Market Outlook Dry Bulk Commodities Dry Bulk Shipping Steel products Coking coal Crude steel production Global economic growth Outlook dry bulk China Trends and forecasts Iron ore International dry bulk trade Iron ore resources Economic indicators Casper Burgering Senior Sector Economist ABN AMRO Group Economics Sector Research 23 rd February 21, Greek Shipping Forum, Athens
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Global crude steel production Crude steel production decreased -8.2% in 29 y.o.y. On average, crude steel production has grown 4.5%/y (period 19-29) 1.4 19-1945: +5.3% /y 1946-1975: +4.2% /y 1976-1996: +3.3% /y 1997-28: +5.% /y 1.2 23: Golf War 2 1. 8 Beginning of Modern Steel Industry: 185 Early 198s recession Asian Financial crisis 1997 Mt 6 4 2 28 Mt World War I Great Depression 1929 World War II Oil crisis 1973 Oil crisis 1979 Cold War Era (1946-199) 1989: fall Berlin wall 199: Golf War 1 21: IOC announcement 185 187 189 192 196 191 1914 1918 1922 1926 193 1934 1938 1942 1946 195 1954 1958 1962 1966 197 1974 1978 1982 1986 199 1994 1998 22 26 21 3 Sources: IISI, ABN AMRO
Ferrous industry value chain Nearly all steel industry related materials are relevant for the shipping industry by road, rail & water by road, rail & water by road, rail & water Transport Transport Transport Raw materials Crude steel industry Finished steel End customers coking coal flat steel pipes automotive iron ore long steel tubes construction scrap HRC/CRC wire rod engineering 5% Semi finished products Metal traders and steel service centers billets bloom slabs 4 Source: ABN AMRO
Worldwide dry bulk trade 5% of total dry bulk trade is ferrous industry related (coal, steel, iron ore, scrap) 21% of total dry bulk trade is agri business related (grains, sugar, forest products) Steel Scrap products 8% 3% Pig iron 1% Coke 1% Iron ore 3% Other products 17% Phosphate 1% Bauxite 2% Grains 1% Therm al coal 2% Coking coal 7% Source: Clarkson Research Services 5
Dry bulk trade 2-21 Growth in all dry bulk commodities, especially in steel raw materials 24 Growth 2-29: 22 1. iron ore: +12.5% 2. steam coal: +71.3% 2 3. coking coal: +2.1% 4. grains: +18.3% 18 5. bauxite: +3.6% Iron ore Steam coal index (2 21=1) 16 14 12 1 8 Coking coal Minor bulks Bauxite and phosphate Grains 2 21 22 23 24 25 26 27 28 29 21e Source: Clarkson Research Services 6
Iron ore major players Production China very high, but Fe content extremely poor Fe content 56% Major importers: 1) China 2) Japan 2 3) S. Korea + Germany Major exporters: 1) Brazil 2) Australia Fe content 65% 3) India 3) Japan 1 Major consumers: 1) China 2) Russia 3 Fe content 33% Sources: USGS, ABARE, AME 7
Baltic dry and iron ore price Higher iron ore demand from China and increasing BDI 14. 25 CORRELATION =.86 12. 2 1. 8. 15 6. 1 USD 4. 5 2 2. 12/16/25 12/15/26 12/14/27 12/12/28 12/11/29 USD/M Mt BALTIC Dry Iron Ore Spot price (China) Source: Thomson Financial Datastream 8
International iron ore trade China iron ore imports keep rising, at the cost of domestic production 7 6 5 4 3 2 1 Mt 27-1 27-3 27-5 27-7 27-9 27-11 28-1 28-3 28-5 28-7 28-9 28-11 29-1 29-3 29-5 29-7 29-9 29-11 China iron ore imports Australia iron ore exports Brazil iron ore exports 9 Source: Clarkson Research Services
Coking coal major players China has abundant resources of coking coal, but also many mine accidents 3 1 Major importers: 1) Japan 2) South Korea 3) India Major exporters: Major consumers: 1) Australia 1) China 2) Indonesia 2) Japan 3) United States 3) India + Russia 2 1 Sources: USGS, ABARE, AME, IEA
International coal trade China domestic coal of poor quality, difficult to mine and many small companies 1.68 1.48 1.28 1.8 Importvolumes China: - 28-12: 2.8 Mt - 29-12: 16.4 Mt - equals: +485.7% 88 68 48 28 8 22-1 22-4 22-7 22-1 23-1 23-4 23-7 23-1 24-1 24-4 24-7 24-1 25-1 25-4 25-7 25-1 26-1 26-4 26-7 26-1 27-1 27-4 27-7 27-1 28-1 28-4 28-7 28-1 29-1 29-4 29-7 29-1 21-1 Coal exports-usa Coal exports-australia China importvolume 11 Source: Clarkson Research Services
