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Dry Bulk Market Outlook15 May 2017
Presented to the IMSF 2017 - Geneva
Prepared by Angelica Kemene |Research Executive
Dry Bulk Demand OutlookShort term & long term demand
Global infrastructure spending on the rise
Global GDP growth assumptions
Source Data: Oxford Economics
Global Infrastructure spending growth | Global upturn scenario
Despite the economic uncertainties, interest in and accumulation of capital for investment in infrastructure projects continue to grow.
In the short-term, building or upgrading transport or energy networks can boost aggregate demand through increased construction activity andemployment – a useful reference is a recent IMF study, which found that a dollar well invested in infrastructure yields $3 in GDP.
The US & Canada region will invest 3.8% in infrastructure spending as % of GDP – Global spending will be at 5.9% and Asia Pacific at 9%
Infrastructure spending in Asia-Pacific is expected to soar to $5.3 trillion per annum by 2025, accounting for nearly 60% of the global total over thenext 10 years. China and India, where urbanization is in full swing, along with ASEAN countries should dominate the picture.
One Belt – One Road (OBOR) & BRI Countries
One Belt – One Road (OBOR) – Will it reshape global trade?
Long-term project importance for the Bulk Carrier sector Funding for BRI by source
China is seeing a bit of a slowing down in its growth. A
lot of people are saying that that’s part of the next
growth wave of Chinese exports, which is that it’s going
to have its influence and its infrastructure build-out in
many of these countries, most of them emerging
markets, in lots of things that frankly have fueled the
very high growth in China over the past decade.
The project can be replicated in many of these
countries in the next ten years – that ‘s significant as
many of these countries are really lacking in this
infrastructure.
Challenge: whether there is going to be long-term
planning that’s required, and whether the local
governments and the state governments are able to
take the Chinese model and the Chinese infrastructure
and figure out how they can have their own version
(corruption – instability)
While we have the AIIB and the Silk Road Fund and
the New Development Bank, if you add it all together,
it’s still a very, very small amount relative to what needs
to be funded, which is roughly between $2 trillion and
$3 trillion per year!
On a positive note, while the project was announced
back in 2013 – steps have been taken so there is
progress and will still be.
It s a serious long term geo-economic strategy that will
potentially shift the global economic center of gravity
Source Data: Company Statements, Oxford Economics, FT
Outstanding loans or equity investment at end-2016 (US$bn)
China: iron ore &coal imports
Iron ore price arbitrage gap China’s iron ore imports
The huge iron ore price gap between China’s domestic market and the international market has resulted in the surge of China’s iron ore imports in 2014, however achange in domestic fundamentals resulted in a 10% growth in iron ore imports in China in 2015 approx. at approx. 954MT.
Iron Ore imports have been affected in part because of the depreciation of the Chinese currency coupled with the slow down and change in policy of the Chineseeconomy & the steel industry
Iron ore trade is mainly driven nowadays by restocking activity
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
35
55
75
95
115
135
155
175
195
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17
$/t
onne
Capesiz
e a
v5TC
s
Cape TC Avg.
TSI
China domestic iron ore Avg.
adjusted
170
190
210
230
250
270
290
Q1 Q2 Q3 Q4
Million tonnes
2014 2015 2016 2017
2017 Q1 iron ore imports
started at a higher mark
than the past years
China: iron ore & coal imports
China’s coal imports
China to toughen efforts in cutting excess capacity
China has phased out 31.7 million tonnes of steel capacity
and 68.97 million tonnes of coal capacity – about 63% and
46% of the annual targets
There is still rising demand for steel and coal
Falls in iron ore prices will also serve to boost China’s imports –
as higher quality but lower cost ore from Brazil and Australia
will displace domestic supplies.
2017: the pool of potential steel scrap supply in China is
expected to reach 7.8 billion tonnes. This pool of potentially
recyclable steel could increase to reach to 10 billion tonnes by
2020 and 12 billion by 2025
The output of steel scrap is estimated at around 200 million
tonnes and the CMIPR Institute forecasts to double by 2025
The growing pool of potential steel scrap is expected to slowly
reduce China’s reliance on iron ore imports
Coal imports are likely to remain robust, given the current cost
advantage they enjoy over domestic supplies, which have
been somewhat constrained by Beijing’s efforts to eliminate
over-capacity and inefficient mines.
2017 Q1 coal imports
started at a higher mark
than the past years
20
30
40
50
60
70
Q1 Q2 Q3 Q4
Millions
2014 2015 2016 2017
India: Modi’s measures and plans
Annual Indian Iron Ore Production and Trade Iron ore production in India:
FY 2016/17: 185 Mll Tns
FY 2017/18: 200 Mll Tns
Iron ore exports in India:
FY 2016/17: 24 Mll Tns
FY 2017/2018: 40 Mll Tns
By 2020 domestic iron ore requirement will stand at 234 Mll tns and
then projected to escalate to 447 Mll tns by 2030
Steel production at 300 Mll tns by 2025 according to government
plans.
For India to export iron ore a price of $60-$65 pmt is not viable. For
the profit margins to make sense iron ore price should be around
$70-$75 pmt
Risks for iron ore exports increase as India is at a 5 year production
high and domestic steel mills do not use fines as feedstock for their
blast furnaces, as the Indian Rupee is appreciating against the
USD and as international iron ore prices are at low levels.
Overall, India targets infrastructure projects such as roads and rails
India decided over the next 7 years to invest $1.3 trillion in real
estate and is set to become India’s next growth driver.
