SSY OECD Steel Conference Shipping Market Outlook SSY May 2006
SSY
OECD Steel Conference
Shipping Market Outlook
SSYMay 2006
SSY
capesize iron ore spot rates to Europe
0
5
10
15
20
25
30
Jan-
00
Jan-
01
Jan-
02
Jan-
03
Jan-
04
Jan-
05
Jan-
06
$/
W.AustraliaBrazil
May 2006
Paris 2005
SSY
The freight market 2005/06: two powerful opposing forces
CARGO DEMAND• new peaks for seaborne trade, which grew by over
6% for the 3rd consecutive year in 2005
May 2006
SSY
major dry bulk export cargoes
310
320
330
340
350
360
370
380
390
400
410
Mt
May 2006
SSY
The freight market 2005/06: two powerful opposing forces
CARGO DEMAND• new peaks for seaborne trade, which grew by over
6% for the 3rd consecutive year in 2005• China’s buying patterns, port congestion, cargo
availability all helped maintain freight rate volatility
May 2006
SSY
China’s iron ore imports
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
22,000
24,000
26,000
28,000
30,000
00
0 t
on
ne
s
May 2006
SSY
average Australian coal & ore port delays
0
2
4
6
8
10
12Ja
n-0
4
Fe
b-0
4
Ma
r-0
4
Ap
r-0
4
Ma
y-0
4
Jun
-04
Jul-
04
Au
g-0
4
Se
p-0
4
Oct
-04
No
v-0
4
De
c-0
4
Jan
-05
Fe
b-0
5
Ma
r-0
5
Ap
r-0
5
Ma
y-0
5
Jun
-05
Jul-
05
Au
g-0
5
Se
p-0
5
Oct
-05
No
v-0
5
De
c-0
5
Jan
-06
Fe
b-0
6
Ma
r-0
6
Ap
r-0
6
Cu
rre
nt
We
igh
ted
De
lay
s (
da
ys
)
* Monthly figures based on mid-month situation
May 2006
SSY
The freight market 2005/06: two powerful opposing forces
CARGO DEMAND• new peaks for seaborne trade, which grew by over
6% for the 3rd consecutive year in 2005• port congestion, cargo availability, China’s buying
patterns all helped maintain freight rate volatility
FLEET SUPPLY• biggest annual increase in fleet capacity (+160
Mtpa approx) in 2005
May 2006
SSY
dry bulk carrier net fleet changes
2.6
7.3 7.4
18.3
22.1
7.6
12.3
-15
-10
-5
0
5
10
15
20
25
1999 2000 2001 2002 2003 2004 2005
Mill
ion
Dw
t
Additions Deletions Net Change
May 2006
SSY
The freight market 2005/06: two powerful opposing forces
CARGO DEMAND• new peaks for seaborne trade, which grew by over
6% for the 3rd consecutive year in 2005• port congestion, cargo availability, China’s buying
patterns all helped maintain freight rate volatility
FLEET SUPPLY• biggest annual increase in fleet capacity (+160
Mtpa approx) in 2005• 1q06 sees record quarterly net fleet increase
May 2006
SSY
net fleet change by quarter
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
1Q
01
3Q
01
1Q
02
3Q
02
1Q
03
3Q
03
1Q
04
3Q
04
1q05
3q05
1q06
M D
wt
May 2006
SSY
approximate change in carrying capacity (mt/year)
Cape Panamax Handymax Handy
2002 +15 +19 +32 -11
2003 +31 +9 +25 -12
2004 +51 +44 +31 +10
2005 +60 +53 +41 +12
2006 +62 +52 +39 -1
May 2006
SSY
demand outlook - still positive
• high economic growth
• China’s iron ore imports are continuing to rise • broad-based rise in steel prices to support higher
global output • historically firm steam coal prices • positive tonne-mile implications as Chinese coal
export surpluses squeezed
May 2006
SSY
contributions to seaborne dry bulk trade growth
-10-505
10152025303540455055606570
2003 2004 2005 2006
Mil
lio
n T
on
nes
Iron Ore Coal
Grain Other
May 2006
SSY
-3
-2
-1
0
1
2
3
4
5
6
7
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
%
Tonne-Miles Fleet Supply
bulk carrier supply & demand growth: SSY base case
May 2006
SSY
conclusions - short term
• freight rates fell in 2005 in spite of a 130+ Mt rise in dry bulk trade as fleet supply grew faster than demand for the first time in 4 years
• with newbuilding deliveries set to reach a new all-time high and scrapping yet to revive this pattern is set to continue in 2006, so creating negative pressure on annual average earnings
• large scale scrapping unlikely before 2007 unless hard landing in rates from their current levels as fleet utilization still at an historically high rate
May 2006
SSY
return to past patterns or fundamental change?
• China has raised the underlying growth in seaborne dry bulk trade and
• India to be another source of trend growth • the age profile of the existing fleet represents
another fundamental difference to past cycles• but expanding shipyard capacity does threaten
future market balances
May 2006
SSY
China effect: 3 year growth in seaborne iron ore, coal & grain trade
May 2006
-40
0
40
80
120
160
200
240
280
320
19
75
19
77
19
79
19
81
19
83
19
85
19
87
19
89
19
91
19
93
19
95
19
97
19
99
20
01
20
03
20
05
Mil
lio
n t
on
nes Average growth 1975-99 = 69 Mt
Average growth 2000-06 = 216 Mt
SSY
Chinese iron ore imports
0
50
100
150
200
250
300
350
400
450
500
Mt
+130 Capes approx
+180 Capes approx
May 2006
SSY
India: moving up a gearsteam & coking coal imports
0
10
20
30
40
50
60
70
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
F
20
08
F
20
10
F
Mill
ion
to
nn
es
SOURCE: SSY
May 2006
SSY
20+ year old dry bulk carrier fleet
0
10
20
30
40
50
60
70
80
90
100
110
Md
wt
0
5
10
15
20
25
30
%
Capacity Share of fleet
May 2006
SSY
bulk carriers on order vs 20+ year fleet
5.4
12.5
18.9
28.0
46.4
16.5
21.9 20.924
4.37.2
5.1
0
4
8
12
16
20
24
28
32
36
40
44
48
Handysize Handymax Panamax Capesize
Mill
ion
Dw
t
Orderbook
20 years & over
25 years & over
May 2006
SSY
conclusions - medium term
• dry bulk freight markets to remain cyclical • Chinese iron ore imports have raised underlying
rate of ship demand growth with the country’s coal and grain trades offering upside potential
• together with deferred scrapping of older tonnage, this decreases the likelihood of a return to the protracted periods of weak freight markets experienced in the 1990s and 1980s
May 2006
SSY
OECD Steel Conference
Shipping Market Outlook
SSYMay 2006