Capesize & VLOC Market Outlook

Transcription

1 Capesize & VLOC Market Outlook (an analysis of the fleet profile, trade prospects, and rates) July 2018 bancosta blue studies volume DRY 2018/#09 research ; research@bancosta.com Jul 2018 Capesize & VLOC Market Outlook 1

2 Index 1. Fleet Development page 3 2. Shipbuilding Trends page Detailed Age Profiles page The Demand Side page The Charter and S&P Markets page Final Words page 55 Jul 2018 Capesize & VLOC Market Outlook 2

3 Fleet Development (deliveries, demolitions, fleet growth) Jul 2018 Capesize & VLOC Market Outlook 3

4 Over the next few slides we will illustrate the current situation of the Capesize and VLOC fleet, in terms of number of trading units, total deadweight, orderbook, monthly deliveries and demolitions, and projected fleet growth. We assume our usual size definitions for the dry bulk sector, clearly shown on the next slide (page 5). In this study we only consider ships larger than 120,000 dwt and only general bulk carriers plus specialised ore carriers. We intentionally omit all other kinds of specialized units. According to our calculations, the current trading fleet (including units in lay-up and under repair) of bulkers over 120,000 dwt consists of 1,582 units equivalent to about million dwt, as of July In the first 6 months of 2018, we recorded the delivery of 29 units of vessels over 120,000 dwt for a total of 7.2 mln dwt, down 35.5 percent year-on-year in terms of deadweight. Of the vessels delivered, 8 were between ,999 dwt, 11 were between ,999 dwt, 4 were between ,999 dwt, and 6 were above 380,000 dwt. Deliveries in 2018 are expected to be around 13 mln dwt in total, after accounting for slippages. In deadweight terms, around 49 percent of scheduled deliveries in 2018 are expected to be units larger than 380,000 dwt. In the first 6 months of 2018, we recorded the demolition of 12 vessels over 120,000 dwt for a total of 1.9 mln dwt, down 50.7 percent year-on-year in deadweight terms. Of the vessels demolished, 10 were sized between ,999 dwt, and 2 were between ,999 dwt. While improved market sentiment could keep demolition activity low in 2018, the ballast water and sulphur regulations are still expected to encourage greater scrapping in future years. Demolitions in the ,999 dwt size range are expected to remain low due to fewer older vessels available for demolition. Ordering activity for units over 120,000 dwt slowed dramatically over , but improved especially over the last few months of In the first half of 2018, 29 vessels were ordered, compared to 22 in the same period a year ago. Orders this year have comprised of 1 unit sized over 380,000 dwt, 8 units sized between ,999 dwt, 9 units sized between ,999 dwt, and 11 units sized between ,999 dwt. Jul 2018 Capesize & VLOC Market Outlook 4

5 Our size breakdown for Capesize & VLOC bulkers: 120, ,999 dwt 190, ,999dwt 220, ,999 dwt 270, ,999 dwt 380,000+ dwt Traditional Capesize Newcastlemax Wozmax (West Australia-max) VLOC (Very Large Ore Carrier) Valemax (note: for all sizes, includes general purpose bulk carriers, excludes specialist vessels) Jul 2018 Capesize & VLOC Market Outlook 5

6 Capesize & VLOC Fleet By Size Sector - in No. of Units (July 2018 ; only units over 120,000 dwt ; in units) ,999 dwt 107 7% ,999 dwt 77 5% 380,000+ dwt 41 3% ,999 dwt 1,084 68% ,999 dwt % The dry bulk fleet over 120,000 dwt currently totals 1,582 units. Vessels between ,999 dwt form the majority in unit terms, at 1,084 units equivalent to 68 percent. 273 units between ,999 dwt form another 17 percent. Jul 2018 Capesize & VLOC Market Outlook 6

7 Capesize & VLOC Fleet By Size Sector - in DWT (July 2018 ; only units over 120,000 dwt ; in million dwt) ,999 dwt % 380,000+ dwt % ,999 dwt % ,999 dwt % ,999 dwt % The dry bulk fleet over 120,000 dwt totals mln dwt. Of this, the fleet between ,999 dwt represents 61 percent in deadweight terms, while the fleet between ,999 dwt accounts for 18 percent. Jul 2018 Capesize & VLOC Market Outlook 7

8 mln DWT Capesize & VLOC Deliveries + Orderbook in DWT - Annual (July 2018 ; only units over 120,000 dwt ; in mln dwt ; assuming 30% slippage) ,999 dwt ,999 dwt ,999 dwt ,999 dwt 380,000+ dwt In 2017, a total of 15.0 mln dwt of vessels sized over 120,000 dwt were delivered. Deliveries were dominated by units between ,999 dwt, which represented 49 percent of deliveries in terms of deadweight. Deliveries in 2018 are expected to be around 13 mln dwt in total, after accounting for slippages. In deadweight terms, around 49 percent of scheduled deliveries in 2018 are expected to be units larger than 380,000 dwt. Jul 2018 Capesize & VLOC Market Outlook 8

