DRY BULK MARKET OUTLOOK
DRY BULK MARKET OUTLOOK
MARCH 2017
Dry Bulk Market Outlook March 2017
MARKET DEVELOPMENTS - SUMMARY • a rather healthy start to the year, with capes leading the charge • Iron ore imports to China increased by 13.4 % to 83.5 Mn T in February, mainly due to restocking efforts. Stockpiles grew by a 8.2 % in February, the largest month-on-month increase in 3 years. • TC rates increased from an average of USD 11.4 k per day in February to a current USD 14 k per day. • Restocking is a clear short term development, but other medium to long term developments could contribute to the bull market. • New iron ore from Vale’s recently opened S11D mine should contribute to softening iron ore prices, thus increasing the appeal of imports for Chinese buyers. • In March 2016, the Capesize orderbook totalled 7 % of the fleet, while the ratio currently stands at 2 %. Last year, the capesize fleet shrunk by 0.1 per cent to 193.4 Mn Dwt. • But VLOC orderbook at 23.1 Mn Dwt in total • The Panamax and Kamsarmax segments also trending positive, driven largely by an increase in cargoes out of South America carrying grain, and price differences in coal between the Chinese domestic market and the import market, with imports trading at up to a 10 per cent discount.
• The recent ban on coal imports from North Korea is expected to contribute to a firming in demand for the majority of 2017. The country supplies 22.8 Mn tonnes of anthracite to China, about 85 % of Chinese anthracite imports. We expect the ban to create 1.6 % extra demand growth for the segment in 2017. • Handysizes and smaller segments also benefitting from the current improvements in the market. 1 year TC rates have increased 19.2 % to USD 7,750 and 26.6 % to USD 9,500 for Handysizes and Supramaxes respectively since the start of the year. For Supra’s this is the highest rate since end August 2015. • The short term nature of many of the above factors may well lead to an overinflated sentiment that runs ahead of fundamentals. • Supply side discipline essential for market recovery. Renewed newbuilding activity could compromise and prolong any sustainable improvement in the market. • Uncertainty on upcoming enforcement of the IMO’s Ballast Water Management convention, set to happen on September 8 2017. • 659 vessels will enter the demolition candidate pool (ships 20 years and older). • Low sulphur regulations that are set to enter into force in 2020 will add to the cost of operations.
2
ASSUMPTIONS FOR AFFINITY’S FORECASTS SUPPLY Dry cargo contracting to stay slow Dry cargo demolitions to continue Removals from Orderbook (approx. 11.0 Mn Dwt in 2016) to continue as yards fail and orders are renegotiated or cancelled Ballast Water Treatment System to reduce effective lifespan of bulk carriers to around 22 years compared to a long-run average of 25 -
Estimated deliveries by size band Size / Mn Dwt
2017
2018
2019
2020
2021
Handy / Supra / Ultramax
13.5
4.2
5.3
5.9
5.7
Panamax / Kamsarmax
10.8
1.5
2.0
3.1
4.1
Capesize
15.2
14.9
11.2
5.8
7.7
DEMAND Base case: only marginal changes in demand growth going forward to 2021. Owners should consider this before investing
3
SUPPLY MUST REACT TO FLAT DEMAND GROWTH FOR DRY CARGO OWNERS TO SURVIVE Combined bulk carrier fleet supply and demand scenarios to 2021 900 Fleet, 30% slippage, overdue ships cancelled, 25 yr life 800 Fleet, 30% slippage, overdue ships cancelled, 22 yr life,
Mn Dwt
700
Fleet, 30% slippage, overdue ships cancelled, 22 yr life, 10% slow steaming 2011 on
600
Demand at 0% growth
500 Demand growth at historic average levels
400
Demand at -2% growth
300 2006
2008
2010
2012
2014
2016
Our base case is that the dry cargo markets will see an aggregate of zero demand growth out to 2021. Even if demand growth returns to its historic average of 4.4% per annum, owners must continue to manage supply. Thus our base case supply scenario envisages 30% slippage in the orderbook, the cancellation of overdue orders, slow steaming being a permanent fixture and
2018
2020
the average life of a bulker being reduced to 22 years by the Ballast Water Management Convention (comes into force 8 September 2017). In this case, supply growth levels off to zero with the fleet at around 700 Mn Dwt, giving steady utilisation of around 80%, slightly above the long term average of 78%. 4
…WHEN EXPRESSED AS CAPACITY UTILISATION, THERE ARE CLEAR IMPLICATIONS FOR FREIGHT RATES… Combined all dry bulk capacity utilisation scenarios to 2021
Base Case Capacity Utllisation
historic average utilisation rate
BDI
100%
8,000
95%
7,000 6,000
85% 5,000
80% 75%
4,000
70%
BDI
CAPACITY UTILISATION
90%
3,000
65% 2,000 60% 1,000
55%
50%
2006
2008
2010
2012
The BDI averaged 673 points in 2016, and while the market has improved since then (average BDI for 2017 YTD is 870) market movements remain
2014
2016
2018
2020
positional rather than fundamental. Prospects for the BDI remain underwhelming even with strict supply-side discipline.
