MONTHLY SHIPPING REVIEW

Transcription

1 MONTHLY SHIPPING REVIEW 15 th APRIL 216

2 DRY BULK: FIRMER TANKERS: MIXED SHIP VALUES: WET: MIXED - DRY: MIXED DRY BULK Vessel earnings reach ytd highs, reflecting more positive demand-side developments and restrictions on fleet supply growth Steel price jumps in China encouraged greater crude steel output in March, which reached the highest monthly level for almost two years. Panamax and Supramax demand continues to be driven by strong South American grain exports, with a record 2q in prospect. Grain trade gains have offset the impact of lower Atlantic coal movements on Panamax demand for the time being at least. Baltic Exchange Dry Index 4,5 4, 3,5 3, 2,5 2, 1,5 1, 5 Jan-1 Jun-1 Nov-1 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Source: Baltic Exchange Oct-13 Mar-14 Aug-14 Jun-15 Nov-15 Apr-16 Sep-16 TANKER After a firm March, VLCC earnings fell quickly in early April but have now started to pick up on solid West African enquiry and the requirements for modern ships. Caribbean dirty trades are being hampered by pipeline and production outages in Latin America and delays at Venezuela. UKC-USAC MR rates are rising amid strong West African demand and a thinner position list as ballasters from WAFR are opting to head to the busy cross-med market instead. LR rates have softened in April as Asian naphtha buying falters and westbound arbitrage opportunities from Asia and the Middle East remain limited. Crude Tanker Spot Earnings Weekly TCE Rates, US$ /day Jan-1 May-1 Sep-1 Jan-11 May MEG-Japan 13 W.Africa-USAC 8 N.Sea-UKC Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 May-14 Sep-14 May-15 Sep-15 May-16 FLEET DEVELOPMENTS In 1q16, 215 new vessels of 18.1mdwt were delivered to the global bulker fleet (excluding ships below 1,dwt). These equated to 2.4% of end-215 tonnage supply. 1q16 removals from the bulker fleet totalled 156 units of 12.3mdwt, or up by 3.2mdwt (+34.7%) from 1q15 volumes. New deliveries to the tanker fleet (including chemical carriers but excluding ships under 1,dwt) totalled 65 units of 7.2mdwt, thus equating to 1.5% of the end-215 fleet. 5 ships of.3mdwt were removed from the tanker fleet in 1q16, against 19 units of 1.7 mdwt in 1q15 - a year-on-year fall of 81.6%. FLEET DEVELOPMENTS Existing No. MDwt No. MDwt No. MDwt No. MDwt Tanker 5, , , ,7 53. Bulk 9, , , , Combi Fleet >= 2 years Tanker Bulk 1, , , , Combi Orderbook Tanker Bulk 1, , , , Combi Published by, Lloyd Chambers, 1 Portsoken Street, London, E1 8PH T: F: E: research@ssy.co.uk Registered : in England number While care has been taken to ensure that the information in this publication is accurate SSY Consultancy & Research Limited can accept no responsibility for any errors or any consequences arising therefrom. Reproducing any material from this report without proper attribution to SSY s strictly forbidden. April 216 2

3 SSY FLEET DATABASE Bulk Carrier Fleet, as at end March , , , ,999 22,+ Total Existing No. MDWT No. MDWT No. MDWT No. MDWT No. MDWT No. MDWT Pre / / , / , / , , / , , Total 2, , , , , New buildings Total , Combined Carrier Fleet, as at end March , , , ,999 2,+ Total Existing No. MDWT No. MDWT No. MDWT No. MDWT No. MDWT No. MDWT Pre / / / / / Total New buildings Total Tanker Fleet, including Chemical Tankers, as at end March , , , , , ,999 2,+ Total Existing No. MDWT No. MDWT No. MDWT No. MDWT No. MDWT No. MDWT No. MDWT No. MDWT Pre / / / , / , / Total 1, , ,7 53. New buildings Total Container Ships on Order, as at end February ,-1,999 2,-2,999 3,-3,999 4,+ Total New buildings No. TEU No. TEU No. TEU No. TEU No. TEU No. TEU No. TEU , , , , , , ,87, , , , ,223, ,414, , , , ,71, ,19,7 Total 12 2, , , , , ,29, ,692,486 April 216 3