9 mln DWT 6.0 Capesize & VLOC Deliveries in DWT - Monthly (July 2018 ; only units over 120,000 dwt ; in million dwt) / / / / / / / ,999 dwt ,999 dwt ,999 dwt ,999 dwt 380,000+ dwt In the first 6 months of 2018, we recorded the delivery of 29 units of vessels over 120,000 dwt for a total of 7.2 mln dwt, down 35.5 percent year-on-year in terms of deadweight. Of the vessels delivered, 8 were between ,999 dwt, 11 were between ,999 dwt, 4 were between ,999 dwt, and 6 were above 380,000 dwt. Jul 2018 Capesize & VLOC Market Outlook 9

10 mln DWT Capesize & VLOC Demolitions in DWT - Annual (July 2018 ; only units over 120,000 dwt ; in million dwt) (f) 2019(f) 2020(f) ,999 dwt ,999 dwt ,999 dwt ,999 dwt 380,000+ dwt In 2017, we recorded the demolition of 5.7 mln dwt of vessels over 120,000 dwt, down 60.0 percent compared to 2016 in terms of deadweight. While improved market sentiment could keep demolition activity low in 2018, the ballast water and sulphur regulations are still expected to encourage greater scrapping in future years. Demolitions in the ,999 dwt size range are expected to remain low due to fewer older vessels available for demolition. Jul 2018 Capesize & VLOC Market Outlook 10

11 mln DWT Capesize & VLOC Demolitions in DWT - Monthly (July 2018 ; only units over 120,000 dwt ; in million dwt) / / / / / / / ,999 dwt ,999 dwt ,999 dwt ,999 dwt 380,000+ dwt In the first 6 months of 2018, we recorded the demolition of 12 vessels over 120,000 dwt for a total of 1.9 mln dwt, down 50.7 percent year-on-year in deadweight terms. Of the vessels demolished, 10 were sized between ,999 dwt, and 2 were between ,999 dwt. Jul 2018 Capesize & VLOC Market Outlook 11

12 mln DWT Deliveries and Demolitions in DWT - Jan-Jun 2018 (July 2018 ; only units over 120,000 dwt ; in million dwt) ,999 dwt ,999 dwt ,999 dwt ,999 dwt 380,000+ dwt Deliveries Demolitions In the first 6 months of 2018, the net increase of the dry bulk fleet above 120,000 dwt was 2.4 mln dwt. The largest expansion was experienced in the fleet above 380,000 dwt with a net increase of 2.4 mln dwt, while the fleet between ,999 dwt and 120, ,999 dwt stayed generally flat. Jul 2018 Capesize & VLOC Market Outlook 12

13 mln DWT Projected Total 120,000+ dwt Bulk Fleet Growth (only units over 120,000 dwt ; in mln dwt ; assuming 30% slippage) % +11% +5% +5% +1% +2% +3% +3% +3% +3% (f) 2019(f) 2020(f) 120,000+ dwt Fleet Size (in mln DWT) Y-o-Y Growth Our growth forecast for is based on the current orderbook after assuming delivery slippage, and lower demolition activity compared to , as the market rebalances from fewer orders and deliveries. Jul 2018 Capesize & VLOC Market Outlook 13

14 mln DWT Projected 380,000+ dwt Bulk Fleet Growth (only units over 380,000 dwt ; in mln dwt ; assuming 30% slippage) % +10% +3% +3% +0% +45% +23% +7% (f) 2019(f) 2020(f) 380,000+ dwt Fleet Size (in mln DWT) Y-o-Y Growth Our growth forecast for is based on the current orderbook after assuming delivery slippage, and lower demolition activity compared to , as the market rebalances from fewer orders and deliveries. Jul 2018 Capesize & VLOC Market Outlook 14

15 mln DWT Projected 270, ,999 dwt Bulk Fleet Growth (only units between 270, ,999 dwt ; in mln dwt ; assuming 30% slippage) % +15% +2% -2% -0% +0% -4% -2% +5% +15% (f) 2019(f) 2020(f) 270, ,999 dwt Fleet Size (in mln DWT) Y-o-Y Growth Our growth forecast for is based on the current orderbook after assuming delivery slippage, and lower demolition activity compared to , as the market rebalances from fewer orders and deliveries. Jul 2018 Capesize & VLOC Market Outlook 15