5
CAPESIZE: Capesize utilisation scenarios 95% 90% Best Case Capacity Utllisation
85% 80%
Base Case Capacity Utilisation
75%
Worst Case Capacity utilisation
70% 65% 60% 2006
2008
2010
2012
Our base case includes cancellation of all overdue orders, accounts for 30% slippage in delivery schedules, assumes all ships sail at 12.5 knots on average, and that average economic life is 22 years. The base case also assumes 2% annual
2014
2016
2018
2020
demand growth for iron ore, however this will mostly be taken up by the VLOC segment. The step down in utilisation is a consequence of VLOC deliveries in 2017. VLOC orders dominated contracting Dwt in 2016. 6
PANAMAX / KAMSARMAX: Panamax / Kamsarmax utilisation base case
100% 95%
Best case Capacity Utilisation
90% 85%
Base Case Capacity Utllisation
80% 75%
Worst Case Capacity utilisation
70% 65% 60% 2006
2008
2010
2012
2014
Panamax utilisation in our model is a function of zero demand growth and the same supply side constraints as per Capesizes. While the prospect for grain and coal remain positive in the near term,
2016
2018
2020
the orderbook remains onerous and real improvement will only happen when demolitions happen to ships in their mid-teens on average.
7
HANDY / SUPRA / ULTRAMAX: Utilisation base case 105% 100% 95%
Best case Capacity Utilisation
90% 85%
Base Case Capacity Utllisation
80% 75%
Worst Case Capacity utilisation
70% 65% 60% 55% 2006
2008
2010
2012
2014
Prospects for the geared bulk carrier fleet are less depressing on the basis that demand continues to be seen to grow especially in the minor bulks, grain and coal (for now; long term prospects for coal remain weak), supporting these ship types, which also steal cargo from the larger and older Panamax
2016
2018
2020
bulkers. Forecasting freight markets remains a difficult exercise however as the geared bulker markets continue to evolve with ship sizes. Our best guess for 2017: watch copper, grains and coke, beware steel products tariffs, look for positional opportunities. It is an operators’ market. 8
DEMAND TO ONLY INCREASE MARGINALLY BY THE END OF DECADE
March 2017
Mar 2017
Nov 2016
Jul 2016
Mar 2016
Nov 2015
Jul 2015
Mar 2015
Nov 2014
Jul 2014
Mar 2014
Nov 2013
Jul 2013
Mar 2013
Nov 2012
Jul 2012
Mar 2012
Nov 2011
Jul 2011
Mar 2011
Nov 2010
Jul 2010
Mar 2010
Nov 2009
Jul 2009
Mar 2009
Nov 2008
Jul 2008
Mar 2008
Nov 2007
Jul 2007
Mar 2007
Nov 2006
Jul 2006
Mar 2006
Mn Tonnes
Dry Bulk Market Outlook
March 2017
WEEKLY CHINESE IRON ORE INVENTORIES 140
120
100
80
60
40
20
0
10
Dry Bulk Market Outlook March 2017
CHINESE IRON ORE IMPORTS Chinese Iron Ore Imports Iron ore imports to China have been steadily increasing due to high availability of cheap ore from Australia and Brazil. This despite a reduction in steel making capacity, supported by capacity cuts in China’s domestic iron ore production.
1,200
1,000
Chinese iron ore is of low quality relative to imports, and often vastly more expensive to extract and transport to its end user.
600
400
200
0
1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD 2017
Mn T
800
11
Dry Bulk Market Outlook March 2017
INDIAN COAL CONSUMPTION Percentage of Indian Urbanised Population / Coal Consumption 400
Indian energy consumption is on the rise and is closely correlated to its urbanised population.
350
should India’s urbanisation rate continue at the current pace, which for the past decade has been 1.14 per cent per year, we can expect India’s coal consumption to increase to between 450 and 500 Mn tonnes by 2020 and approximately 380 Mn tonnes by 2017. That’s up 5.5 per cent from 2014 which saw 360 Mn tonnes consumed.
300
Coal Consumption (Mn T)
R² = 0.9899 250
200
150
However, a mounting problem with pollution spurring policy changes and the increasing availability of renewable energy sources may see this relationship weaken.
100
50
0 15
17
19
21
23
25
27
29
31
33
35
% Urbanised Population
12
Dry Bulk Market Outlook March 2017
SEABORNE COAL BY VESSEL CATEGORY Graph shows what percentage of coal trade is carried on respective vessel types. 30%
25%
Percentage
20%
15%
10%
5%
0% Handysize
Supramax
Ultramax
Panamax
Kamsarmax
PostPanamax
SmallCape
ModernCape Newcastlemax
VLOC 13
Dry Bulk Market Outlook March 2017
SEABORNE IRON ORE BY VESSEL CATEGORY Graph shows what percentage of iron ore trade is carried on respective vessel types. 50%
45%
40%
35%
Percentage
30%
25%
20%
15%
10%
5%
0% Handysize
Supramax
Ultramax
Panamax
Kamsarmax
Post Panamax
Small Cape
Modern Cape Newcastlemax
VLOC 14
Dry Bulk Market Outlook March 2017
SEABORNE TRADE DEVELOPMENT 5,000
Combined % growth for 2016 is estimated to have been around 3% and is expected to average about 1% towards the end of the decade.
Mn T
3,750
2,500
1,250
0 2000
2001
2002
2003
2004
Iron Ore
2005
2006
2007 Coal
2008
2009
2010 Grain
2011
2012
2013
2014
Soybean
2015
Est. 2016
Est. 2017
Est. 2018
Est. 2019
Est. 2020
Minor Bulk 15
Dry Bulk Market Outlook March 2017
TONNE MILE GROWTH 20 18 16
Tr Tonne Miles
14 12 10 8 6 4 2 0 2011
2012
2013 Iron Ore
Coal
2014
2015
2016F
Grain & Agricultural Products
16
L I M I T E D CO N T R AC T I N G FO R N B D E L I V E R I ES S E T TO D EC L I N E ST RO N G D E M O L I T I O N S TO L A ST March 2017
CONTRACTING AND DEMOLITION: HOPE FOR THE FUTURE Graphs show vessel contracting and demolitions for vessels ranging from 10,000 Dwt and upwards.