4 DRY BULK MARKET Representative Rates Last Day of Month Mar-14 Mar-15 Feb-16 Mar-16 16/15% Baltic Exchange Dry Index (4/1/85=1,) 1, % Avg 6 T/C Handysize $9,542 $5,813 $3,227 $3,182 $4,33-3.6% Avg 6 T/C Supramax $11,42 $6,797 $3,179 $3,542 $4, % Avg 4 T/C Panamax $7,6 $4,78 $2,299 $2,845 $4,8-16.2% Avg 4 T/C Capesize $2,636 $4,415 $2,785 $2,356 $2, % Iron Ore W.Aus-China (Cape) $1.25 $4.5 $3.5 $2.95 $ % Iron ore Brazil-China (Cape) $23.5 $1.25 $5.25 $5.6 $ % Coal Richards Bay-Rotterdam (Cape) $1.85 $4. $2.75 $2.4 $ % Coal Bolivar-Rotterdam (Panamax) $11.25 $8.1 $5.1 $5.3 $ % Coal NSW-Qingdao (Panamax) $14.6 $8.4 $4.65 $5.55 $ % 12 month T/C Handysize - 3, $1,125 $6,375 $4,438 $4,25 $4,5-29.4% 12 month T/C Supramax - 52, $13, $8,188 $5,125 $4,813 $5, % 12 month T/C Panamax - 74, $14,25 $7,75 $4,625 $4,875 $5, % 12 month T/C Capesize - 18, $27,5 $1, $5,3 $5,5 $5, % SSY Atlantic Capesize Index (2/1/89=5,) 9,36 3,869 2,55 2,531 2, % SSY Pacific Capesize Index (6/1/97=4,114) 6,748 2,538 1,617 1,633 1, % 38 CST Rotterdam $579.5 $285. $153. $148. $ % STEEL PRICES JUMP he sudden improvement in the Capesize T market has lifted average earnings for 18k dwt vessels from the all-time low of $1,985/day on 17 March to $7,76/day. This reflected a combination of more positive demand-side developments and restrictions on fleet supply growth. Brazil s official iron ore export data indicate a substantial gain in this year s shipments despite the absence of Samarco from the market. The 1q16 total of 85.3 Mt is up 6. Mt on the 1q15. Australian iron ore exports also demonstrated growth in the first two months of the year, rising 2.1 Mt to 12.6 Mt, while record throughput last month from Port Hedland, the country s largest terminal, suggests scope for further annual growth in Australian ore exports in March. Chinese iron ore imports in the 1q16 rose 14.6 Mt annually to Mt. This was partly due to restocking at the ports, but also displacement of domestic iron ore supply and, more latterly, increased demand from China s steel mills. Significantly, there have been sharp rises in steel prices, with the price of Chinese rebar, for example, jumping from $28/t in mid-march to $351/t by 14 April, a level last seen in January 215. This has encouraged greater production with China s crude steel output in March at its highest monthly level for almost two years. Panamax average earnings have also risen to a year-to-date high, albeit in a less dramatic fashion than Capes, to $5,796/day, driven by gains in the Atlantic, where round voyage rates Baltic Exchange Dry Index 12, 11, 1, 9, 8, 7, 6, 5, 4, 3, 2, 1, Jan-5 Jul-5 Jan-6 Jul-6 Jan-7 Jul-7 Jan-8 Jul-8 Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jul-16 SSY Capesize Indices 45, 4, 35, 3, 25, 2, 15, 1, 5, Jan-5 Jul-5 Jan-6 Jul-6 Jan-7 Jul-7 Jan-8 Jul-8 Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Atlantic Pacific April 216 4

5 DRY BULK MARKET climbed to a seven-month high of $7,45/day, as opposed to $4,173/day at the beginning of March. Panamax and Supramax demand continues to be driven by strong South American grain exports, with a record 2q in prospect. March data from Brazil show that combined exports of soya and corn combined surged to a record 11.9 Mt in March, up 56% year-on-year, as soya shipments rose to an eight-month high just short of 1 Mt. For the time being at least, these gains have offset the impact of lower Atlantic coal movements on Panamax demand. US coal exports (excluding Canadian cargoes) declined by a third to 3.9 Mt in February, as steam coal exports slumped to a six-year low. On the importer side, the sharpest slowdown in Europe has been in the UK, where coal imports fell 2.2 Mt year-on-year to 1. Mt in February, the second lowest month in the last 16 years. One positive development for tonne-mile demand has been Colombian steam coal exports to India, which reached a combined.8 Mt in February/March, the first such shipments since 213. That said, March exports to all destinations slipped to a two-year low of 5.6 Mt. Average spot earnings for both Supramax and Handysize have also established respective year-to-date highs of $5,494/day and $4,639/ day. The bauxite mining ban in Malaysia, initially running for three months from January, has been extended for another three months. China imported 24 Mt of bauxite in 215, so the reduction in shipping (purely from stocks) from Malaysia has been detrimental to Supramax demand in the Pacific. Chinese customs data for the first two months of the year revealed a shift in bauxite sourcing, with 1.4 Mt imported from suppliers in the Atlantic in the first two months of 216, compared with a mere.1 Mt in the same period last year. Fleet supply growth across the whole of the dry bulk carrier fleet slowed to just +.1 Mdwt in March from +4.8 Mdwt in January, as demolition activity remained robust, particularly in the Capesize and Panamax sectors. Cape deletions totalled 2.7 Mdwt in March, excluding 19 sales for demolition of 3.1 Mdwt, which have yet to exit the fleet. This ensured a net decline of almost 1 Mdwt in Cape supply last month (before any allowance for ships entering layup). Average of the Timecharter Routes $/day 6, Supramax (52, dwt) 5, Panamax (74, dwt) Capesize (172/18, dwt) 4, 3, 2, 1, Jan-1 Jan-11 Jan-12 Jan-13 Capesize Voyage Rates $/t 4 Coal RB/Rotterdam 35 Iron Ore W. Aus/China Iron Ore Brazil/China Jan-1 Jan-11 Jan-12 Jan Month Time-Charter Rates $/day 4, 25/32, 35, 5/55, 7/75, 3, 17/18, 25, 2, 15, 1, 5, Jan-1 Jan-11 Jan-12 Jan-13 April 216 5