16 mln DWT Projected 220, ,999 dwt Bulk Fleet Growth (only units between 220, ,999 dwt ; in mln dwt ; assuming 30% slippage) % +12% +9% +12% +6% -1% +10% +3% +0% -4% (f) 2019(f) 2020(f) 220, ,999 dwt Fleet Size (in mln DWT) Y-o-Y Growth Our growth forecast for is based on the current orderbook after assuming delivery slippage, and lower demolition activity compared to , as the market rebalances from fewer orders and deliveries. Jul 2018 Capesize & VLOC Market Outlook 16

17 mln DWT Projected 190, ,999 dwt Bulk Fleet Growth (only units between 190, ,999 dwt ; in mln dwt ; assuming 30% slippage) % +27% +28% +13% +8% +13% +14% +4% +8% +10% (f) 2019(f) 2020(f) 190, ,999 dwt Fleet Size (in mln DWT) Y-o-Y Growth Our growth forecast for is based on the current orderbook after assuming delivery slippage, and lower demolition activity compared to , as the market rebalances from fewer orders and deliveries. Jul 2018 Capesize & VLOC Market Outlook 17

18 mln DWT Projected ,999 dwt Bulk Fleet Growth (only units between 120, ,999 dwt ; in mln dwt ; assuming 30% slippage) % +5% +0% +3% -2% -0% +1% -1% -0% -1% (f) 2019(f) 2020(f) 120, ,999 dwt Fleet Size (in mln DWT) Y-o-Y Growth Our growth forecast for is based on the current orderbook after assuming delivery slippage, and lower demolition activity compared to , as the market rebalances from fewer orders and deliveries. Jul 2018 Capesize & VLOC Market Outlook 18

19 Shipbuilding Trends (newbuilding orders, major builders) Jul 2018 Capesize & VLOC Market Outlook 19

20 mln DWT Capesize & VLOC Newbuilding Orders in DWT - Monthly (July 2018 ; only units over 120,000 dwt ; in million dwt) / / / / / / / ,999 dwt ,999 dwt ,999 dwt ,999 dwt 380,000+ dwt Ordering activity for units over 120,000 dwt slowed dramatically over , but improved especially over the last few months of In the first half of 2018, 29 vessels were ordered, compared to 22 in the same period a year ago. Orders this year have comprised of 1 unit sized over 380,000 dwt, 8 units sized between ,999 dwt, 9 units sized between ,999 dwt, and 11 units sized between ,999 dwt. Jul 2018 Capesize & VLOC Market Outlook 20

21 units Capesize & VLOC Newbuilding Orders by Ship Size - Annual (July 2018 ; only units over 120,000 dwt ; in number of units) (1-6) ,999 dwt ,999 dwt ,999 dwt ,999 dwt 380,000+ dwt Total orders fell dramatically over , with a number of units above 380,000 dwt ordered specifically to service the Brazil to China iron ore trade. However, orders picked up in the last few months of 2017, mainly in the ,999 dwt and ,999 dwt categories. In the first half of 2018, orders were largely in the ,999 dwt, ,999 dwt, and ,999 dwt categories. Jul 2018 Capesize & VLOC Market Outlook 21

22 Orderbook / Trading Fleet Capesize & VLOC Orderbook as Proportion of Trading Fleet (July 2018; only units from 120,000 dwt ; in number of units) 70% 66% 60% 55% 50% 40% 30% 30% 20% 10% 0% 12% 7% 3% , , , , ,000+ Tot Orders Due to the low number of new orders registered over , the proportion between orderbook and trading fleet had been trending towards moderate levels except for Valemaxes. However, a pick up in ordering since end 2017 has brought the orderbook to trading fleet ratio back above 10 percent, with the ,999 dwt and over 380,000 dwt size categories seeing the highest ratios of 55 percent and 66 percent respectively. Jul 2018 Capesize & VLOC Market Outlook 22

23 deadweight Capesize & VLOC Delivered Units Size Distribution (only units over 120,000 dwt ; delivered as year of built/capacity matrix) 420, , , , , , , Year of delivery The ,999 dwt vessels used to be the most popular size segment. However, since 2000, the majority of these vessels have increased in average size reaching over 170,000 dwt. Jul 2018 Capesize & VLOC Market Outlook 23

24 deadweight Capesize & VLOC Orderbook Size Distribution (only units over 120,000 dwt ; as date of delivery/capacity matrix) 420, , , , , , , Year of delivery In the next 2 years scheduled deliveries are predominantly for vessels sized between ,999 dwt. There are also a number of orders scheduled for units sized around 325,000 dwt and 400,000 dwt. Jul 2018 Capesize & VLOC Market Outlook 24

25 units Capesize & VLOC Newbuilding Orders by Country of Build - Annual (July 2018 ; only units over 120,000 dwt ; in number of units) (1-6) Japan Korea China Other Chinese yards have dominated orders over the past few years, bagging percent of new orders in Chinese yards have continued to dominate new orders in the first half of 2018, with 19 of the total 29 new orders recorded placed with them. Jul 2018 Capesize & VLOC Market Outlook 25

