Dry Cargo Market Review & Outlook. Prepared by Howe Robinson Research

Transcription

1 DON T BUILD THE SHIPS Dry Cargo Market Review & Outlook Prepared by Howe Robinson Research

2 Current Dry Bulk Deliveries/Orderbook i /Od On Order Total dw wt (m) On Order Delivered Dry Bulk Market collapse even before the full impact of the overblown orderbook Delivered 25

3 Bullish Demand (relatively) DON T BUILD + = THE SHIPS Bearish Supply

4 How the Mighty have fallen Baltic Dry Index from , Index Va alue 9 9, 6, 5 yr Supercycle 3, Historic trading band Due to the Jan-85 Jan-9 Jan-95 Jan- Jan-5 Credit Crisis? Source: Baltic Exchange/Howe Robinson Research

5 The Background: Why did the Supercycle occur...?...failure to build the right type of ships (Capesize) to carry the increase in Chinese demand (iron ore)

6 A Model of Freight Market Behaviour Slump Zone Market Balance Zone Boom Zone $/Day No Ceiling Fully Built Up Costs Market Floor Earnings Curve Source: MSI Min. Op. Costs Employment Change has: No Impact on Huge Impact Earnings on Earnings Here Here 75% 8% 85% 9% 95% 1% Fleet Employment Rate

7 Death of the Super-cycle: Why did the market collapse so severely? Huge Cargo cuts as Steel Demand slows & Iron Ore Supply moves into surplus s after 5 years

8 The Collapse - A Three Stage process TC Rates 28 to present US $ per da ay 25, 2, 15, 1, Cape Panamax Supermax Handysize Unwinding of Q28 upward pressure Iron Ore Supply moves into Surplus China stop buying 5, Jan-8 Apr-8 Jul-8 Oct-8 Jan-9 Apr-9 Source: Baltic Exchange/Howe Robinson Research

9 Idle Tonnage builds as rates fall 12 1 Idle Capesize v.s. TC Avg BCI Idle Capesize TC Avg BCI 45, 8 3, No o. of Vesse els , Index Valu ue 2 Oct-8 Nov-8 Dec-8 Jan-9 Feb-9 Mar-9 Apr-9 Source: Howe Robinson Research

10 The Collapse - A Three Stage process TC Rates 28 to present US $ per da ay 25, 2, 15, 1, Cape Panamax Supermax Handysize Unwinding of Q28 upward pressure Iron Ore Supply moves into Surplus China stop buying Banking Crisis hits when Freight market is already on the ropes 5, Q4 affected by severe production cuts & credit problems Jan-8 Apr-8 Jul-8 Oct-8 Jan-9 Apr-9 Source: Baltic Exchange/Howe Robinson Research Dead Cat Bounce?

11 China Quarterly Steel Production (Annualised) Million to onnes 6 Steel Production growth slows long before Olympics Concern of 5 oversupply in Iron Ore appearing in SH Q19 recovery after extreme falls in Q48 Support in 29 could be development of inland China, rather than coastal areas

12 CIF Brazilian Ore in China $ per ton nne $18 Total cost in China has already fallen by c.5%, before any FOB reductions Imports Cheaper than a lot of Domestic Production $18 Freight FOB 5 $8 $8 $8 $16 Pre-23 Jun-8 29 YTD Av

13 How much Domestic Ore could be cut out if the price falls? 16 8 Pr rice $ per ton nne China Iron Ore Production Indian Ore Price 6 Brazil Contract CIF Aus Contract CIF Dome estic Product tion mt Large falls in FOB prices 2 could lead to increased imports, and reduced domestic production 1 of low quality/high cost ore

14 Major Capesize Iron Ore Supply Quarterly Big 4 Iron Ore Sales 2 15 Current Sales Capacity Iron Ore Shortage - All production Sold -46 mt Spare Capacity Million ton nnes 1 FMG 5 BHP Billiton Rio Tinto Vale New Projects arrive tipping Iron Ore into over-supply c.6mt per quarter Q4 9 Q3 9 Q2 9 Q1 9 Q4 8 Q3 8 Q2 8 Q1 8 Q4 7 Q3 7 Q2 7 Q1 7 Q4 6 Q3 6 Q2 6 Q1 6 Q4 5 Q3 5 Q2 5 Q1 5 Q4 4 Q3 4 Q2 4 Q1 4 Q4 3 Q3 3

