FREIGHT DYNAMICS IN THE LOW PRICE CLIMATE METAL BULLETIN INTERNATIONAL IRON ORE SYMPOSIUM

Transcription

1 FREIGHT DYNAMICS IN THE LOW PRICE CLIMATE METAL BULLETIN INTERNATIONAL IRON ORE SYMPOSIUM JUNE 216

2 PRESENTATION STRUCTURE year-to-date freight market in perspective 1q16 sees vessel earnings sink to historic lows with market sentiment eroded by deepening concerns for dry bulk carrier demand and substantial 216 orderbook commodity price volatility accompanied by 2q rally in freight rates but already under downward pressure structural threats & cyclical precedents for dry bulk trade supply-side adjustments Whilst care and attention has been taken to ensure that the information contained is accurate, it is supplied without guarantee. SSY Consultancy & Research Ltd can accept no responsibility for any errors or omissions or consequences arising therefrom. JUNE 216 2

3 FREIGHT & BULK RAW MATERIAL PRICING 1, Index Jan 1985=1 9, 8, 7, 6, 5, 4, 3, 2, 1, BDI Iron Ore Steam Coal Coking Coal Crude Oil ytd Current JUNE 216 3

4 BRAZIL-ROTTERDAM CAPESIZE SPOT RATE ANNUAL AVERAGES Annual Averages ($/t) ytd JUNE 216 4

5 BALTIC EXCHANGE AVERAGE TIMECHARTER RATES 3, 25, Cape 18kdwt Supramax 52kdwt Panamax 74kdwt Handysize 28kdwt 2, 15, 1, 5, May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 $/day JUNE 216 5

6 CAPESIZE IRON ORE SPOT RATES TO ROTTERDAM Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 $/t Brazil Narvik Canada S.Africa Australia JUNE 216 6

7 FREIGHT S ESTIMATED SHARE OF DELIVERED SPOT IRON ORE PRICES TO CHINA 35 3 Brazil Avg % Share Apr-1 Jul-1 Oct-1 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 JUNE 216 7

8 2Q16 FREIGHT MARKET RALLY: TEMPORARY STIMULANTS OR FUNDAMENTAL SHIFT? sharp rises in Chinese steel prices return industry to profitability and trigger increased production Colombian coal exports to Asia supplement fronthaul Capesize iron ore cargoes record grain shipments from Latin America with large fronthaul component and port delays rebound in China s coal imports adds employment in Pacific and slows flow of ballasters fleet supply posts modest net declines in March and April as high demolition outpaces new deliveries JUNE 216 8

9 KEY DRY BULK TRADES BY QUARTER Million tonnes q1 2q1 3q1 4q1 1q11 2q11 3q11 4q11 1q12 2q12 3q12 4q12 1q13 2q13 3q13 4q13 1q14 2q14 3q14 4q14 1q15 2q15 3q15 4q15 1q16 2q16 JUNE 216 9

10 NET FLEET CHANGE IN YEAR TO DATE Additions Deletions -1.1 Mdwt -.4% Mdwt Mdwt +1.8% -.2 Mdwt -.1% Mdwt +1.% 2 1 Handysize Handymax Panamax Capesize JUNE 216 1

11 BRAZIL-CHINA CAPESIZE SPOT RATES: PHYSICAL & PAPER $/t 15 1 Actual 5 FFA (Vienna 215) FFA (Berlin 216) Jul-18 Jan-18 Jul-17 Jan-17 Jul-16 Jan-16 Jul-15 Jan-15 Jul-14 Jan-14 Jul-13 Jan-13 Jul-12 Jan-12 Jul-11 Jan-11 Jul-1 Jan-1 JUNE

12 STRUCTURAL THREATS TO DRY BULK MARKET international efforts to curb coal-fired power generation moves to greater coal self-sufficiency in India peak in Chinese steel demand as economy reaches end of steel-intensive growth phase rising supply of domestic steel scrap rising steel protectionism & resource nationalism surplus shipbuilding capacity Valemax effect increase in vessel speeds JUNE

13 ANNUAL GROWTH IN SEABORNE DRY BULK TRADE: IRON ORE, COAL & GRAINS Million tonnes A f JUNE

14 MAJOR DRY BULK TRADE GROWTH: BASE CASE & PEAK IRON ORE/COAL SCENARIO 1 8 Peak Steel/Coal Scenario SSY Base Case (f) 217(f) 218(f) 219(f) 22 (f) % change JUNE

15 WHAT CAN REDUCE OVERCAPACITY? orderbook cancellations/postponements record % shortfall predicted for 216 as financing pressures intensify demolition steel scrap demand in ISC represents the main constraint lay-up short term stabilizer but no longer term answer minimal new ordering 1-year low in 215 but new Valemax orders show potential for China-driven newbuilding contracts JUNE

16 CAPESIZE ASSET VALUES $8 $7 $6 Newbuilding ex-japan Ten Year Old Scrap Value Five Year Old Fifteen Year Old $5 $4 $3 $2 $1 $ Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 $ Million JUNE

17 DRY BULK SHIPBUILDING ACTIVITY BY COUNTRY: ACTUAL & ON ORDER Other S.Korea China Japan Mdwt JUNE

18 DRY BULK CARRIER DELETIONS 5 Bulker scrapping Share of Fleet Scrapped million dwt (a) Source: IHS Fairplay, Baltic Exchange, SSY Share of Fleet Scrapped (%) JUNE

19 CAPESIZE (1+ KDWT) FLEET BY YEAR OF BUILD On Order Existing Mdwt Orderbook = 47.1 Mdwt (15.3% of existing fleet) 15+ year old fleet =39.4 Mdwt Pre JUNE

20 PANAMAX (65-99,999 DWT) FLEET BY YEAR OF BUILD 3 On Order Existing 25 Mdwt Orderbook = 21.8 Mdwt (11.2% of existing fleet) 15+ year old fleet = 35.2 Mdwt 5 Pre JUNE 216 2

21 HANDYMAX/SUPRAMAX (4-64,999 DWT) FLEET BY SIZE/YEAR OF BUILD Mdwt , , , , ,999 Orderbook = 21.8 Mdwt (11.2% of existing fleet) 15+ year old fleet = 27.9 Mdwt pre JUNE

22 DRY BULK CARRIER NET FLEET CHANGE Million Dwt Additions Deletions Net Change (f) 216(f) JUNE

23 CONCLUSIONS freight rates showed renewed signs of life in April, following sharp price rallies within the steel complex before negative pressures returned in May supply-side adjustments have already reduced growth in the dry bulk carrier fleet to its slowest pace since the late 199s with the potential for annual net declines in the Capesize & Panamax sectors trade growth modest and under threat from structural changes in steel and coal market is pricing the 1q16 as bottom of the cycle but with expectations for a very slow upswing over the next 2-3 years JUNE

24 London T: Singapore T: E: research@ssy.co.uk ssyonline.com JUNE 216