SHIPPING MARKETS OUTLOOK...This report is intended solely for the information of the email recipient account and must not be passed or divulged to any third parties whatsoever without

SHIPPING MARKETS OUTLOOK

MARK W ILL IAMS

MANAGING PARTNER

AFF IN ITY RESEARCH L L P

1 0 NOVEMBER 2 0 1 5

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 as part of this analysis. Historical market behaviour does not predict future market behaviour and shipping is an inherently high risk business. You should therefore consider a variety of information and potential outcomes when making decisions based on the information contained in this report. All information provided by Affinity (Shipping) LLP is without any guarantee whatsoever. Affinity (Shipping) LLP or any of its subsidiaries or affiliates will not be liable for any consequences thereof. This report is intended solely for the information of the email recipient account and must not be passed or divulged to any third parties whatsoever without the written permission of Affinity (Shipping) LLP. Affinity (Shipping) LLP accepts no liability to any third parties whatsoever. If permission is granted, you must disclose the full report including all disclaimers, and not selected excerpts which may be taken out of context.

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Shipping Markets Outlook: Marine Money 2015 11 10

SYNOPSIS


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Seven years on from the global crash, shipping markets are facing divergent futures in the light of common influences. What are the effects of the end of the commodity supercycle, the New Normal in China, Eurozone troubles and the US’s pivot to Asia, the rise of natural gas and renewables in the global energy mix, and the ongoing rounds of quantitative easing around the world? What should you expect in oil, gas, dry cargo, container shipping freight and asset markets?

1. IS QUANTITATIVE EASING REALLY

HELPING?

QE DISTORTS COMMODITY AND SHIPPING MARKETS

QE – a vital drug for the global economy. But is it toxic in large doses? • Makes industrial commodities (oil,

coal, iron ore) cheaper: ended the commodity supercycle,

• Money is hoarded by banks, used by corporates for M&A, share buybacks, rather than investment in new productive capacity

• Reduces end user consumption of manufactured goods, with effects all along the value chain

• Disrupts traditional trades, e.g. Argentina’s grain exports in 2014

• Makes Japanese and Korean ships cheaper


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Policy actions by governments and central banks are bending and distorting financial and physical markets, with effects on shipping

QE = TOO MANY NEW SHIPS! BUT WILL THEY ALL DELIVER?


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ORDERBOOK BY STATUS AT 4TH NOVEMBER

The enormous losses racked up by Korean shipyards are not so much the result of building standard ship types but a consequence of adventurous and complex new designs for specialist and offshore vessels. The challenge for cash strapped yards will be to deliver ships within cancellation dates.

TIER III IS COMING: SO WHY RUSH TO ORDER OBSOLETE DESIGNS?


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COMPARISON OF 2015 VS 2014

Tier II’s last stand

Meanwhile in September, newbuilding orders peaked as owners and yards took their last chance to place contracts for the last generation of Tier II vessels.

BY 2020….


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Expect regulations to change the way our industry is fuelled

By 2020, most ships will still be using current propulsion technology (fuel oil) But LNG / dual fuel is starting to take off as bunker fuel for container ships and ferries as well as LNGCs, barges and specialist types Gas turbine research continues, may be used for passenger vessels Carbon taxes will be implemented as climate change effects become more visible: fuel oil will become expensive!

Will a change in regulations lead to another tidal wave of newbuilding orders?

2. DRY CARGO

BALTIC DRY INDEX SHOWS HOW BAD LIFE IS FOR OPERATORS


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BULK CARRIER MARKET INDICATORS


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DRY CARGO DEMAND AND SUPPLY BALANCE SCENARIOS TO 2020


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DRY CARGO UTILISATION SCENARIOS


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AVG 1y TC rate in 2010 was around USD 14.4 k

Base Case predicts AVG 1y TC rate in 2017

to be around USD 16.8 k

3. OIL TANKERS

BALTIC DIRTY TANKER INDEX


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BALTIC CLEAN TANKER INDEX


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CRUDE OIL TANKER MARKET INDICATORS


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CRUDE OIL TANKER DEMAND AND SUPPLY SCENARIOS TO 2020


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CRUDE OIL TANKER UTILISATION SCENARIOS


