Dry Bulk Freight Market: Review of 2012 & Prospects For Recovery Metal Bulletin Bauxite & Alumina Conference Singapore October 2012

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1 Dry Bulk Freight Market: Review of 212 & Prospects For Recovery Metal Bulletin Bauxite & Alumina Conference Singapore 3-31 Whilst care and attention has been taken to ensure that the information contained is accurate, it is supplied without guarantee. SSY Consultancy & Research can accept no responsibility for any errors or omissions or consequences arising therefrom.

2 212 in summary general freight market weakness in the year-to-date reflects (1) record newbuilding deliveries; (2) a series of disruptions to cargo availability and (3) cyclical economic weakness new extremes in the pattern of vessel earnings reflect uneven distribution of growth in dry bulk trade and fleet supply with handy/supramaxes outperforming capes for first 9 months of the year confidence in near term recovery being eroded by slowdown in China, delays to new mining projects, cuts to US grain export forecasts and substantial newbuilding orderbook for 213 delivery

3 Jan-1 Feb-1 Mar-1 Apr-1 May-1 Jun-1 Jul-1 Aug-1 Sep-1 Oct-1 Nov-1 Dec-1 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 $/day baltic index average timecharter rates 6, 5, Cape 172kdwt Panamax 74kdwt Supramax 52kdwt Handysize 28kdwt 4, 3, 2, 1,

4 1q8 2q8 3q8 4q8 1q9 2q9 3q9 4q9 1q1 2q1 3q1 4q1 1q11 2q11 3q11 4q11 1q12 2q12 3q12 Mdwt quarterly dry bulk carrier deliveries by size Capesize Handymax Panamax Handy

5 MDwt net fleet growth in the year to date Mdwt +11.4% 36. Additions Deletions 17.9 Mdwt +11.5% Mdwt +3.3% 1.8Mdwt +8.7% Handysize Handymax Panamax Capesize

6 1q7 2q7 3q7 4q7 1q8 2q8 3q8 4q8 1q9 2q9 3q9 4q9 1q1 2q1 3q1 4q1 1q11 2q11 3q11 4q11 1q12 2q12 3q12 (e) Million tonnes quarterly changes in major dry bulk exports

7 negative risks to trade growth are on the increase falling steel prices threaten cuts in world production constraints on cargo supply drought prompts downward revisions to US grain export estimates (with Russia/Ukraine also suffering crop damage) government policies in Indonesia and India China import slowdown economic growth at 3-year low structural deceleration in steel consumption growth

8 Jan-3 May-3 Sep-3 Jan-4 May-4 Sep-4 Jan-5 May-5 Sep-5 Jan-6 May-6 Sep-6 Jan-7 May-7 Sep-7 Jan-8 May-8 Sep-8 Jan-9 May-9 Sep-9 Jan-1 May-1 Sep-1 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 tonnes $/t Chinese steel markets under pressure with domestic prices close to 3 year low 6, 56, 52, 48, 44, 4, 36, 32, 28, 24, 2, 16, 12, Apparent steel consumption Wire rod prices Source: World Steel Association/ World Steel Dynamics

9 1q7 2q7 3q7 4q7 1q8 2q8 3q8 4q8 1q9 2q9 3q9 4q9 1q1 2q1 3q1 4q1 1q11 2q11 3q11 4q11 1q12 2q12 3q12 4q12 tonnes US grain exports: forecasts slashed by drought 45, 4, June Forecast 35, 3, 25, 2, 15, 1, 5,

10 1q9 2q9 3q9 4q9 1q1 2q1 3q1 4q1 1q11 2q11 3q11 4q11 1q12 2q12 3q12f 4q12f Mt grain exports from Russia and Ukraine also downgraded by poor crop conditions June forecast

11 Jan-7 Apr-7 Jul-7 Oct-7 Jan-8 Apr-8 Jul-8 Oct-8 Jan-9 Apr-9 Jul-9 Oct-9 Jan-1 Apr-1 Jul-1 Oct-1 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 tonnes Chinese minor bulk imports 18, 16, 14, 12, 1, Other Ores Fertilizer Nickel ore Steel scrap Alumina Bauxite 8, 6, 4, 2,