All Bulker Contracting Number of Ships
All Dry Demolitions
Mn Dwt
Number of Ships
1400
140.0
1200
120.0
1000
100.0
Mn Dwt
600
35 30
500
25
60.0
400
40.0
200
20.0
20 300 15
Mn Dwt
600
Number of Ships
80.0
Mn Dwt
800
200
0.0
10 100
5
0
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD 2017
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD 2017
Number of Ships
400
18
DRY BULK FLEET AGE GROUPS Table showing all size types by age in number of ships. Dry Bulk Fleet By Number of Ships Orderbook of which ordered before 2014
00-04 years
05-09 years
10-14 years
15-19 years
20-24 years
25+ years
Total Fleet
Orderbook as % of Total Fleet
VLOC
69
3
63
93
6
2
40
16
220
31%
Newcastlemax
36
5
121
65
43
0
3
0
232
16%
Capesize
27
8
211
579
180
83
35
6
1094
2%
Small Capesize
1
1
24
96
3
3
0
1
127
1%
PostPanamax
35
1
124
266
60
28
8
4
490
7%
Panamax
23
14
150
297
266
282
134
29
1158
2%
Kamsarmax
98
5
404
356
55
0
0
0
815
12%
Ultramax
184
38
535
69
0
0
0
0
604
30%
Supramax
26
5
261
1148
363
142
0
0
1914
1%
Handymax
14
3
112
68
21
131
169
52
553
3%
Handysize
162
24
639
1197
278
229
223
194
2760
6%
Total Fleet
675
107
2644
4234
1275
900
612
302
9967
7%
% of Total Fleet
7%
1.1%
27%
42%
13%
9%
6%
3%
19
DRY BULK FLEET AGE GROUPS Table showing all size types by age in Mn Dwt. Dry Bulk Fleet By Mn Dwt Orderbook of which ordered before 2014
00-04 years
05-09 years
10-14 years
15-19 years
20-24 years
25+ years
Total
Orderbook
Fleet
as % of Total Fleet
VLOC
23.13
0.79
17.95
28.16
1.48
0.46
11.16
4.38
63.59
36%
Newcastlemax
7.49
1.04
25.11
13.44
8.80
0.00
0.62
0.00
47.98
16%
Capesize
4.80
1.41
37.86
103.31
31.67
14.17
5.43
0.91
193.36
2%
Small Capesize
0.11
0.11
2.69
10.90
0.31
0.32
0.00
0.11
14.33
1%
PostPanamax
2.92
0.07
10.72
24.49
5.31
2.33
0.73
0.36
43.93
7%
Panamax
1.66
1.09
11.34
22.67
20.19
20.92
9.48
1.92
86.53
2%
Kamsarmax
8.00
0.41
33.03
29.13
4.54
0.00
0.00
0.00
66.70
12%
Ultramax
11.52
2.41
33.38
4.26
0.00
0.00
0.00
0.00
37.64
31%
Supramax
1.46
0.28
14.79
64.82
19.63
7.33
0.00
0.00
106.57
1%
Handymax
0.61
0.13
5.15
3.12
0.99
6.13
7.67
2.26
25.33
2%
Handysize
5.89
0.84
22.47
36.85
8.01
6.29
5.70
4.92
84.24
7%
Total Fleet
67.60
8.57
214.49
341.16
100.92
57.96
40.79
14.88
770.20
9%
9%
1.1%
28%
44%
13%
8%
5%
2%
% of Total Fleet
20
DRY BULK CUMULATIVE FLEET Including dry bulk carriers over 10,000 Dwt
Dry Bulk Fleet Profile
→
While the orderbook for 2017 is very large, high levels of slippage are expected. The low orderbook for 2018 is indicative of the diminished appetite for new tonnage, as the market struggles with a slump on the demand side.
→
Considering that around 47 Mn Dwt delivered in 2016 vs the more than 60 Mn Dwt originally scheduled to get delivered, it seems unlikely that all the 43 Mn Dwt scheduled to deliver in the balance of the year will in fact arrive on time. If shipyard performance in 2016 is consistent, then over one third of this year’s scheduled deliveries will be pushed back to later years or dropped altogether.
→
The dry bulk fleet saw a rapid expansion following the large scale ordering at the peak in 2008. Fleet growth has slowed down significantly in line with the current condition of the freight market, predominately due to high levels of demolition and minimal contracting activity.
120 Mn DWT
100 80
60 40 20 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
0
Removals
%Change
1500
30%
1000
20%
500
10%
0
0%
-500
-10%
-1000
-20% 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Number of Ships
Additions
21
KAMSARMAX The Kamsarmax segment is defined as vessels between 80,000Dwt and 84,999 Dwt with a beam less than 32.26, a LoA less than 236m and a draft less than 21m.
2014
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2013
2014
Fleet
2012
2011
2010
2009
2008
2007
2006
16 14 12 10 8 6 4 2 0 2005
Mn DWT
Kamsarmax Fleet Profile
→
The average fleet age in the Kamsarmax segment is 4.6 years.
→
A large volume of deliveries in 2012 can be attributed to heavy investment in the sector prior to the collapse of the freight markets in the latter part of 2008, as well as delays and rescheduled deliveries.
Orderbook
150 100 50
2013
2012
2011
2010
2009
2008
2007
2006
0 2005
Number of Ships
200
22
PANAMAX The graphs show the development of the Panamax segment with the year on year percentage change in fleet size.
10 8 6 4 2 0 -2 -4 -6 -8 -10 -12
20% 16% 12% 8% 4% 0% -4% -8% -12% -16% -20%
→
This data shows the development of the Panamax fleet, taking into account all capacity added to the sector and deletions.
