Bulk carrier supply and
demand outlook
Dry Cargo International
Bulk Ports, Terminals & Logistics Conference 2012
Amsterdam 21-22nd May 2012
Presented by James Leake
CKO – Global Head of Research, Consultancy and Information Strategy
Rates near historic lows…
but bunkers between $20-60,000/day!
250000
$/day
Cape
Panamax
200000
Supramax
150000
Handysize
100000
50000
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
0
© ICAP Shipping International Limited 2012. All rights reserved.
Recipe for a freight
market recovery…
Sustained industrial raw material demand growth (in China)
Relative competitiveness and availability of imported commodities
Expansion of longer-haul trades
Slowing of fleet growth rates
Recipe for a freight
market recovery…
Sustained industrial raw material demand growth (in China)
Relative competitiveness and availability of imported commodities
Expansion of longer-haul trades
Slowing of fleet growth rates
Emerging economies driving demand growth
for industrial raw materials
Steel
Electricity
1200
Crude oil
10000
Kg/
capita
1000
2500
KWh/
capita
China
1000
Natural gas
Kg oil equiv/capita
Kg/
capita
China
8000
South Korea
India
South Korea
2000
800
1500
600
India
800
6000
China
600
South Korea
India
1000
4000
400
400
China
India
2000
200
200
500
South Korea
Germany
2010
2000
1990
1980
1970
2010
2000
1990
2010
2000
1990
1980
2010
2000
1990
1980
0
0
0
1980
0
Danger of linear Assumptions…Indian take-off
Source: BP, IISI, India CEA, ADB, UN, ICAP Shipping
© ICAP Shipping International Limited 2012. All rights reserved.
A few provinces a country does not make…
China 3t steel per head – USA 20t/head
Chinese car ownership 2010 32 per 1000
© ICAP Shipping International Limited 2012. All rights reserved.
Investment surge in coal-power stations
Additional coal-fired power plants planned and under construction
120
GW
100
80
60
40
20
0
2010
2011
China
2012
India
Europe
2013
2014
other Pac/Ind
2015
Americas
Source: ICAP Shipping, IEA, newswires
© ICAP Shipping International Limited 2012. All rights reserved.
But steel consumption growth is not
necessarily required for stronger markets
Chinese daily steel production Mt
2.2
2.0
1.8
1.6
1.4
1.2
Construction steel demand collapse hits output in Q4
1.0
Jan 09
Apr 09
Jul 09
Oct 09
Jan 10
Apr 10
Jul 10
Oct 10
Jan 11
Apr 11
Jul 11
Oct 11
Jan 12
Apr 12
But Cape rates surged back towards $30,000/day in Q4
© ICAP Shipping International Limited 2012
Larger steelmakers respond to lower ore prices
with aggressive inventory building
Chinese iron ore prices and inventory changes
25
$/tonne
Mt
200
180
20
160
15
140
10
120
5
100
0
80
-5
60
-10
40
change in steelmaker stock position (estimate)
change in port stocks
Jan-12
Nov-11
Sep-11
Jul-11
May-11
Mar-11
Jan-11
Nov-10
Sep-10
Jul-10
May-10
Mar-10
Jan-10
Nov-09
Sep-09
Jul-09
May-09
Mar-09
Jan-09
Nov-08
Sep-08
Jul-08
0
May-08
-20
Mar-08
20
Jan-08
-15
TSI (rhs)
© ICAP Shipping International Limited 2012
Recipe for a freight
market recovery…
Sustained industrial raw material demand growth (in China)
Relative competitiveness and availability of imported commodities
Expansion of longer-haul trades
Slowing of fleet growth rates
1,200
600
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
1,400
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Major bulk trade volatile but limited by scarce commodity
Imports of coal and metal ores – annually and monthly (shown as an annualised figure)
Source: GTIS
Mtpa
OECD selected
Flat BUT significant volatility
China
China rebound
1,000
800
OECD rebound
400
200
0
© ICAP Shipping International Limited 2012. All rights reserved.
Examples of short-term volatility drivers in dry sector
Monthly fundamental changes - drivers of volatility
Combined cargo reduction of 28Mt
(≈10% global trade) in Jan 2012
driven by steelmaker
margins / commodity prices
Trend changes - exceptional by historical
comparison but negligible impact
compared to ‘typical’ shocks
† impact on global trade of max monthly change in Chinese coal and iron ore imports (+19Mt / -11Mt)
* major bulks into major economies from September to November 2008
‡ monthly growth rate over 3 months
© ICAP Shipping International Limited 2011. All rights reserved.