12 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 ' tonnes Chinese bauxite imports by source 7, 6, Others Australia Indonesia 5, 4, 3, 2, 1,

13 ' tonnes Chinese coal imports 24, 22, 2, 18, 16, 14, 12, 1, 8, 6, 4, 2, adjusted to exclude lignite

14 Jan-1 Mar-1 May-1 Jul-1 Sep-1 Nov-1 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 USD/day Baltic Exchange panamax timecharter rates 45, 4, 35, 3, Pacific - BPI R3A Atlantic - BPI R1A 25, 2, 15, 1, 5,

15 Jan-1 Mar-1 May-1 Jul-1 Sep-1 Nov-1 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 $/Day Baltic Exchange supramax timecharter rates 45, 4, 35, 3, Pacific - BSI S2 Atlantic - Avg BSI S4A & S4B 25, 2, 15, 1, 5,

16 what can move the sub-capesize vessel markets? increased Indian coal buying to offset energy crisis/fuel shortages re-opening of Chinese steam coal arbitrage strong Latin American grain season (2q13) with positive implications for fertiliser imports minor bulk imports into China & global steel trade to benefit from improved economic climate/stimulus? lay-up of tonnage combined with scrapping surge slower newbuilding deliveries

17 1q7 2q7 3q7 4q7 1q8 2q8 3q8 4q8 1q9 2q9 3q9 4q9 1q1 2q1 3q1 4q1 1q11 2q11 3q11 4q11 1q12 2q12 3q12 4q12 1q13 2q13 Million tonnes Latin American grain exports

18 1q7 2q7 3q7 4q7 1q8 2q8 3q8 4q8 1q9 2q9 3q9 4q9 1q1 2q1 3q1 4q1 1q11 2q11 3q11 4q11 1q12 2q12 3q12 4q12 1q13 2q13 Million tonnes major dry bulk exports by quarter

19 fleet supply issues dry bulk carrier demolition set for new annual record but increased volumes have reduced ship scrap prices confirmed cancellations from newbuilding orderbook remain modest and lag new orders as yards push ecodesigns at the lowest shipbuilding prices for 9-1 years yet orderbook at lowest in 5+ years as financing of new orders remains a constraining factor, leaving overhang of surplus shipbuilding capacity

20 (e) Million dwt new highs for shipbreaking activity historical & forecast scrap volumes 6 Dry Bulk Other

21 Mdwt dry bulk shipbuilding activity by country Other China S.Korea Japan

22 Pre Mdwt panamax fleet ( kdwt) by year of build On Order Existing On Order = 52.3 Mdwt year old fleet = 18. Mdwt 1 5

23 Pre Mdwt handymax fleet (4-59 kdwt) by year of build On Order Existing On Order = 18.1 Mdwt 2+ year old fleet = 14.9 Mdwt 1 5

24 Pre Mdwt handysize fleet (1-39 kdwt) by year of build On Order Existing 2+ year old fleet = 27. Mdwt On Order = 14.4 Mdwt 6 4 2

25 MDwt projected net fleet change in Additions 13.9 Mdwt +7.8% 7.4 Mdwt +2.6% 25. Deletions Mdwt +.4% 4.3 Mdwt +3.1% 5.. Handysize Handymax Panamax Capesize

26 What does the FFA market tell us? average earnings & ffa prices ($/day) 212 ytd 213 FFA* Chg (%) Handysize 7,863 7,15-9% Supramax 9,822 7,925-19% Panamax 7,839 7,25-1% Capesize 6,991 1, % * As of October 29

27 conclusions annual rate of growth in both vessel demand and supply slowing from the pace seen in the 1h12 record scrapping and reduced newbuilding deliveries should create a platform for further freight rate volatility in 213 and the potential for cyclical recovery in 214/15 but downside risks are increasing for both cargo demand and cargo supply, while excess shipbuilding capacity looms

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