METHANOL SHIPPING: SAILING TOWARDS NEW HORIZONS 19 TH IMPCA ASIAN METHANOL CONFERENCE QUINCANNON ASIA PTE LTD KARAN GROVER

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1 METHANOL SHIPPING: 19 TH IMPCA ASIAN METHANOL CONFERENCE SAILING TOWARDS NEW HORIZONS 2 3 NOVEMBER, 2016 SINGAPORE QUINCANNON ASIA PTE LTD KARAN GROVER

2 2 AGENDA METHANOL TRADE DYNAMICS IN BRIEF METHANOL DEMAND & TRADE FLOWS METHANOL SHIPPING SHIPPING REQUIREMENTS THE IMO 2/3 FLEET AT A GLANCE METHANOL FLEET & CHANGING TRADE FLOWS VESSEL ECONOMICS 45K DWT TANKER SHIPPING MARKETS CURRENT SHIPPING MARKETS FREIGHT RATES TO MID CHINA SHIPPING UPDATES & OUTLOOK SUMMARY QUINCANNON INTRODUCTION Q&A

3 3 METHANOL ACCOUNTS FOR ~25% OF PETROCHEMICAL TRADE

4 4 GLOBAL METHANOL DEMAND CURRENT DEMAND ~80 MIL TONS (2016E) EXPECTED TO REACH ~100 MIL TONS BY 2020 APPROX. 33% OF DEMAND IS FOR THE ENERGY SECTOR BY REGION 72% OF DEMAND IS IN ASIA ~59% OF DEMAND IS IN CHINA & GROWING! CHINA S GROWTH DRIVEN LARGELY BY MTO EXPANSIONS BY DERIVATIVE SOURCE: MMSA

5 5 METHANOL TRADE FLOWS NEGLIGIBLE US EXPORTS IN 2015 (US WAS NET IMPORTER) NEW METHANOL CAPACITY ADDED IN THE US IN 4Q 2015 / 1Q 2016 BY MID-2016 THE US EXPORTED ABOUT 240,000 MT METHANOL TO CHINA NET EXPORTER SOURCE: MMSA

6 6 METHANOL IS SHIPPED ON SPECIALIZED IMO TANKERS

7 7 SHIPPING REQUIREMENTS METHANOL IS CLASSIFIED AS MARPOL ANNEX II PRODUCT & REQUIRES SPECIALIZED TANKERS WITH FOLLOWING ATTRIBUTES: IMO CLASSIFICATION: IBC CODE SHIP TYPE III OR UP STRIPPING CAPACITY: (MARPOL CATEGORY Y ): ACCEPTABLE RESIDUE PER TANK (75 LTRS 150 LTRS PER TANK) COMPATIBLE TANK COATING: STAINLESS STEEL / MARINE LINE / ZINC / INTERLINE 9001 EPOXY COATED TANKS ARE NOT IDEAL TO CARRY METHANOL INERTING / PURGING ABILITY: FOR TANKS OVER 3000 CBM NEW IGS REQUIREMENTS FOR IMO 2 SHIPS (8K 20K DWT) CONSTRUCTED AFTER 1 JANUARY 2016 MARPOL ANNEX NOXIOUS LIQUID SUBSTANCES CARRIED IN BULK (MARINE POLLUTION) IMO SHIP TYPE 3 PRODUCTS WITH SUFFICIENTLY SEVERE ENVIRONMENTAL AND SAFETY HAZARDS WHICH REQUIRE A MODERATE DEGREE OF CONTAINMENT TO INCREASE SURVIVAL CAPABILITY IN A DAMAGED CONDITION IMO POLLUTION CATEGORY NOXIOUS LIQUID SUBSTANCES WHICH, IF DISCHARGED INTO THE SEA FROM TANK CLEANING OR DEBALLASTING OPERATIONS, ARE DEEMED TO PRESENT A HAZARD TO EITHER MARINE RESOURCES OR HUMAN HEALTH OR CAUSE HARM TO AMENITIES OR OTHER LEGITIMATE USES OF THE SEA AND THEREFORE JUSTIFY A LIMITATION ON THE QUALITY AND QUANTITY OF THE DISCHARGE INTO THE MARINE ENVIRONMENT II Y

