OCEAN FREIGHT OUTLOOK DRY BULK SHIPPING MARKET North Asia Marketing Conference

Transcription

1 OCEAN FREIGHT OUTLOOK DRY BULK SHIPPING MARKET North Asia Marketing Conference Joong-Ho Ahn Managing Director Pan Ocean Co., Ltd. August 2018 The material and the contents are provided for informative purpose only.

2 Contents 1. Dry Bulk Market Review 2. Highlights for the Last 2 Years 3. Outlook for Other Key Factors 5. Conclusions & Implications 1

3 Contents 1. Dry Bulk Market Review 1.1 BDI History 1.2 Main Factors 2. Highlights for the Last 2 Years 3. Outlook for Other Key Factors 5. Conclusions & Implications 2

4 1. Dry Bulk Market Review 1.1 BDI History The Baltic Dry Index (BDI) is a dry bulk market indicator issued daily by the London-based Baltic Exchange. The index provides an assessment of the price of moving major raw materials by sea. (Jan. 4, 1985 = 1,000) 14,000 12,000 Highest Record May 20, 08 11,792 10,000 8,000 6,000 China s rapid industrialization Lehman Brothers & Financial Crisis (Sep, 08) As of 27 Jul 18 1,676 4,000 2, Terror (Sep 11, 01) Lowest Record Feb 11, Iraq War (Mar-Apr, 03)

5 1. Dry Bulk Market Review 1.2 Main Factors Supply Demand Global economy growth Delivery & Demolition Ship s value (New building & Second-hand ship s price) Seaborne trade volume Tonne mile Others Environmental issue & Regulation Oil Price Geopolitical issues Government Intervention 4

6 Contents 1. Dry Bulk Market Review 2. Highlights for the Last 2 Years 2.1 Composition & Change of BDI 2.2 Time Charter Forecast in Outlook for Other Key Factors 5. Conclusions & Implications 5

7 2. Highlights for the last 2 years 2.1 Composition & Change of BDI Size Handy S max P max Cape 2,000 DWT 20K~49K 50K~69K 70K~99K 100K~ 1,500 1, APR 2017 BSI 58 replaces BSI 52 58K DWT became Benchmark vessel for Supramax Launching dual reporting 74K DWT and 82K DWT for Panamax BDI reflect vessel s trend of getting bigger size in its segment BDI is expected to see greater volatility MAR 2018 Dropping Handysize Bulker from BDI Weighting NEW Previous Cape 5T/C 40% 25% P'max T/C 30% 25% S'max T/C 30% 25% Handy T/C - 25% Remark Drop handy Equal Weight 6

8 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul Highlights for the last 2 years 2.2 Time Charter Forecast in 2016 Drewry Forecast (As of Sep 2016) VS Actual Year Panamax Supuramax Forecast Actual % Change Forecast Actual % Change ,446 5, % 6,142 6, % ,700 9, % 7,900 9, % ,600 10, % 8,700 10, % ( Drewry is an independent global maritime advisory and research organization ) BDI ( ) 2,000 Highest : 1,774 1,500 1,000 Diff : 1, Lowest : 290 7

9 Contents 1. Dry Bulk Market Review 2. Highlights for the Last 2 Years 3. Outlook for World Economy 3.2 Demand Forecast (Steel/I.Ore/Coal/Grain/Others) 3.3 Supply Forecast 4. Other Key Factors 5. Conclusions & Implications 8

10 3. Outlook for World Economy Prospect for 2018 Economic growth forecast for major countries unit : % OECD IMF (as of 17.11) 2018 (as of ) Diff. (%p) (as of ) 2018 (as of ) Diff. (%p) USA EU Japan China India World (Source : IMF World Economic Outlook Apr. 2018, OECD Economic Outlook May. 2018) Both developed & emerging countries show firm economic recovery leading to global economic growth rate of 3.8% (0.1% rise) - USA : Extra 0.4% economic growth forecast mainly from domestic growth with help from tax system reformation and wider government expenditure - EU : Extra 0.1% economic growth forecast from ease in fiscal policy - China : Extra 0.1% economic growth forecast even though investment activities might lessen 9