Price sensitivity of Chinese imports
Coal prices – periodically opening arb
Iron ore trade price sensitive
240
US$/tonne
$/day
increasing prices hit
steelmaker profitability
+ ore purchasing
90,000
250
25
Mt/month
US$/tonne
220
80,000
200
70,000
180
60,000
200
20
150
160
15
50,000
Capes
squeezed
on arb
140
40,000
100
120
10
30,000
100
20,000
BCI TCA (rhs)
50
5
India CIF (63.5%)
Brazil Spot CIF (65%)
80
10,000
Australia Spot CIF (63%)
China Domestic (Hebei) (66%)
Mar-12
Dec-11
Sep-11
Jun-11
Mar-11
Dec-10
Sep-10
Jun-10
Mar-10
Dec-09
Sep-09
Jun-09
0
Mar-09
60
0
Jan-07
0
Jan-08
China imports
Jan-09
Jan-10
CIF Aus 6000kcal/t
Jan-11
Jan-12
FOB China 6000kcal/t
Source: CNBS, GTIS, Bloomberg, ICAP Shipping
© ICAP Shipping International Limited 2012. All rights reserved.
Chinese import volatility the major driver
Iron ore
Coal
Monthly change Mt
20
15
10
5
0
-5
-10
biggest rise
-15
biggest fall
average rise
-20
average fall
-25
China
EU27
Japan
Korea
China
EU27
Japan
Korea
Potential for massive volatility – already maximum monthly Chinese coal
import volatility approaching import levels of each of the major importers!
14
© ICAP Shipping International Limited 2011. All rights reserved.
The cheapest delivered cost will prevail
Iron ore cost curve (basis delivered cost China)
Recent low
2009 price range
Source: Macquarie
© ICAP Shipping International Limited 2012. All rights reserved.
China – massive internal investment with mixed returns
China – crude oil output
450
China – coal output
Mtpa
400
$225bn
400
300
300
250
250
200
200
150
China – iron ore output
imported ore
Chinese ore rebased to 63.5% Fe
Chinese ore mined
Mt/month
$240bn
350
350
140
$63bn
120
100
80
60
100
150
imports
production - consumed
production - exported
50
100
production
50
40
20
0
consumption
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
0
Jan-01
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
Jan-03
-50
0
Source: ICAP, BP, CNBS, Bloomberg, GTIS
© ICAP Shipping International Limited 2012. All rights reserved.
Linfen – surrounded by hundreds of illegal mines…
Pollution and environmental damage destroy growth and human potential…
2-3% GDP growth each year
Production at all costs
Xiangjiang River, Changsha, Henan 8 Feb 2011 – effects of recent drought
Water wasted in coal washing and ore beneficiation doesn’t help
India – democracy prevents aggressive internal
production expansion… greater potential for imports
India – crude oil output
180
India – iron ore output
India – coal output
Mtpa
70
12%
30
Mt/month
160
15%
Mt/month
10%
60
8%
25
140
5%
50
4%
20
120
40
100
0%
0%
-5%
15
80
30
-4%
60
20
-8%
-10%
10
-15%
-20%
40
5
Mar-12
Nov-11
Jul-11
Mar-11
Nov-10
Jul-10
Mar-10
Nov-09
Jul-09
-30%
Mar-09
0
Jul-08
Mar-12
Nov-11
Jul-11
Mar-11
Jul-10
Nov-10
Mar-10
Nov-09
Jul-09
Mar-09
-16%
Jul-08
0
Mar-08
2010
2005
2000
1990
1985
1980
1975
1970
1965
0
1995
consumption
yoy growth (3mma) rhs
Mar-08
production
-25%
production
yoy growth (3mma) rhs
Nov-08
20
-12%
production
Nov-08
10
Source: ICAP, BP, Indian Ministry of Mines
© ICAP Shipping International Limited 2012. All rights reserved.
Indian mining
India investing in the anticipation of becoming a
major coal and iron ore importer
GUJARAT port capacity
Capesize
Post-Panamax
Other
Major coal reserve
270Mtpa > 500Mtpa by 2015
Tuna 12mtpa
Mundra (Adani+Tata) 35>60Mtpa by ‘12
Okha (GVK) 4GW coal
Salaya (Essar) 20mtpa
Jamnagar (Essar)
Simar 2GW coal
Pipavav (little growth)
Dahej (Adani+Sterling) 20mtpa
Hazira (Essar) 30mtpa
Hazira (Adani) 25-30 by ’13
Orissa
Dhamra Apr’11 cape 25mtpa
Kalinga (Adani) 100mtpa intra-trade
Gopalpur 12mtpa ppmax mar’13
Andhra Pradesh
Visakhapatnam (East Quay-1) 6.5mtpa 2013
Jaigarh (JSW) 20mtpa
Dighi 30mtpa end’11
Mormugao 7mtpa new coal berth
Gangavaram rising to 35Mtpa
Krishnapatnam (Capes by end’11) 25mtpa > 65mtpa
Tamil Nadu
Ennore 16mtpa IO export, coal import
Indian Government plans to raise total cargo handling
capacity of Indian ports from around 1 billion tonnes
today to 3.2 billion tonnes by 2020 (an increase in
total global trade of at least 25%, and a volume
equivalent to today’s dry bulk trade
Marakkanam (NTPC) 4GW
Cuddalore, Karaikal 21Mtpa, Nagapattinam
Tuticorin (North Cargo Berth-I) 6.3mtpa, NCB-II 7mtpa (Oct’12)
+5 more coal berths to 35mtpa (serving power plant cluster)
Recipe for a freight
market recovery…
Sustained industrial raw material demand growth (in China)
Relative competitiveness and availability of imported commodities
Expansion of longer-haul trades
Slowing of fleet growth rates
The
Big 3 – is it all a fix?