→
Recent high demolition activity has led to negative fleet growth in the Panamax sector. January 2017 continues that trend, but at a lower intensity, with 0.5 Mn Dwt scrapped; this is 6 per cent of total Panamax demolitions in 2016. This is partially due to the increased popularity of the Kamsarmax segment.
1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Mn DWT
Panamax Fleet Development
Additions
Deletions
%Change
150
40% 30% 20% 10% 0% -10% -20% -30% -40%
50 0 -50 -100 -150 -200 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Number of Ships
100
23
ULTRAMAX Ultramax is defined as 60,000 to 69,999 Dwt, built after 2009, and are geared, usually 5 hold / 5 hatch arrangement and less than 200m LOA.
→
The Dry Bulk fleet is constantly evolving, thus the Ultramax sector only started being delivered from 2010 onwards.
→
The current orderbook accounts for 30per cent of the current fleet.
2016
2017
2018
2019
2016
2017
2018
2019
Fleet
2015
2014
2013
2012
2011
14 12 10 8 6 4 2 0
2010
Mn DWT
Ultramax Fleet Profile
Orderbook
200 150 100 50
2015
2014
2013
2012
2011
0
2010
Number of Ships
250
24
HANDYMAX The graphs show the development of the Handymax fleet, with year on year additions and deletions as well as the annual percentage change.
6
30%
4
20%
2
These graphs clearly show how demolition figures in this segment spiked as a result of international financial turmoil; noticeably in 1986 and more recently in the aftermath of the 2008 financial crisis, the latter of which has resulted in sustained negative growth since 2009.
→
The fleet is also shrinking as bulk carrier designs have evolved into Supramax and Ultramax.
10% 0%
-2
Removals
2016
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
-20%
1982
-6
1980
-10%
1978
-4
Additions
%Change
100
30% 24% 18% 12% 6% 0% -6% -12% -18% -24% -30%
50 0
-50 -100
1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
NUmber of Ships
→
0
1976
Mn DWT
Handymax Fleet Development
25
DRY BULK SLIPPAGE BY SIZE BAND – START OF PERIOD Slippage and Cancellations. 80% 2013
2014
2015
2016
70% 60% 50% 40% 30% 20% 10% 0%
26
EARNINGS IMPROVING BUT STILL RATHER LOW March 2017
1YR TC
Dec-16
Jul-16
Feb-16
Sep-15
Apr-15
Nov-14
Jun-14
Jan-14
Aug-13
Mar-13
Oct-12
May-12
Dec-11
Jul-11
Feb-11
Sep-10
Apr-10
Nov-09
Jun-09
Jan-09
Aug-08
Mar-08
Oct-07
May-07
Dec-06
Jul-06
Feb-06
Sep-05
Apr-05
Nov-04
Jun-04
Jan-04
USD / Day 180,000 18,000
160,000 16,000
140,000 14,000
120,000 12,000
100,000 10,000
80,000 8,000
60,000 6,000
40,000 4,000
20,000 2,000
-
BCI 4/5TC
CAPESIZE TC RATES AND BCI
-
BCI 28
PANAMAX TC RATES AND BPI 90,000
12,000
80,000 10,000 70,000 8,000
50,000 6,000
BPI
USD / Day
60,000
40,000 30,000
4,000
20,000 2,000 10,000
-
-
1YR TC
BPI 29
Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 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
USD / Day 40,000
BSI
SUPRAMAX TC RATES AND BSI 80,000 7,000
70,000 6,000
60,000 5,000
50,000
4,000
3,000
30,000
20,000 2,000
10,000 1,000
-
1YR TC BSI 30
1YR TC
Jan-17
Sep-16
May-16
Jan-16
Sep-15
May-15
Jan-15
Sep-14
May-14
Jan-14
Sep-13
May-13
Jan-13
Sep-12
May-12
Jan-12
Sep-11
May-11
Jan-11
Sep-10
May-10
Jan-10
Sep-09
May-09
Jan-09
Sep-08
May-08
Jan-08
Sep-07
May-07
Jan-07
Sep-06
BHSI
USD / Day
HANDYSIZE TC RATES AND BHSI 45,000 3,500
40,000 3,000
35,000 2,500
30,000
25,000
2,000
20,000 1,500
15,000 1,000
10,000
5,000 500
-
BHSI 31
RECOVERY IN 5 YO PRICES FOR PANAMAX AND HANDYSIZE March 2017
PANAMAX ASSET VALUES 120
100
Mn USD
80
60
40
20
0 2000
2001
2002
2003
2004
2005
2006 Resale
2007
2008
5 YO
2009 10 YO
2010
2011
2012
2013
2014
2015
2016
2017
15 YO 33
HANDYSIZE ASSET VALUES 60
50
Mn USD
40
30
20
10
0 2000
2001
2002
2003
2004
2005
2006 NB
2007
2008
Resale
2009 5 YO
2010
2011
2012
2013
2014
2015
2016
2017
10 YO 34
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DISCLAIMER The information contained within this report is given in good faith based on the current market situation at the time of preparing this report and as such is specific to that point only. While all reasonable care has been taken in the preparation and collation of information in this report Affinity (Shipping) LLP (and all associated and affiliated companies) does not accept any liability whatsoever for any errors of fact or opinion based on such facts. Some industry information relating to the shipping industry can be difficult to find or establish. Some data may not be available and may need to be estimated or assessed and where such data may be limited or unavailable subjective assessment may have to be used. No market analysis can guarantee accuracy. The usual fundamentals may not always govern the markets, for example psychology, market cycles and external events (such as acts of god or developments in future technologies) could cause markets to depart from their natural/usual course. Such external events have not been considered
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36
MARCH 2017
Dry Bulk Market Outlook March 2017
MARKET DEVELOPMENTS - SUMMARY • a rather healthy start to the year, with capes leading the charge • Iron ore imports to China increased by 13.4 % to 83.5 Mn T in February, mainly due to restocking efforts. Stockpiles grew by a 8.2 % in February, the largest month-on-month increase in 3 years. • TC rates increased from an average of USD 11.4 k per day in February to a current USD 14 k per day. • Restocking is a clear short term development, but other medium to long term developments could contribute to the bull market. • New iron ore from Vale’s recently opened S11D mine should contribute to softening iron ore prices, thus increasing the appeal of imports for Chinese buyers. • In March 2016, the Capesize orderbook totalled 7 % of the fleet, while the ratio currently stands at 2 %. Last year, the capesize fleet shrunk by 0.1 per cent to 193.4 Mn Dwt. • But VLOC orderbook at 23.1 Mn Dwt in total • The Panamax and Kamsarmax segments also trending positive, driven largely by an increase in cargoes out of South America carrying grain, and price differences in coal between the Chinese domestic market and the import market, with imports trading at up to a 10 per cent discount.