11 3. Outlook for Demand Forecast Steel/I.Ore/Coal/Grain/Others 1 st half recap China produced 369Mil.Mt of steel products during Jan~May - Fundamental improvement in real-estate and manufacture - Steel Millers increased production with higher price Mil.Mt Mil.Mt of Chinese steel products exported during Jan~May % decrease from last year concentrated on domestic sales due to good price USD/Mt China s monthly steel production Jan Feb Mar Apr May Chinese Rebar price (Source: My Steel) (Source: My Steel) 300 Jan Feb Mar Apr May Jun 2 nd half forecast Production to be increased & export to be decreased Real estate will continue it s flow, leading to firm steel requirement % increase in landscape for new real estate projects due to improvement in fundamental (Jan~May) - Chinese government cut down cash reserve ratio on June 24 th to increase liquidity Mil.M Chinese monthly new real estate biz Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total steel production for 2 nd half to be around 456Mil.Mt - Annual production to be around 906Mil.Mt (7.2% increase from 2017) (Source: CEIC) 10

12 3. Outlook for Demand Forecast Steel/I.Ore/Coal/Grain/Others 1 st half recap 2 nd half forecast China imported 447.6Mil.Mt during Jan~May - Increase in steel production didn t follow to I.Ore import increase as scrap was used more than ever - I.ore price devaluation made import preferred over domestic Brazil exported 82.8Mil.Mt to China during Jan~May - Production decreased due to rainfall - Transportation fiasco from logistics issue - Force Majeure from truck drivers strike Mil.Mt Weekly I.Ore export volume of Brazil Jan Feb Mar Apr May Jun China is expected to maintain(or slightly increase) current volume of import due to stock pressure of its steel products High quality I.Ore preferred as environmental issues are raised - Import increase from Brazil expected for stock piling - High quality I.Ore to be preferred Mid & High quality I.ore price premium 30% Premium for 65% over 62% 25% Premium for 62% over 58% 20% 15% 10% Jan Feb Mar Apr May Jun (Source: Mysteel) Total I.ore import for 2 nd half to be around 550Mil.Mt - Total Chinese ports stock of I.ore to be Mil.Mt as of end June (54 days worth of steel production) 11

13 3. Outlook for Demand Forecast Steel/I.Ore/Coal/Grain/Others Major exporting countries Previous forecast (as of 18.04) 2 nd half forecast (as of 18.07) 2018 (f) (Mil.Mt) (f) 2018 (f) 1 st half 2 nd half Australia YoY % 5.4% 2.5% 3.3% 4.2% Brazil YoY % 2.2% 2.8% 4.8% 3.5% S.Africa YoY % -0.9% 2.8% 0.6% 2.0% India YoY % 360.0% 57.6% -13.8% 24.8% Others YoY % -5.4% 7.8% 2.4% 4.0% Total 1, , , , % 3.9% 3.1% 3.3% (source : Clarksons / PanOcean) 12

14 3. Outlook for Demand Forecast Steel/I.Ore/Coal/Grain/Others 1 st half recap 2 nd half forecast China imported 120M.Mt during Jan~May (8% ) - Total coal generated power during Jan~May was 1,991,400 M. KWh (7.7% increase compared to last year) - Total coal production during Jan~May was 1,397M.Mt Various policies were made to restrict the import India imported 84.4M.Mt during Jan~May (11% ) - Total power demand during Jan~May was 509.8BU (4.7% ) - Indian coal production increased to 275.4M.Mt but still 16M.Mt short from target of 291.4M.Mt S.E. Asia s demand continues to rise - Thailand s May import increased 19% YoY (2.05M.Mt.) 100 Mil KWh Chinese Coal Power 5, ,000 3,000 2,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec (Source: 中電聯 ) China / India / S.E. Asia s import continues to rise China expected to increase import due to demand and domestic price - China s economic growth for 2018 to be 6.7% (6.8% in 2017) - Domestic coal price competitiveness to imports will weaken due to low production N.Korean coal import might be a variable (20 M.Mt annual) India will continue to increase import in 2 nd half India s economic growth for 2018 to be 7.4% (6.7% in 2017) - Low stock of coal leading to import increase (10 9 days) - Import to be vitalized after end of monsoon season Coal Price Difference Domestic, 5500Kcal, FOB QHD Import, 5500Kcal, CFR GZ Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 (Source: Sxcoal & Platts) 13