15 n tonnes millio China gains offset by EU/Japan falls Brazilian Iron Ore Exports China Europe Japan AG/Middle East South Korea Little Transatlantic activity leading to more ballasters from FEAST China Watch out for when Europe/Japan import levels recover Europe Jul-6 Jan-7 Jul-7 Jan-8 Jul-8 Jan-9 Source: LBH

16 Ultra Mega Ambitions India Coal Imports 212 Mundra - Tata Power due 211 Maharashtra Yet to be bid Karnataka Yet to be bid. Proposed port near Tadri Imported Coal Sasan Reliance. 1 st Phase Dec-11 Akaltara Yet to be bid Orissa Yet to be bid Jharkhand Reliance tbc Andhra Pradesh Reliance 1 st phase full by 215, using Ki Krishnapatnam Port, coal from Indonesia Tamil Nadu Yet to be bid. Cheyyur site Coal to be sourced domestically 1. Currently between 9-12 Ultra Mega Power Projects, each 4, MW, under proposal 2. Start-ups originally planned during 11 th plan period, though willruninto12 into th plan period (after 212) will require coal imports (12-15 mtpa), whilst 4 will use coal sourced from domestic mines. 4. A chain of Coastal power plants adding up to 1, MW based on imported or blended d coal is being proposed.

17 Current Dry Bulk Deliveries/Orderbook i /Od 1 Estimated Deadweight Cargo carrying capacity c. 75 mt Total dw wt (m) 75 5 On Order Delivered Delivered c. 514 mt c. 529 mt c. 262 mt 25

18 Dry Bulk Od Orderbook Bulker Delivery Yr Values Vessels_Sector Grand Total No. of Vessels Capesize Post-Panamax Panamax Handymax Handysize Total Dwt Capesize Post-Panamax Panamax Handymax Handysize Total No. of Vessels 83 1, ,188 Total Total Dwt N.B. Excludes reported Cancellations; includes at risk

19 The Concern Cape Earnings vs Vessel Deliveries US $ pe er day Cape Deliveries Cape TC Earnings 6 May Opex Cost No of Ve essels FFA Curve optimistic? Has the oversupply problem been resolved?

20 S&P Market Price Structure Panamax Bulk Carrier (198-28) 8 7 Super-Bust: Super-Boom: Market ceiling breached 6 $ million Secondhand Prices fall to modest premium above scrap value Contracting Price 5 Yr Old Price 1 Yr Old Price 15 Yr Old Price 2 Yr Old Price Scrap Price

21 Panamax Market Value Cumulative Cash Flows & IRR - Assumption: Panamax Newbuild contracted 1981 $31m, del 1982, hypothetically sold each Year until 25 th Anniversary 3, 3% US$ ' 2, 1, IRR becomes eventually becomes positive c. 22 years after initial investment IRR 2% 1% % 1, Cumulative Cash Flows 1% 2, 2% 3, 3%

22 Q19 Deliveries i - Glass half full/empty? Delivery Type Values Vessels_Sector Conversion to Bulk Newbuild Grand Total No. of Vessels Capesize Post-Panamax P Panamax Handymax Handysize Total Dwt Capesize 2,73,154 2,475,746 5,25,9 Post-Panamax 97, ,1 61,212 Panamax 138,168 1,292,34 1,43,472 Handymax 54,747 2,496, ,551,433 Handysize 79,86 862, ,57 Total No. of Vessels Total Total Dwt 3,1,41 7,64,483 1,74,524

23 Cancellations, Finance problems etc to the rescue? 3 (m) Total dwt Some Yards at Risk maybe backed by Governments to keep Order commitments. Still a long way to go. Much talk, not enough evidence...yet Error Confirmed Reported At Risk Remainder Cancellations Cancellations Orderbook

24 Dry Bulk Fleet Age Profile by dwt Capesize NPP Panamax Handymax Handysize m dwt over 2yrs old 76m dwt over 25yrs million dw wt >=35 Age group in Yrs

25 Dry Cargo Deletions by m tdw 5 4 Volume of deletions required to keep net fleet growth at 28 levels (+6.4%) M dw wt 3 2 Strong Scrapping activity YTD but too focused on smaller ships

26 Scrapping activity it since Strong Scrapping activity 149 YTD but too focused on 12 smaller ships No. Of Vessels Total dwt (m) 2 3,4,2 2,8 1, 4,2

27 Conclusion Positive Demand picture can legitimately t l be painted. But not THAT good Current Orderbook far outweighs future Demand expectations Don t get carried away with near term Spot volatility Continued near-term volatility although rates trending towards pre-23 levels Keep the Focus on reducing/deferring the Orderbook

28 GRAZIE