6 COAL JAPAN S LONG-TERM STEAM COAL PROSPECTS apan s combined steam coal and anthracite J imports surged to a record 12.1 Mt last year, marking a sizeable gain on the Mt shipped into the country during the previous year and, significantly, comparing favourably with the 17.9 Mt imported during 21, prior to the post-fukushima nuclear shutdown starting in 211 (see chart, right). Of last year s imports, almost 75% were shipped from Australia, with Russia supplying more steam coal/anthracite (13.5 Mt) than Indonesia (12.6 Mt) for the first time since However, at 19.9 Mt, imports of steam coal/anthracite in the first two months of 216 were 4% lower than in the same period last year. The past year has seen a number of statements on the long-term role of coal in the energy sector. In July last year, the ministry of economy, trade and industry approved Japan s Intended Nationally Determined Contribution (INDC) in advance of December s Paris Agreement on Climate Change (COP21). By 23 coal was targeted to form 26% of the national energy mix from around 3% at present. This would be a similar share to the gas 23 target of 27%, with renewables, such as solar and hydropower, comprising as much as 24%. The INDC aimed for a 36% cut in CO2 emissions from 213 levels by 23. Perhaps most contentiously, however, was the planned contribution of nuclear power of 22% by 23, which would approach the 21 share of around a quarter, if the energy mix were to evolve as planned. This would also mark a dramatic return of the sector from current minimal generating levels. Data from the Federation of Electric Power Nuclear Power Generation in Japan bln kwh Source: Federation of Electric Power Companies generation at zero Jan-5 Jul-5 Jan-6 Jul-6 Jan-7 Jul-7 Jan-8 Jul-8 Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Japan s Steam Coal/Anthracite Imports Mt Companies of Japan show the sporadic and limited return of nuclear power since 211, (see chart below). As we commented in the December MSR, although coal was not explicitly mentioned in the text of last year s COP21 agreement, success in reaching the temperature-focused targets in the agreement would require lower coal consumption, without the widespread adoption of new technologies. In February this year, Japan s environment ministry permitted the construction of new coal-fired power plants on the proviso that utilities disclose CO2 emissions from this month (April) onwards, when full liberalisation of Japan s energy sector takes place. More importantly, each utility supplying in excess of 5 GWh will be committed to raising the share of nonfossil fuels in their energy output to a minimum of 44% by 23. Additional thermal efficiency improvements will be also be required at each plant. Between now and the end of 219, Reuters estimates some 15 coal-fired units are planned to enter operation with an aggregate capacity of 1,622 MW, but, crucially, a further 16 units are planned to enter service during 22-23, which would have a far higher combined capacity of 11,2 MW. Given the targets detailed above, it can be assumed that a number of these new facilities will simply replace outdated coal-fired power plants. The legacy of Fukushima does pose a threat to the realisation of nuclear securing 22% of Japan s energy mix 14 years from now. According to Japanese media, an emergency shutdown in February of the No.4 unit at the Takahama plant 38 km from Tokyo took place just three days after its restart. This incident prompted the nuclear regulator to refer to the large impact on society with trust in nuclear energy diminished and underlines the delicate balance to be struck between following public opinion and promoting non-fossil fuel April 216 6

7 COAL Seaborne Coal Trade Coal Exports Mt Annlsd USA: Coking (ex. Canada) Thermal Total [Dec] Canada: Coking (ex. USA) Thermal Total [Dec] Australia: Coking Thermal Total [Dec] South Africa: Coking Thermal Total [Dec] Poland: Coking Thermal Total [SSY] Colombia Thermal [Dec] Indonesia Thermal [SSY] PR China Coking Thermal Total [Dec] Other Exporters Coking Thermal Total Total Seaborne Coking Thermal Total [SSY] Coal Imports Mt Annlsd Japan Coking Jan to: Thermal Anthracite Total [Dec] Europe Coking Thermal Total [SSY] South Korea Coking Thermal Anthracite Total [Dec] Taiw an Coking Thermal Total [Dec] China Coking Thermal Total [Dec] India* Coking Thermal Total [SSY] USA Thermal [Dec] Other Importers Coking Thermal Total Total Seaborne Coking Thermal Total [SSY] * Based on exporter data to India April 216 7