15 3. Outlook for Demand Forecast Steel/I.Ore/Coal/Grain/Others Major exporting countries Previous forecast (as of 18.04) 2 nd half forecast (as of 18.07) 2018 (f) (Mil.Mt) (f) 2018 (f) 1 st half 2 nd half Australia YoY % 0.9% -4.8% 3.3% 3.5% Indonesia YoY % -0.5% 6.2% 3.0% 1.5% Columbia YoY % 6.2% -1.8% 0.9% 1.8% Russia YoY % 8.4% 12.8% 2.0% 4.0% Others YoY % -0.2% 23.0% -1.3% 2.4% Total 1, ,2050 1, , % 5.5% 2.0% 2.5% Indonesia : Subject to change as Indonesian government policy Others : S.Africa, USA, China etc (source : Clarksons / SXCoal / PanOcean) 14

16 3. Outlook for Demand Forecast Steel/I.Ore/Coal/Grain/Others 1 st half recap 2 nd half forecast ECSA exported 8.0M.Mt(+11%) more Soybean than 17/18 - Brazil : Bumper crop leads to 43M.Mt of export as of end May (6.0M.Mt(+17%) more compared to 17/ 18) * BRL weakness continued : Jan 3.15 June 3.86 U$/R$ - Argentina : 36% decrease in production due to draught M.Mt '15/'16 '16/'17 '17/'18(e) '18/'19(f) (Source: USDA) N.America exported 6.0M.Mt(-4.2%) less than 17/18 - Interest rate increase lowered competitiveness - Trade conflict between USA/China lead preference Brazil * Soybean export to China during Jan~Apr decreased 2.1M.Mt(-24%) than 17/ 18 ECSA Soybean export flow Argentina Brazil ECSA still strong / N.Hemisphere to increase export ECSA increasing corn export by 5M.Mt(+9%) in 18/19 - Brazil : Stock to exceed dry weather condition (+3M.Mt) - Argentina : Production increasing by 8M.Mt Export increasing by 2M.Mt N/H increasing grain export by 6M.Mt(+2%) in 18/19 - USA : Despite trade conflict, stock increase leading to export - EU : Good weather condition will recover production - B.Sea : Bumper crop in Russia strengthening price competitiveness (Soybean + Coarse Grain + Wheat) N.Hemisphere export flow US EU B.SEA '16/'17 '17/'18(e) '18/'19(f) (M.Mt) (Source : USDA) 15

17 3. Outlook for Demand Forecast Steel/I.Ore/Coal/Grain/Others Major exporting countries Previous forecast (as of 18.04) 2 nd half forecast (as of 18.07) 2018 (f) (Mil.Mt) (f) 2018 (f) 1 st half 2 nd half USA YoY % 16.4% -3.0% 0.1% -5.3% Brazil YoY % -11.8% 32.7% 9.0% 13.9% Argentina YoY % 34.3% -0.4% 11.3% -3.0% Australia YoY % -4.2% 36.8% -11.7% -11.2% Others YoY % 0.6% -0.1% 0.4% 2.9% Total % 6.2% 2.2% 1.5% Others : EU, B.Sea, Canada etc (source : Clarksons / PanOcean) 16

18 3. Outlook for Demand Forecast Steel/I.Ore/Coal/Grain/Others 1 st half recap 2 nd half forecast Guinea to increase Bauxite production Minor commodities will continue to increase volume - Guinea exported 14.6M.Mt during Jan~Mar (62% increase YoY) - Chinese investment in mines lead to increase export to Chinese investment to increase bauxite volume China by 10.6M.Mt (119% YoY) - Apart from existing projects, TBEA and Chinalco confirmed - Export to EU maintained same, around 3.5M.Mt investment in mine, smelter, port facilities of Guinea Indonesia s N.Ore export increased - Inni exported 3.3M.Mt during Jan~Mar (0.3M.Mt last year) - Low quality N.ore s authorized export volume during 17 Jan - 18 Mar was 32.3M.Mt N.Ore expected remain strong for 2 nd half - Indonesia can export more as only 23% of authorized volume has been exported - After Philippine s monsoon season ends, volume to peak in Q3 M.Mt Guinea s main export countries ETC EU 12.7 CHINA Q (Source: GTT) M.Mt China s N.Ore import volume 16 ETC INNI PHIL '16 1Q '16 2Q '16 3Q '16 4Q '17 1Q '17 2Q '17 3Q '17 4Q '18 1Q (Source: GTT) 17

