Sources: Lloyd s Register, LNG World Shipping

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2 Germany s ZEW survey of economic sentiment will be published on Wednesday. Nobody expects a repeat of last month s positive number of 54.5; An FT market survey puts the expectation at The strength of the euro is one factor. Others include post-brexit hesitancy and the ongoing worries about deficit busting in southern eurozone countries as well as the particular problems of Italy s banking system. The European Central Bank meets on Thursday to discuss monetary policy. Whether any further easing takes place may depend on how weak the ZEW data from Germany are. More likely to our view is that the ECB will follow the Fed and the Bank of England in holding rates in a wait and see mode. The US housing market monthly statistics will be published on Monday this week. If housing starts and mortgage approvals post strong gains, this may edge the Federal Reserve towards raising interest rates before the winter. After another mass shooting at the weekend, attention may not be drawn to national economic data as social issues, so often the focus in the hot summer months, dominate political debate. In China, persistent deflation continues. Producer prices fell 2.6 per cent year on year in the latest data released Friday. The decline is smaller than it was, having been running at -5.9% for all of Q4 2015, but the data point to continuing overcapacity in manufacturing. Although Chinese consumer goods purchases are growing at over 10 per cent a year, and have been steadily doing so for some time, they are not yet sufficiently large to soak up all the industrial overcapacity. In Brazil, consumer price inflation, job creation and a regular market expectation survey are all due to publish today. Few expect the data to be positive. In advance of the grain season, Brazilian farmers may be keen to build up inventory for export if demand is weak at home, especially if economic data weigh on the real. The government of neighbouring Argentina, meanwhile, appears to be backtracking on an earlier promise to reduce the soybean export tax by 5 per cent every year until the tax was eliminated, having begun at 35 per cent. President Macri is expected to announce his decision by the end of this month, though the government has been telling the press that farmers are doing better than the average Argentine and may have to wait. Low oil prices have been a scourge of oil-dominant economies around the world in the last year. Now even Saudi Arabia has (excluding oil) fallen into a recession for the first time since the 1980s as the government reduces public spending and subsidies. Construction projects and hiring have slowed in particular. The oil sector is keeping the economy above water; GDP grew by an estimated 1.8 per cent year on year in the last quarter, but the non-oil sector is through to have shrunk by 4.0 per cent. Most analysts expect the overall Saudi economy to grow a little this year, but the government will have its work cut out managing expectations from the historically coddled population.

3 The push for cleaner marine fuels notched up a gear this month as fourteen shipping companies, ports, engine makers, and industry players launched the SEA/LNG initiative to promote the use of LNG as a marine fuel. The list is growing but the initial members include the likes of DNV GL, Engie, ENN, GE, GTT, Lloyd s Register, Mitsubishi, NYK Line, the Port of Rotterdam, and Qatargas. TOTE executive vice-president Peter Keller is the chairman of SEA/LNG. TOTE is a company which already strongly believes in the initiative, having two of the first LNG powered container vessels in the market. Mr Keller, upon the announcement of the coalition, said, SEA/LNG will look for ways to tackle the commercial realities of getting the shipping industry to embrace LNG as a marine fuel. According to Lloyds Register, there are 80 LNG-engined seagoing vessels and 105 on order, which is strong indication of why this coalition is needed. The largest number of vessels able to utilise LNG as a fuel (apart from gas carriers) belongs to the car passenger ferry sector. A total of 42 of these vessels have been built or are currently under construction, a small number compared to the wider shipping order book. So, what are the commercial realties of such an adventure and how will Sea/LNG tackle the problem? To put it simply, the three biggest problems faced in the industry are: LNG is currently cheap but bunker fuels are too; conversions are expensive and the cost involved in building dedicated vessels is also higher than the average newbuilding; and finally the risk and costs are too high in an already depressed freight market. There are many challenges ahead for SEA/LNG, but one focus could look towards the start of the chain, the method of actually delivering the bunker fuel to the vessel in a cost effective way. Does it have to be done on a bunker vessel/barge? Not only is the initial cost of these vessels much larger than that of its oil counterparts, but the operational and crew costs will also likely be higher. May it be best, then, to consider expanding the use of LNG bunkering through dedicated quayside terminals, rather than bunkering vessels, due to the current large costs involved? SEA/LNG aims to promote the use of LNG to the masses, and if volumes become sufficient, then bunkering on a large scale will likely require, and be better suited, to onshore terminals. Sources: Lloyd s Register, LNG World Shipping