26 units Capesize & VLOC Age Profile By Country of Build (July 2018 ; only units over 120,000 dwt ; in number of units) Japan Korea China Europe Others Output from Japanese shipyards has remained relatively consistent over the last two decades, although they are expected to lose out in the coming years as the competitiveness of Chinese yards improve. China has shown extreme elasticity in absorbing excess demand in recent years. Jul 2018 Capesize & VLOC Market Outlook 26

27 Detailed Age Profiles (for individual sizes) Jul 2018 Capesize & VLOC Market Outlook 27

28 units Valemax (380,000+ dwt) Age Profile (in units) (updated in July 2018) Scrapped or Total Loss Trading Orderbook Age range 30 yrs yrs yrs yrs yrs 5-9 yrs up to 4 yrs No of units % of fleet 0% 0% 0% 0% 0% 73% 27% Jul 2018 Capesize & VLOC Market Outlook 28

29 units VLOC (270, ,999 dwt) Age Profile (in units) (updated in July 2018) Scrapped or Total Loss Trading Orderbook Age range 30 yrs yrs yrs yrs yrs 5-9 yrs up to 4 yrs No of units % of fleet 1% 14% 19% 0% 8% 53% 4% Jul 2018 Capesize & VLOC Market Outlook 29

30 units Wozmax (220, ,999 dwt) Age Profile (in units) (updated in July 2018) Scrapped or Total Loss Trading Orderbook Age range 30 yrs yrs yrs yrs yrs 5-9 yrs up to 4 yrs No of units % of fleet 0% 14% 7% 2% 7% 36% 35% Jul 2018 Capesize & VLOC Market Outlook 30

31 units Newcastlemax (190, ,999 dwt) Age Profile (in units) (updated in July 2018) Scrapped or Total Loss Trading Orderbook Age range 30 yrs yrs yrs yrs yrs 5-9 yrs up to 4 yrs No of units % of fleet 0% 0% 0% 1% 18% 35% 46% Jul 2018 Capesize & VLOC Market Outlook 31

32 units Traditional Capesize (120, ,999 dwt) Age Profile (in units) (updated in July 2018) Scrapped or Total Loss Trading Orderbook Age range 30 yrs yrs yrs yrs yrs 5-9 yrs up to 4 yrs No of units % of fleet 0% 0% 2% 9% 17% 54% 18% Jul 2018 Capesize & VLOC Market Outlook 32

33 The Demand Side (iron ore, coal) Jul 2018 Capesize & VLOC Market Outlook 33

34 Vessels over 120,000 dwt are primarily employed in iron ore and coal trades. Occasionally they are also used for long haul bauxite shipments. Only sporadically some of the smaller units are utilized in other trades such as grains. Iron Ore Growth in seaborne trade for iron ore and coal has averaged about 7 percent year-on-year over the last decade, largely driven by the boom in Chinese imports. However, the iron ore trade has slowed in recent years, increasing by around 4 percent in 2016 and China remains very much at the centre of the action, estimated to account for around 70 percent of global iron ore imports. In comparison, iron ore imports by both Japan and Europe combined are estimated at around 15 percent of the global trade. Chinese iron ore imports grew 4.9 percent in 2017 to billion tonnes, supported by strong demand from steel mills over the year. Chinese crude steel output increased 4.6 percent to reach 845 mln tonnes in 2017, as steel prices strengthened due to capacity cuts targeting low quality furnaces, increased stockpiling ahead of winter production cuts, and improved demand from construction and manufacturing. However, growth in China s iron ore imports has slowed in the first 5 months of 2018, increasing only by a slight 0.6 percent year-on-year to 447 million tonnes, even as domestic steel production increased by 6.0 percent year-on-year in the Jan-May 2018 period. China s steel consumption is generally expected to slow this year, as the country s property sector faces challenges from policy and a clampdown on credit growth. Emphasis on addressing air pollution has also been increasing, with cities like Tangshan, Handan, and Cangzhou extending winter output cuts after the restrictions ended in mid Mar 2018, and another round of winter output cuts expected in China this year end factors which are expected to cap Chinese steel production growth this year. Jul 2018 Capesize & VLOC Market Outlook 34