• The recent ban on coal imports from North Korea is expected to contribute to a firming in demand for the majority of 2017. The country supplies 22.8 Mn tonnes of anthracite to China, about 85 % of Chinese anthracite imports. We expect the ban to create 1.6 % extra demand growth for the segment in 2017. • Handysizes and smaller segments also benefitting from the current improvements in the market. 1 year TC rates have increased 19.2 % to USD 7,750 and 26.6 % to USD 9,500 for Handysizes and Supramaxes respectively since the start of the year. For Supra’s this is the highest rate since end August 2015. • The short term nature of many of the above factors may well lead to an overinflated sentiment that runs ahead of fundamentals. • Supply side discipline essential for market recovery. Renewed newbuilding activity could compromise and prolong any sustainable improvement in the market. • Uncertainty on upcoming enforcement of the IMO’s Ballast Water Management convention, set to happen on September 8 2017. • 659 vessels will enter the demolition candidate pool (ships 20 years and older). • Low sulphur regulations that are set to enter into force in 2020 will add to the cost of operations.
2
ASSUMPTIONS FOR AFFINITY’S FORECASTS SUPPLY Dry cargo contracting to stay slow Dry cargo demolitions to continue Removals from Orderbook (approx. 11.0 Mn Dwt in 2016) to continue as yards fail and orders are renegotiated or cancelled Ballast Water Treatment System to reduce effective lifespan of bulk carriers to around 22 years compared to a long-run average of 25 -
Estimated deliveries by size band Size / Mn Dwt
2017
2018
2019
2020
2021
Handy / Supra / Ultramax
13.5
4.2
5.3
5.9
5.7
Panamax / Kamsarmax
10.8
1.5
2.0
3.1
4.1
Capesize
15.2
14.9
11.2
5.8
7.7
DEMAND Base case: only marginal changes in demand growth going forward to 2021. Owners should consider this before investing
3
SUPPLY MUST REACT TO FLAT DEMAND GROWTH FOR DRY CARGO OWNERS TO SURVIVE Combined bulk carrier fleet supply and demand scenarios to 2021 900 Fleet, 30% slippage, overdue ships cancelled, 25 yr life 800 Fleet, 30% slippage, overdue ships cancelled, 22 yr life,
Mn Dwt
700
Fleet, 30% slippage, overdue ships cancelled, 22 yr life, 10% slow steaming 2011 on
600
Demand at 0% growth
500 Demand growth at historic average levels
400
Demand at -2% growth
300 2006
2008
2010
2012
2014
2016
Our base case is that the dry cargo markets will see an aggregate of zero demand growth out to 2021. Even if demand growth returns to its historic average of 4.4% per annum, owners must continue to manage supply. Thus our base case supply scenario envisages 30% slippage in the orderbook, the cancellation of overdue orders, slow steaming being a permanent fixture and
2018
2020
the average life of a bulker being reduced to 22 years by the Ballast Water Management Convention (comes into force 8 September 2017). In this case, supply growth levels off to zero with the fleet at around 700 Mn Dwt, giving steady utilisation of around 80%, slightly above the long term average of 78%. 4
…WHEN EXPRESSED AS CAPACITY UTILISATION, THERE ARE CLEAR IMPLICATIONS FOR FREIGHT RATES… Combined all dry bulk capacity utilisation scenarios to 2021
Base Case Capacity Utllisation
historic average utilisation rate
BDI
100%
8,000
95%
7,000 6,000
85% 5,000
80% 75%
4,000
70%
BDI
CAPACITY UTILISATION
90%
3,000
65% 2,000 60% 1,000
55%
50%
2006
2008
2010
2012
The BDI averaged 673 points in 2016, and while the market has improved since then (average BDI for 2017 YTD is 870) market movements remain
2014
2016
2018
2020
positional rather than fundamental. Prospects for the BDI remain underwhelming even with strict supply-side discipline.