8 STEEL/IRON ORE STEEL TRADE ROUND-UP fter a strong 215 in which growth in the global A steel trade was driven by surging exports from China, the start of 216 saw a slowing in the global steel trade with combined shipments from China, Japan, South Korea, the EU and Brazil in the 1q16 estimated to be the lowest quarterly total since the 1q15. This retreat can be largely attributed to weak global steel demand impacting trade, but also to a rise in protectionism. China has been the primary target of steel-related trade cases but most other major steel producers, including South Korea, Japan, Brazil, and some European countries, have also seen their products subject to tariffs and restrictions. Chinese steel exports fell on an annual basis for only the second time in the last three years in January, dropping.6 Mt to 9.7 Mt. However, exports returned to positive year-on-year growth in both February and March, with shipments in the latter a three-month high of 1. Mt. This can be linked to the first annual rise in Chinese crude steel output since December 214 in March, up almost 3% to 7.7 Mt. In aggregate, China s 1q16 exports of 27.8 Mt were up 2. Mt on the 1q15, although they were still down on the preceding two quarters. The slowdown in export growth at the start of 216 can be ascribed to both lower domestic steel output in the first two months of the year and a more competitive environment for exports amidst stagnant global steel demand. However, tariff barriers and import restrictions initiated by a range of countries against Chinese steel imports have also played a role. SteelFirst reported 39 active trade cases pending against Chinese steel products at the start of 216 and a further 18 investigations citing Chinese steel products were initiated in the 1q16. Chinese Steel Exports by Destination Mt SE Asia NE Asia Americas MEast a Africa Europe South Asia Major Steel Exporters tonnes 22, 2, 18, 16, 14, 12, 1, 8, 6, 4, 2, Jan-13 Japan China S.Korea Brazil EU Apr-13 Jul-13 Oct-13 Apr-14 Brazil has also seen a sharp increase in its steel exports, up over 4% in 215. This continued at the start of 216 with shipments up.3 Mt year-on-year to 2. Mt in Jan-Feb. Rising steel exports have occurred alongside a drop in domestic steel output, showing the slump in steel consumption that has occurred as the country s economy has slowed. Brazil has also seen its currency depreciate substantially against the dollar, providing an additional impetus for exports. The US has been one of the most active countries in filing trade cases concerning steel imports. Falling domestic demand, particularly in the oil and gas sector, has increased the competition between domestic and imported steel and placed more attention on the impact of low cost imports on the domestic steel industry. The US has introduced anti-dumping measures against ten countries including, China, South Korea and Brazil, since the start of 216, this is in addition to other measures already in place. US steel imports have fallen by 2.9 Mt year-on-year in the first two months of 216 to 4.4 Mt, and this sharp decline is partially responsible for the drop in annualised 216 Chinese steel exports to the Americas. Chinese exports to Latin America have also fallen over the same period. Japanese steel exports dropped slightly on an annual basis in Jan-Feb to 6.6 Mt. However, shipments in the first two months of the year were only slightly below average monthly exports in 215. Japanese steel exports appear not to have been significantly impacted by the surge in Chinese shipments to its key markets in SE and NE Asia, as annual volumes have remained steady at slightly over 4 Mt for the last three years. Given the rising tide of steel protectionism, together with the World Steel Association s current forecast for a.8% net decline in global steel demand this year, it will be difficult for world steel trade volumes to improve on, or even match, last year s annual record. Oct-14 Apr-15 Oct-15 April 216 8

9 STEEL/IRON ORE Million Tonnes Annlsd Iron Ore Exports Australia [Dec] Brazil [Dec] Canada [SSY] India [SSY] S.Africa [Dec] FSU [SSY] Other [Diff] Total ,73.6 1,29.7 1, ,458.4 [SSY] Iron Ore Imports Annlsd EU [SSY] Other W.Europe [SSY] E.Europe [SSY] Europe (E+W) [SSY] Japan [Dec] South Korea [Dec] Taiw an [Dec] China [Dec] Other Asia [SSY] Other [SSY] Total ,31.2 1, ,393. 1,415.2 [SSY] Steel Production Annlsd Austria % Belgium % France % Germany % Italy % Netherlands % Spain % Sw eden % United Kingdom % Other EU % EU15 Total % Turkey % Other Europe % TOTAL EUROPE % Canada % United States % N. AMERICA % Brazil % Mexico % Other L&S America % L&S AMERICA % Japan % Australia % South Africa % India % Rep of Korea % Taiw an % Czech+Slovakia % Poland % Romania % CIS % China % N.Korea % Other % WORLD , , ,65.4 1,67.2 1, % April 216 9

