DRY BULK FREIGHT MARKET OUTLOOK MJUNCTION INDIAN STEEL MARKETS CONFERENCE JUNE 2018
PRESENTATION STRUCTURE where are we in the dry bulk freight market cycle? current freight rates in perspective fundamental drivers risks to trade growth posed by tariffs and sanctions steel/aluminium/bauxite/alumina/grains structural oversupply to persist or fundamentally different framework for the dry bulk shipping market? role of new environmental regulations Whilst care and attention has been taken to ensure that the information contained is accurate, it is supplied without guarantee. SSY Consultancy & Research Ltd can accept no responsibility for any errors or omissions or consequences arising therefrom. JUNE 2018 2
Jan 2013 Apr 2013 Jul 2013 Oct 2013 Jan 2014 Apr 2014 Jul 2014 Oct 2014 Jan 2015 Apr 2015 Jul 2015 Oct 2015 Jan 2016 Apr 2016 Jul 2016 Oct 2016 Jan 2017 Apr 2017 Jul 2017 Oct 2017 Jan 2018 Apr 2018 Jul 2018 $/t INDICATIVE INDIAN DRY BULK SPOT RATES 22 20 18 16 Queensland-Vizag (Panamax) RichardsBay-Mundra (Capesize) EC India-China (Supramax) 14 12 10 8 6 4 2 0 JUNE 2018 3
Jun 14 Aug 14 Oct 14 Dec 14 Feb 15 Apr 15 Jun 15 Aug 15 Oct 15 Dec 15 Feb 16 Apr 16 Jun 16 Aug 16 Oct 16 Dec 16 Feb 17 Apr 17 Jun 17 Aug 17 Oct 17 Dec 17 Feb 18 Apr 18 Jun 18 $/day BALTIC EXCHANGE AVERAGE TIMECHARTER RATES 35,000 30,000 Cape 180kdwt Supramax 52kdwt Panamax 74kdwt Handysize 28kdwt 25,000 20,000 15,000 10,000 5,000 0 JUNE 2018 4
WHAT S SHAPING THE DRY BULK RECOVERY? new highs for international dry bulk trade with cyclical strength in steel markets a key factor combination of cargo disruptions and government interventions set to restrain trade growth 2018 to see lowest annual newbuilding deliveries for 10 years, which should restrict annual rate of expansion in fleet supply to below 2.5% surplus shipbuilding capacity and rising sentiment create the potential for a repeat of past overordering but new IMO regulations create doubts over optimal ship design and threaten the viability of existing, less fuel-efficient vessels JUNE 2018 5
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018f Mt INTERNATIONAL SEABORNE DRY BULK TRADE 5,000 4,500 Iron Ore Coal Grain Minor bulks 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Source: SSY JUNE 2018 6
1q10 2q10 3q10 4q10 1q11 2q11 3q11 4q11 1q12 2q12 3q12 4q12 1q13 2q13 3q13 4q13 1q14 2q14 3q14 4q14 1q15 2q15 3q15 4q15 1q16 2q16 3q16 4q16 1q17 2q17 3q17 4q17 1q18 2q18f 3q18f 4q18f Million tonnes MAJOR DRY BULK & KEY MINOR BULK TRADES BY QUARTER 975 950 925 900 875 850 825 800 775 750 725 700 675 650 625 600 575 550 525 500 JUNE 2018 7
DRY BULK TRADE TARIFFS AND SANCTIONS US tariffs/quotas on steel imports how much cargo could be displaced? implications for US coking coal and scrap exports? Chinese retaliatory measures soyabeans in focus US sanctions on Russia disruption to bauxite and alumina trade? JUNE 2018 8
Pre-1994 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Mdwt DRY BULK CARRIER (10+ KDWT) FLEET BY YEAR OF BUILD 110 100 Existing On Order 90 80 Source: SSY, IHS Fairplay 70 60 50 40 30 20 10 0 JUNE 2018 9
Mdwt DRY BULK CARRIER ORDERBOOK VS OLDER TONNAGE 50 45 40 35 30 25 20 15 10 5 0 20+ years 15-19 years On Order Source: SSY, IHS Fairplay Handysize Handymax Panamax Capesize JUNE 2018 10
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018(f) 2019(f) Mdwt DRY BULK CARRIER NET FLEET CHANGE 110 100 90 Additions Deletions 80 70 60 Net Change 76 77 65 50 40 30 20 10 0 7 18 22 22 24 28 38 39 32 19 17 24 18 17-10 -20-30 -40 JUNE 2018 11
Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 Sep-19 Jan-20 May-20 Sep-20 $/day PANAMAX 4 TC EARNINGS: ACTUAL & FFA 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 Actual 4 TCs FFA (8 Nov 2017) FFA (5 June 2018) 0 JUNE 2018 12
IMO 2020: CURRENT SITUATION global cap on marine bunker sulphur content to be cut from 3.5% to 0.5% on 1 st Jan 2020 compliance requires either fuel switching ultra low sulphur fuel oil/marine gasoil/lng or installation of exhaust gas cleaning systems (scrubbers) cost of approx $2.0 million for Capesize newbuiling with higher costs for retrofits majority of dry bulk carriers set to switch fuels interest in scrubbers rising, but few examples to date and restricted equipment availability plus significant capex uncertainties over both (1) composition of future bunker fuel supply and (2) future legislation JUNE 2018 13
IMO 2020: MARKET IMPLICATIONS scrubbers most viable for larger vessels with higher asset values and fuel consumption, but payback calculations should allow for pass-through economics switch to low sulphur alternatives will raise bunkering costs, widen oil price spreads, create potential bottlenecks, cap vessel speeds and stimulate demolition of less fuelefficient vessels premia for fuel-efficient vessels to widen in the period charter and secondhand markets CO2 reduction targets to reinforce trend towards greater fuel efficiency in new vessel designs JUNE 2018 14
CONCLUSIONS positive economic growth forecasts, limited newbuilding orderbook and profitable steel industry remain supportive for freight market sentiment but (mainly temporary) shortfalls in cargo availability restraining recovery and government interventions have created potential damage to the dry bulk trade outlook rising newbuilding orderbook for 2019/2020 but potential for supply-side impact from new IMO bunker fuel regulations JUNE 2018 15
London T: +44 20 7977 7404 E: research@ssy.co.uk ssyonline.com JUNE 2018