Capesize market outlook China Iron Ore 2016, Metal Bulletin, Beijing Cheng Shan LI, dry bulk analyst 3 March 2016
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Content Freight market collapsed Seaborne demand Seaborne iron ore lacks tonne-mile demand Seaborne demand suffers due to the lack of coal Alignment of the fleet 3 March 2016 Metal Bulletin iron ore Conference Freight market outlook 3
Index Value Freight market collapses Baltic Dry Index 12,000 10,000 8,000 6,000 4,000 2015 BDI falls -35% Supply glut (ships & cargo) Weaker Economic growth; China slows Seaborne trade contracts; major cuts to Coal Commodity price deflation Sentiment weakens Pre 2003: Life before the Supercycle Supercycle Boom 2003-2008: Surging Demand + Lack of Ships + Lack of Ship Yard capacity Markets reach record lows 2,000 0 1985 1990 1995 2000 2005 2010 2015 3 March 2016 Metal Bulletin iron ore Conference Freight market outlook 4
US $ per day Cape rates market suffers even more after a weak 4Q15 Baltic Average Capesize TC Earnings -41% Year-on year decline 45,000 40,000 2013 35,000 First quarter seasonal low: 30,000 2014 Weather related supply disruptions 25,000 20,000 2015 Delayed ship deliveries 15,000 Chinese New Year industrial production low 10,000 5,000 2016 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec *Data for 2015 onwards based on BCI 2014. 3 March 2016 Metal Bulletin iron ore Conference Freight market outlook 5
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 ytd US $/day Capesize seasonal downturn Baltic Cape Average TC Quarterly Earnings 60,000 55,370-38% 50,000 40,000 34,120 34,913 30,000 23,070-76% 28,557-76% 27,072-40% 20,000 13,004-53% 16,298 14,355-68% 10,000 8,391 6,970 6,058 4,582-70% 7,055 2,089 0 3 March 2016 Metal Bulletin iron ore Conference Freight market outlook 6
Q114 Q214 Q314 Q414 Q115 Q215 Q315 Q415 Q116 Q216 Cal16 Cal17 Cal18 Q114 Q214 Q314 Q414 Q115 Q215 Q315 Q415 Q116 Q216 Cal16 Cal17 Cal18 US $ per day US $ per day Q114 Q214 Q314 Q414 Q115 Q215 Q315 Q415 Q116 Q216 Cal16 Cal17 Cal18 Q114 Q214 Q314 Q414 Q115 Q215 Q315 Q415 Q116 Q216 Cal16 Cal17 Cal18 US $ per day US $ per day Earnings outlook remains bleak Baltic Quarterly Average TC earnings & FFA @ 25 th Feb 2016 20,000 15,000 Capesize FFA 12,000 9,000 Panamax FFA 10,000 5,000 Q4 15 7,055 Cal16 4,624 6,000 3,000 Q4 15 4,522 Cal16 4,300 0 0 12,000 Supramax FFA 12,000 Handysize FFA 9,000 9,000 6,000 Q4 15 5,779 Cal16 4,731 6,000 Q4 15 4,692 Cal16 3,929 3,000 3,000 3 March 2016 Metal Bulletin iron ore Conference Freight market outlook 7
Seaborne demand 1. Seaborne iron ore lacks iron ore tonne-mile demand 3 March 2016 Metal Bulletin iron ore Conference Freight market outlook 8
Million Tonnes Low cost Australia iron ore continue to dominate the market Expected Iron ore seaborne exports Total additional supplies: 2014 = 145 mt 2015 = 30 mt 2016 = 19 mt 2017 = 65 mt Australia: Roy Hill, FMG, RTS and BHP increase with smaller high cost mines to exit Brazil: Anglo American and Vale increase to offset Samarco loss, if not tonnemile demand will be comprimised South Africa: Kumba down by 9mt Sierra Leone: 6mt increase Low iron ore prices will continue to compromise high cost producers 900 850 800 750 700 650 600 550 500 450 400 350 300 250 200 2014 2015(f) 2016(f) 2017(f) Australia Brazil Other 3 March 2016 Metal Bulletin iron ore Conference Freight market outlook 9
