Dry Bulk Market Overview - Marine Money · • Baltic Dry Bulk Index reaches its lowest levels on record. – Supply glut of vessels coincides with slowing trade fundamentals (seasonal

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Dry Bulk Market Overview

Marine Money Hong Kong

Jonny Maher – Managing Director, Head of Dry Cargo Asia

24 March 2015 Dry Bulk Market Overview | Marine Money HK

In Summary • Baltic Dry Bulk Index reaches its lowest levels on record.

– Supply glut of vessels coincides with slowing trade fundamentals (seasonal & market driven), as countries destock and deleverage.

– Recent oversupply of major bulk cargoes (Iron Ore, Coal), forcing prices lower, pushing out higher cost suppliers.

• 2015 supply:demand balance is expected to be similar on

average to that seen in the previous 2 years, with weakness expected during the first half of the year, followed by relative improvements in the second half.

– Lower priced commodities helping the restocking of key commodities

– Improved sentiment stemming from trade increases, and improving economies.

– Capacity ‘adjustment’ to the fleet (although more required). – Risks remain (China coal imports)

• Dry bulk demand remains positive in the long term. However fundamentally the market remains oversupplied with vessels, and the potential for vessels to speed up will delay any sustained recovery in the longer term.

Current

oversupply of

vessels, as the

world ‘destocks’

and rebalances.


BDI at historical lows Baltic Dry Index

0

2,000

4,000

6,000

8,000

10,000

12,000

1985 1990 1995 2000 2005 2010 2015

Ind

ex

Va

lue

Pre 2003: Life before the Supercycle

Supercycle Boom 2003-2008:

Surging Demand + Lack of Ships +

Lack of Ship Yard capacity

Recovery

falters


China dry import growth 2014 benefits Capes

118

8

2

-0

-3

-24

-35

-38

-60 -40 -20 0 20 40 60 80 100 120 140

Iron Ore

Soybeans

Other Dry Bulk

Other Grains

Petcoke

Nickel Ore

Bauxite

Coal

2014 vs 2013 million tonnes


Huge increase in Capesize

Iron Ore imports.

Negative trade growth for

other dry cargoes typically

moved in non-Cape vessels

Mainly

sub-Cape

sized

vessels

Mainly

Capesize

China the key driver to shipping: Chinese

imports slowed during 2014 Chinese Total Imports change

0

200

400

600

800

1,000

1,200

1,400

1,600

0

50

100

150

200

250

300

350

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

Millio

n T

on

nes

Mil

lio

n T

on

nes

China Total Dry Bulk Imports

Y-o-Y Change (lhs) Total Dry Bulk (rhs)

Lowest annual

incremental

import growth

during 2014

Destocking and

deleveraging

Financial

restructuring


The current market Baltic Average TC Earnings & FFA as @ 18th Mar 2015

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 Apr 15 Jul 15 Oct 15

US

$ p

er

da

y

Capesize

Supramax

Panamax

Handysize


What can change in 2015?


