Dry Bulk Freight Outlook

Transcription

1 European Fuel Price Conference Challenging the Energy Consensus Dry Bulk Freight Outlook Galbraith s Ltd Bridgegate House Borough High Street London SE1 1BL United Kingdom Dr Philip Rogers Head of Research Galbraith s s Ltd 11 th December 27 research@galbraiths.co.uk Ph: Fx: Galbraith's 1

2 The questions to be answered: Where is the freight market going next and what are the implications for international commodity prices? Why has the freight market increased so dramatically? Is the freight market now permanently at a higher level? The impact of China on the freight market has been dramatic what are the risks for the future? How has the latest banking crisis impacted on world trade? Galbraith's 2

3 Freight Market over past 2+ years Source: Baltic Exchange 12, 11,5 11, 1,5 1, 9,5 9, 8,5 8, 7,5 7, 6,5 6, 5,5 5, 4,5 4, 3,5 3, 2,5 2, 1,5 1, 5 1,289 BFI/BDI Annual Summary 4,126 7-Dec-7 1, BFI/BDI Jan 1985=1, Max Annl Avg Min Avg Avg Dec-7 The BFI/BDI is a composite freight market Index covering Capesize 172, dwt; Panamax 74, dwt; Supramax 52, dwt; and Handysize 28, dwt bulk carriers Freight market 23-7 has averaged 3 times greater than previous 18 years and currently is >8x higher Galbraith's 3

4 $/day $21, $2, $19, $18, $17, $16, $15, $14, $13, $12, $11, $1, $9, $8, $7, $6, $5, $4, $3, $2, $1, Highly volatile and rising market since 23 Source: Baltic Exchange/Galbraith's Capesize (172k) Panamax (74k) Supramax (52k) Handymax (45k) Handysize (28k) Average Basket TC Rates The The cascade cascade or or trickle-down trickle-down effect effect is is very very evident evident in in the the shipping shipping market market with with smaller smaller sizes sizes responding responding to to Capesize Capesize movements movements and and vice vice versa versa $ Jan-3 Jan-4 Jan-5 Jan-6 Jan-7 Galbraith's 4

5 $/tonne Capesize Coal Freight Rates to Rotterdam (ARA) Qld/ARA R.Bay/ARA P.Bol/ARA Coal Freight Rates to ARA ($/tn) CAPESIZE Year Bolivar Richards Bay Queensland 22 $5.43 $6.69 $ $11.97 $14.62 $ $19.9 $2.5 $ $16.9 $15.92 $ $14.96 $16.21 $ ytd $32.59 $31.45 $ Nov-7 $5. $46.5 $ Jan-2 1-Jan-3 1-Jan-4 1-Jan-5 1-Jan-6 1-Jan-7 Galbraith's 5

6 Panamax Coal Freight Rates to Rotterdam (ARA) Qld/ARA R.Bay/ARA Bol/ARA Coal Freight Rates to ARA ($/tn) PANAMAX Year Bolivar Richards Bay Queensland 22 $7.13 $7.6 $ $12.83 $15.52 $ $2.77 $24.9 $ $17.91 $18.42 $ $16.45 $19.48 $31. 27ytd $33.71 $35.36 $ Nov-7 $49.5 $49.5 $ $/tonne Jan-2 1-Jan-3 1-Jan-4 1-Jan-5 1-Jan-6 1-Jan-7 Galbraith's 6

7 All commodities affected: freight now accounting for 35% or more of delivered cost depending on cargo South Africa Spot Steam Coal Price and Freight (ARA) Cape Freight - ARA FOB Freight/CIF% $ % 5% 45% 4% 35% $/t % 25% 2% 4 $8.1 15% for for between 15~4% of of delivered cost cost Jan-2 Jan-3 Jan-4 Jan-5 Jan-6 Jan-7 For For coal coal from from South South Africa Africa freight freight has has accounted 1% 5% % Galbraith's 7

8 Congestion is a feature at several other ports Congestion at 7-Dec Ships Waiting Average Waiting Days Newcastle, NSW ~ Port Congestion Globally around 1 ships - mainly Cape & Panamax - are being delayed due to congestion this reached 15+ ships earlier this year No. of Ships Waiting time - days New capacity being added at Newcastle, Abbot Point and other Australian ports Capacity Balancing System (CBS) probably to be extended to Jan-6 Apr-6 Jul-6 Oct-6 Jan-7 Apr-7 Jul-7 Oct-7 Jan-8 Apr-8 Jul-8 Oct-8 End Month Galbraith's 8