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OIL PRODUCTS TANKER UTILISATION SCENARIOS


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4. LNG

HISTORICAL DAILY CHARTER RATE ASSESSMENT

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Short term rates start to level out from Q1 2015 onwards

Short term rates peaked in 2012, at an average of USD 125,000 per day. Average short term rate 2013 TFDE USD 109,000 ST USD 98,000 2014 TFDE USD 67,000 ST USD 54,000 YTD 2015 TFDE USD 36,000 ST USD 27,000


LNG CAPACITY INCREASE SPURRING SHIPPING DEMAND

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LNG capacity will grow up to 45% from 2015 to 2020 (130 mtpa extra)

LNG liquefaction capacity is set to rise up to around 420 mtpa by 2020, driven by multiple new large scale projects in Australia and the US. Projects currently without FID, but which are likely to attain it and have no foreseeable delays will take these volumes up an additional 25 mtpa by 2020.

LNG (mtpa)

+ 164 Mn T


STILL SIGNIFICANT VESSELS ON ORDER

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47 vessels to be delivered in 2016 and 49 in 2017

Mn CbM 2015 2016 2017 2018 2019 0-10k cbm 0.01 0.01

10-90k cbm 0.07 0.17 0.12 120-200k cbm 2.82 5.97 6.65 5.51 2.43

FSRU 0.34 0.63 0.68

012345678

2015 2016 2017 2018 2019

0-10k cbm 10-90k cbm 120-200k cbm FSRU


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AS PROJECTS START UP, SURPLUS SHIPPING IS ABSORBED 85% of the current fleet is deployed on dedicated employment.

Only 15 percent of the orderbook consists of speculative vessels or vessels which have not yet confirmed employment. As production starts up we expect the project and portfolio ships to be more or less be absorbed.

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101520253035

2015 2016 2017 2018

Employed vs available newbuildings

Available Employed


LNG UTILIZATION RATES AND FUTURE UPSIDE

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The base case and low case of the LNG market is narrowing and we see lots of potential for upside


LNG UTILIZATION RATES AND FUTURE UPSIDE

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The base case and low case of the LNG market is narrowing

High case

Low case

LNG

Mar

ket o

utlo

ok

2015


5. CONTAINERS

CONTAINER MARKET INDICATORS


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Boxship newbuilding prices, USD Mn

Boxship charter rates, USD / Day

Gas Plenty of projects to come LNG bunkering Global standards

Containers Cheap, efficient, secure transport Is there a limit to productivity? Is market share the only metric?

SUMMARY: THE MAJOR SECTORS

Dry Cargo Can’t add another China Coal in danger? Grain trades


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Strengths and Weaknesses

Oil Emerging market demand Growing distance oil field – refinery Competition from alternatives?

AFFINITY RESEARCH: PORTFOLIO OF SERVICES

Data: We maintain extensive databases of macroeconomic time series, the global fleet of commercial vessels, shipyards, and owners, shipping supply and demand data, capacity utilisation, earnings and values.

During 2015 our Research desk will be developing a number of web-based Applications to deliver real-time market information to our customers, including sales, fixtures, ship deliveries, fleet disposals, etc. More details will be made available in due course Analysis: We regularly generate capacity utilisation forecasts in order to gauge the likely forward direction of freight, time charter and asset markets.

Our regular weekly output includes: a Macro Topics Report; Weekly Tanker Charter Market Report, Weekly LNG Market Report, Weekly Newbuilding / SnP Report, Weekly Dry Cargo Report and the Affinity Oil Weekly. Insight: We publish occasional research notes giving insight into particular market opportunities, or give bespoke presentations to customers, be they owners, operators or charterers, giving our insights into market developments and the opportunities they present. Advisory & Consultancy Our Research desk has already produced bespoke reports on: the LR1 Market Outlook; TD18 Forecasts; VLGC Orderbook; Handysize Bulker Time Charter Forecast; Supramax and Ultramax Bulker Time Charter Forecast; Bulk Carrier Price Trends. We can provide bespoke consultancy on a fee basis.


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Data, Analysis, Publications, Insight, Advisory, Consultancy

Documents

SHIPPING MARKETS OUTLOOK...This report is intended solely for the information of the email recipient account and must not be passed or divulged to any third parties whatsoever without