Information IHS MARITIME Analytics & TRADE Expertise FEBRUARY 216 IHS REVIEWS CONTRASTING 216 MARKETS: DRY BULK & DIRTY TANKER Dalibor Gogic, Principal Analyst +44 23 253 2388 Dalibor.Gogic@ihs.com
Global economy observations commodity demand slowdown FEBRUARY 216 Stronger economic growth for some developed economies like USA, not strong enough? China GDP slow down and economic restructuring possibility low commodity demand going for years. Emerging Market economies growth is slowing down. Source: IHS Low commodity prices benefit Commodity importing nations. Commodity exporting nations expected to rebalance their economy. Shift in Purchasing Power: Energy producers to consumers = $.9 - $1.4 trillion est. 2
Oil price fall stands-out - but is not alone FEBRUARY 216 3
FEBRUARY 216 Newbuilding market observations Capacity in GT delivered Delivered in 215 so far this year Capacity in GT on order - January Total 216 on order LPG 3% LNG 4% Rest 12% Container ships 24% Bulker 41% LPG 3% LNG 8% Rest 15% Container ships 19% Bulker 3% Crude oil Tanker 19% Product Tanker 7% Crude oil Tanker 9% Product Tanker 6% Higher number of deliveries in dry bulk sector downward push on freight rates. Lower deliveries in tanker market upward push on freight rates. Low bunker prices having mainly positive effect Orders/deliveries are switching towards tanker shipping, mainly based on recent/current sentiment. Conversions from Dry bulk carriers First orders for 2,teu + boxships placed this year Continued investment in more efficient, but slower, ships 4
FEBRUARY 216 Crude oil tankers fleet drivers - Crude oil trade Total world liquids* supply and demand Million bbls/day 12 1 8 6 4 2 Healthy demand and continuation of oversupply Global supply/demand balance MMb/d 97 96 95 94 93 92 12 1 8 6 4 2 Cumulative stock (MMbbl) Source: IHS Energy Demand Supply *includes crude, condensate and NGLs 215 was characterized by stockpiling of crude Refinery higher utilization rates; higher demand for products. European refineries rationalization; USA refineries utilization of domestic crude. US relaxing exporting rules are expected to have some effect at later stage dependant on oil price recovery 91 Source: IHS 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 Cumulative stock change (right axis) Global supply Global demand Iranian exports are expected to increase by.5 million bbl/day by end 216. Possibility of Libyan crude coming back to the market USA crude oil production is expected to drop towards middle of the year US exports opening possibility for more imports to USA 5
FEBRUARY 216 Crude oil tankers fleet Crude oil tanker fleet capacitychart Title 4 12,% Crude oil tankers fleet age structure Chart Title - Jan 216 12% 35 3 25 1,% 8,% 1% 8% Million tonnes 2 15 1 5 6,% 4,% 2,%,% 6% 4% 2% % VLCC Suezmax Aframax Fleet net growth % growth to 5 5 to 1 1 to 15 15 + Low deliveries in previous year and modest addition in 215 sustained high freight rates amid positive trading conditions. 216 and 217 are expected the show higher growth due to strong market conditions in last year and stronger orderbook. Orderbook for current year is about 9% of current capacity Fleet growth is expected to be between 6 and 7% for current year 217 fleet growth is expected to see higher growth There is some room for demolitions and removal of less efficient fleets. 6
FEBRUARY 216 Crude oil tankers market Summary Crude oil market volatility. Possibility of OPEC cutting production resilience of US producers. China slow-down Stronger deliveries in 216 onwards - are we heading towards another cycle? Crude oil demand is expected to remain healthy. Refineries high utilization rates set to continue. Tanker owners seem more cautious general sentiment in shipping low More oil to the market lifting of Iranian sanctions. Contango widening spread incentive for floating storage 7
FEBRUARY 216 Dry bulk carriers - Iron Ore trade China iron ore imports China steel and iron exports exports 1.2 12 1. 1 Million tonnes 8 6 4 Million tonnes 8 6 4 2 2 World Australia Brazil exports Even at current Iron ore price, Big 3 producers still having significant profit, rough cost of production 25$/tonne. Significant oversupply in the market. Chinese Iron ore suppliers resilient. Australia and Brazil exports to China grew slightly but not to the level of expected growth. Iron ore price is expected to remain weak for the rest of the year and 216 detrimental effect on some new projects. Chinese construction slowdown Chinese steel exports expected to slowdown antidumping. As a consequence Chinese imports are expected to slowdown further 8
FEBRUARY 216 Dry bulk carriers drivers Coal trade China coal imports India coal imports 3 25 25 2 Million tonnes 2 15 1 Million tonnes 15 1 5 5 Total Indonesia Australia Total Indonesia Australia India is rapidly became major importing area. This was not enough to offset Chinese slowdown Steam coal had disappointing year in 215, and expected to shrink at slower pace in 216 Seaborne imports are expected to remain under pressure in China, particularly steam coal. Steam coal imports under pressure also in India Coal imports slowdown not as bad as 215 Cheap freight rates may intensify Canada and US exports. 9
Dry bulk carriers fleet FEBRUARY 216 Bulk carrier fleet capacity Chart Title Bulk carrier fleet age structure Chart Title 8 16,% 12% 7 6 14,% 12,% 1% 5 1,% 8% Million tonnes 4 3 2 8,% 6,% 4,% 6% 4% 1 2,%,% 2% % Capesize Panamax Supramax Fleet net growth % growth to 5 5 to 1 1 to 15 15 + Around 3 million dwt removed from the market in 215. Total orderbook currently stands at about 16% of fleet size. 83 million dwt scheduled orderbook in total for 216. Deliveries expected to be delayed and pushed back as market distress continues. So far in 216 almost 7 million dwt removed and 1 million dwt delivered. Demolitions expected to reach 3 million or more this year which should bring some relief to the market. Fleets relatively young - This may push demolition age down and shorten economic life of ships. 1
FEBRUARY 216 Dry bulk 216 outlook too far from balance Fleet growth is still to remain very high Demand for Iron ore and Coal in China is lowering steel production consolidation Indian steam coal imports expected to remain weak Market still oversupplied, possibly years ahead of low commodity prices/demand. Low bunker prices are expected to remain for 216 slow crude oil price recovery. Indian coal imports are partially living up to expectations. Deliveries are being delayed and postponed. High demolition activity Possible intensification of lay ups 11
FEBRUARY 216 SUMMARY Dry Bulk market is expected to see very slow and painful recovery based on unfavourable trading conditions and large orderbook. Crude Oil tankers and Products tanker markets are expected to continue seeing strong returns throughout 216 in general, based on high refinery utilization rates, higher demand for products and chemicals based on low crude oil price scenario and stalemate between OPEC and US producers. 12