Displacing higher cost international supplies China Iron Ore Marginal Imports: 2015 vs 2014 Others Sierra Leone Iran India Malaysia Canada Mexico Kazakhstan United States Indonesia Mauritania Vietnam Chile Honduras North Korea Myanmar New Zealand Liberia Mongolia Peru Venezuela South Africa Russia Ukraine Brazil Australia Total -16.5-4.9-8.6-5.8-7.4-1.6-3.1-3.8-2.4-2.0-2.6-1.3-1.3-1.3-1.3-1.6-0.2-0.1-1.0 0.4 2.4 1.8 1.0 1.7 Imports 2015: +20.3mt year on year Major reduction from non-traditional sources (-66.5mt), often on smaller ships, replaced by +86.8mt increase from mainly Capesize sources -25-15 -5 5 15 25 35 45 55 65 3 March 2016 Metal Bulletin iron ore Conference Freight market outlook 10 20.7 20.3 59.2
Million tonnes Billion ton-miles Loss in Brazilian volumes compromise tonne-mile demand 450 Seaborne Iron Ore Exports Capesize Tonnes 1,800 Seaborne Iron Ore Exports Capesize Tonne-miles 400 350 300 1H16 vs 2H15 Brazil -33 mt Australia -19 mt 2H16vs 1H16 Brazil +34mt Australia +47mt 1,700 1,600 1,500 1,400 1H16 vs 2H15 Brazil -21% Australia -5% 2H16 vs 1H16 Brazil +26% Australia +12% 1,300 250 1,200 200 1,100 150 1,000 900 100 Brazil Australia 800 Brazil Australia 1H15 2H15 1H16 2H16 FH 2015 SH2015 FH 2016 f SH 2016 f 3 March 2016 Metal Bulletin iron ore Conference Freight market outlook 11
Seaborne demand 1. Seaborne iron ore lacks iron ore tonne-mile demand 2. Seaborne demand suffers due to the lack of coal 3 March 2016 Metal Bulletin iron ore Conference Freight market outlook 12
World coal imports fall in 2015 World coal imports 2014 vs 2015f China -87.0 China s import policy & slower industrial growth dampen the demand for coal. EU 28-16.0 Other 8.0 Other Asia India India s near term growth slow down as domestic production expands 4.5 10.0 NET -80.5-100 -90-80 -70-60 -50-40 -30-20 -10 0 10 20 Million tonnes Source: GTIS. *Other Asia include Japan, Korea, Taiwan, Vietnam, Hong Kong and Thailand 3 March 2016 Metal Bulletin iron ore Conference Freight market outlook 13
Million tonnes per month Million tonnes per month China coal Imports declined in 2015, but the downturn started to stabilise 30 25 20 15 China Thermal Coal Imports Steam coal monthly imports 6-mth roll. avg 9 8 7 6 5 4 China Coking Coal Imports Coking coal monthly imports 6-mth roll. avg 10 5 Rate of decline in imports slows during 2H15 3 2 1 0 2009 2010 2011 2012 2013 2014 2015 Source: GTIS 0 2009 2010 2011 2012 2013 2014 2015 Total Coal imports in 2015 fall by -87mt. Thermal = c.-73.1mt Coking = c. -14.4mt 3 March 2016 Metal Bulletin iron ore Conference Freight market outlook 14
Million tonnes 2003 2004 7.5% 7.1% 5.8% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015f 2016f 2017f Yet, seaborne demand suffers under the lack of coal Dry bulk seaborne trade growth 15% 13.0% Total Trade growth 10% 9.0% 8.8% 5% 0% 4.9% 1.3% 0.8% 5.1% 5.2% 3.6% -0.4% 0.6% 2.3% -5% CAGR Iron Ore Coal Agriculture related Construction related Other TOTAL 2012-2014 9.3% 5.4% 6.0% 1.7% 2.2% 5.8% 2015(f) 2.1% -6.8% 3.0% 1.5% 5.1% -0.4% 2016-2017(f) 3.3% -1.6% 2.4% 1.4% 3.6% 1.4% 3 March 2016 Metal Bulletin iron ore Conference Freight market outlook 15
Alignment of the fleet 3 March 2016 Metal Bulletin iron ore Conference Freight market outlook 16
<=1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Million dwt Dry bulk order book is large, but high slippage expected Dry bulk fleet and orderbook according to year of build 105 100 95 90 85 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0 Cumulative Fleet at 1 February 2016: 10,534 ships (775.8m dwt) Orderbook: 1,470 ships (119.1m dwt) 15% Year of delivery Fleet and orderbook as on 1 February 2016 3 March 2016 Metal Bulletin iron ore Conference Freight market outlook 17
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Dwt (m) delivered Chinese yard performance the key factor to output Dry bulk deliveries by Yard country Deliveries by Yard Country 110 100 90 80 70 60 50 40 30 20 10 2015 delivery progress China 51% Japan 77% S Korea 66% Others 57% 0 China Japan South Korea Other 3 March 2016 Metal Bulletin iron ore Conference Freight market outlook 18