19 3. Outlook for Demand Forecast Overall Previous forecast (as of 18.04) 2 nd half forecast (as of 18.07) 2018 (f) (Mil.Mt) (f) 2018 (f) 1 st half 2 nd half Iron Ore 1, , , , YoY % 4.0% 3.9% 3.1% 3.3% Coal 1, , , , YoY % 0.4% 5.5% 2.0% 2.5% Grain YoY % 4.9% 6.2% 2.2% 1.5% Others 1, , , , ,017.6 YoY % 0.1% 2.4% 3.3% 3.4% Total 4, , , , , , % 3.9% 2.8% 3.0% (source : Clarksons / PanOcean) Total volume of Dry bulk cargo for 2018 : 5,227.0Mil.Mt (+3.0% increase from last year) 18

20 3. Outlook for Supply Forecast Fleet Prospect N/B Delivery (F) 1H 2H 1H 2H 1H (e) 2H (f) No Cape M.DWT Delivery Rate(%) 49.0% 67.9% 67.5% 86.1% 67.4% 75.0% No P max M.DWT Delivery Rate(%) 43.9% 46.3% 69.9% 68.6% 76.6% 75.0% No S max M.DWT Delivery Rate(%) 47.4% 55.3% 63.7% 68.1% 63.4% 65.0% No Handy M.DWT Delivery Rate(%) 53.6% 47.1% 50.7% 37.5% 45.5% 50.0% No Total M.DWT Delivery Rate(%) 47.8% 56.8% 65.1% 68.7% 65.3% 71.4% ~2018 delivery estimate : based on each year s order book order book : 263 ships(22.7m.dwt) for 1 st half, 110 ships(11.6m.dwt) for 2 nd half Actual delivery for 2018 will be estimated 23.1M.DWT (15.3M.DWT decreased YoY) (Source : Pan Ocean / Clarksons) nd half will have total of 8.3M.DWT delivery, which is around 56% volume of 1 st half 19

21 3. Outlook for Supply Forecast Fleet Prospect Scrap Volume (Source : Pan Ocean / Clarksons) (F) 1H 2H 1H 2H 1H (e) 2H (f) Cape P max S max Handy Total No M.DWT No M.DWT No M.DWT No M.DWT No M.DWT Market rise leading to decrease in scrap volume of bulkers (about 4.9M.DWT) Scrap volume for 2 nd half to be around 2.3M.DWT (1 st half : 2.6M.DWT) 20

22 3. Outlook for Supply Forecast Fleet Prospect Fleet Volume Cape P max U max S max Handy Total No. M.DWT (f) 1, , , , Change(%) 0.4% 1.9% 2.8% 2.7% No. M.DWT 2, , , , Change(%) 1.5% 0.5% 2.7% 2.2% No. M.DWT Change(%) 89.4% 37.8% 22.3% 7.5% No. M.DWT 3, , , , Change(%) 7.6% 4.9% 4.0% 1.8% No. M.DWT 3, , , , Change(%) 1.4% 1.4% 1.9% 1.4% No. M.DWT 10, , Year end fleet volume 11, , Change(%) 2.4% 2.2% 3.0% 2.2% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Fleet volume flow Cape S'max P'max H'andy C 2.7% P 2.2% S 1.8% H 1.4% (source : PanOcean / Clarkson) Total 835.6M.DWT expected for end 18 (18.2M.DWT(2.2%) increase YoY) 21

23 Contents 1. Dry Bulk Market Review 2. Highlights for the Last 2 Years 3. Outlook for Other Key Factors 4.1 Ship s Price 4.2 Upcoming Regulation BWMS / SOx 5. Conclusions & Implications 22

24 4. Other Key Factors 4.1 Ship s Price N/B PRICES DWT 2015(AVG) 2016(AVT) 2017(AVG) (UNIT : U$ Mil) 2018 / 2016 CAPE(180K) % P MAX(76K) % U MAX(62K) % HANDY(38K) % SECOND-HAND PRICES (5YRS) DWT 2015(AVG) 2016(AVT) 2017(AVG) (UNIT : U$ Mil) 2018 / 2016 CAPE(180K) % P MAX(76K) % S MAX(56K) % HANDY(32K) % 23