8 8 POLLUTION CATEGORIZATION: MARPOL ANNEX II & METHANOL AS OF JAN 2007 RECLASSIFIED FROM IBC CHAPTER 18 TO IMO 3 TYPE WHAT IS AN IMO SHIP TYPE? THE INTERNATIONAL CODE FOR THE CONSTRUCTION AND EQUIPMENT OF SHIPS CARRYING DANGEROUS CHEMICALS IN BULK - IBC CODE PROVIDES DETAILED STANDARDS FOR THE CONSTRUCTION AND EQUIPMENT OF THREE TYPES OF CHEMICAL TANKERS (TYPES 1, 2 AND 3) THE BULK CARRIAGE OF ANY LIQUID PRODUCT OTHER THAN THOSE DEFINED AS OIL (SUBJECT TO MARPOL ANNEX I) IS PROHIBITED UNLESS THE PRODUCT HAS BEEN EVALUATED AND CATEGORISED FOR INCLUSION IN CHAPTER 17 OR 18 OF THE IBC CODE MARPOL ANNEX II SHIPS: IMO SHIP TYPE 1 IS A CHEMICAL TANKER INTENDED FOR THE TRANSPORTATION OF PRODUCTS CONSIDERED TO PRESENT THE GREATEST OVERALL HAZARD. THE QUANTITY OF CARGO REQUIRED TO BE CARRIED IN A TYPE 1 SHIP SHOULD NOT EXCEED 1,250 M3 IN ANY ONE TANK IMO SHIP TYPE 2 IS INTENDED TO TRANSPORT PRODUCTS WITH APPRECIABLY SEVERE ENVIRONMENTAL AND SAFETY HAZARDS WHICH REQUIRE SIGNIFICANT PREVENTIVE MEASURES TO PRECLUDE ESCAPE OF SUCH CARGO. THE QUANTITY OF CARGO REQUIRED TO BE CARRIED IN A TYPE 2 SHIP SHOULD NOT EXCEED 3000 M3 IN ANY ONE TANK IMO SHIP TYPE 3 IS A CHEMICAL TANKER INTENDED TO TRANSPORT PRODUCTS WITH SUFFICIENTLY SEVERE ENVIRONMENTAL AND SAFETY HAZARDS. THESE PRODUCTS REQUIRE A MODERATE DEGREE OF CONTAINMENT TO INCREASE SURVIVAL CAPABILITY IN A DAMAGED CONDITION. THERE IS NO FILLING RESTRICTION FOR CHEMICALS ASSIGNED TO SHIP TYPE 3 CARGO TANK LOCATION AND CONFIGURATION

9 9 CHEMICAL vs. PRODUCT / CRUDE TANKER CHEMICAL TANKER CRUDE OIL TANKER CHEMICAL TANKERS ARE AMONGST THE MOST COMPLEX AND SOPHISTICATED SHIPS