5
CAPESIZE: Capesize utilisation scenarios 95% 90% Best Case Capacity Utllisation
85% 80%
Base Case Capacity Utilisation
75%
Worst Case Capacity utilisation
70% 65% 60% 2006
2008
2010
2012
Our base case includes cancellation of all overdue orders, accounts for 30% slippage in delivery schedules, assumes all ships sail at 12.5 knots on average, and that average economic life is 22 years. The base case also assumes 2% annual
2014
2016
2018
2020
demand growth for iron ore, however this will mostly be taken up by the VLOC segment. The step down in utilisation is a consequence of VLOC deliveries in 2017. VLOC orders dominated contracting Dwt in 2016. 6
PANAMAX / KAMSARMAX: Panamax / Kamsarmax utilisation base case
100% 95%
Best case Capacity Utilisation
90% 85%
Base Case Capacity Utllisation
80% 75%
Worst Case Capacity utilisation
70% 65% 60% 2006
2008
2010
2012
2014
Panamax utilisation in our model is a function of zero demand growth and the same supply side constraints as per Capesizes. While the prospect for grain and coal remain positive in the near term,
2016
2018
2020
the orderbook remains onerous and real improvement will only happen when demolitions happen to ships in their mid-teens on average.
7
HANDY / SUPRA / ULTRAMAX: Utilisation base case 105% 100% 95%
Best case Capacity Utilisation
90% 85%
Base Case Capacity Utllisation
80% 75%
Worst Case Capacity utilisation
70% 65% 60% 55% 2006
2008
2010
2012
2014
Prospects for the geared bulk carrier fleet are less depressing on the basis that demand continues to be seen to grow especially in the minor bulks, grain and coal (for now; long term prospects for coal remain weak), supporting these ship types, which also steal cargo from the larger and older Panamax
2016
2018
2020
bulkers. Forecasting freight markets remains a difficult exercise however as the geared bulker markets continue to evolve with ship sizes. Our best guess for 2017: watch copper, grains and coke, beware steel products tariffs, look for positional opportunities. It is an operators’ market. 8
DEMAND TO ONLY INCREASE MARGINALLY BY THE END OF DECADE
March 2017
Mar 2017
Nov 2016
Jul 2016
Mar 2016
Nov 2015
Jul 2015
Mar 2015
Nov 2014
Jul 2014
Mar 2014
Nov 2013
Jul 2013
Mar 2013
Nov 2012
Jul 2012
Mar 2012
Nov 2011
Jul 2011
Mar 2011
Nov 2010
Jul 2010
Mar 2010
Nov 2009
Jul 2009
Mar 2009
Nov 2008
Jul 2008
Mar 2008
Nov 2007
Jul 2007
Mar 2007
Nov 2006
Jul 2006
Mar 2006
Mn Tonnes
Dry Bulk Market Outlook
March 2017
WEEKLY CHINESE IRON ORE INVENTORIES 140
120
100
80
60
40
20
0
10
Dry Bulk Market Outlook March 2017
CHINESE IRON ORE IMPORTS Chinese Iron Ore Imports Iron ore imports to China have been steadily increasing due to high availability of cheap ore from Australia and Brazil. This despite a reduction in steel making capacity, supported by capacity cuts in China’s domestic iron ore production.
1,200
1,000
Chinese iron ore is of low quality relative to imports, and often vastly more expensive to extract and transport to its end user.
600
400
200
0
1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD 2017
Mn T
800
11
Dry Bulk Market Outlook March 2017
INDIAN COAL CONSUMPTION Percentage of Indian Urbanised Population / Coal Consumption 400
Indian energy consumption is on the rise and is closely correlated to its urbanised population.
350
should India’s urbanisation rate continue at the current pace, which for the past decade has been 1.14 per cent per year, we can expect India’s coal consumption to increase to between 450 and 500 Mn tonnes by 2020 and approximately 380 Mn tonnes by 2017. That’s up 5.5 per cent from 2014 which saw 360 Mn tonnes consumed.
300
Coal Consumption (Mn T)
R² = 0.9899 250
200
150
However, a mounting problem with pollution spurring policy changes and the increasing availability of renewable energy sources may see this relationship weaken.
100
50
0 15
17
19
21
23
25
27
29
31
33
35
% Urbanised Population
12
Dry Bulk Market Outlook March 2017
SEABORNE COAL BY VESSEL CATEGORY Graph shows what percentage of coal trade is carried on respective vessel types. 30%
25%
Percentage
20%
15%
10%
5%
0% Handysize
Supramax
Ultramax
Panamax
Kamsarmax
PostPanamax
SmallCape
ModernCape Newcastlemax
VLOC 13
Dry Bulk Market Outlook March 2017
SEABORNE IRON ORE BY VESSEL CATEGORY Graph shows what percentage of iron ore trade is carried on respective vessel types. 50%
45%
40%
35%
Percentage
30%
25%
20%
15%
10%
5%
0% Handysize
Supramax
Ultramax
Panamax
Kamsarmax
Post Panamax
Small Cape
Modern Cape Newcastlemax
VLOC 14
Dry Bulk Market Outlook March 2017
SEABORNE TRADE DEVELOPMENT 5,000
Combined % growth for 2016 is estimated to have been around 3% and is expected to average about 1% towards the end of the decade.
Mn T
3,750
2,500
1,250
0 2000
2001
2002
2003
2004
Iron Ore
2005
2006
2007 Coal
2008
2009
2010 Grain
2011
2012
2013
2014
Soybean
2015
Est. 2016
Est. 2017
Est. 2018
Est. 2019
Est. 2020
Minor Bulk 15
Dry Bulk Market Outlook March 2017
TONNE MILE GROWTH 20 18 16
Tr Tonne Miles
14 12 10 8 6 4 2 0 2011
2012
2013 Iron Ore
Coal
2014
2015
2016F
Grain & Agricultural Products
16
L I M I T E D CO N T R AC T I N G FO R N B D E L I V E R I ES S E T TO D EC L I N E ST RO N G D E M O L I T I O N S TO L A ST March 2017
CONTRACTING AND DEMOLITION: HOPE FOR THE FUTURE Graphs show vessel contracting and demolitions for vessels ranging from 10,000 Dwt and upwards.