10 GRAIN CHINA ENDS MINIMUM PRICING FOR CORN n late March, China s State Administration of Grain I announced it would end the price support scheme for domestic corn producers and move towards market based pricing. The scheme, introduced nine years ago, was intended to encourage corn planting and promote food security by setting a minimum price at which the government would guarantee to purchase domestically produced corn and store it in its reserves. A new scheme where subsidies would be paid directly to farmers has been announced, although the details have yet to be confirmed. The minimum prices for corn set by Chinese authorities have been well above recent global prices (around 3-5% higher according to the US Department of Agriculture) and, as a result, the government has built up substantial corn stockpiles. According to the International Grains Council (IGC) corn stocks have risen from 44.4 Mt in 26/7 (Jul- Jun) to an estimated 98.4 Mt in 214/15 and are forecast to rise further to 18. Mt in 215/16, accounting for 52% of stocks globally. Some sources put stocks significantly higher, for example Reuters are quoting close to 25 Mt of corn. In addition, high domestic corn prices have created the somewhat bizarre situation that, despite oversupplied domestic markets, China has raised its imports of corn and similar substitutes such as sorghum and barley. The end of minimum pricing is likely to see domestic prices fall towards the levels seen on global markets, with negative implications for trade and ship demand. Price liberalisation will provide strong short-term incentives for China to reduce its corn stockpiles. Stocks will be devalued as the price of corn reverts towards market levels and the quality of the inventory Chinese Coarse Grain Imports Mt /7 27/8 Source: IGC 28/9 29/1 21/11 211/12 212/13 213/14 214/15 215/16f Chinese Corn Stocks Mt /7 27/8 Source: IGC 28/9 29/1 21/11 is likely to deteriorate over time. Given the current condition of oversupply in the domestic market, this can most easily be achieved by substituting for imports and increasing exports. Chinese coarse grain imports are forecast by the IGC to drop to 17.3 Mt in 215/16 (of which 2.5 Mt is expected to be corn), down from 23.6 Mt in 214/15 (4.9 Mt of corn). A significant release in corn stocks could push this down further and, should imports revert to levels seen before the minimum pricing scheme was introduced, then volumes would be cut to under 2. Mtpa of coarse grain, with corn imports close to nil. However, if domestic output drops as a result of lower prices, China s corn imports could recover over the longer term. China s corn exports have been negligible since the minimum pricing scheme was introduced, however in the three years preceding the implementation of the scheme the country exported over 16 Mt of corn. Any significant resumption in Chinese exports is likely to be focussed on destinations in SE Asia, potentially displacing longer haul cargoes from producers in Europe and the Americas. According to a recent agriculture ministry statement, reported by Reuters, China is seeking to cut corn oversupply by reducing the area made over to planting the crop by a third (around 8.2 million acres) by 22. The government plans to allocate 3.5 billion yuan to the task of encouraging farmers to switch to alternative crops. However, It may be difficult to cut corn production this harvest year, as farmers will have already made preparations for the planting season that begins in April. Nevertheless, should a substantial amount of land be switched to soyabeans then, subject to issues of price and quality, there could be negative implications for the country s soyabean imports, which totalled 81.7 Mt in 215 and are dominated by long haul supplies from Latin America and the US. 211/12 212/13 213/14 214/15 215/16f April 216 1

11 GRAIN World Grain Trade 8/9 9/1 1/11 11/12 12/13 13/14 14/15 15/16 Diff Exporters: Brazil: Wheat Coarse Grain Soya Total USA: Wheat Coarse Grain Soya Total Canada: Wheat Coarse Grain Total Australia: Wheat Coarse Grain Total Argentina: Wheat Coarse Grain Soya Total EU: Wheat Coarse Grain Total Russia: Wheat Coarse Grain Total Others: Wheat Coarse Grain Soya Total World: Wheat Coarse Grain Soya Total Importers 8/9 9/1 1/11 11/12 12/13 13/14 14/15 15/16 Diff Japan: Wheat Coarse Grain Total PR China: Wheat Coarse Grain Soya Total S.Korea: Wheat Coarse Grain Total EU: Wheat Coarse Grain Soya Total Egypt: Wheat Coarse Grain Total Iran: Wheat Coarse Grain Total Others: Wheat Coarse Grain Soya April