10 10 THE IMO 2/3 FLEET AT A GLANCE 4,244 SHIPS CLASSIFIED AS IMO 2/3 TANKERS MIL DWT / MIL CBM / 10 YRS AVG AGE 1,851 SHIPS / 63.1 MIL DWT 69.8 MIL CBM TRADING NON-IMO PRODUCTS 1640 SHIPS SUITABLE FOR METHANOL 26.7 MIL DWT / 29.6 MIL CBM / 11.5 YRS AVG AGE 2,393 SHIPS TRADING IMO 2/3 PRODUCTS 37.5 MIL DWT / 41.6 MIL CBM / 10.5 YRS AVG AGE 180 METHANOL TANKERS BETWEEN 37K & 50K DWT 8.4 MIL CBM SPACE: 70 ZINC (3.75 MIL CBM) + 31 INTERLINE (1.37 MIL CBM) + 15 MARINELINE (732K CBM) + 64 STAINLESS STEEL (2.55 MIL CBM) YOUNG FLEET 8.5 YRS AVG AGE 32 SHIPS OLDER THAN 15 YRS AND 8 SHIPS OLDER THAN 20 YRS 42 SHIPS FOR CAPTIVE METHANOL TRADE 209 NEW BUILDS / 4.8 MIL DWT / 5.3 MIL CBM IN THE PIPELINE (SEPT ) 75 SHIPS ALREADY DELIVERED BETWEEN JAN-AUG SHIPS SUITABLE FOR METHANOL IMO 2/3 NEW BUILDS DELIVERY STAINLESS STEEL SPACE ACCOUNTS FOR 78% OF ALL NEW BUILDS (BY CBM) 29 SHIPS (37-50K DWT) / 1.3 MIL CBM OF NEW BUILDS BY ZINC (228K CBM) + 4 INTER LINE (214K CBM) + 21 STAINLESS STEEL (895K CBM) SUITABLE FOR METHANOL

11 11 TYPICAL METHANOL CARRIER & ECONOMICS SIZE RANGE: 13,000 DWT UP TO ~50,000 DWT AVERAGE SIZE HAS INCREASED OVER THE YEARS AVERAGE SPEED: 14 KNOTS USUAL TRANSIT TIMES: DAYS MIDDLE EAST GULF - MID CHINA DAYS US GULF / CARIBS - MID CHINA DAYS SE ASIA - MID CHINA DAYS NEW ZEALAND - MID CHINA ABILITY TO LOAD MULTIPLE CARGOES MULTIPLE TANKS WITH INDIVIDUAL MANIFOLD, PUMPS & LINES FOR EACH TANK DEDICATED SHIPS BALLAST BACK ECONOMICS OR CLEAN/REFINED PETROLUEM PRODUCTS BACKHAUL CARGOES TONNES / DAY BUNKER CONSUPTION USD 8,500 PER DAY IN BUNKER COST FOR AN MR (BSS USD 250 / MT BUNKERS) FINANCIAL COSTS NEWBUILD COST: ~ $ 37.0 MILLION DAILY FINANCE COST: ~ $ 10,150 (80% 8% OVER 12 YEARS) FINANCE COSTS ARE RISING RAPIDLY & SHIP FINANCE / PE MONEY HAS DRIED UP VESSEL DAILY OPERATING COSTS CREW: $ 3,500 MAINTENANCE: $ 2,000 INSURANCE: $ 700 ADMINISTRATION: $ 800 BREAK EVEN LAY-UP $ 7,500 T/C BREAK EVEN CURRENT T/C RATES ~ $ 17,850 / DAY ~ $ 15,500 16,500 / DAY CURRENT TIME CHARTER RATES: USD 15,500 16,500 PD FROM US$ 13,500 14,500/ DAY IN 2014 FROM US$ 19,500 21,000/ DAY IN 2015 RESIDUAL SCRAP VALUE ~ $ 3.05 MILLION (11,500 $305 ~ 25 YEARS)