4 Oil prices were unchanged in early Asian trade on Monday as traders already minimised the impact of Friday s Turkey coup. Turkey handles around three per cent of global crude shipments, mainly from Black Sea ports and the Caspian region, and operations have returned to normal after a few hours shutdown following Friday s attempted military coup. Although President Erdogan has regained control of the government, the situation is not conducive to increased stability in the region. This may add a risk premium to the oil price, especially if political closure of the Bosporus were to reoccur, or if the oil terminal at Ceyhan were to be compromised in some way. Oil prices have not been supported by the latest economic data from the United States. US retail sales jumped in June by more than was anticipated, while industrial production rose to a 11-month high during the same period. In early trading on Monday, Brent crude futures rose slightly to USD a barrel while WTI fell marginally to USD a barrel. WTI physical prices fell to USD by 1600 GMT Monday. Supply and demand rebalancing is still some way off in mid-2017 even with the rapid rise of non-petroleum products demand. Geopolitical risks add to theuncertainty. In the US, a group of oil producers has banded together to form the Panhandle Import Reduction Initiative, to campaign for the imposition of import quotas on the US s crude oil suppliers. The group s founders say that the only Canada and Mexico should have unfettered access to the US refining market. Their fire is clearly aimed at Opec and Saudi Arabia, though Saudi Arabia producers a heavier, more sour crude than US shale formations. A more likely loser would be Nigeria, which produces similar grade crude to shale. Nigerian production is however already down due to domestic events, while its US market has diminished considerably and it tends to look east for buyers these days. A more fundamental irony is that US shale oil production helped to bring about oil oversupply, low prices and increased global competition in the first place. In reality, this lobby group is seeking the same increase in barriers to trade that many other anti-globalisation protesters seek. After nearly two years of falling rig counts and oil production in the US, investment appears to be on the upturn again. US oil and gas producer Diamondback Energy Inc. has announced its intention to spend USD 560 Mn buying leases in the Southern Delaware Basin. The largest dollar amount in a year of US and Canadian properties, of USD 5.1 Bn, changed hands in June. This was mainly driven by the recovery of oil prices from a 12- year low, undermining the Panhandle Import Reduction Initiative s argument somewhat. Rebounding US rig activity and high fuel inventories may pose obstacles in the path to a rebalanced market in the States, and may drive more cargos onto the water. Oil oversupply remains a global fact. As the corporate holiday season starts up in the major oil trading centres of New York, London, Geneva and Singapore, one might expect the physical oil markets to remain becalmed for a few weeks in spite of recent increases in political risk around the world. Sources: Reuters, Bloomberg

5 After Antwerp's new Kieldrecht lock recently opened and the expansion works at the port's AET (Antwerp Euroterminal) were finally completed, the Italian Grimaldi Napoli Group can now consolidate all Antwerp calls from most of its subsidiaries at the same terminal. Since last week, the wholly-owned Grimaldi subsidiary Atlantic Container Line (ACL) moved the Antwerp calls of its Transatlantic ConRo service from the right-bank Europaterminal of PSA to the AET, placed in the non-tidal left bank docks of Antwerp port. After its recently completed expansion, AET now serves as the Benelux hub for the Grimaldi subsidiaries Finnlines and Grimaldi Lines. Moreover, ACL's shift to AET allowed Finnlines' shortsea RoRos to permanently drop the current extra calls at the Euroterminal. These calls, though currently suspended, had to be there to ensure transhipment connectivity between the ACL deep-sea loop to the USA and Canada, and the Group's Baltic Sea short sea network, and especially Finnlines services to Russia. Previously, ACL wasn t willing to move to AET, as the terminal could not offer ship-to-shore gantry cranes and the steaming to the terminal required a considerable detour via the Kallo lock. With the addition of two new container cranes installed at the terminal, and the Kieldrecht lock as a potential shortcut, the company finally had reason to be decisive and make the move happen. Grimaldi's service consolidation at AET could come against Hamburg's Unikai, in which the company is a stakeholder. Elsewhere, HHLA (Hamburger Hafen und Logistik AG), which has been operating three container terminals in the German main port of Hamburg, recently completed the expansion of the rail terminal at its Container Terminal Altenwerder (CTA). Regular operations at the facility will begin early next month (August 2016). According to officials, the expansion, which costed EUR 10 Mn, will increase the terminal's capacity by 140,000 standard TEU to 930,000 TEU annually. CTA is a fully-automated container terminal that uses AGV container shuttles and automated RMG-served container storage blocks. The terminal originally opened in 2002 and it boasts a design handling capacity in excess of 30 Mn TEU per year. CTA almost exclusively serves as a hub for the G6 carriers and associated feeders to the Baltic Sea. Having the appropriate equipment, the terminal can handle ULCS mainline vessels, but its location behind the Kohlbrand-Bridge currently sets limits to any calls of ships with a capacity of about 15,000 TEU. The next generation of ULCS (with a capacity of around 19,000 TEU) will have to use other Hamburg terminals such as HHLA's CTB and CTT or the competing Eurogate Hamburg. Sources: Alphaliner