International steel trade Extra-regional: China was biggest exporter of steel in 26, 27 and 28; in 29 Chinese steel exports dropped strongly (position 6) 14 12 1 8 6 4 2 1992-1 1993-1 1994-1 1995-1 1996-1 1997-1 1998-1 1999-1 2-1 21-1 22-1 23-1 24-1 25-1 26-1 27-1 28-1 29-1 Chinese steel production EU-12 steel production World steel production World steel exporters Jan-Sep (29 in Mt) index (2 =1) 17 16 15 14 13 12 11 1 9 8 2-1 21-1 22-1 23-1 24-1 Steel Trade Weighted Index 29 %-change 28 29 %-change 28 1. Japan 22.8-22.% 1. China 17.1 4.% 2. EU 27 21.7-17.% 2. EU 27 15.4-51.% 3. Russia 2. -11.% 3. S. Korea 13.7-41.% 4. Ukraine 17.6-24.% 4. USA 1.4-52.% 5. S. Korea 14.3-6.% 5. Turkey 7.4-33.% 25-1 26-1 27-1 World steel importers Jan-Sep (29 in Mt) 28-1 29-1 21-1 12 Sources: IISI, ISSB, Clarkson Research Services
So, the question is What about China? 13
China s economic indicators 14 12 1 8 6 4 2 8 6 4 2-2 -4-6 14.2 3.8 y.o.y. %-change CHINA: GDP 13. 1987 1988 1989 199 1991 1992 1993 1994 1995 1996 1997 1998 1999 2 21 22 23 24 25 26 27 28 29 CHINA: IMPORT & EXPORT y.o.y. %-change 98 99 1 2 3 4 5 6 7 8 9 Export Import 8.6 CHINA: INFLATION 1 8 6 4 2-2 y.o.y. %-change -4 23 24 25 26 27 28 29 25 2 15 1 5 CHINA: INDUSTRIAL PRODUCTION y.o.y. %-change 23 24 25 26 27 28 29 14 Source: Bloomberg
Investments in China Property construction and investments are likely to remain strong in 21, judging from newly started projects in recent months 12 Investments t in construction, ti 1 y.o.y. % change 8 6 4 2-2 -4-6 1/1/24 1/1/25 1/1/26 1/1/27 1/1/28 1/1/29 15 Source: NBS, Bloomberg
What does ABN AMRO expect? The road ahead views ABN AMRO until 211 16
Our view on Global Economy Recovery global economy continues, with China leading the way forward - in our base case, inflation remains moderate, on condition that prices for e.g. dry bulk commodities, property and oil do not increase strongly on the medium term 6 15 5 4 3 26 27 28 29 21 VS ISM China PMI Eurozone PMI y.o.y. %-ch hange 1 5-5 1987 1988 1989 199 1991 1992 1993 1994 1995 1996 1997 1998 1999 2 21 22 23 24 25 26 27 28 29 1e 11e 2 2 US GDP World GDP Eurozone GDP China GDP GDP Growth (% y.o.y.) Inflation (CPI, % y.o.y. avg) 29 21 211 29 21 211 US -2.4% 3.4% 2.3% -.3% 1.9% 1.9% China 8.6% 9.4% 9.9% -.7% 3.% 3.4% EU -3.8% 1.7% 1.5%.3% 1.2% 1.6% World -.7% 4.% 4.% 2.3% 3.4%.8% Sources: Thomson Financial Datastream, Bloomberg, ABN AMRO (forecasts) 17
Our view on China There are some signs of trouble ahead: e.g. new bubbles (e.g. real estate, stock market) and overheating Chinese economy - however, China is still a developing country and it is far from done growingg steel co onsumption n per capita a (kg) 1.3 1.2 1.1 1. 9 8 7 6 5 4 3 2 1 Ukraine India China Russia Brazil South Korea Italy France Taiwan Japan Germany Canada UK US Netherlands 1. 2. 3. 4. 5. GDP per capita (USD) 18 Sources: Worldbank, IISI, ABN AMRO
Our view on Dry bulk Long term iron ore contracts end in April 21: - because of high demand, iron ore benchmark price may increase again, - however, higher contract price iron ore means less (Chinese) demand, which could be some bad news news for capesizers and panamaxen. Long term coking coal contracts t have yet to start: - expectations on hefty price increase are mounting. Market conditions for shipping should improve: - robust global and Chinese economic growth in 21/ 11 - higher demand for steel (and metal) scrap, - ongoing urbanization emerging markets, - recovery real estate markets worldwide, - strong growth expected in Chinese auto market, - crude steel utilization ratio still at low levels. 19 Sources: Clarkson Research Service, CRU, ABN AMRO
End of presentation ti For question and further information, please contact: t Casper Burgering Senior sector economist Metals & Mining ABN AMRO Group Economics Sector Research tel: +31 2 383 26 93 e-mail: casper.burgering@nl.abnamro.com rgering@nl abnamro com