Exports Coal Ocean Freights

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1 Exports Coal Ocean Freights Pittsburgh Sept 2014 Presented by: Philip Syrrist Director of Ocean Transportation

2 ICAP Plc. The world s largest voice & interdealer broker Our offices a non-franchised truly global operation Revenue by asset class Market Coverage London New York Singapore Hong Kong Rio de Janeiro Sydney Interest Rates Credit Commodities Foreign Exchange Equities Shipping Rates FX Commodities Emerging markets Credit Equities 1741m 40% 18% 12% 11% 11% 8% 1681m 39% 20% 12% 10% 9% 8%

3 ICAP Shipping Over one century of shipbroking expertise Our offices a non-franchised truly global operation ICAP Shipping shares its roots in the proud history of over a century of tanker and dry cargo shipbroking. 5,000 6,000 fixtures per annum Following a successful JV in freight derivatives with J.E. Hyde, ICAP went on to secure their physical shipbroking business acquiring the company in Tanker market presence was significantly enhanced by the integration of Capital Shipbrokers in As Baltic Exchange Panel brokers in the dry and tanker sectors with over 250 staff worldwide. London USA Germany Singapore Gibraltar China India Dubai Denmark Switzerland DRY CHARTERING TANKER CHARTERING TC/PROJECT SANDP DRY FFA TANKER FFA CONTAINER FFA IRON ORE DERIVATIVES OFFSHORE RESEARCH

4 How do we calculate freight rates? IFO? $/day? Knots?

5 Volatile dry freight market BDI Index

6 Capesize TC Avg. on 15 th Sep 2014

7 Capesize voyage estimate

8 US exports freight rates compared Pmx China 16 India 20 Cape China 12 India 16 Robert Bank Norfolk Pmx China 39 India 35 Miss River Pmx China 35 India 30 Cape China 36 India 32 Puerto Bolivar Pmx China 35 India 29 Cape China 30 India 27 Pmx China 15 India 17 Cape China 15 India 16 Newcastle

9 Slow speed IFO380 prices in $/t

10 The Valemax Ore Pantal Capesize 179,000DWT 957ft LOA 150ft beam 59ft draft Ore Fabrica Converted VLCC 284,000DWT Vale Brasil Valemax 400,000DWT 1200ft LOA 210ft beam 75ft draft

11 Vessel Performance data Vessel Speed & Consumption Gallons of fuel per day Cost per day Panamax 14 knots 42 mt 12 knots 32 mt 10,000 = $20,000 Capesize 14 knots 55 mt 12 knots 43 mt 13,000 = $27,000 Valemax 14 knots Too much 12 knots 95 mt 30,000 = $60,000 Based upon $620/mt fuel oil and about 308 gallons of fuel per ton For a Brazil to China round voyage being around 22,000 miles It means 64 days round-voyage steaming time at 14 knots Or up to 76 days round-voyage steaming time at 12 knots

12 The recovery of the dry freight market The market S&D balance with slow steaming taken into account BDI (rhs) supply index (design speed) supply (slow steaming adjusted) demand index 12,000 10, , , , , Thanks to slow steaming, the bottom of dry freight market has passed, although Increases in vessel speeds will eventually provide extra carrying capacity to the market.

13 Panama Canal expansion USA 64Mt USA 30Mt USA 55Mt USA 18Mt Colombia 43Mt The new canal will be able to accommodate up to 190k dwt at 74% cargo on board and 120k dwt at 98% cargo on board. This means that the new Panamax design is the 120k dwt ship. There are only 3 major trade flows going East which can theoretically take advantage of the larger/wider Panama Canal and reduce the sailing time significantly, namely: USG grain USG coal (met and thermal) Colombian coal (met and thermal) Grain trade is not likely to benefit because of the stem restrictions at both loading and discharging ports. Coal export from USG to Far East is very much restricted due to draft issues at loading ports and very high post costs. Coal exports out of Colombia are more likely to grow but the EU market will always be more profitable for them. Colombia proved to be marginal supplier of coal for the Asian market and this will most likely remain the case. This of course depends very much on the overall demand for commodities and their PRICING. No matter how large Panama Canal is, the Australian and Indonesian coal will be always cheaper and more conveniently delivered than USA/Colombian coal (kcal value adjusted). Coal Grain Colombia 6Mt The map on the left shows the approximate annual trade volume for grain and coal going East and West from the area last year. By far the biggest trade flow is the grain from USG (64mln t). It is impossible to quantify on this stage the impact which the canal expansion will have on these trade flows but if we follow the above line of thought, it will be minimal.

14 Worst is over - net additions now set to decline Net dry fleet growth per year in DWT Mln Dwt 260 Mln dwt net increase in 4 years Almost 220 Mln dwt net increase in 20 years Source: ICAP Shipping

15 Ultramax summary (60K 70K DWT) Ultramax annual delivery and Orderbook Yard countries (current orders) Others 1% Order numbers to be delivered Numbers of delivery Japan 23% China 76% Ultramax fleet has started to grow since Although the percentage of this design in the current Supramax fleet is very low (around 6%), the orders of this design has taken more than 80% of the Supramax orderbook. Almost all the Ultramax vessels will be built by Chinese and Japanese yards. Ultramax will become the most liquid design in the Supramax asset market.. All rights reserved.

16 Current dry fleet statistics

17 Dry bulk seaborne demand growth Top minor bulk growth Total demand growth Bn tonnes Bn tonnes petcoke cement salt fertilizers wood/pulp&paper sugar alumina bauxite 4 3 Other Scrap Steel Grain Coal Iron ore 0.4 scrap steel coke

18 The Reality is.. The dry dulk shipping industry must stop living its 'Fairytale'and realise trade volumes cannot be sustained on basis of raw material supply alone. It looks like the dry bulk shipping industry is trying to dig its next grave before it has even climbed out of the one it is in now. The danger is that charterers have been telling shipowners a fairytale - a story of raw material supply that is not supported by steel product demand. Some may take exception to the word "fairytale. Iron ore and coal is after all a hard fact. The number of ships needed to carry it is something a pocket calculator can tell you. Australia plans to export more iron ore this year than any nation ever. In Brazil whose volume figures count triple or quadruple in terms of tonne-miles,the miners will raise annual volume by 12.4 million tonnes next year and so the world' s most fabulously overtonnaged company, Brazilian mining giant Vale with its 35-strong fleet of 400,000-dwt ships(that s 14 Million tons of ships capacity) makes a joint venture with Chinas Cosco or in fact the government of China. "With the increase in export volume, we will need to hire more ships or buy them, whatever is more efficient from a financial point of view, says Vale' s Jose Carlos Martins at a Rio De Janeiro press conference. BUT WHAT ABOUT THE STEEL???? For decades, infrastructure development in China has driven global steel-demand growth. But now there are also miles of built and half-built high-rises standing empty in any large Chinese city. China will need structural steel and rebar forever, maybe but the years of expanding rapidly in order to build itself into the modern era will end. The truth is trade volumes cannot be sustained on the basis of raw material supply alone. THE SHIPPING AND FREIGHT MARKET WILL BE LOW FOR YEARS TO COME!. All rights reserved.

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