12 FLEET DEVELOPMENTS 1Q16 SCRAP SALES SURGE espite exceptionally high disposals of surplus D ships in inclusive, 1q16 has seen yet further acceleration in scrap sales, with 253 vessels of 15.55mdwt (basis all ship types) reported sold. This constituted a rise in tonnage terms of 2.4mdwt (+18.6%) from 1q15. Furthermore, if sustained to the end of the year (which is unlikely given the influence of the monsoons on activity in the Indian sub- Continent), such selling would imply a final total for 216 of 62.2mdwt - up by 4.8mdwt (+8.4%) from the all-time record of 57.4mdwt recorded in 212. As is also clear from the top graph, sales have again been heavily centred on dry cargo vessels, with 237 such units of 14.6mdwt sold in 1q16. By contrast, just 16 oil carrier scrap sales of.9mdwt (or 5.9% of the total in dwt terms) ensued in the same period. Greater demolition sales in 1q16 took place despite further steep falls in scrap prices in January and February, albeit that these have since rallied, as seen in the lower graph. From US$227/lwt at end- February prices of bulkers for scrapping on the sub- Continent reached US$287/lwt six weeks later - a 26.4% rise. (For a Capesize of around 22,lwt, this meant an increase of some US$1.32m in revenue received by the seller of such a ship). Heightened selling also ensued despite very low oil and bunker prices that cut the incentive to dispose of older, less fuel-efficient vessels. Yet international oil prices have rebounded by almost 5% since mid-january, from barely US$3/bbl for Brent crude to around US$44/ bbl at present. Hence, any negative effect that softer bunker prices may have had on owners willingness to scrap tonnage should similarly abate. A major factor in surging scrap sales has been continued severely depressed dry cargo markets. Ship Demolition Prices: sub-continent US$ per lwt Mar-14 May-14 Dirty tanker, 15/25, lwt Clean tanker, 6/1, lwt Bulk carrier, 7/12, lwt Sep-14 Nov-14 Mar-15 May-15 Sep-15 Nov-15 Mar-16 Ship Demolition Sales by Year (Mdwt) Dry cargo / other Oil carriers 216 totals annualised on basis of year-to-date sales SOURCE: SSY This was illustrated by a record quarterly low for the Baltic Dry Index (BDI) in 1q16 of just 358 points - a decline of 41.7% from 1q15. As well as demand side weakness, vessel earnings have been pressured by a 3-year high in newbuilding deliveries. Together this has caused record numbers of Panamaxes (65-99,999dwt) and Capesizes (1,+dwt) to be sold for scrap in the year to date. At mid-april, 59 such sales have taken place of the former, compared to 19 in the whole of 215. For Capes, the comparable figures are 49 sales so far in 216 against 215 s final total of 93. Not only have greater numbers of large bulkers been sold for scrap in 1q16: analysis of vessel ages shows a heightened incidence of sales for breaking of ships less than 2 years age. Whereas 26 such Panamaxes were sold for demolition in calendar 215, so far in 216 the comparable total has been 2 units. Similarly, for Capesizes, 39 ships less than 2 years old were sold for scrap last year against 16 already in 216. In fact, whereas the average age of Panamaxes sold for breaking even as recently as in 214 was 24.3 years, in 216 to date it has fallen to just 21.1 years. In the Capesize sector, the equivalent averages were 23.4 years in 214 and 21. years so far in 216. Unlike ongoing high sales for breaking of large bulkers (and older container ships) so far this year, tanker scrap sales (including purpose-built chemical carriers) have fallen again. After 15 such ships of 4.2mdwt were sold in 215 (a third successive annual decline), sales of these vessels are on course to total only 64 units of 3.7mdwt in 216 (based on first quarter sales). If correct, this would be the lowest annual total for this ship type since Furthermore, as noted in the Fleet Developments section of last month s issue, the current tanker fleet has a very modern age profile: only 16.9% of existing vessels are over 15 years old. This implies limited scope for tanker scrapping in the near term, even if present firm freight markets ease April

13 ECONOMY WORLD GDP GROWTH TOO SLOW FOR TOO LONG ast month US Federal Reserve Chair Janet L Yellen argued the Fed should proceed cautiously, before raising interest rates again due to global economic uncertainty. Indeed, in this week s World Economic Outlook, the International Monetary Fund (IMF) notes the world economy has been growing too slow for too long. The Federal Reserve made its first upward adjustment to US interest rates for seven years as recently as December 215, lifting the federal funds rate by.25 percentage points to a range of.25-.5%. Although further rate increases this year had been expected by some market participants, the US Federal Reserve has evidently tempered its approach. Were the very low interest rate environment to persist for longer than expected, it would naturally benefit those repaying debt as well as fresh investors in shipping assets. The IMF notes another positive factor for economic activity in the form of boosting the attractiveness of infrastructure investment, which the Fund claims in its April Outlook is needed across a range of countries. Meanwhile, this year s fall in the US Dollar (see chart of the Dollar Index below), has helped commodity prices to rise. Noting the ever-slowing and increasingly fragile pace of the global recovery, the IMF has lowered its forecasts for global GDP growth in 216 and 217 from its previous projections released in January. This year s projection has been lowered by.2 percentage points to 3.2% and the 217 forecast has been trimmed by.1 percentage points to 3.5%. This compares with the IMF s growth estimate of 3.1% for last year, which the IMF has opted to leave unchanged. Last year s performance was the weakest since the contraction of -.1% in 29. US Dollar Index Source: Thomson Reuters 75 Jun-14 Nov-14 Apr-15 Sep-15 Feb-16 GDP Growth % Source: IMF World US Eurozone Japan China India Managing Director Christine Lagarde highlighted that the global recovery remains, too slow, too fragile and is at risk of persistent low growth having damaging effects on the social and political fabric of many countries. In her words the risks of being trapped in a new mediocre have increased. The introduction to the Outlook also refers to political discussion in the US and Europe turning more inward due to income inequality, resentment of global elites and fear of terrorism, which may eventually lead towards protectionist policies. In advanced economies the recovery has been hampered by weak demand, partly restrained by unresolved crisis legacies, unfavourable demographics and low productivity growth. The US economy is forecast to expand by 2.4% this year and 2.5% next year (marking respective downward revisions of.2 percentage points and.1 percentage points), consistent from an expansion of 2.4% in 215. The projection for the Eurozone was lowered by the same amount for both years, to 1.5% for 216 and 1.6% for 217, similarly consistent with estimated growth of 1.6% last year. Japan saw the most significant downward revision among this group, with estimates cut by.5 percentage points for this year to.5% and by.4 percentage points to a contraction of -.1% next year. For emerging markets and developing economies low commodity prices have contributed to further trimming of GDP growth estimates for Russia, Brazil, Sub Saharan Africa and West Africa over the next two years. In contrast, projections for China were lifted by.2 percentage points for both years to 6.5% and 6.2% respectively, but down from growth of 6.9% in 215. The economy s transition towards a service- and consumption-based model continues, but the IMF warns bumps along the way could have substantial spillover effects. April