12 CBM # OF SHIPS 12 GROWTH OF THE MEOH-SUITABLE MR FLEET (NEWBUILDS VS. SCRAPPED SHIPS) 12

13 13 SHIPPING MARKETS STRONG MARKET IN 2H 2015 SLOWDOWN IN 2016 SOURCE: TRADEWINDS SHIPPING NEWSPAPER

14 14 CURRENT SHIPPING MARKETS ALL TANKER MARKETS HAVE SLOWED DOWN ACROSS THE BOARD IN 2016 OVERCAPACITY OF TONNAGE IS THE PRIMARY DRIVER FOR THE SLOW DOWN REFINED PRODUCTS (CPP) / FUEL ADDITIVES ARE NO LONGER COMPETING W/ CHEMICALS AND METHANOL FOR SPACE SWING TONNAGE IS NOW MOSTLY EMPLOYED IN THE CHEMICALS MARKET AS THE CPP MARKET IS ALSO HEAVILY OVER SUIPPLIED WITH 100+ NEW TANKERS SINCE OCT 2015 OTHER SEGMENTS OF THE INDUSTRY ARE COMPETING WITH EACH OTHER & HAVING A PRONOUCNED IMPACT FREIGHT RATES ARE FALLING DESPITE CLIMBING BUNKER PRICES TONNAGE OVERSUPPLY & LOWER EARNINGS FOR BOTH SPOT AND COA PLAYERS 60-70% OF THE CHEMICAL BUSINESS IS CONTRACTED WEAKER SENTIMENT & A PROLONGED TOUGH SUMMER THE BULLISH SENTIMENT AND EARNINGS FROM 2015 HAVE DISAPPEARED LOWER TIME CHARTER RATES FOR ALL SIZES AND SECTORS CHEAP FINANCE HAS DISAPPEARED FROM SHIPPING CONSOLIDATION IN THE CHEMICAL TANKER INDUSTRY IS WELL UNDERWAY SPECIALLY WITH SMALL OPERATORS INCREASED SCRAPPING ACTIVITY IN JULY DRIVEN BY RISING STEEL PRICES USG TO FAR EAST: USG TO FAR EAST TRADE LANE HAS COOLED DOWN SIGNIFICANTLY COMPARED TO EARLY 2016 PRIMARILY DUE TO OVER SUPPLY OF TONNAGE IN THE USG RATES ARE DOWN 40% COMPARED TO THEIR PEAK IN MARCH / APRIL MIDDLE EAST TO FAR EAST: RELATIVELY SLOW / SOFT MARKET THIS YEAR WITH FEWER SPOT VOLUMES AND NO SHORTAGE OF OPEN SHIPS SPOT RATES ARE DOWN 25% COMPARED TO 2015 WITH WEAKER CHEMICAL AND CPP MARKETS TRAMP OWNERS ARE STRUGGLING TO FIND PROFITABLE EMPLOYMENT EASING OF IRANIAN SANCTIONS HAVE HAD NO MAJOR IMPACT

15 FREIGHT RATE, $/MT IFO 380 FUJAIRAH, $/MT 15 FREIGHT RATES TO MID CHINA VOLATILITY IN USG FAR EAST MARKET MR TYPE CARGO (LARGE CARGO) SIZE MANY PLAYERS LOW CONTRACT RATION MORE SPOT CARGOES SUPPLY CENTER = DEMAND CENTER RESULT: HIGHLY VOLATILE MARKET SPOT FREIGHT RATES ARE A FUNCTION OF SUPPLY AND DEMAND