9 Freight Summary December 27 Exceptionally high (record) freight rates caused by: Surging Chinese iron ore demand Strong demand for coal imports by India Congestion: mainly in Australia but also reported in some Chinese, Brazilian & Indian ports Reduced grain availability from Australia CVRD postponing around 2 iron ore stems Highly volatile market leading to large changes in freight rate levels thereby adding to uncertainty Galbraith's 9

10 Source: Baltic Exchange $/day 25, 24, 23, 22, 21, 2, 19, 18, 17, 16, 15, 14, 13, 12, 11, 1, 9, 8, 7, 6, 5, 4, 3, Increase in volatility over past four years Max 4 TC Avg 4 TC Min 4 TC Capesize High/Low Monthly Earnings min/max trading range typically less than $5, pd 27 min/max trading range now more than $18, pd 2, 1, Jan-99 Jan- Jan-1 Jan-2 Jan-3 Jan-4 Jan-5 Jan-6 Jan-7 Galbraith's 1

11 $/day $1, $95, $9, $85, $8, $75, $7, $65, $6, $55, $5, $45, $4, $35, $3, $25, $2, $15, $9,568 Same story for Panamax Up Up to to freight freight rates rates traded traded in in a a relatively relatively modest modest band; band; since since then then the the market market has has moved moved up up to to a a new new higher higher level level with with a a wider wider trading trading range range Panamax Basket 4TC Rates $12,117 $12,42 $12,453 $37,982 $2,63 $51,83 $35,735 $4,842 $24,71 $35,713 $23,778 $11,12 $1, $8,767 $7,422 $7,725 $17,591 $5, $13,267 $ $1,819 $1,162 $4,536 $8,731 $5,33 $5,97 Jan-99 Jan- Jan-1 Jan-2 Jan-3 Jan-4 Jan-5 Jan-6 Jan-7 $94,977 $56,38 $31,719 Galbraith's 11

12 Dry Bulk Demand Driven by: Trade volumes Length of voyage Galbraith's 12

13 Accelerated trade growth since 2 Million Tonnes 3,5 3, World Seaborne Dry Bulk Trade Continuous trend expansion since 196 Coal, Grain & Iron Ore account for 65% of trade Acceleration in iron ore trade since 2 due to Chinese expansion Other Bulks comprise largest aggregate sector (around 33%) Growth 2-7: 4.7% pa Credit Crunch 2,5 Asian Financial Crisis 2, 2 nd Oil Crisis Growth 196-2: 4.3% pa 1,5 1 st Oil Crisis 1, PhosRock Other Bulk Coal 5 Grain Bx/Al Iron Ore Galbraith's 13

14 Future growth in iron ore, coal & minor bulks Million Tonnes 1,2 1,1 1, World Seaborne Dry Bulk Trade by Commodities Coal Iron Ore Grain Bx/Al PhosRock Other Bulk Steel trade Coal Coal has has been been largest largest traded traded commodity commodity since since mid-199s mid-199s but but is is now now being being matched matched by by iron iron ore ore due due to to Chinese Chinese growth growth Galbraith's 14

15 Wide variety of cargoes ~ needs wide variety of ships Seaborne trade 27 estimated at 2,94 Mt ±3Mt Seaborne Dry Bulk Trade ~ 27 Grain (inc Soya) 9% Steam Coal 2% Forest Products 7% Phosrock Fertilisers Tapioca Cement Sugar Potash Sulphur Gypsum Steel Products 8% Other 19% Oilseed/Meal Soyameal Rice Chrome Ore Salt Petcoke Others Coking Coal 7% Nickel Ore Manganese Ore Coke Scrap Iron Ore 26% Metal Concentrates Bauxite Just under half of all Dry Bulk Trade is related - either directly or indirectly - to the steel industry Alumina Galbraith's 15

16 Five main cargo types Seaborne Trade 27 Million tonnes (Mt) Energy 598 2% Other 78 3% Iron Ore 76 26% Seaborne trade 27 estimated at 2,94 Mt ±3Mt Industrial % Fertilizers 116 4% Agribulks 4 14% Other Steel- Related % Source: Galbraith's Dry Bulk Trade Data Bank Galbraith's 16

