being scrapped around 27

years.

Due to very recent energy efficiency designs, new technology3.000

3.500

4.000

4.500

.

w t

ships would be far cheaper to operate, providing 20-25%higher efficiency. This will further push tonnage around 25

years to scrap yards.

New environmental regulations on onboard ballast water 500

1.000

1.500

2.000

2.500

' 0 0

0

rea men an em ss on con ro areas w pu ur er pressure

on older tonnage.0

2007 2008 2009 2010 2011

Handysize Handymax Panamax

Dry bulk average demoli tion age by segment

7.000

8.000

9.000

10.000

32

34

36

)

3.000

4.0005.000

6.000

' 0 0 0

d w

t

26

28

30

A g e

( y

e a r s

0

1.000

.

2007 2008 2009 2010 2011

-

22

2008 2009 2010 2011

10-40,000 40-60,000 80-110,000

© Drewry 2011

- , , + - ,




Excess shipbuilding capacity, more so for dry bulk

Shipyard output and orderbook

150

200

250

l i o n

d w

t Shipyards

have plenty

of capacity

0

50100

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15+

M

i l

Chemical (f) Chemical General Cargo (f) General Cargo RoRo (f) RoRo Reefer (f) Reefer

PCC (f) PCC Offshore (f) Offshore LPG (f) LPG LNG (f) LNG

MPP (f) MPP Tanker (f) Tanker Dry Bulk (f) Dry Bulk Container (f) Container

Shipbuilding capacity (considering all sectors) increased four-fold from 50 mdwt in 2002 to 200 mdwt in 2010.

On average nearly 30% of the total shipbuilding capacity is involved in dry bulk. For the past three years it has been over 60% of the total

ca acit

The majority of yards, both new and established, have increased their productivity and their total production dramatically.

Consequently, there is excessive shipbuilding capacity and yards are reducing prices to get new orders or resell cancelled orders. A

number of new orders were placed in 2010 and 2011 due to falling prices. This will aggravate the problem of oversupply and freight

.

This will continue to haunt dry bulk freight market as major chunk of low cost Chinese capacity is dedicated to dry bulk.

© Drewry 2011




Shipbuilding consolidationDry bulk newbuilding orders

1.000

1.200

1.400

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100.000

120.000

140.000

.

e r

w t

200

400

600800

20.000

40.000

60.00080.000

N u m

' 0 0 0

d

--

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

New orders ('000 dwt) New orders (Nos)

Newbuilding activity going down

Consolidation in shipbuilding industry: orders drying up beyond 2013.

China: impending consolidation of Chinese yards.

a an r en a ar ne eavy n us ry, e ang ngang p u ng, ong ang p u ng e or an rup cy n

Government aims to consolidate China’s shipyards. Japan: merger between IHI Marine United and Universal Shipbuilding

© Drewry 2011




Orderbook and expected delivery

140

160

180

w t

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60

80

100

M i l l i o n

d

0

20

2011* 2012 2013 2014 2015 2016

Delivered till Au 2012 Database Drewr ad ustment

Deliveries assumptions

Newbuilding delivery slippage was 33% in 2011. To August 2012 only 41% of the 2012 order book has been delivered, so clearly there will

be further slippage/cancelation of deliveries in 2012.

Forecast: 116 mil dwt ship deliveries in 2012, 83 mil dwt in 2013.

Post-2013, deliveries will comprise of slippages from previous years and new orders.

