Global Freight & Shipping: Where are prices heading?

Transcription

1 IFCHOR Group Research Unlawful distribution of this report is prohibited Global Freight & Shipping: Where are prices heading? Capesize Dry Bulk Segment 19 th Middle East Iron Ore & Steel Conference Atlantis, The Palm, Dubai December 16, 2015 Maria Bertzeletou - Research Team Leader 1

2 Agenda Freight Market : Key Fundamentals Capesize Iron Ore Freight Rates : Overview Market Trends Risk Assessment & Market Expectations 2

3 Context November saw a new historical low in freight rates Reduced cargo volumes from Brazil & oversupply of vessels Limited period fixture activity Depressed spot freight market Slump in iron ore demand Weakening Chinese economic growth - the main driver 3

4 Seaborne Iron Ore Demand Main Drivers World Steel Demand China s Role Iron Ore Supply Capesize Iron Ore Freight Rates Trade Flows Trends Future Outlook Main Fundamentals 4

5 Seaborne Iron Ore Global Steel Demand Headwinds in Global Steel Demand : 1.7% decrease in 2015 (forecast) China s Steel Demand Decreasing India and MENA Region: New Key Players Source: World Steel Association Ifchor Group Research 5

6 Seaborne Iron Ore China s role Chinese economic shift: negative impact on seaborne iron ore demand Continuous demand for seaborne iron ore imports as the main material of steel production Spot iron ore price tumbles Source: World Steel Association, My Steel, Thomson Reuters Eikon Ifchor Group Research 6

7 High-Speed Growth Seaborne Iron Ore Supply 41% of the world s iron ore reserves located in Australia & Brazil Iron ore reserves (million tonnes) Iron ore production (million tonnes) : By 2030 three possible scenarios of world growth Latin America & Australia to still account for the largest production of iron ore 1. Competing Nations Low case Scenario: Negative impact on shipping - Regulatory fragmentation Brake on Globalization Encouraging local Production & Consumption 2. Status Quo Base case Scenario: Expectations for long term growth & increase in global challenges 3. Global Commons High case Scenario: Strong positive impact on shipping - Expectations for further economic growth Regulatory harmonization Accelerated expansion of globalization India may see the largest growth (between 3 to 5 times) over the next 20 years Source: Lloyds Register Global Marine Trends 2030 Global Drivers 7

8 Seaborne Iron Ore Trade Flows China s continuous iron ore demand dominates seaborne trade Major Trade routes : Australia to China & Brazil to China Iron ore imports (million tonnes) : By 2030 three possible scenarios of world growth China s absolute dominance in iron ore import will remain intact 1. Competing Nations Low case Scenario: Negative impact on shipping - Regulatory fragmentation Brake on Globalization Encouraging local Production & Consumption 2. Status Quo Base case Scenario: Expectations for long term growth & increase in global challenges 3. Global Commons High case Scenario: Strong positive impact on shipping - Expectations for further economic growth Regulatory harmonization Accelerated expansion of globalization Source: GTA Data, Lloyds Register Global Marine Trends 2030 Global Drivers 8

9 Seaborne Iron Ore Demand Main Drivers Capesize Iron Ore Freight Rates Seasonal Charts Trading Routes Fixture Volume Trends Future Outlook Main Fundamentals Fleet Utilization 9

10 Capesize Baltic Dry Index Seasonality Baltic Dry Index hits 30 year low 2013 BDI High Value: 1206 points 2013 Capesize Index: 2110 points Capesize 4TC & 5TC Averages below $10k/day Source: Baltic Exchange Ifchor Group Research 10

11 Capesize Trading Routes Longer voyages influence positively the freight market Brazil to China vs Australia to China Iron Ore Trade Routes Source Destination Distance Brazil China nautical miles Source Destination Distance Australia China nautical miles Difference 317% Negative impact on the freight market due to the reduction of Brazilian iron ore Iron ore market share to total trade Brazil 34% % 2015 Iron ore market share to total trade Australia 35% % 2015 Major Iron Ore Trades Australia China Australia Japan Brazil China Brazil Western Europe Source: J.P. Morgan Estimates, Portworld 11

12 Capesize Iron Ore Freight Market Freight costs to China at a 5 year low South Brazil to North Europe South Brazil to China West Australia to China S. Africa to China (trial route) Source: Baltic Exchange Ifchor Group Research 12

13 Capesize Spot Fixture Volume Freight Market Recession: surge of iron ore shipments at low freight rates Overall Spot Iron Ore Fixtures Cargo Size: ,000 Metric Tons Cargo Size: ,000 Metric Tons Cargo Size: ,000 Metric Tons Source: Thomson Reuters Eikon Ifchor Group Research 13