14 OIL MARKETS RUSSIA CONSIDERS ITS OPTIONS: PRODUCTION AND EXPORT STRATEGIES s Russia heads into an April meeting in Qatar A along with other oil producers, the country is considering a number of output and export scenarios which may help to strengthen its position in a challenging global oil environment. For crude oil, these considerations are focused around two areas, first a production freeze (or even decrease) and second, where this crude output will be sold to. Russia is currently the world s largest oil producer and in March had an average oil output of 11.25M b/ d (including NGLs), according to the International Energy Agency (IEA). The country raised it s output to post-soviet highs at the beginning of 216 but has also been one of the most prominent non-opec countries to both voice concerns over the current global oil market s oversupply and express an interest in potential co-ordinated action to lift prices. The country was the only non-opec member of an output freeze agreement in February with Saudi Arabia, Qatar and Venezuela (but this required other countries to join before action was taken). However, outside of a freeze agreement, Russia is traditionally thought to be limited in its ability to reduce output. Much of its oil is produced in Siberia where permafrost and potential rock deformation if pressure is reduced make lowering output difficult. However, new technology and potential mothballing of long-term non-profitable fields may indicate that some cuts are possible. Russia s Deputy Energy Minister noted in the media in March that it was technically possible to reduce the country s oil output by 5%, which at February levels would be around 561K b/d. However despite discussions of output action, for the moment scheduled 1H16 Russian crude exports Russian Crude Exports Quarterly M b/d, Y-o-Y Baltic Black Sea Kozmino Source: IEA 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16* Russian Oil Production Monthly M b/d Source: IEA Feb-15 Mar-15 Apr-15 May-15 Jun-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Feb-16 Mar-16 from its Baltic, Black Sea and Far East port of Kozmino are set to rise by 228K b/d y-o-y to 2.78M b/d, Energy Intelligence reports. Factors cited for the rise include i) lower export duties, ii) reduced domestic demand (Russia s economy is projected by the IMF to contract 1.8% in 216) which could mean that exports still rise even if output is capped or declines, iii) accumulated stocks in the system and iv) that the export plans can be subject to change. The slump in the value of the Rouble has also reduced Russian oil producers output costs, increasing their international competitiveness. Of the 2.78M b/d that is set to be exported in 1H16, higher Baltic exports (+219K b/d to 1.55M b/d) account for the majority of this. Since 3Q15 Baltic volumes have bucked the recent trend of declines. Russian producers are also aiming to protect their market share from growing Middle Eastern crude supply to Northwest Europe and the Baltic. But Black Sea exports (-11K b/d to 622K b/d), are set to come under pressure as Russia reduces shipments from the region (as more supplies are directed to the country s Far East ports), while loadings at Novorossiysk have also been sporadically disrupted by poor weather conditions. Growth in exports through Kozmino (+19K b/d to 64K b/d) has slowed but Russia is expected to continue to focus on Asia for growth. Chinese imports of Russian crude surged in 215 and this trend shows little sign of abating in 216, with China becoming the dominant buyer for Kozmino cargoes, while South Korea and Japan have also taken significant volumes. Russia s Energy Minister Alexander Novak stated in late 215 that the country expects up to 3% of its crude oil exports to head to Asia by as soon as 22, with infrastructure improvements (rail and pipeline) and oil exploration in its largely unexplored East Siberia and Far East region lifting volumes. Russia has also been improving its energy ties with India, with Rosneft set to take a 49% stake in Indian refiner Essar Oil. April