17 1t 525, 5, 475, 45, 425, 4, 375, 35, 325, 3, 275, 25, 225, 2, 175, 15, 125, 1, 75, 5, 25, Most dramatic growth seen in China China Other Asia N&S.America Major Regional Steel Producers Europe CIS Japan Steady growth in Other Asia (S.Korea, Taiwan, India etc) European output accelerating since , ,57 421, , Galbraith's 17

18 China has huge potential for increased consumption 1,1 1, 9 Consumption of Steel (kg) per Capita EU-15 USA CIS S.America Japan S.Korea India China 1,15 S.Korea Japan kg 5 USA EU-15 China now close to EU level but because of size of population has more than twice the impact China Galbraith's 18

19 11, 1, 9, 8, 7, Step jumps in Chinese iron ore imports Ore Imports China Quarterly Iron Ore Imports Quarterly average 68,88 81,596 93,375 1, tonnes 6, 5, 4, 37,49 52,2 3, 2, 1, 27,828 With With imports imports now now running running at at million million tonnes tonnes a a quarter quarter China China alone alone requires requires the the equivalent equivalent of of approximately approximately Capes Capes of of 175, 175, dwt dwt each. each. There There are are only only around around in in existence existence and and many many other other countries countries that that also also require require iron iron ore ore (Japan, (Japan, Korea, Korea, Europe, Europe, etc ) etc ) 1q2 3q2 1q3 3q3 1q4 3q4 1q5 3q5 1q6 3q6 1q7 3q7 Galbraith's 19

20 Steel Imports Declining as Exports take off 7, 65, 6, 55, Steel Imp Stl Exp China Steel Imports/Exports 5, 45, 4, 1t 35, 3, 25, 2, 15, 1, 5, Galbraith's 2

21 Chinese Coal Exports Declining/Imports Increasing 1, Coal Exp China Coal Import/Export Coal Imp 1t 9, 8, 7, 6, 5, 4, Growth Growth in in Chinese coal coal exports exports to to Asian Asian market market in in 199s 199s effectively wiped wiped long-haul South South African African suppliers out out of of the the market; this this reduced tonne-mile demand significantly because of of proximity and and added added to to market market slump slump of of 2-2 3, 2, 1, Galbraith's 21

22 China also now a major generator of export cargoes 2, 18, 16, 14, China Major Dry Bulk Exports Rice+Corn Coke Coal Cement Steel Massive expansion in cement and steel exports recently 12, 1t 1, 8, 6, 4, 2, Galbraith's 22

23 China accounts for 18% of dry bulk imports 3, China & World Major Dry Bulk Trades Other Importers China Imports 2,5 Million Tonnes 2, 1,5 Other Importers 2,415 1, 5 Other Importers 1,498 China Imports, 32 China Imports, Galbraith's 23

24 Coal: steady growth anticipated 85, 8, 75, 7, Major Coal Importers Europe: Belgium, Denmark, France, Germany, Italy, Netherlands, Spain, Turkey, UK Other Asia: China, S.Korea, Taiwan, Hong Kong, India Americas: USA, Mexico, Brazil 65, 6, 55, 5, 1,t 45, 4, Americas 35, 3, Europe 25, 2, Other Asia 15, 1, 5, Japan Galbraith's 24

25 Significant growth in Soyabean trade 3, 28, Major Grain & Soyabean Exporters Wheat Coarse Soyabean Soyameal 1 Tonnes 26, 24, 22, 2, 18, 16, 14, 12, 1, 8, 6, 4, 2, Galbraith's 25

26 Overall steady trade growth up to 21 Million Tonnes 3,5 3, 2,5 2, 1,5 1, Seaborne Dry Bulk Trade Forecast 27-1 Other Other Other Other Energy Energy Energy Energy Fertilizers Fertilizers Fertilizers Fertilizers Agribulks Agribulks Agribulks Agribulks Industrial Industrial Industrial Industrial Other Steel-Related Other Steel-Related Other Steel-Related Other Steel-Related 5 Iron Ore Iron Ore Iron Ore Iron Ore Other Energy Fertilizers Agribulks Industrial Other Steel-Related Iron Ore Galbraith's 26