14 Capesize Fleet Utilization Fleet Utilization below 80% ~ Lay Up activity increasing Port Congestion at Major Iron Ore Loading Ports South Brazil : Tubarao Anchorage Area West Australia: Port Hedland Anchorage Area Source: Thomson Reuters Eikon Ifchor Group Research 14

15 Seaborne Iron Ore Demand Main Drivers Capesize Iron Ore Freight Rates Trends Future Outlook Main Fundamentals Fleet Growth Forward Freight Curve Vessel Speed Bunker Prices Risk Assessment 15

16 Trends Future Outlook Fleet Growth A rebalancing of oversupply from 2017 onwards New record of expected ship deliveries in 2016 Delivered Ships Small Capesize: k Dwt, Large Capesize: k Dwt, Newcastle Max: >200k Dwt Source: IHS Maritime Seaweb Ship Register, Baltic Exchange Ifchor Group Research 16

17 Trends Future Outlook Bunker Prices ~ Vessel Speed Lower Bunker Prices: increase the ability of the fleet to speed up Depressed Freight Market : decreases the average vessel speed Source: Thomson Reuters Eikon, Baltic Exchange Ifchor Group Research 17

18 Trends Future Outlook Steel Demand The Shipping World in 2030 : Rise of Emerging Countries ASEAN Urbanization Underpins Steel Consumption and Iron Ore Demand 1. Competing Nations Low case Scenario: Negative impact on shipping - Regulatory fragmentation Brake on Globalization Encouraging local Production & Consumption 2. Status Quo Base case Scenario: Expectations for long term growth & increase in global challenges 3. Global Commons High case Scenario: Strong positive impact on shipping - Expectations for further economic growth Regulatory harmonization Accelerated expansion of globalization Steel Consumption (million tonnes) Three possible scenarios of growth 180% Growth 150% Growth 118% Growth Low case scenario - 1 Base case scenario - 2 High case scenario Source: Lloyds Register Global Marine Trends 2030 Global Drivers 18

19 Trends Future Outlook Risk Assessment Expected slow recovery in the Capesize market with higher potential for rebound from 2017 Average Rate for the next 5 years: below $10k / Day Scenarios of Freight Rates Evolution: 2030 Most likely the freight rate recovery in the Capesize market will be slow in the coming years However, the probability of strong rebound scenarios increases substantially starting from 2017 with large gains more likely than large losses In 2020: 30% probability of seeing freight rates between and USD/Day The chart shows probabilistic freight rate scenario analysis based on Monte Carlo simulation methods. The shaded areas show the range in which freight rates are expected to evolve over time given a certain probability. For instance, the dark blue shaded area, which is associated with 40% probability, tell us that there is 40% probability of observing freight rates inside that area (therefore, 60% probability of observing prices outside that area). The simulation is in real-terms, i.e. we do not make any assumption about future inflation. 10% probability of seeing freight rates between and USD/Day for Metal Bulletin Events Source: Baltic Exchange Ifchor Group Research 19

20 Executive Summary Seaborne Iron Ore Demand Iron Ore Freight Rates Future Outlook Steel Demand : Consumption Capesize Dry Bulk Segment Fleet Growth Short-term Forecast decreasing Long-term : Main Driver ASEAN Urbanization Expected strong growth in India Serious concern about China s economic shift to service related industries (structural change) 5 Year Low : Surge of Fixtures Downward pressure: Fleet Utilization : below 80% Brazilian iron ore exports shrinking Nov. 2015: Germano mine disaster Rebalancing of oversupply from 2017 The potential of oversupply to persist longer than expected Young fleet age profile to prolong recovery Vessel s speed impacts fleet utilization Lower bunker prices ability to artificially increase fleet capacity 20

21 IFCHOR Group Research team: LAUSANNE Filippo Parodi Giunti LAUSANNE Jacopo Piana (Advisor) ATHENS Maria Bertzeletou For any further inquiry about this presentation and/or other research services, please contact us at: Panamax Capes Handy/Supra Projects/S&P LEGAL DISCLAIMER: The information contained in this report has been obtained from diverse sources. Ifchor S.A. considers such information to be reliable but Ifchor S.A. does not guarantee its accuracy or completeness. Whilst every care has been taken in the production of the report no liability can be accepted for any loss or damage incurred in any way whatsoever. This report has been produced for the internal use of the intended recipients only and no reproduction is allowed prior the authorization of Ifchor S.A. IFCHOR Group: Lausanne Athens Singapore Hong Kong Genoa Monaco New York