35 However, as China clamps down on environmental pollution, there has also been increasing emphasis on the quality of raw materials used, resulting in greater popularity of higher quality iron ore imports from especially Australia and Brazil. Long haul imports from Brazil in particular could become an important driver of dry bulk freight rates due to their higher quality. In fact, a slight drawdown in China s iron ore stockpiles from over 160 mln tonnes in Apr 2018 to 153 mln tonnes in early Jul 2018 are said to be from higher quality Brazilian stocks, showcasing the popularity of Brazilian iron ore grades at present. Ample iron ore export capacity in Australia and Brazil also mean imports continue to be more cost competitive compared to inefficient domestic miners in China. Furthermore, in line with stricter environmental policies, Chinese authorities revoked about a third of domestic iron ore mining licenses in 2017, further capping domestic iron ore output: In the first 5 months of 2018, Chinese crude iron ore production fell by a sharp 37 percent. Tangshan, the country s top steelmaking city in Hebei province, has also said it will close 226 mining firms - half of which are iron ore miners - that do not have legitimate licenses as part of efforts to curb illegal mining and cut pollution. These factors are expected to help provide some support for Chinese iron ore import volumes this year. Coal In 2017, China s coal and lignite imports grew a relatively strong 6.1 percent year-on-year to mln tonnes, estimated to account for around 20 percent of global coal imports. This came from a combination of factors, including strengthening thermal electricity output, strong demand from domestic steel mills, and improvements in the construction and industrial sectors. However, Chinese coal imports could be threatened by government policies to control domestic coal prices and increase local production this year. According to China s National Energy Administration (NEA), China aims to increase domestic coal production by 7.3 percent to 3.7 billion tonnes in Media outlets also reported restrictions on coal imports from April 2018 in some eastern provinces, as the government intervened to cool surging coal prices. Jul 2018 Capesize & VLOC Market Outlook 35

36 In spite of these factors, coal imports are still expected to pick up from June to August during the peak demand season. In the first half of 2018, Reuters reported that Chinese seaborne coal imports are estimated to have surged around 14 percent, largely due to an increase in Indonesian imports due to their lower sulphur content and substantial discount to higher-quality thermal coal from Australia. Japan s coal imports increased 1.6 percent to million tonnes in 2017, as the country continues to rely heavily on coal for power generation while the majority of the country's nuclear reactors remain shut following the Fukushima disaster nearly seven years ago. Court orders and public opposition have held up the return of nuclear plants, with only 9 out of 42 operable reactors running by June However, further restarts of nuclear power plants from next year could reduce coal purchases. Over Jan-Apr 2018, Japanese coal imports have fallen 1.1 percent to 61.9 million tonnes. South Korea s coal imports also increased by a strong 10.2 percent to mln tonnes in 2017, as nuclear reactor outages impacted energy supply, and new coal-fired power stations came online. This benefited tonne-mile demand as coal imports increased from Indonesia and longer haul destinations such as Canada, South Africa, Colombia, and the U.S.. However, South Korea s demand profile for thermal coal is expected to change with the adoption of a new 0.4% sulphur limit for thermal coal used in their coal power plants, and a consumption tax for imported thermal coal that favors higher calorific thermal coal. These factors could favor increased imports from Colombia, South Africa, and Russia. In the first 4 months of 2018, South Korea s coal imports increased by 3.2 percent to 51.0 million tonnes. Bauxite China dominates as the largest bauxite importer in the world, accounting for around 70 percent of global imports. In 2017, Chinese bauxite imports increased 32.8 percent to reach 68.8 million tonnes, strengthening as domestic supply was affected by the environmental crackdown, and as domestic demand increased. In the first 3 months of 2018, imports improved by a further 46.6 percent to reach 20.4 million tonnes. Jul 2018 Capesize & VLOC Market Outlook 36

37 However, downstream demand for alumina appears to have slowed down at present in China. In early July, Aluminum Corporation of China Limited, one of China s biggest alumina refiners better known as Chalco, suspended 770,000 tonnes of alumina production capacity in northern China's Shanxi province as the local bauxite price rise and falling alumina price hurt profitability. Domestic bauxite production in China has been swept up in a crackdown on illegal mining operations. Depleting resources, deteriorating ore quality, and environmental concerns have also been increasing the cost of domestic output. On the other hand, domestic alumina prices have been under pressure due to increasing production capacity as more smelters come online, and on low aluminum prices due to a slowdown in downstream demand. In spite of the lower alumina and aluminium prices in China, we still expect China s bauxite imports to remain relatively strong due to the tight domestic supply situation, which necessitates the import of bauxite from countries such as Guinea and Australia. The wide differential between Chinese domestic and international alumina prices may also encourage increased Chinese exports of alumina, which could serve to alleviate domestic alumina prices and encourage production. In May 2018, Chalco had announced 30,000-50,000 tonnes of alumina exports, in response to high international alumina prices following the U.S. sanctions on Rusal and an outage at Norsk Hydro s Alunorte alumina refinery in Brazil. Jul 2018 Capesize & VLOC Market Outlook 37