Forward sentiment at low-point

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

Jan 13 Apr 13 Jul 13 Oct 13 Jan 14 Apr 14 Jul 14 Oct 14 Jan 15

US

$ p

er

day

Capesize BCI TC Avg: Spot vs 2015 Contract


BCI Avg TC - Spot

BCI 2015 – FFA contract

2015 contract falls -63%

from last year’s high

Cost of transportation falls Spot Freight rates

64

45

30

0

10

20

30

40

50

60

70

2010 2014 Mar-15

US

$ p

er

tonne

Grain (US Gulf/Japan) Supramax

21

12

10

0

5

10

15

20

25

2010 2014 Mar-15

US

$ p

er

tonne

Coal (Colombia/ARA) Panamax

26

21

11

0

5

10

15

20

25

30

2010 2014 Mar-15

US

$ p

er

ton

ne

Iron Ore (Brazil/China) Capesize

42

20

14

0

10

20

30

40

50

2010 2014 Mar-15

US

$ p

er

tonne

Scrap (USEC/Turkey) Supramax


-59% -54%

-54% -67%

Delivered cost falls Spot Freight rates + FOB commodity price

55 38 30

266

190 179

0

50

100

150

200

250

300

350

Dec-10 Dec-14 Mar-15

US

$ p

er

tonne

Grain (US Gulf/Japan) Supramax

FOB

Spot Frgt

19 11 10

114

64 58

0

20

40

60

80

100

120

140

160


US

$ p

er

tonne

Coal (Colombia/ARA) Panamax

FOB

Spot Frgt

26 21 11

120

55 48

0

20

40

60

80

100

120

140

160


US

$ p

er

ton

ne

Iron Ore (Brazil/China) Capesize

FOB

Spot Frgt

41 21 14

411

297 250

0

100

200

300

400

500


US

$ p

er

tonne

Scrap (USEC/Turkey) Supramax

FOB

Spot Frgt


-60% -49%

-35% -42%

10

15

20

25

30

35

40

45

50

70

90

110

130

150

170

190

Jan 1

2

Apr

12

Jul 12

Oct 12

Jan 1

3

Apr

13

Jul 13

Oct 13

Jan 1

4

Apr

14

Jul 14

Oct 14

Jan 1

5

Av

g d

ays Iro

n O

re s

tock (d

om

estic

& im

po

rts)

Iro

n O

re S

po

t P

rice U

S $

/t

Iron Ore spot price vs steel mill stocks

TSI - 62% Fe Average Stock Days - China Mills

China Iron Ore de-stocking


Source: The Steel Index, Mysteel, Steelhome, Clarksons

0

20

40

60

80

100

120

140

Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15

Iro

n O

re S

tockp

iles (

milio

n t

on

nes)

Chinese Iron Ore Inventories at Ports

Floating Stocks Port Stocks

Major destocking periods

Port stocks 10mt + 5mt floating

Steel Mill stocks c.24 days @ mid Mar

Seaborne demand: firm but led by Cape Iron Ore Dry bulk seaborne trade growth

5%

9%

8% 7%

6%

1% 1%

13%

5% 5%

8%

4% 4% 5%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14f

20

15f

20

16f

Millio

n t

on

nes

Total Trade growth

Non-Cape Tradegrowth

CAGR Iron Ore Coal Agriculture related Construction related Other TOTAL

2012-2014 8.0% 5.1% 5.9% 3.5% 2.9% 5.7%

2015-2017(f) 6.8% 2.6% 2.5 % 3.8% 3.4% 4.3%


However China coal the wild card for 2015 Annual Indian and Chinese coal imports

0

50

100

150

200

250

300

350

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Millio

n t

on

ne

s

India China

India’s growth a key positive for the dry bulk market;

China’s import policy remains the ‘wildcard’ that

could derail any recovery.


The Fleet: Capacity adjustment needed… …and is already in progress


Dry bulk fleet growth slowing…for now

7% 7% 7%

10%

17%

15%

11%

6%

4%

3% 3%

4%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015f 2016f 2017f

% Y

oY

gro

wth

Net fleet growth (%)

24 March 2015

Dry bulk fleet development scenario

Dry Bulk Market Overview | Marine Money HK

Orderbook ‘appears’ large… Dry bulk fleet and orderbook according to year of build

Fleet and orderbook as on 03 March 2015

0

5

10

15

20

25

30

35

40

45

50

55

60

65

70

75

80

85

90

95

100

105

<=

1980

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

Millio

n d

wt

Fleet: 10,376 ships (761m dwt)

Orderbook: 1,887 ships (157m dwt)

21%

2015 orders inflated due to

previous non-delivery.

Expectation for some orders to

‘slip’ into future years


…however non-delivery has been high

5

11

13

19

7

19

23

25

0 5 10 15 20 25 30

Handy

Handymax/Supra

Panamax/Post

Cape

Dwt (m)

Proposed vs Actual deliveries - 2014

2014 On Order @ Dec-13 Delivered 2014

-26%

Dry Bulk deliveries

in 2014 came in at

c.-36% below

what the orderbook

suggested at the

beginning of the year

Main non-delivery

seen at Chinese

yards

-44%

-41%

-29%


Will the ships deliver?


Total fleet delivery & removal schedule

24 26 25 32

53

86

105 100

63

48

-2 -3 -6

-11 -7

-25

-35

-23 -16

-30 -32 -22

84

63

17

51 55 53

-60

-40

-20

0

20

40

60

80

100

120

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015f 2016f 2017f

Mil

lio

n D

wt

Recycle Pool

Note: The recycle pool is based on the upcoming 5-year special survey starting from the 4th for Capes, Panamaxes and Handymaxes , the interim

2 ½ year surveys starting from the 5th for Panamaxes and Handymaxes and the upcoming 6th 5-year special survey for Handysizes . The delivery

forecast is that of Clarksons Dry Analysts making provision for potential cancellation and slippage.