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 No. of ships Contracting declined substantially Number of dry bulk contracts per year per sub-sector Contracting (181) 72% less y-o-y Newbuild prices at premium to second hand prices Newbuild prices on inflation adjusted basis historical low levels 2,600 2,400 2,200 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 40% 35% 30% 25% 20% 15% 10% 5% Contract as % of fleet 0 0% Note: Contracts exclude options Capesize Panamax Supramax Handysize Contracts as % of fleet Basis: Historical Prices adjusted $/dwt to current 176-180,000 dwt 3 March 2016 Metal Bulletin iron ore Conference Freight market outlook 19
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f 2018f m dwt Demolition expected to reach new record levels Dry bulk fleet demolition vs BDI Large pool of older vessels due for special/interim surveys in the next 2 years 45 40 2012 record removals 587 vsls (34m dwt) 8,000 7,000 Value of older vessels converging with value at scrap New regulations due to be enforced Average demolition age continues to fall in 2015 Capesize = 21 Panamax = 23 Handy/Supra = 26 Handysize = 28 35 30 25 20 15 10 5 0 6,000 5,000 4,000 3,000 2,000 1,000 0 Index Demolition Demolition forecast BDI Source: Clarksons Note: BDI until today 3 March 2016 Metal Bulletin iron ore Conference Freight market outlook 20
2009 2010 2011 2012 2013 2014 2015 2016f 2017f 2018f Fleet growth Annual average expected fleet growth Dry bulk fleet growth 18% 16% 14% 17.0% 14.9% Total Fleet Growth 12% 10.0% 10.5% 10% 8% 6% 4% 5.9% 4.4% 2% 0% -2% 2.5% 0.9% 1.7% -0.6% CAGR Handysize Supramax Panamax Capesize TOTAL 2012-2014 0.9% 8.3% 8.4% 7.2% 6.9% 2015 1.5% 7.7% 1.6% +0.5% 2.5% 2016-2017(f) -0.9% 4.8% 1.2% -0.1% 1.3% 3 March 2016 Metal Bulletin iron ore Conference Freight market outlook 21
Average vessel speed knts Fleet is slow steaming in order to reduce capacity Slow steaming by 2 knots reduces tonnage moved per ship by c. 11% Weaker earnings currently keeping speeds low despite reduced bunker costs. 13.0 12.5 12.0 Bunkers Rotterdam 380cst 800 700 600 500 400 Bunker price $/t However any increase 300 in speed will unlock 11.5 further capacity onto Avg bulker speed the market, delaying 200 any longer term sustained recovery. 11.0 100 2010 2011 2012 2013 2014 2015 2016 3 March 2016 Metal Bulletin iron ore Conference Freight market outlook 22
Demand and supply balance 3 March 2016 Metal Bulletin iron ore Conference Freight market outlook 23
Year-on-year growth Capesize demand and supply growth 25% 23.2% 20% 18.6% 19.6% 19.1% 15% 10% 5% 8.8% 8.9% 8.5% 9.0% 4.4% 4.1% 15.1% 8.7% 8.1% 17.3% 9.1% 7.5% 9.9% 4.9% 12.8% 8.0% 6.0% 12.0% 12.3% 7.8% 12.0% 11.4% 11.1% 8.3% 4.9% 4.9% 4.7% 2.1% 1.1% 3.3% 0% 0.5% 0.2% 1.0% -1.1% -1.2% -5% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015f 2016f 2017f Trade growth Net fleet growth Required dwt 3 March 2016 Metal Bulletin iron ore Conference Freight market outlook 24
Q108 Q308 Q109 Q309 Q110 Q310 Q111 Q311 Q112 Q312 Q113 Q313 Q114 Q314 Q115 Q315 Q116 Q316 Utilization Index Capesize market remains under pressure, but some seasonal volatility Capesize quarterly demand/supply utilisation index 1.03 180,000 1.00 160,000 0.97 0.94 140,000 0.91 0.88 0.85 0.82 Capesize Utilisation Index 120,000 100,000 80,000 60,000 Average of 4 TC s 0.79 0.76 0.73 Avg 4 TCs 40,000 20,000 0.70 0 Slow steaming scenarios Capes started in Jan 12 @ -2 knots and others in Oct 12 @ -2 knots 3 March 2016 Metal Bulletin iron ore Conference Freight market outlook 25
Thank You 3 March 2016 Metal Bulletin iron ore Conference Freight market outlook 26