25 4. Other Key Factors 4.2 Upcoming Regulation Ballast Water Management System Ballast Water Ballast water is the water used to fill tanks around cargo holds in order to ensure a ship s stability on water. Ballast Water Management Convention (Source : Transport Canada) The International Convention for the Control and Management of Ship s Ballast Water and Sediments (Ballast Water Management Convention) 2004, is an international maritime treaty which requires Signatory flag states to ensure that ships flagged by them comply with standards and procedures for the management and control of ship s ballast water and sediments. The Convention aims to prevent the spread of harmful aquatic organisms from one region to another and halt damage to the marine environment from ballast water discharge. 24

26 4. Other Key Factors 4.2 Upcoming Regulation Ballast Water Management System Installation will be obligation from IMO&USCG (whichever comes first) - IMO : Obligated to install before the first periodic survey from 19/9/8 < Estimated Installation Cost > Valemax Cape P max Handy $1,400K $1,250K $800K $700K - USCG : Consecutive installation from 2019 (Regulation was announced 2016, but delayed 2~3 years due to USCG approved production) As of June 30 th, there are 8 USCG approved products, meaning there will be no excuse regarding product availability Increase of scrapping between 2020~2021 will affect shipping market - Between 2019~2022, total of 1,900 ships will have to either install BWMS or scrap during their periodic survey, we estimate about 34% (640 ships totaling 39.19M.DWT) will choose the latter option Ships of due date for installation (20 Year +) Total Cape No M.DWT P max No M.DWT S max No M.DWT Handy No M.DWT Total No ,900 M.DWT : 65 ships (4.9M.DWT) Cape P max S max Handy Total Expected volume of scrapping ships Total No M.DWT No M.DWT No M.DWT No M.DWT No M.DWT (Source : USCG, IMO, ETC, Clarksons, Pan Ocean) 25

27 4. Other Key Factors 4.2 Upcoming Regulation SOx(Sulphur Oxide) SECA(SOx Emission Control Area) IMO initiated in limiting SOx contents in order to lessen air pollution from ships since 07 Also, SOx Emission Control Area (SECA) in each region are being expanded During the 70 th MEPC summit (in Oct 16), it has been decided that SOx contents should not exceed 0.5% from Detailed regulations were discussed during the 71 st summit ( 17) for consistent implement 26

28 4. Other Key Factors 4.2 Upcoming Regulation SOx(Sulphur Oxide) How to act against the regulation Pros Cons LSMGO / ULSFO SIMPLE INSTALLATION (CHILLER) TO EXISITNG EQUIPMENTS RELATIVELY EXPENSIVE COMPARED TO CURRENT 3.5% SOx FO (EXTRA $120~200/MT ) RISK TO PRICE FLUCTUATION SCRUBBER PREVIOUS SPEC OF 3.5% FO CAN BE USED INSTALLATION COST CLEANSING CHEMICALS RAISE OPEX ONLY SHIPS OVER P MAX CAN DO LOW EFFICIENCY IN FO USAGE EXTRAVAGANT TIME IN INSTALLING LNG 100% DECREASE IN SULPHUR OXIDES 80% DECREASE IN NITROGEN OXIDES INSTALLATION COST EXTRA FUEL TANK WILL MAKE LESS SPACE FOR CARGO LOADING SELDOM SUPPLY STATION ONLY NEW BUILDINGS CAN INSTALL Estimated Installation Cost for Scrubber Valemax Cape P max MR $5.0 Mil $4.5Mil $3.8Mil $3.7Mil 27

29 Contents 1. Dry Bulk Market Review 2. Highlights for the Last 2 Years 3. Outlook for Other Key Factors 5. Conclusions & Implications 5.1 Upward & Downward Factors 5.2 Forecast of 2H 2018 Daily Charter Hire & BDI 28

30 5. Conclusions & Implications 5.1 Upward & Downward Factors Ship supply decline Seaborne trade volume growth Environmental regulation Climate change leads disruptions Vitalization of in logistics second hand ship market New building costs increase Short term cycle of boom-and-bust Distortion of ship supply by political reasons Trade war tensions Protectionism Chinese demand decline (Seasonal variations) Environmental protections in exporting countries 29

31 5. Conclusions & Implications 5.2 Forecast of 2H 2018 Daily Charter Hire & BDI Diff H H Cape $15,128 $16, % $13,963 $20,000 P max $9,766 $11, % $11,030 $12,500 S max $9,775 $11, % $11,113 $12,250 Handy $7,636 $9, % $8,634 $9,500 BDI 1,145 1, % 1,217 1,543 30

32 Q & A