Delivery

forecast

Orderbook

Removals to date

Delivered

Current orderbook @ Mar-15

20% of fleet by dwt


Dry Bulk Deletion & Delivery Progress

25

35

24

16

3

6

0

5

10

15

20

25

30

35

40

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

To

tal d

wt

(millio

n)

Monthly deletions (cumulative by dwt)

2011 2012 2013 2014 2015 ytd


102

100

63

48

8 11

0

20

40

60

80

100

120

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

To

tal d

wt

(millio

n)

Monthly deliveries (cumulative by dwt)

2011 2012 2013 2014 2015 ytd

as @ 16 Mar 2015

The ‘overhang’ of slow steaming


Fleet still slow steaming, for now

Slow steaming by 2 knots

reduces tonnage moved

per ship by c. 11%

Weaker earnings currently

keeping speeds low

despite reduced bunker

costs.

However any increase in

speed will unlock further

capacity onto the market,

delaying any longer term

sustained recovery.

200

300

400

500

600

700

800

11.0

11.5

12.0

12.5

13.0

Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

Bu

nk

er p

rice $

/t

Avera

ge v

essel

sp

eed

kn

ts

Average bulker vessel speed Rotterdam 380 cst


Current Speed @ 17th Mar

Cape = 11.1 kn

Panamax/Post = 11.5 kn

Handymax/Supra = 11.5 kn

Handy = 11.5 kn

The Outlook…


Lacklustre recovery, but improvements SH2015

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

0.73

0.76

0.79

0.82

0.85

0.88

0.91

0.94

0.97

1.00

Q108

Q308

Q109

Q309

Q110

Q310

Q111

Q311

Q112

Q312

Q113

Q313

Q114

Q314

Q115

Q315

Q116

Q316

BD

I

Uti

lizati

on

In

dex


Dry Bulk quarterly demand/supply utilisation index

Drybulk Utilisation Index

BDI

Utilisation when

slow steaming

Slow steaming scenarios– Capes started in Jan 12 @ -2 knots and others in Oct 12 @ -2 knots

2013 2014 2015

www.clarksons.com 25

Lacklustre recovery, but improvements SH2015

Factors against recovery

• Size of the orderbook

• Captured tonnage through slow steaming

• Low oil/bunker prices

• World economic crisis – China slow down, Europe

deflation/stagnation

• USA economic growth disappoints

Support for recovery

• Infrastructure investment by the big economies to

save a financial meltdown

• Better than expected growth in India

• Strong capacity ‘adjustment’ to the fleet


Thank you


www.clarksons.com 27

The material and the information (including, without limitation, any future rates) contained herein (together, the "Information") are provided by H. Clarkson & Co. Ltd ("Clarksons") for general information purposes.

The Information is drawn from Clarksons' database and other sources. Clarksons advises that: (i) any Information extracted from Clarksons' database is derived from estimates or subjective judgments; (ii) any Information extracted from the databases of other maritime data collection agencies may differ from the Information extracted from Clarksons' database; (iii) whilst Clarksons has taken reasonable care in the compilation of the Information and believes it to be accurate and correct, data compilation is subject to limited audit and validation procedures and may accordingly contain errors; (iv) the provision of the Information does not obviate any need to make appropriate further enquiries; (v) the provision of the Information is not an endorsement of any commercial policies and/or any conclusions by Clarksons and its 'connected persons', and is not intended to recommend any decision by the recipient; (vi) shipping is a variable and cyclical business and any forecasting concerning it may not be accurate. Any future rates contained herein are only estimates. Clarksons and its connected persons make no representations or warranties of any kind, express or implied about the completeness, accuracy, reliability, suitability or availability with respect to the Information. Any reliance placed on such Information is therefore strictly at the recipient's own risk.

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Dry Bulk Market Overview - Marine Money · • Baltic Dry Bulk Index reaches its lowest levels on record. – Supply glut of vessels coincides with slowing trade fundamentals (seasonal

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