Shalini Shekhawat, Drewry Maritime Services Pvt Ltd. Future Trends in Iron Ore Trade and its Impact on the Dry Bulk Shipping Market

Transcription

1 Shalini Shekhawat, Drewry Maritime Services Pvt Ltd Future Trends in Iron Ore Trade and its Impact on the Dry Bulk Shipping Market

2 Structure of the présentation About Drewry Current trends in iron ore trade Future of Iron ore market Shipping demand generated by Iron ore Dry bulk ship supply: Future trends Supply-Demand Balance Future freight rates on iron ore routes Conclusions

3 Drewry Maritime Services: Sector Based Expertise Ports & Terminals Oil Market Dry Bulk Market Gas Market (LPG/LNG) Chemical Market Container Market Offshore Cruise/ Passenger/ RoRo Commercial Finance Supply Chain Benchmarking Shipbuilding & Repair Vessel Acquisition Market Analysis At Drewry, we publish and advise on all major sectors of shipping with research analysts and business consultants in every field. Integrated advice: A client might approach Drewry needing advice on vessel acquisition vs chartering. We can analyse the market sector in which the client operates; make recommendations on the most suitable vessel type; access information on vessels for sale; identify a range of finance options; advise on pricing structures; help input effective management systems, structure attractive remuneration packages. And after a certain length of time in operation, we can benchmark commercial and operational performance.

4 Drewry Maritime Advisors: Typical Assignments Strategic planning and analysis positioning the business in the short, medium and long terms Commercial due diligence assessment of the market, the target and financial projections Investment and divestment appraisals market entry strategies and financial returns Business, vessel, terminal and property valuations Network strategy redesign networks, exploit market opportunities Institutional and regulatory arrangements design structures and rules to help government meet policy objectives Pricing structures and tariff levels to align with market dynamics and profit targets Commercial and operational benchmarking Vessel acquisition strategies and finance options to underpin competitive advantage and profitability Carrier service contract terms and negotiation strategy to maximise supply chain cost effectiveness Market studies and forecasting identifying trends and opportunities Shipping economics and vessel management studies to identify efficiencies and minimize operational costs Inter-port and intermodal competition studies port competitiveness as part of an integrated transport system Competition freight cost benchmarking to measure commercial performance and identify improvements Supply chain mapping and redesign to pinpoint where efficiencies can be built into processes

5 Iron ore imports (million tonnes) Imports China EU-27 Japan S.Korea Taiwan USA Others World Total , (p) , % -5% -4% Because of tighter liquidity in the Chinese economy, housing demand fell in 2011 curbing demand for steel and thus slowdown in iron ore import growth. The European crisis took its toll on iron ore trade volumes

6 Iron ore exports (million tonnes) Exports Australia Brazil India S.Africa Canada Ukraine Others World Total , (p) n/a n/a n/a n/a n/a 13% 18% -43% Indian iron ore exports have fallen because of government ban on mining in Karnataka, hike in export duty to 30% and steep rise in internal railway freight rates. Export duty was hiked to provide a boost to domestic steel production through improved availability of raw material

7 Trade flows and major ports in iron ore trade

8 Future of Iron ore market Steel production forecast based on GDP growth expectations China EU-27 Japan USA India S.Korea Taiwan Sub-Total , , , (p) , (f) , (f) , (f) , (f) , (f) 1, ,677.2 CAGR ( ) 12.4% 0.9% 1.6% 3.8% 11.7% 7.7% 8.0% 6.6% CAGR ( ) 8.8% 0.5% 2.3% 3.1% 9.1% 5.1% 6.0% 6.6%

9 Future of Iron ore market India and China to lead the growth in global steel production India's fast increasing steel production would mean iron ore exports diminish increasingly Iron ore exports from India for the year seen below 50 million tonnes China has lately witnessed a slowdown in steel production and, in turn, iron ore imports because of the decline in housing market activity Nonetheless, over the five year forecast period (to 2016) China will witness a healthy level of steel production on back of healthy GDP growth prognosis With Indian exports becoming increasingly scarce, China's dependence on other two major sources - Brazil and Australia - is set to increase, translating into longer tonne miles

10 Shipping demand generated by Iron ore Iron ore trade forecast (million tonnes) Tonne-mile demand generated by iron ore 1,600 1,500 1,400 1,300 1,200 1,100 1, CAGR ( ) - 7.9% , CAGR ( ) - 7.6% 2012 (f) 2013 (f) 2014 (f) 2015 (f) 1, (f) 12,000 10,000 8,000 6,000 4,000 2,000 0 Billion tonne miles CAGR ( ) 9.2% Handysize Handymax Panamax Post Panamax Capesize VLOC In the forecast period, iron ore demand is expected to grow at an annual rate of 7.6%. The tonne mile demand, on the other hand, is forecast to grow at a higher annual rate of 9.2% because of longer hauls in the future. Capesize and VLOCs (Very Large Ore Carriers) constitute of over 85% of ship demand generated by iron ore trade. Smaller vessels, because of their smaller size and shorter hauls cater comparatively little to the iron ore trade demand.

11 Dry bulk ship supply Orderbook (April 2012) Total Current Fleet No 000 dwt No 000 dwt No 000 dwt No 000 dwt No. % of fleet 000 dwt 000 dwt dwt , , , , % 85, dwt , , , , % 129, kdwt , , , , % 106, dwt , , , , % 54, dwt , , , , % 189, , , , , % 61,478 Total 1, , , , ,001 2, , % 626,436 As per April orderbook, 123 million dwt of ships are due to be delivered in the remaining threefourth of the year. Even if part of this gets cancelled and slipped into the following years, new ships are going to hit the water at unprecedented pace this year. Large part of orderbook constitutes of VLOCs ships whose future is in doldrums after China banned these ships from discharging at its ports. Majority of these ultra large ships were being built by Vale to be employed dedicatedly on Brazil-China route.

