Iron Ore at a Crossroads

Transcription

1 Iron Ore at a Crossroads Q308 Dry Cargo Market Review & Outlook Prepared by Howe Robinson Research

2 A Market in Freefall... Baltic Dry Index from ,000 9,000 Index Va alue 6,000 3,000 Historic trading band 0 Back to where we started? Jan-85 Jan-90 Jan-95 Jan-00 Jan-05 Source: Baltic Exchange/Howe Robinson Research

3 Plunging Asset Prices Secondhand Prices, 5yr Old prompt delivery 160 Capesize Panamax 120 Supramax US $million 80 40? 0 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Source: Baltic Exchange

4 The Market Fall Index Va alue Baltic Dry Index from ,000 9,000 6,000 A Combination of... Unwinding of Q2 fixture activity Strained earnings ratios between sectors Reductions in Congestion India Monsoon Season Global Credit Crisis Olympics Commodity prices unwinding Expanding fleet A Traders Market 3,000 But above all IRON ORE SURPLUS 0 Jan-85 Jan-90 Jan-95 Jan-00 Jan-05 Source: Baltic Exchange/Howe Robinson Research

5 The mechanism behind the Supercycle Capesize Supply Demand Cape Util lisation Supply/D Demand c. 80% Mid 90 s% >100% (smaller vessels assist) Untested level Boom! Huge rises in rates from only small increase in S/D balance Supply Demand 1980's FH 2003 SH03 onwards

6 The Origins Capesize Fleet Development vs. Iron Ore Growth 60 Average = lion tonnes Average = elivered Exports mil No. of Vessels d Iron Ore

7 Big Ship Yard Capacity - by Vessel no. 600 Oct-08 ssels No of Ve LNG Container Tanker Bulker Larger share for Bulkers, eventually

8 Capesize Timecharter Earnings 250,000 $233, ,000 US $ per day 150, ,000 Q403, Market Triples from previous high 50,000 Historic trading band Oct Source: Baltic Exchange

9 What has gone wrong with the Cape Market?

10 Surplus of Cape Ships to Demand Cape Util lisation Supply/D Demand c. 80% Mid 90 s% >100% (smaller vessels assist) Untested level Boom! Supply Demand 1980's FH 2003 SH03 onwards Current

11 2T Types of fdemand Real & Apparent Real (Actual) Demand E.g. Reflects actual cargo volumes being shipped Apparent Demand E.g. Reflects amount of Spot Cargoes/Ships

12 Cape fixture activity it 100 Atlantic to Pacific Pacific RV Q3 vs Q2 Fall in Fixtures = Apparent Demand Rise in Cargo movement = Real Demand No. Of Fixtures reported jan-07 apr-07 jul-07 okt-07 jan-08 apr-08 jul-08 okt-08

13 4 Big 3 Iron Ore Sales FMG BHP Billiton Rio Tinto Vale Iron Ore Shortage - All production Sold New Projects arrive tipping Iron Ore into over-supply million to onnes 100 Spare Capacity 50 0

14 China Iron Ore Supplies million tonnes Iron Ore Stocks at Port Domestic Iron Ore Production Iron Ore Imports 20 Stocks build to over 70 mt at Major Ports High Value of Stocks increase bought when CIF price c. >$180 per tonne Imports increase in September to second 0 highest level (annualised basis) Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Source: Mysteel/GTIS

15 China Quarterly Steel Production (Annualised) o Slowdown in the rate of growth long before Olympics 600 o Bottleneck in Production due to lack of Met Coal? 500 o Domestic Demand at the time remained ed strong Million tonnes

16 Iron Ore Prices 250 Indian IOre Exp - CIF (63.5%) China Iron Ore - Domestic Br IOre Exp. - CIF (Fines) AUS IOre Exp. - CIF (Fines) US S$/t Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Source: UMetal, AME, Howe Robinson Research, Baltic Exchange

17 Macro economic Factors Commodity Price Falls Buyers waiting for prices to bottom out (Apparent Demand falls) Using Stockpiles (Real Demand firm) Letters of Credit Shippers & Receivers struggling to obtain trade finance If it gets worse, trade could grind to a halt. Global Growth estimates cut due to Bank bailout costs. Chinese construction to pick up after controlled slowdown?

18 Congestion falls Capesize Panamax Other Panamax Congestion fell from high of 80 to only 40 Vessels iting No of Vessels Wa Cape Congestion fell from high of 99 0 to only 46 Vessels Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08

19 Fleet Deliveries i & Orderbook 2008 YTD No of Ships dwt (m) Total Vessel Sector New Conversions New Conversions No of Ships dwt (m) Capesize Post Panamax Panamax Handymax Handysize Grand Total Vessel Sector Total Delivered Fleet to Date On Order To be Converted Total Due % of Existing i Fleet Capesize % Post Panamax % Panamax % Handymax % Handysize % Total %

20 Dry Bulk Deliveries/Orderbook i Total dw wt (m) Conversions Handy Handymax Panamax Post-Panamax Cape Delivered On Order 0

21 Dry Cargo Deletions by m tdw ytd Scrapping will return to the market in a big way, can the scrappers cope?

22 Outlook China improve, Emerging Nations to continue to grow Dry Bulk Orderbook will shrink, although unclear by how much. Resumption of Scrapping Vessels Iron Ore Market has changed and will affect Shipping Now in Surplus at a time of Steel cutbacks and declining European demand Removes key Capesize demandd What will the Miners do? Control production & protect price? Go for volume & protect market share? Near term demand looks weak in the face of record fleet supply Key mechanism to Supercycle has gone. What could take its place?

23 Commodity Booms end because of: 1. External shocks 2. Bottlenecks 3. Investment overshoot

24 THANK YOU