27 Total Seaborne Trade growth ,5 Growth in Seaborne Dry Bulk Trade 27~21 3, 45 2,5 Million Tonnes 2, 1,5 2,94 3,75 3,29 3,345 1, Galbraith's 27

28 Demand Summary Since mid-23 demand has been dominated by all things Chinese Since 22 China s s iron ore imports have jumped from 111 Mt to 38 Mt; steel exports have risen 13-fold from 5 Mt to 65 Mt and coal imports have risen from 11 Mt to over 5 Mt. This pace of growth was not anticipated by anyone prior to 23 In other countries (to generalise) only steam coal imports have continued to rise consistently These steam coal imports have been forging ahead in several areas: Europe (UK & Germany), China, India and USA Concerns about grain availability from Australia Galbraith's 28

29 Dry Bulk Fleet Supply Determined by: Supply and availability of ships New deliveries from shipyards Scrapping Productivity of fleet Congestion Bai Sha Ling 3,881 dwt x25t Cr Owner: Shenzhen Shekou (China) All fleet data from Clarkson Research Services with grateful acknowledgement Galbraith's 29

30 The exceptional volume of the new ships is clear to see 7, 6, 5, Age Profile of Dry Bulk 1st October 27 14, , , , , ,999 Deliveries in each year 28/9/1/11 will be more than any previous year so far 1, Dwt 4, 3, 2, 1, Pre NB 28NB 29NB 21NB 211NB 212NB 213NB Galbraith's 3

31 Record new ship deliveries in next three years Million Dwt Bulk Carrier Orderbook at 1-Nov-7 Delivered 27 MDwt For Delivery 27 Dwt Delivery 28 Dwt Delivery 29 Dwt Delivery 21 Dwt Delivery 211+ Dwt 1-4 Handysize 4-6 Hx/Supramax The orderbook (25 Mdwt) is at record levels and can carry accommodate a cargo growth of 1.4 billion tonnes (25x7); of this total some 161 Mdwt is for delivery by end 21: this requires cargo growth of 1,13 Mt (161x7) to maintain current tightness in the freight market. However demand is expected to grow by only 45 Mt over this period. 6-1 Panamax 1+ Capesize Galbraith's 31

32 With exception of Handysize the fleet is modern Age Profile of Exisiting Fleet 1/1/7 Age 25+ Age Age -15 Very Large Cape Large Cape Medium Cape Small Cape Kamsarmax Panamax Supramax Handymax Handysize , % 2% 4% 6% 8% 1% No. of ships Galbraith's 32

33 6% of orders are scheduled for 29-1 delivery Bulk Carrier Fleet Changes MDwt To be delivered Dwt Scrapped Ytd Dwt Delivered Ytd Dwt Net Change Dwt Future scrapping is NOT a forecast. For 28-1 the figures are indicative only. Account also has to be taken of vessels not yet ordered that will be both ordered and delivered before 212.? Galbraith's 33

34 Contracting in 27 more than total for previous 4 yrs Capesize (+8) Panamax (6-8) Handymax (4-6) Handysize (1-4) Total Bulk Carrier Contracting But But will will all all these these ships ships be be delivered delivered on on time? time? ~ Greenfield Greenfield shipyards shipyards?? ~ Shortage Shortage of of Main Main Engines Engines?? ~ Shortage Shortage of of Crews Crews?? MDwt Galbraith's 34

35 Fleet Supply ~ Summary The fleet is relatively modern and rapidly expanding scrapping has dried up because of high earnings potential The current orderbook is at record levels and is dominated by Capesize (5% of the orderbook) However some observers believe the current orderbook to be overstated and that many orders will not materialize as new ships partly this is due to uncertainty over certain greenfield shipyards Demand is so strong that some 33 single hull VLCCs are intended for conversion to bulk carriers (VLOCs) Over the past 12 months the fleet has expanded faster +6.9%, than demand: +5.4% hence rates should be falling, but this is not happening due to the sharp reduction in fleet availability caused by congestion Galbraith's 35