12 Dry bulk ship supply Deliveries (million dwt) Handysize Handymax Panamax Post Panamax Capesize VLOC Although there is a question mark over the exact size of the dry bulk carrier orderbook, about 110 million dwt is likely to be delivered in 2012 a fifth of current fleet size. About 30 million dwt has already been delivered in 1Q12. Slippages are expected to increase compared to previous year as finances become dearer and difficult to get. After peaking in 2012, influx of new ships is expected to slow down from 2013.

13 Dry bulk ship supply Demolitions (million dwt) Handysize Handymax Panamax Post Panamax Capesize VLOC As ships enter the cargo deficient market at a fast pace, vessels are being sent to scrap yards faster than ever and quite prematurely. Average demolition age of a Capesize vessel has declined from 29.5 years in 2008 to 23.3 years so far in Since scrap yards are not very sophisticated and they primarily need workforce, demolition yard capacity is hardly any constraint. Scrapping is foreseen to cross 25 million dwt in This would, however, be no where close to sufficient to tame the colossal growth in fleet supply.

14 Dry bulk ship supply Fleet growth Dry bulk fleet Growth (million dwt) Fleet Growth Cape vs Total (million dwt) Deliveries Demolitions Fleet 1, Eight Year CAGR Five Year CAGR Capesize % % VLOC % % Total % % New Orders Cape vs Total (million dwt) Capesize and VLOC Total new orders Cape/Total 54% 54% 59% 47% 35% 34% Deliveries and demolition juxtaposed together explain the steep rise in dry bulk ship supply, specially in the period from 2009 to 2012 exactly when the global market and thus dry bulk cargoes were struggling hard to recover. Fleet growth in the largest ship segment Capesize has been disproportionately high, making the supply-demand equilibrium quite a distant dream, even as the fleet growth is future is expected to slowdown. Ever since the global recession in 2008, orders in the Capesize segment have been on a decline explaining the expected slowdown in future fleet growth. Nonetheless, the gigantic VLOCs remain the cause of worry more so after China banned these ships from discharging at this ports. A majority of VLOC s colossal orderbook comprises of such ships only.

15 Supply-Demand Balance (million dwt) (20.00) Handysize Handymax Panamax Capesize Even as growth in dry bulk ship demand in the forecast period is going to be better than the growth in supply, in absolute terms much more tonnage is going to be added than the increase in tonnage demand. Supply-demand balance is expected to peak in 2014, after which it will start contracting. When the shipping market slumps, biggest ships are the biggest losers. Capesize and Panamax will witness contraction in supply demand gap only from Handymax will reach the point of inflection a little earlier in 2013 because of smaller orderbook. The smallest segment Handysize because of smaller orderbook and higher demolitions has already begun to see a contraction in supply demand balance.

16 Freight rate outlook TCE Rates ($/day) 140,000 Brazil-China W. Australia-China 120, ,000 1Q11 16,900 6,300 80,000 2Q11 15,600 7,000 60,000 3Q11 24,200 15,100 40,000 4Q11 36,200 25,600 20,000 1Q12 15,600 5,900 - Freight forecast till to 2016 ($/day) Freight forecast till to 2016 ($/day) Brazil-China W. Australia-China Brazil-China 56,800 47, , ,900 48,400 39,300 23,300 16,600 21,000 24,100 26,500 29,200 W. Australia-China 44,500 37,000 96,300 90,700 37,000 27,300 13,500 13,200 19,000 22,000 24,300 26,900 Freight rates on iron ore trade routes reached new lows in first quarter of the year on low volumes of cargo available. While Brazil and Australia struggled with bad weather conditions, Indian exports remained restricted. At the same time, historically high deliveries in 1Q12 further weighed upon freight dynamics. Freight rates are expected to touch bottom in From there on rates are seen rising, albeit marginally a little more than expected inflation over this period. Currently, rates are almost near their operating-cost and in some cases below that, something which is not sustainable in the long run.

17 Conclusions With Indian exports becoming increasingly scarce, China's dependence on other two major sources - Brazil and Australia - is set to increase, translating into longer tonne miles The tonne mile demand created by iron ore is forecast to grow at an annual rate of 9.2% because of longer hauls in the future. Capesize and VLOCs (Very Large Ore Carriers) constitute of over 85% of ship demand generated by iron ore trade The tonnage supply, specially in the Capesize (and VLOC) segment, has been increasing at break neck speed eroding any expected gains from increase in iron ore trade Freight rates in 2012 will average much lower than those in From 2013, they will start moving up albeit very slowly If Valemaxes are allowed on Chinese ports, which they eventually should be, trade on Brazil- China route will increase creating larger tonne mile demand, and in turn pushing over all Capesize freight market up

18 Making Contact with Drewry Head Office UK Drewry Shipping Consultants Ltd Drewry House, Meridian Gate 213 Marsh Wall, London E14 9FJ, United Kingdom Telephone: +44 (0) Thank you India Office Drewry Maritime Services Private Limited 209 Vipul Square, Sushant Lok- 1, Gurgaon , India Telephone: / 32 Singapore Office Drewry Maritime Services (Asia) Pte, Ltd. 5 Shenton Way #33-02, UIC Building, Singapore Telephone: singapore@drewry.co.uk Website: ht t p://