15 OIL MARKETS SUMMARY OIL STATISTICS (million b/d) Annual averages Year to Date: Percentage Latest Data to: Change** Month WORLD OIL PRODUCTION (incl Non-OPEC NGLs) Saudi Arabia Mar % 1.17 Iran Mar % 3.3 Other MEG OPEC Mar % 1.44 Non-MEG OPEC (*Incl Indo) Mar % 8.56 FSU Mar % US Mar 16.23% Latin America (incl Mexico) Mar % 7.4 Europe Mar % 3.57 Sources: IEA OIL PRODUCTS DEMAND US Feb 16.59% Japan Feb % 4.91 EU (Main 4)* Feb 16.14% 7.13 South Korea Feb % 2.72 PRC Feb % 11.1 FSU Feb % 4.53 Latin America (excl Mexico) Feb % 6.4 Sources: Energy Intelligence (Oil Mark et Intel) CRUDE OIL & NGL EXPORTS FSU (seaborne) Feb 16 5.% 5.64 FSU (Druzhba pipeline) Feb % 1.9 Mexico Feb % 1.24 UK Jan %.61 Sources: IEA, Pemex, PRC Customs CRUDE OIL IMPORTS US Feb % 7.68 Japan Feb % 3.46 OECD Europe Jan 16.71% 9.2 South Korea Mar % 2.71 India Feb % 4.27 PRC Mar % 7.71 Sources: US DoE, PAJ, IEA, KNSO, PRC customs REFINED PRODUCTS IMPORTS US Jan % 2.6 Japan Feb %.56 OECD Europe Jan % 3.7 PRC Feb %.69 Sources: US DoE, PAJ, IEA, PRC customs REFINERY THROUGHPUTS US Feb % Japan Feb % 3.37 OECD Europe Feb % South Korea Feb % 3.14 Sources: IEA CRUDE SPOT OIL PRICES (US$ per barrel) Brent (dated) Mar % WTI (Cushing) Mar % Urals (delivery Mediterranean) Mar % Dubai Light Mar % Sources: IEA * EU (Main 4) = Germany, France, Italy and the UK. ** % changes for 216 figures (year to date) against same period of 215, e.g. Jan-Nov '16 vs Jan-Nov '15 April

16 TANKER MARKET CLEAN TANKER MARKETS UNDER PRESSURE anker markets have again demonstrated their T volatile nature. Dirty markets spiked mid-march, with VLCC rates driving the sector, on the back of i) increased Middle East exports (Iraq output hit a record high in March), ii) loading delays in the Far East and iii) storage interest for Aframaxes and Suezmaxes in Asia. But levels have since declined as Asian refinery maintenance weighs on crude demand. For the clean sector, LR rates rose through March as Asian naphtha demand remained strong and additional support came from strong Aframax earnings. However, rates have fallen rapidly in April as naphtha buying slowed and westbound arbitrage opportunities from East of Suez remained limited. MR rates in Asia increased steadily due to strong short-haul enquiry and robust Australian demand. But, Atlantic MR rates were under pressure as the transatlantic diesel and gasoline arbitrages remained closed. DIRTY - VLCC: MEG-Japan earnings surged mid- March to their highest since January at over $85,/ day amid i) a sharp jump in Middle East cargoes fixing for March, ii) ongoing delays in the Far East, and iii) heightened West African fixing, particularly to Asia (raising tonne miles and attracting eastern ballasters away from the MEG). Rates spiked at W1 (US$19.3/t) mid-month, double the level at the start of March, but quickly fell back to W62.5 (US$12.1/t). A flurry of options cargoes and some replacement fixtures caused levels to bounce to W9 (US$17.4/t) at the end of the month but rates fell to W6 in early April as Asian refinery maintenance gets underway. Vessel congestion at ports of Qingdao and Basrah as well as terminal issues in Thailand have provided some support, but not enough to clear prompt position lists that have also included several newbuilds. Suezmax Spot Rates $ /day Apr-14 Oct-14 Apr K BS-Med 13K WAFR-USAC Oct-15 Apr-16 VLCC Spot Rates $ /day Apr-14 Oct-14 AVERAGE MONTHLY TCE At Basrah, although April loadings were expected to be relatively stable on the month at around 3.28M b/d, the May schedule has been cut to 3.9M b/d due to maintenance and the current backlog, reports Reuters. Similarly, WAFR-China rates spiked mid-month at W85 (US$24.3/t) as the strong Middle East market provided support and Asian enquiry picked up, driven by China. China s loadings of West African crude in April are expected to be the highest in 19 months at 1.11M b/d as strong demand from independent refiners combines with the additional volumes now heading from Angola following a deal with Sinopec, reported Reuters. Total loadings to Asia are set to rise to over 2M b/d, the highest since July 215. Rates fell once enquiry slowed, but not as severely as in the Middle East. In the Caribbean, rates were briefly supported by strength across the VLCC sector mid-month, but Atlantic tonnage supply has remained elevated on i) supply Apr-15 28K MEG-USG 26K WAFR-China 265K MEG-Japan Assessments ($/day) now inc allowances for ECA zones Dirty March February 216 YTD 265K MEG-Japan 57,951 46,49 57,15 28K MEG-USG 26,33 22,272 3,73 13K WAFR-USAC 27,588 31,784 32, K Bsea-Med 3,512 36,448 39,628 7K Caribs-USG 23,187 27,552 24,22 8K Indo-Japan 38,68 26,21 31,191 8K UKC-UKC 25,741 25,73 29,518 Clean 75K MEG-Japan 19,882 21,914 23,973 55K MEG-Japan 17,91 15,974 18,662 37K UKC-USAC 9,627 13,16 13,335 38K USG-UKC 1,681 11,96 1,886 3K SEAS-Japan 11,17 1,113 1,82 Oct-15 Apr-16 April