All Bulker Contracting Number of Ships
All Dry Demolitions
Mn Dwt
Number of Ships
1400
140.0
1200
120.0
1000
100.0
Mn Dwt
600
35 30
500
25
60.0
400
40.0
200
20.0
20 300 15
Mn Dwt
600
Number of Ships
80.0
Mn Dwt
800
200
0.0
10 100
5
0
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD 2017
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD 2017
Number of Ships
400
18
DRY BULK FLEET AGE GROUPS Table showing all size types by age in number of ships. Dry Bulk Fleet By Number of Ships Orderbook of which ordered before 2014
00-04 years
05-09 years
10-14 years
15-19 years
20-24 years
25+ years
Total Fleet
Orderbook as % of Total Fleet
VLOC
69
3
63
93
6
2
40
16
220
31%
Newcastlemax
36
5
121
65
43
0
3
0
232
16%
Capesize
27
8
211
579
180
83
35
6
1094
2%
Small Capesize
1
1
24
96
3
3
0
1
127
1%
PostPanamax
35
1
124
266
60
28
8
4
490
7%
Panamax
23
14
150
297
266
282
134
29
1158
2%
Kamsarmax
98
5
404
356
55
0
0
0
815
12%
Ultramax
184
38
535
69
0
0
0
0
604
30%
Supramax
26
5
261
1148
363
142
0
0
1914
1%
Handymax
14
3
112
68
21
131
169
52
553
3%
Handysize
162
24
639
1197
278
229
223
194
2760
6%
Total Fleet
675
107
2644
4234
1275
900
612
302
9967
7%
% of Total Fleet
7%
1.1%
27%
42%
13%
9%
6%
3%
19
DRY BULK FLEET AGE GROUPS Table showing all size types by age in Mn Dwt. Dry Bulk Fleet By Mn Dwt Orderbook of which ordered before 2014
00-04 years
05-09 years
10-14 years
15-19 years
20-24 years
25+ years
Total
Orderbook
Fleet
as % of Total Fleet
VLOC
23.13
0.79
17.95
28.16
1.48
0.46
11.16
4.38
63.59
36%
Newcastlemax
7.49
1.04
25.11
13.44
8.80
0.00
0.62
0.00
47.98
16%
Capesize
4.80
1.41
37.86
103.31
31.67
14.17
5.43
0.91
193.36
2%
Small Capesize
0.11
0.11
2.69
10.90
0.31
0.32
0.00
0.11
14.33
1%
PostPanamax
2.92
0.07
10.72
24.49
5.31
2.33
0.73
0.36
43.93
7%
Panamax
1.66
1.09
11.34
22.67
20.19
20.92
9.48
1.92
86.53
2%
Kamsarmax
8.00
0.41
33.03
29.13
4.54
0.00
0.00
0.00
66.70
12%
Ultramax
11.52
2.41
33.38
4.26
0.00
0.00
0.00
0.00
37.64
31%
Supramax
1.46
0.28
14.79
64.82
19.63
7.33
0.00
0.00
106.57
1%
Handymax
0.61
0.13
5.15
3.12
0.99
6.13
7.67
2.26
25.33
2%
Handysize
5.89
0.84
22.47
36.85
8.01
6.29
5.70
4.92
84.24
7%
Total Fleet
67.60
8.57
214.49
341.16
100.92
57.96
40.79
14.88
770.20
9%
9%
1.1%
28%
44%
13%
8%
5%
2%
% of Total Fleet
20
DRY BULK CUMULATIVE FLEET Including dry bulk carriers over 10,000 Dwt
Dry Bulk Fleet Profile
→
While the orderbook for 2017 is very large, high levels of slippage are expected. The low orderbook for 2018 is indicative of the diminished appetite for new tonnage, as the market struggles with a slump on the demand side.
→
Considering that around 47 Mn Dwt delivered in 2016 vs the more than 60 Mn Dwt originally scheduled to get delivered, it seems unlikely that all the 43 Mn Dwt scheduled to deliver in the balance of the year will in fact arrive on time. If shipyard performance in 2016 is consistent, then over one third of this year’s scheduled deliveries will be pushed back to later years or dropped altogether.
→
The dry bulk fleet saw a rapid expansion following the large scale ordering at the peak in 2008. Fleet growth has slowed down significantly in line with the current condition of the freight market, predominately due to high levels of demolition and minimal contracting activity.
120 Mn DWT
100 80
60 40 20 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
0
Removals
%Change
1500
30%
1000
20%
500
10%
0
0%
-500
-10%
-1000
-20% 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Number of Ships
Additions
21
KAMSARMAX The Kamsarmax segment is defined as vessels between 80,000Dwt and 84,999 Dwt with a beam less than 32.26, a LoA less than 236m and a draft less than 21m.
2014
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2013
2014
Fleet
2012
2011
2010
2009
2008
2007
2006
16 14 12 10 8 6 4 2 0 2005
Mn DWT
Kamsarmax Fleet Profile
→
The average fleet age in the Kamsarmax segment is 4.6 years.
→
A large volume of deliveries in 2012 can be attributed to heavy investment in the sector prior to the collapse of the freight markets in the latter part of 2008, as well as delays and rescheduled deliveries.
Orderbook
150 100 50
2013
2012
2011
2010
2009
2008
2007
2006
0 2005
Number of Ships
200
22
PANAMAX The graphs show the development of the Panamax segment with the year on year percentage change in fleet size.
10 8 6 4 2 0 -2 -4 -6 -8 -10 -12
20% 16% 12% 8% 4% 0% -4% -8% -12% -16% -20%
→
This data shows the development of the Panamax fleet, taking into account all capacity added to the sector and deletions.