38 Dry Bulk Trade Iron Ore The number one traded commodity Mostly carried on Capes and Panamaxes Trade restricted on very few routes, mostly Brazil- China and Australia-China 2015 was rather disappointing, 2016 much better, 2017 also good Demand supported by declining domestic mining in China, strong steel prices 30.0% 20.0% 10.0% 0.0% -10.0% Canada W. Europe Sweden CIS Ukraine Japan China S. Korea Brazil Australia S. Africa Major Iron Ore Exporters in 2017: Major Iron Ore Importers in 2017: Australia 828 mln tonnes China 1,075 mln tonnes Brazil 384 mln tonnes EU 144 mln tonnes South Africa 66 mln tonnes Japan 127 mln tonnes Canada 43 mln tonnes South Korea 72 mln tonnes Ukraine 29 mln tonnes Middle East 47 mln tonnes Sweden 23 mln tonnes Taiwan 24 mln tonnes 6.8% 10.4% 12.5% 6.2% 5.5% 7.1% 1.9% 3.5% 4.5% (e) Jul 2018 Capesize & VLOC Market Outlook 38

39 Dry Bulk Trade Coal Coal is still the second most traded dry bulk commodity after iron ore 78% thermal, 22% coking Fast growth in on Chinese demand; volumes declining over China imports down 30% in 2015 but rally 25% in 2016 and 6% in 2017 EU s imports falling dramatically in past years India s imports stabilized after years of growth Brazil W. Europe Major Coal Exporters in 2017 (thermal & lignite + coking): Australia mln tonnes Indonesia mln tonnes Russia mln tonnes Colombia mln tonnes South Africa mln tonnes USA mln tonnes 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% Canada USA Colombia 1.4% 15.4% 7.4% 12.2% S. Africa Russia China S. Korea Japan Australia Major Coal Importers in 2017 (thermal & lignite + coking): EU28 India Japan China South Korea Taiwan 5.5% 2.9% India Indonesia mln tonnes mln tonnes mln tonnes mln tonnes mln tonnes mln tonnes -6.1% -0.3% 2.5% (e) Jul 2018 Capesize & VLOC Market Outlook 39

40 Dry Bulk Trade Bauxite Bauxite production is estimated to have fallen 11% y-o-y to 262 mln t in 2016, mainly due to reduced production in Malaysia However, the outlook for Guinea production is positive, as they plan to triple output from 2015 volume to 60 mln tonnes by 2020 Guinea and Australia became the largest bauxite exporters in 2016, and now account for 45% and 29% of global exports respectively 100.0% 50.0% 0.0% -50.0% % Canada USA Major Bauxite Exporters in 2017: Guinea 42 mln tonnes Australia 27 mln tonnes Brazil 9 mln tonnes Jamaica 3 mln tonnes Indonesia 2 mln tonnes -28.8% Jamaica Brazil Guinea Europe 14.9% 13.0% 24.6% 42.1% India China Indonesia Major Bauxite Importers in 2017: China 69 mln tonnes Ukraine 5 mln tonnes Ireland 5 mln tonnes USA 5 mln tonnes Canada 4 mln tonnes -33.3% 27.8% -12.0% Australia 4.9% (e) Jul 2018 Capesize & VLOC Market Outlook 40

41 million tonnes 450 Brazil - Iron Ore Exports by Destination (source: brazilian bureau of foreign trade ; in million tonnes) (1-6) China Japan Malaysia Netherlands Portugal Others Iron ore exports from Brazil have increased around 3.6 percent per annum on average over the past decade. In 2017, Brazil s iron ore exports grew 2.6 percent year-on-year to reach million tonnes. However, in the first half of 2018, exports fell by 2.2 percent to 84.2 million tonnes, as heavy rain in the first quarter affected Vale s output. Jul 2018 Capesize & VLOC Market Outlook 41

42 Brazil - Iron Ore Export Destinations in Jan-Jun 2018 (source: customs data; in % of export volume) Other EU countries 8% South Korea 2% Oman 3% Portugal 3% Malaysia 4% Japan 5% Netherlands 5% Others 12% China 58% China continued to account for the majority of Brazilian iron ore exports at 58 percent in the first half of Other main export destinations include the Netherlands, Japan, and Malaysia. Jul 2018 Capesize & VLOC Market Outlook 42

43 million tonnes Brazil - Iron Ore Exports by Destination (source: customs data; in million tonnes) China Netherlands Japan Malaysia Portugal Other E.U. countries 2016 (1-6) 2017 (1-6) 2018 (1-6) Others In the first half of 2018, Brazilian iron ore shipments to China fell by 1.3 percent based on Brazil s export data. Shipments to other key destinations such as the Japan and Malaysia also decreased by 26.8 percent and 37.2 percent respectively. Among the E.U. countries, shipments to Portugal have increased sharply to 5.2 million tonnes, compared to 1.0 million tonnes during the same period in Jul 2018 Capesize & VLOC Market Outlook 43