Grain trade: New demand centers | Consolidated long haul trade to China
Exports
Imports
Grain & Soy Exports FY 2017/18USA: 137.9 MMTBrazil: 96.5 MMTEU: 31 MMTRussia: 29 MMTArgentina: 30.2 MMTUkraine: 23.8 MMTCanada: 22 MMTAussie: 22 MMT
Grain & Soy Exports FY 2017/18China: 105 MMTMid. East-Afr: 58.6 MMTEU: 29.5 MMTVietnam: 10.5 MMTIndonesia: 9.5 MMT
Dry Bulk Fleet OutlookSupply
Historical Fleet Growth
Net dry fleet growth per year in DWT
-20
0
20
40
60
80
100
120
140
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
0
304 Mln dwt net increase
within 4 years
Almost 222 Mln dwt net increase in
20 years
Quarterly contracting
New Building contract activity by quarter for the dry bulk carriers
0
10
20
30
40
50
60
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Millions Dwt Handy (10-39.9K) Hmax (40-64.9K) Pmax (65-100K) Cape (>100K)
Chinese shipping companies have ordered 20-30 Valemaxes for delivery starting from 2018.
2017 has shown a strong preference to Kamsarmaxes
Scheduled delivery dates and potential slippage
Almost 33.4% of the 2017 orders
have not yet started
29% of total OB will be delivered
this year
0
2
4
6
8
10
12
14
16
18
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2017 2018 2019 2020 2021 2022 2023
Million Dwt
Scheduled delivery date
Under Construction
On order_Not yet started
New Building orders under construction vs orders that have not yet started
Fleet age profile & demolition
0
5
10
15
20
25
30
35
40
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Age profile (mln dwt) YTD Annual realized demolition volume and projection (mln dwt)
In Q117 70 vessels had been scrapped equal to 5.4 million deadweightDeliveries stood at 201 vessels equal to 17.8 million deadweight
Demolition Prices: Will they recover?
Average Monthly scrap prices against Chinese Steel Exports
Source Data: Baltic Exhange, Eikon, Optima Shipbrokers
0
2
4
6
8
10
12
0
100
200
300
400
500
600
700
800
Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17
Million tonnes
Mill
ions
$/ltd China Steel exports Average of B/C_SUBCON Average of D/TKR_SUBCON
NB vs 5 years old secondhand ship values
61K DWT Ultramax Bulkcarrier Newbuilding Prices Supramax 58K Bulkcarrier 5 Year Old Secondhand Prices
56-58K DWT Handymax Bulkcarrier Newbuilding Prices: As at
End of Period Specified. 40K until Sep-99; 51K between Oct-
99 and May-08; 56-58K between May-08 and Jan-09, 61-64K
thereafter
Prospects | Risks
|Investment Opportunities
Sectors: Cycle Position May 2017
% deviation from earnings average 2010-2017
Source Data: Optima Shipbrokers
-21.87%
-14.62%
-22.95%
-16.95%
-80% -70% -60% -50% -40% -30% -20% -10% 0%
Capesize TC Average
Panamax TC Average
Supramax TC Average
Handysize TC Average
% change in average earnings from the 2010-2017 average
Where do we stand now at the major shipping sectors?
The Bulk Carrier & Container markets are at the point of maximum opportunity –Freight Earnings recovery
Seaborne Trade Growth & The World Economy
Seaborne Trade Growth & Global GDP Growth
Source Data: IMF, Optima Shipbrokers
-4
0
4
8
12
1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 2021
% change YoY
World Seaborne Trade % Yr/Yr World GDP Growth (IMF)
In 2016 world seaborne trade is estimated to have accelerated by almost 0.7% compared to 2015. 2017 may experience more or less same levels of growth.
However, the overall weakness in economic activity (ie: slowdown in investment growth) appear to be key restraints on trade growth since 2011.
According to the IMF the significant decrease in investment accounts for up to three-fourths of the trade growth slowdown.
That’s probably a situation that will not change substantially over the coming years.
Seaborne Dry Bulk Trade
0.00
1000.00
2000.00
3000.00
4000.00
5000.00
6000.00
2010 2011 2012 2013 2014 2015 Estimate for2016
THOUSAND MT
Iron Ore Coal (Thermal & Coking)
Grain Phosphate Rock
Bauxite/Alumina World Seaborne Minor Bulk Trade
Prospects & Risks
Prospects
High scrapping – low contracting activity to persist,
welcoming other shipping segments as well.
Reduced concern about China’s near-term
prospects following policy support to growth.
Financial market sentiment toward emerging
market economies to continue to improve.
Some firming on commodity prices that will
provide support to trade.
Given the supply fundaments of the Bulk Carriers,
we believe that those sectors have hit the bottom
in terms of asset prices and will marginally start to
recover.
Regulations for scrubbers and WBT on all sectors
may provide some further help to alleviate
oversupply.
Risks
Rising trade barriers: more and more countries
adopt protectionist measures and there are many
unresolved matters regarding several ongoing
trade agreements
A trend towards de-globalisation coming out from
governments, intensifying protectionist policy
approaches. (ie: China and Valemaxes)
Technology advancements having the power to
reduce tonne-mille demand (ie: 3D printing)
Many factors nowadays have been impacting the
shipping industry making it extremely difficult to
calculate risks and plan long term investments.
However challenging the markets might be there
are still opportunities out there.
THANK YOU !
© Optima Shipbrokers 2017
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