→
Recent high demolition activity has led to negative fleet growth in the Panamax sector. January 2017 continues that trend, but at a lower intensity, with 0.5 Mn Dwt scrapped; this is 6 per cent of total Panamax demolitions in 2016. This is partially due to the increased popularity of the Kamsarmax segment.
1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Mn DWT
Panamax Fleet Development
Additions
Deletions
%Change
150
40% 30% 20% 10% 0% -10% -20% -30% -40%
50 0 -50 -100 -150 -200 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Number of Ships
100
23
ULTRAMAX Ultramax is defined as 60,000 to 69,999 Dwt, built after 2009, and are geared, usually 5 hold / 5 hatch arrangement and less than 200m LOA.
→
The Dry Bulk fleet is constantly evolving, thus the Ultramax sector only started being delivered from 2010 onwards.
→
The current orderbook accounts for 30per cent of the current fleet.
2016
2017
2018
2019
2016
2017
2018
2019
Fleet
2015
2014
2013
2012
2011
14 12 10 8 6 4 2 0
2010
Mn DWT
Ultramax Fleet Profile
Orderbook
200 150 100 50
2015
2014
2013
2012
2011
0
2010
Number of Ships
250
24
HANDYMAX The graphs show the development of the Handymax fleet, with year on year additions and deletions as well as the annual percentage change.
6
30%
4
20%
2
These graphs clearly show how demolition figures in this segment spiked as a result of international financial turmoil; noticeably in 1986 and more recently in the aftermath of the 2008 financial crisis, the latter of which has resulted in sustained negative growth since 2009.
→
The fleet is also shrinking as bulk carrier designs have evolved into Supramax and Ultramax.
10% 0%
-2
Removals
2016
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
-20%
1982
-6
1980
-10%
1978
-4
Additions
%Change
100
30% 24% 18% 12% 6% 0% -6% -12% -18% -24% -30%
50 0
-50 -100
1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
NUmber of Ships
→
0
1976
Mn DWT
Handymax Fleet Development
25
DRY BULK SLIPPAGE BY SIZE BAND – START OF PERIOD Slippage and Cancellations. 80% 2013
2014
2015
2016
70% 60% 50% 40% 30% 20% 10% 0%
26
EARNINGS IMPROVING BUT STILL RATHER LOW March 2017
1YR TC
Dec-16
Jul-16
Feb-16
Sep-15
Apr-15
Nov-14
Jun-14
Jan-14
Aug-13
Mar-13
Oct-12
May-12
Dec-11
Jul-11
Feb-11
Sep-10
Apr-10
Nov-09
Jun-09
Jan-09
Aug-08
Mar-08
Oct-07
May-07
Dec-06
Jul-06
Feb-06
Sep-05
Apr-05
Nov-04
Jun-04
Jan-04
USD / Day 180,000 18,000
160,000 16,000
140,000 14,000
120,000 12,000
100,000 10,000
80,000 8,000
60,000 6,000
40,000 4,000
20,000 2,000
-
BCI 4/5TC
CAPESIZE TC RATES AND BCI
-
BCI 28
PANAMAX TC RATES AND BPI 90,000
12,000
80,000 10,000 70,000 8,000
50,000 6,000
BPI
USD / Day
60,000
40,000 30,000
4,000
20,000 2,000 10,000
-
-
1YR TC
BPI 29
Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 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
USD / Day 40,000
BSI
SUPRAMAX TC RATES AND BSI 80,000 7,000
70,000 6,000
60,000 5,000
50,000
4,000
3,000
30,000
20,000 2,000
10,000 1,000
-
1YR TC BSI 30
1YR TC
Jan-17
Sep-16
May-16
Jan-16
Sep-15
May-15
Jan-15
Sep-14
May-14
Jan-14
Sep-13
May-13
Jan-13
Sep-12
May-12
Jan-12
Sep-11
May-11
Jan-11
Sep-10
May-10
Jan-10
Sep-09
May-09
Jan-09
Sep-08
May-08
Jan-08
Sep-07
May-07
Jan-07
Sep-06
BHSI
USD / Day
HANDYSIZE TC RATES AND BHSI 45,000 3,500
40,000 3,000
35,000 2,500
30,000
25,000
2,000
20,000 1,500
15,000 1,000
10,000
5,000 500
-
BHSI 31
RECOVERY IN 5 YO PRICES FOR PANAMAX AND HANDYSIZE March 2017
PANAMAX ASSET VALUES 120
100
Mn USD
80
60
40
20
0 2000
2001
2002
2003
2004
2005
2006 Resale
2007
2008
5 YO
2009 10 YO
2010
2011
2012
2013
2014
2015
2016
2017
15 YO 33
HANDYSIZE ASSET VALUES 60
50
Mn USD
40
30
20
10
0 2000
2001
2002
2003
2004
2005
2006 NB
2007
2008
Resale
2009 5 YO
2010
2011
2012
2013
2014
2015
2016
2017
10 YO 34
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DISCLAIMER The information contained within this report is given in good faith based on the current market situation at the time of preparing this report and as such is specific to that point only. While all reasonable care has been taken in the preparation and collation of information in this report Affinity (Shipping) LLP (and all associated and affiliated companies) does not accept any liability whatsoever for any errors of fact or opinion based on such facts. Some industry information relating to the shipping industry can be difficult to find or establish. Some data may not be available and may need to be estimated or assessed and where such data may be limited or unavailable subjective assessment may have to be used. No market analysis can guarantee accuracy. The usual fundamentals may not always govern the markets, for example psychology, market cycles and external events (such as acts of god or developments in future technologies) could cause markets to depart from their natural/usual course. Such external events have not been considered
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