36 NB & Secondhand Prices have mirrored freight market Panamax BC Newbuilding & Secondhand Prices Panamax NB 75, dwt 7/73, BC 5yrs 69/72, 1yrs 69, 15yrs Demand is so strong that 5yr old, 1yr old and even 15yr old ships can obtain more than a newbuilding contract price $m Jan-2 Jan-3 Jan-4 Jan-5 Jan-6 Jan-7 Galbraith's 36

37 FFA rate ideas heading downwards. Source: Baltic Exchange $ per day 21, 2, 19, 18, 17, 16, 15, 14, 13, 12, 11, 1, 9, 8, 7, 6, 5, 4, 3, 2, 1, Dry FFAs at 7-Dec-7 174,39 79,97 147,375 Quarterly 13, ,31 11,75 13,313 7,569 66,14 6,576 55, 63,63 5,722 52,156 55,938 5,31 47,46944,563 43, 38,75 4,625 35,672 79,63 4,333 35,297 32,938 3,375 26,125 Jan-6 Jan-7 Jan-8 Jan-9 Jan-1 Cape 172k 4TC Panamax 74k 4TC Supramax 52k 5TC Handysize 28k 6TC Annual 56,31 3,569 26,469 19,5 Galbraith's 37

38 but they have always been in backwardation Source: Baltic Exchange $ per day 1, 95, 9, 85, 8, 75, 7, 65, 6, 55, 5, 45, 4, Pricing theory for forward contracts explains this by the presence of a majority of riskaverse consumers who are willing to pay a risk premium for receiving the future price differential. Panamax 7-Dec-7 79,97 7,569 66,14 6,576 55, 5,722 4,333 Panamax 74k 4TC FFA Panamax Q26 FFA Panamax Q36 FFA Panamax Q46 FFA Panamax Q17 FFA Panamax Q27 FFA Panamax Q45 35, 3, 3,569 25, 2, 15, 1, 5, Jan-6 Jan-7 Jan-8 Jan-9 Jan-1 Galbraith's 38

39 Conclusion (1) Impact of China Unprecedented event in shipping industry Effect most visible as massive increase in iron ore imports Changes in trade routes: cement and steel exports instead of imports Impact has stretched across ship values, steel prices and shipbuilding Greater volatility in rates Greater uncertainty in freight market Greater dependence on China as a generator of demand Higher dependency = higher risk than five years ago Galbraith's 39

40 Conclusion (2) on Freight Market Overall long-term demand growth ~ continuous upward trend for more than 45 years no reason why this should stop A clear excess of capacity is expected to develop by end of decade due to record expansion in fleet much faster than anticipated cargo growth However there is short-term term upward potential for freight rates at times - such as now - of tight supply/demand: especially as caused by congestion and strong sentiment Congestion is, in theory, a temporary event but with rapidly growing demand could be a feature for months or years ahead Expect more of the same in the short term: volatile markets, record freight rates, higher asset prices and supply disruption If congestion were to reduce to insignificant levels and all the ships on order were delivered on time then a tipping point will be reached where the massive orderbook will overwhelm demand growth Rates - and eventually asset prices - will then decline BUT precisely when this will occur - because of the many non- supply/demand factors mentioned above - is unknown Galbraith's 4

41 Galbraith's Ltd Bridgegate House, Borough High Street, London, SE1 1BL, UK Registered in England No: Registered Office as per London n Office above. VAT No: GB Tanker Chartering Department Crude, Products, Time charter Telephone: +44 () Fax: +44 () galtanker@galbraiths.co.uk Sale and Purchase Department Second Hand, Newbuilding, Demolition, Ship Valuations Telephone: +44 () Fax: +44 () galsale@galbraiths.co.uk Research Department Telephone: +44 () /5537 Fax: +44 () research@galbraiths.co.uk Dry Cargo Chartering Department Chinese Business, Minerals, Agriproducts Telephone: +44 () /6364 Fax: +44 () galdry@galbraiths.co.uk Disclaimer: This report has been prepared for the sole use of the recipient only and may not be further reproduced nor transmitted to any third party without the prior written permission of Galbraith s Limited (Galbraith s). The information contained in this report is compiled from sources that Galbraith s believe to be accurate and reliable at the date of this report. Nothing in this report should be construed as investment, legal, tax or accounting advice. Galbraith s makes no representations or warranties with respect to this report and disclaims all liability for any use the recipient or its advisers make of the contents of this report. Galbraith's 41