44 million tonnes 900 Australia - Iron Ore Exports by Destination (source: Australian Govt data ; in million tonnes) (1-3) China Japan South Korea Other Iron ore exports from Australia have increased around 12.0 percent per annum on average over the past decade. In 2017, iron ore exports from Australia reached million tonnes, up 2.4 percent year-on-year. In the first 3 months of 2018, iron ore exports have continued to increase by 3.4 percent year-on-year to million tonnes. Jul 2018 Capesize & VLOC Market Outlook 44

45 Australia - Iron Ore Export Destinations in Jan-Mar 2018 (source: Australian Govt data ; in % of export volume) Japan 8% South Korea 6% Others 4% China 82% China is the largest importer of iron ore from Australia, accounting for 82 percent of exports in the first 3 months of Other main export destinations include Japan and South Korea, for which shipments are much smaller in volume. Jul 2018 Capesize & VLOC Market Outlook 45

46 million tonnes Australia - Iron Ore Exports by Destination (source: customs & govt data ; in million tonnes) China Japan South Korea Others (1-3) 2017 (1-3) 2018 (1-3) In the first 3 months of 2018, growth in Australia s iron ore exports continued to be driven by China, which increased 1.7 percent based on Australian government data. Shipments to other main destinations Japan and South Korea also grew 8.4 percent and 2.3 percent respectively. Jul 2018 Capesize & VLOC Market Outlook 46

47 mln tonnes China - Annual Coal Imports by Type (source: customs ; includes steam coal, coking coal and lignite ; in million tonnes) (1-5) Lignite Coking Steam Until 2008, China was a net coal exporter. However, imports have skyrocketed since then. After a sharp drop registered over , China s total coal imports increased in In the first 5 months of 2018, China s coal and lignite imports have increased 7.5 percent to mln tonnes, mainly due to stronger steam coal and lignite demand in Q1 from a colder than expected winter as well as gas supply shortages. Jul 2018 Capesize & VLOC Market Outlook 47

48 China - Coal & Lignite Import Sources in 1H 2018 (source: Thomson Reuters ; in % of import volume) Russia 8% U.S. 2% Others 7% Indonesia 49% Australia 34% Indonesia and Australia dominate coal exports to China, accounting for 49 percent and 34 percent respectively of China s import volume in the first half of Indonesia is the main source of lignite, and Australia of coking coal and steam coal. Jul 2018 Capesize & VLOC Market Outlook 48

49 Charter and S&P Markets (rates, values, sales volumes) Jul 2018 Capesize & VLOC Market Outlook 49

50 USD/day Baltic Exchange Capesize TC Average - Seasonality (source: the baltic exchange ; daily data ; USD/day) 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec In the first 6 months of 2018, the Capesize market achieved a TC average of around 14,000 usd/day, up 21 percent yearon-year. Capesize rates have surged in recent months on increased activity in Brazil, after bad weather in southern Brazil, force majeure in Saldanha, and cyclone warnings in West Australia had put a cap on capesize rates in Q Jul 2018 Capesize & VLOC Market Outlook 50

51 USD/mt Baltic Exchange Capesize Routes - last 12 months (source: the baltic exchange, daily data, USD/mt) 0 07/ / / / / / /2018 C3 (Tubarao to Qingdao) C5 (W.Australia to Qingdao) C7 (Tubarao to Rotterdam) In the first half of 2018, the C3, C5 and C7 routes average TC rates rose 24 percent, 18 percent and 22 percent respectively compared to the same period in Rates rose at the start of July due to increased activity from especially Brazil as well as tight tonnage lists. Jul 2018 Capesize & VLOC Market Outlook 51

52 USD/day 30,000 Capesize 1-Year Timecharter Rates - last 36 months (basis modern standard unit ; estimated monthly avg. ; in USD/day) 25,000 20,000 15,000 10,000 5, / / / / / / /2018 Series2 In the first 6 months of 2018, the 1-year Capesize TC rates averaged around 18,700 USD/day. This compares to an average of 14,100 USD/day for the whole of Jul 2018 Capesize & VLOC Market Outlook 52

53 USD mln 80 Capesize Newbuilding and 5 Yrs Old Secondhand Prices (indicative average ; in USD mln) / / / / / / /2018 Capesize 180K NB Capesize 170K 5 YO SH Since 2017, both Capesize newbuilding and secondhand prices have been picking up as rates and market sentiment improved. In June 2018, capesize newbuild and secondhand prices were up 14 percent and 8 percent respectively. The gap between newbuilding and secondhand prices also remains relatively narrow since 2017, which could increase interest in newbuildings. Jul 2018 Capesize & VLOC Market Outlook 53