© Drewry 2011




Congestions marginally easing oversupply

Port congestion index

4

5

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e d a y s

d e

l a y

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/ 0 7

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A v e r a g

2 4 / 1 0

0 5 / 1 2

0 6 / 0 2

1 7 / 0 3

0 2 / 0 5

1 3 / 0 6

2 5 / 0 7

0 5 / 0 9

1 7 / 1 0

2 8 / 1 1

1 6 / 0 1

2 7 / 0 2

1 0 / 0 4

2 2 / 0 5

0 3 / 0 7

1 4 / 0 8

2 5 / 0 9

0 6 / 1 1

1 8 / 1 2

2 9 / 0 1

1 2 / 0 3

2 3 / 0 4

0 4 / 0 6

1 6 / 0 7

2 7 / 0 8

0 8 / 1 0

1 9 / 1 1

3 1 / 1 2

1 1 / 0 2

2 5 / 0 3

0 6 / 0 5

1 7 / 0 6

2 9 / 0 7

0 9 / 0 9

2 1 / 1 0

0 2 / 1 2

1 3 / 0 1

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1 8 / 0 5

2 9 / 0 6

1 0 / 0 8

Atlantic Pacific

20

25

l e e

t

Percentage fleet at anchorage

5

10

15

% o

f d r y b

u l k f

0

e

e k 0 2 / 0 8

e

e k 0 8 / 0 8

e

e k 1 4 / 0 8

e

e k 2 0 / 0 8

e

e k 2 6 / 0 8

e

e k 3 2 / 0 8

e

e k 3 8 / 0 8

e

e k 4 4 / 0 8

e

e k 5 0 / 0 8

e

e k 0 4 / 0 9

e

e k 1 0 / 0 9

e

e k 1 6 / 0 9

e

e k 2 2 / 0 9

e

e k 2 8 / 0 9

e

e k 3 4 / 0 9

e

e k 4 0 / 0 9

e

e k 4 6 / 0 9

e

e k 5 2 / 0 9

e

e k 0 6 / 1 0

e

e k 1 2 / 1 0

e

e k 1 8 / 1 0

e

e k 2 4 / 1 0

e

e k 3 0 / 1 0

e

e k 3 6 / 1 0

e

e k 4 2 / 1 0

e

e k 4 8 / 1 0

e

e k 0 2 / 1 1

e

e k 0 8 / 1 1

e

e k 1 4 / 1 1

e

e k 2 0 / 1 1

e

e k 2 6 / 1 1

e

e k 3 2 / 1 1

e

e k 3 8 / 1 1

e

e k 4 4 / 1 1

e

e k 5 0 / 1 1

e

e k 0 4 / 1 2

e

e k 1 0 / 1 2

e

e k 1 6 / 1 2

e

e k 2 2 / 1 2

e

e k 2 8 / 1 2

e

e k 3 4 / 1 2

© Drewry 2011

Handymax Panamax Capesize Total




Demand-supply balance: excess supply continues to grow

Adjusted demand-supply balance: dry bulk

300

350

400

14%

16%

18%

June 2012

2014

150

200

250

6%

8%

10%

12%

M i l l i o n

d w

t

0

50

100

-2%

0%

2%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Demand exceeds supply by more than 250 million dwt at present.

Demand (% growth) Supply (% growth) Supply Surplus (Right axis) Supply Surplus (Right axis)-reduced speed

u u y y v w

Demand-supply balance easing very slowly beyond 2014. Demand uncertainties in China, Europe and elsewhere.

© Drewry 2011




Conclusion - where are we heading to

Demand uncertainties and supply overhang

Global economic uncertainties

Over-ordering on the back of shipping market boom between 2006 and 2008.

Rays of hope

Increasing demolition age due to falling earnings

ew energy e c en es gns m g ma e o er onnage unv a e.

Regulatory changes for ballast water treatment and emission control areas will be added pressure on older tonnage.

These factors will ease supply.

Slow steamin can alleviate the oversu l roblem mar inall .

Port congestion easing oversupply

Consolidation in shipbuilding might rationalise capacity

China’s continued dependence on iron ore imports

Rising electricity demand in developing Asia

© Drewry 2011




We are privately owned with research andDrewry was founded in 1970Drewry was founded in 1970 as a provider ofas a provider of, ,

Shanghai.maritime industry. Since then we have workedmaritime industry. Since then we have worked

with over 4,000 clients in more than 100with over 4,000 clients in more than 100 countr ies.countries.

SingaporeDrewry15 Hoe Chiang Road,#13-02 Tower Fifteen

LondonDrewry15-17 Christopher StreetLondon EC2A 2BS,United

Singapore 089316T: +65 6220 9890E: [email protected]

KingdomT: +44 (0)20 7538 0191E: [email protected]

DelhiDrewry209 Vipul Square, Sushant Lok-1Gurgaon 122002, IndiaTele hone: +91 124 40476 31/32

ShanghaiDrewry555, 5th floor Standard Chartered Tower,201 Shi Ji Avenue,Pudon District

E: [email protected] Shanghai, China 200120

T: +86 (0)21 6182 6759

© Drewry 2011

Dry Bulk Shipping-An Opportunity or an Illusion - Yu Jiang Lisarain

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