6 As is often the case, China finds itself the subject of this week s dry cargo page. Zhao Chenxin, spokesman for the National Development and Reform Commission, last week revealed that China is set to achieve its goal of cutting steel and coal production capacity this year. His statement is apparently at odds with actual steel production, which reached a Mn T in June, up 1.7 per cent year on year, according to the National Bureau of Statistics of China. June s 2.32 Mn T steel production per day is a record. In fact, China is managing capacity by shutting its least profitable and least efficient steel mills. That means those with the highest logistics costs, including inland mills taking domestic iron ore and coal. Newer mills near the coast can take advantage of lower cost shipments of raw materials. This is swinging Chinese iron ore demand away from domestic production and towards imports. Domestic production of iron ore is slipping, decreasing during the first four months of the year by 6 per cent year-on-year, before being forecast to drop by 12 per cent for the year, and by 20 per cent in Domestic Chinese iron ore prices climbed to a near-three-month peak last week, closing on Wednesday at RMB (USD 68.25) per tonne, boosted by news of enforced production cuts in Tangshan. International iron ore prices are also rising. Australian FOB iron ore climbed 20 per cent in June, finishing the month at nearly USD 60 per tonne compared with USD 48 per tonne at the start of the month. As of last Friday, FOB iron ore at Port Hedland was being quoted at USD per tonne. The USD price differential between FOB Australian ore and Chinese ore is clearly to the advantage of international trade. According to the Pilbara Ports Authority, Chinese iron ore imports from Australia s Port Hedland picked up substantially in June, rising to their highest levels this year. Last month, shipments totalled 34.5 Mn T, a significant rise of 9 per cent from May s 31.7 Mn T, and exceeding March s record for the year of 33.9 Mn T. The major producers, such as BHP Billiton, are operating at almost full capacity, As a result, stockpiles of imported iron ore at China s major ports have swelled to Mn T as of 11 July, their highest levels since December The dry bulk freight market has risen too. As of 15 July, the BDI has risen for 18 consecutive weeks. Freight from Australia to China has risen from a low of around USD 2.5 a tonne in February to around USD 4.6 a tonne today. China s appetite for imported coal has also increased, as the government s initiative to cut domestic production makes itself felt. According to China s National Bureau of Statistics, domestic coal production fell by 9.7 per cent year-on-year during the first half of the year, totalling 1.63 Bn T, and it produced 16.6 per cent less coal in June, having already produced 15.5 per cent less in May on the year. Beijing s General Administration of Customs latest data has revealed that, in turn, China imported Mn T of coal last month, the highest amount since December In all, imports of coal have risen during the first half of the year by 8.2 per cent, up to 108 Mn T, having fallen sharply by 38 per cent during H It remains to be seen whether China tackles its steel overcapacity after it tackles its mining overcapacity. Bulk carrier owners enjoying a respite from miserable freight markets should not get overly excited; the current switch from domestic to imported iron ore and coal could just as easily switch back with a change of government policy, e.g. to protect domestic employment. Sources: China National Bureau of Statistics, China General Administration of Customs, Baltic Exchange, Bloomberg, Pilbara Port Authority.

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8 The information contained within this report is given in good faith based on the current market situation at the time of preparing this report and as such is specific to that point only. While all reasonable care has been taken in the preparation and collation of information in this report Affinity (Shipping) LLP (and all associated and affiliated companies) does not accept any liability whatsoever for any errors of fact or opinion based on such facts. Some industry information relating to the shipping industry can be difficult to find or establish. Some data may not be available and may need to be estimated or assessed and where such data may be limited or unavailable subjective assessment may have to be used. No market analysis can guarantee accuracy. The usual fundamentals may not always govern the markets, for example psychology, market cycles and external events (such as acts of god or developments in future technologies) could cause markets to depart from their natural/usual course. Such external events have not been considered as part of this analysis. Historical market behaviour does not predict future market behaviour and shipping is an inherently high risk business. You should therefore consider a variety of information and potential outcomes when making decisions based on the information contained in this report. All information provided by Affinity (Shipping) LLP is without any guarantee whatsoever. Affinity (Shipping) LLP or any of its subsidiaries or affiliates will not be liable for any consequences thereof. This report is intended solely for the information of the recipient account and must not be passed or divulged to any third parties whatsoever without the written permission of Affinity (Shipping) LLP. Affinity (Shipping) LLP accepts no liability to any third parties whatsoever. If permission is granted, you must disclose the full report including all disclaimers, and not selected excerpts which may be taken out of context Affinity Research LLP Affinity Research London Mark Williams Charles Chasty Jonathan Gaylor Fotios Katsoulas Sevita Kondyliou George Nordahl T E. research@affinityship.com