54 mln DWT Capesize & VLOC Bulk Reported Secondhand Sales in DWT (July 2018 ; only units over 120,000 dwt ; in million dwt) / / / / / / / ,999 dwt ,999 dwt ,999 dwt ,999 dwt 380,000 + dwt In the first 6 months of 2018, at least 25 vessels have been reported sold, of which 23 were sized between ,999 dwt and 2 were sized between ,999 dwt. This compares to 41 vessels reported sold during the same period in 2017, of which 36 were sized between ,999 dwt. Jul 2018 Capesize & VLOC Market Outlook 54

55 Final Words (summary and conclusions) Jul 2018 Capesize & VLOC Market Outlook 55

56 In the first half of 2018, the Capesize market averaged around 14,000 usd/day, up 21 percent compared to the same period a year ago. Since 2017, both newbuilding and secondhand prices have been picking up, and the relatively narrow gap between newbuilding and secondhand prices could increase interest in newbuilding. For units over 120,000 dwt, ordering activity has continued to improve in the first half of this year In the first half of 2018, 29 vessels were ordered, compared to 22 in the same period a year ago. The orderbook to trading fleet ratio currently stands at around 12 percent. Demolitions have slowed down even further with the improvement in market rates: In Jan-Jun 2018, we recorded the demolition of 12 vessels for a total of 1.9 mln dwt, down 50.7 percent year-on-year in deadweight terms. Thankfully, deliveries have also slowed down by 35.5 percent year-on-year in terms of deadweight, coming in at 29 units for a total of 7.2 mln dwt in the first half of After accounting for slippages, deliveries in 2018 are expected come in at around 13 mln dwt (compared to 15.0 mln dwt in 2017), of which around 49 percent of scheduled deliveries are expected to be units larger than 380,000 dwt. On the demand side, iron ore imports by China are expected to remain supported by a strong preference for higher quality ores a factor that could be bullish for freight rates if it encourages more long haul shipments from Brazil. South Korea s coal import sources could also see a reshuffle due to new regulations, which may benefit tonne-mile demand as they favour imports from longer haul destinations. In spite of the lower alumina and aluminium prices in China, we still expect China s bauxite imports to remain relatively strong due to the tight domestic supply situation, which necessitates the import of bauxite from countries such as Guinea and Australia. However, Chinese coal imports could be threatened by government policies to control domestic coal prices and increase local production this year, although we still expect to see imports pick up Jun-Aug during the peak demand season. Nuclear power plant restarts in Japan are also expected to further reduce their coal imports going forward. Jul 2018 Capesize & VLOC Market Outlook 56

57 & network c. s.p.a. In addition to regular market reports, research recognize the need for bespoke reports & analysis, tailored to specific client needs. Reports can be produced on a wide range of shipping markets including dry bulk, tankers, gas & containers. In addition in-depth reports can be produced on specific commodity markets. To discuss individual requirements please contact: Phone: research@bancosta.com Jul 2018 Capesize & VLOC Market Outlook 57

58 & network c. s.p.a. head office: via pammatone, genoa (italy) phone: [5631-1] dry - capesize capes@bancosta.com research research@bancosta.com dry - panamax capespmx@bancosta.com ship finance financial@bancosta.com dry - handy handy@bancosta.com insurance insurance@bancostains.it dry - operation dryoper@bancosta.com p&i hull@bancostains.it tankers tanker@bancosta.com yachting yachts@bancosta.it containers containers@bancosta.com agency bcagy@bcagy.it s&p salepurchase@bancosta.com ship repair shipyard@bcagy.it offshore offshore@bancosta.com towage/salvage shipyard@bcagy.it bancosta uk bancosta monaco bancosta sa medioriental london monte carlo geneva dubai phone: phone: phone: phone: info@bancosta.co.uk info@bancosta-monaco.com info@bancosta.ch mena@bancosta.com bancosta oriente bancosta oriente bancosta oriente japan rep.office singapore hong kong beijing tokyo phone: phone: phone: phone: sap@bancosta.com.hk sap@bancosta.com.hk capespmx@bancosta.it bancosta.tokyo@spa.nifty.com web site: linkedin: linkedin.com/company/banchero-costa twitter: twitter.com/banchero_costa Legal notice: The information and data contained in this presentation is derived from a variety of sources, own and third party s, public and private, and is provided for information purposes only. Whilst has used reasonable efforts to include accurate and up-to-date information in this presentation, makes no warranties or representations as to the accuracy of any information contained herein or accuracy or reasonableness of conclusions drawn there from. Although some forward-looking statements are made in the report, cannot in any way guarantee their accuracy or reasonableness. assumes no liabilities or responsibility for any errors or omissions in the content of this report. Jul 2018 Capesize & VLOC Market Outlook 58