16 16 SHIPPING UPDATES & OUTLOOK OVER SUPPLY OF TONNAGE TO CONTINUE TILL ATLEAST ADDITIONAL SHIPS EXPECTED BETWEEN NOW AND END OF 2019 SLOWDOWN IN NEW ORDERS SUPPLY-DEMAND IMBALANCE TO CONTINUE AND 2017 EXPECTED TO BE SIMILAR TO 2016 ADEQUATE FLEET TO ACCOMMODATE CHANGE OF TRADING PATTERNS (USG/CARIBS TO FE) AND TON MILE DEMAND COA RATES UNDER PRESSURE AND TOUGH CONTRACT RENEWAL PERIOD OWNERS KEEN TO SECURE VOLUMES IN CONTRAST TO 2015 PRIVATE EQUITY & CHEAP FINANCE HAS DRIED UP FOR SHIPPING FINANCE RATES ARE RISING RAPIDLY AS PRIVATE EQUITY / HENDE FUNDS HAVE LOST THEIR APPETITE FOR SHIPPING AND HAVE STARTED TO OFF-LOAD SHIPPING ASSETS AND FOCUSING MORE ON THE CORE BUSINESS CONSOLIDATION IS EXPECTED TO CONTINUE IN A LOW-PROFITABILITY ENVIRONMENT INCREASED SNP / TIME CHARTER ACTIVITY & OPPORTUNITIES FOR DISTRESSED ASSESTS IRANIAN SANCTIONS & VOLUMES NO PREMIUMS CURRENTLY CLARITY POST US ELECTIONS PNI & BANKING CHALLENGES EXPECTED TO BE OVERCOME & BUSINESS EXPECTED AS USUAL REGULATORY CHANGES ON THE HORIZION WILL ASSIST WITH CONSOLIDATION 8 SEP BALLAST WATER MANAGEMENT REQUIREMENTS (USD 500,000 USD 1 MILLION) 1 JAN 2020 LOW SULPHUR FUEL OIL REQUIREMENTS (USD 3-5 MILLION) METHANOL / LNG AS AN ALTERNATE TO MARINE FUEL INCREASED COSTS EXPECTED TO BE PASSED ON TO CHARTERERS AND FREIGHT RATES TO REFLECT SAME INCREASED SCRAPPING ACTIVITY AND LIKELIHOODOF THE FLEET SHRINKING NEW PANAMA CANAL NO REAL IMPACT CURRENTLY FOR THE METHANOL BUSINESS CHINESE PORT / BERTH RESTRICTIONS DRIVING VESSEL SIZE

17 17 SUMMARY METHANOL IS ONE OF THE LARGEST TRADED COMMODITES & METHANOL DEMAND IS EXPECTED TO CONTINUE TO GROW METHANOL REQUIRES TO BE SHIPPED ON SPECIALIZED TANKERS SHIPPING COSTS ACCOUNT FOR A SUBSTANTIAL PERCENTAGE OF THE TOTAL COST COMPARED TO OTHER COMMODITIES CURRENT SHIPPING MARKETS ARE VOLATILE & PRESENT OPPORTUNITIES FOR OPTIMIZATION WITH STRATEGIC PLANNING THE IMPORTANCE OF SHIPPING TO THE METHANOL BUSINESS CANNOT BE OVEREMPHASIZED

18 18 QUINCANNON ASIA PTE LTD: BRIEF INTRODUCTION INDEPENDENT SHIPBROKERS, ESTABLISHED IN 1974 IN NEW YORK AND SPECIALIZED IN THE BULK MARINE TRANSPORT OF THE FOLLOWING: CHEMICALS & SPECIALTY LIQUIDS METHANOL & DERIVATIVES VEGOILS & DERIVATIVES ETHANOL LUBE-BASE OILS / CPP QUINCANNON OFFICES: PETROCHEMICAL GASES & OLEFINS LPG NEW YORK WORLDWIDE COVERAGE INCLUDING TRANSATLANTIC, TRANSPACIFIC, INTRA-AMERICAS AND MIDDLE EAST GULF SINGAPORE SERVICING CHINA DOMESTIC AND FAR EAST MARKETS SHANGHAI COVERING MIDDLE EAST GULF & INDIA, SOUTH EAST ASIA, FAR EAST ASIA & TRANSPACIFIC TRADE LANES TIME CHARTER OF VESSELS SECOND-HAND SALES RESEARCH, REPORTS & CONSULTING

19 19 THANK YOU / Q&A IF YOU HAVE ANY FURTHER QUESTIONS OR REQUIRE ADDITIONAL INFORMATION OR ASSISTANCE WITH SECURING TONNAGE PLEASE DO NOT HESITATE TO CONTACT US: QUINCANNON ASIA PTE LTD PWC BUILDING 8 CROSS STREET #09-06 SINGAPORE CHEMS@QUINCANNON.COM.SG