Shock therapy… when extreme volatility becomes the
rule, not the exception
© ICAP Shipping International Limited 2011
Let’s kiss and
make up… and
trouser billions!!!
Power OPEC can
only dream of…
© ICAP Shipping International Limited 2011
Big 4 plus Africa iron ore mine forward ‘orderbook’
1800
Mtpa rate
Vale
Rio
BHP
FMG
Africa
1600
1400
1200
1000
800
600
400
200
2015
2014
2013
2012
4Q 11
3Q 11
2Q 11
1Q 11
4Q 10
3Q 10
2Q 10
1Q 10
4Q 09
3Q 09
2Q 09
1Q 09
0
© ICAP Shipping International Limited 2012. All rights reserved.
Can Australia deliver on coal?
Australian port throughput compared with growing international requirement
1600
Mtpa
Apart from dedicated,
vertically integrated
Indian projects,
Indonesia set to
become increasingly
hampered by
government policy
protecting power
producers
1400
Abbot Point T3
1200
Newcastle (BHP),
Gladstone (Wiggins Is.)
1000
Abbot Point T2
800
Newcastle PWCS,
Hay Point HPX3
600
Abbot Point X50
400
200
0
2010
2011
2012
2013
2014
2015
additional thermal coal requirement from new power stations
Australian coal port throughput (all coals)
© ICAP Shipping International Limited 2011. All rights reserved.
USA
Growing self-sufficiency
Deploying a number of strategies to cut demand
and increase supply
US Energy Production UP: Shale gas
US shale gas output, now
23% of total gas production
North America
China
Iran
1931
Europe
180
1275
1045
India 63
180
Reserves in tcf
Suitable for power generation and transport
© ICAP Shipping International Limited 2012. All rights reserved.
Gas and Renewables squeeze King Coal
US Power Generation by source
TWh
4,500
TWh
4,000
3,500
3,000
Other Renewables
Hydroelectric
2,500
Nuclear
2,000
Natural Gas
Petroleum Liquids
1,500
Coal
1,000
500
0
199819992000200120022003200420052006200720082009201020112012
Investment drifting away from coal
Source: National Energy Technology Laboratory
Cost of emissions compliance too high
Between 40-60GW
coal-fired power
plants to be shutdown
over next few years –
significant increase in
potential coal export
availability and
downward pressure
on global prices
31
Exports could exceed 250Mtpa by 2015
Where is the axe falling?
Ashtabula and Lackawanna
Transhipped off coast of Nova Scotia
Powder River
Basin
Appalachian
coal
Fairless Hills
Lamberts Point
Shipyard River Terminal
Ex Mississippi River
Source: National Energy Technology Laboratory
Source: National Energy Technology Laboratory
A widening ‘Oceanic Imbalance’ caused by
the shift of economic power to Asia
Main long haul trade growth routes
Iron ore
Coal
Grain
Weaker USD
© ICAP Shipping International Limited 2012
Recipe for a freight
market recovery…
Sustained industrial raw material demand growth (in China)
Relative competitiveness and availability of imported commodities
Expansion of longer-haul trades
Slowing of fleet growth rates
Slippage Tsunami
Orderbook at Jan 2008
160
140
120
100
80
60
40
20
0
1980
1985
1990
1995
2000
2005
2010
2015
Slippage Tsunami
Orderbook at Jan 2009
160
140
120
100
80
60
40
20
0
1980
1985
1990
1995
2000
2005
2010
2015
Slippage Tsunami
Orderbook at Jan 2010
160
140
120
100
80
60
40
20
0
1980
1985
1990
1995
2000
2005
2010
2015
Slippage Tsunami
Orderbook at Jan 2011
160
140
120
100
80
60
40
20
0
1980
1985
1990
1995
2000
2005
2010
2015
Slippage Tsunami
Orderbook at Jan 2012
160
140
120
100
80
60
40
20
0
1980
1985
1990
1995
2000
2005
2010
2015
Growth only accelerating in Panamax sector
Panamax
Capesize
Scrapped
Delivered
Scrapped
Net growth
35
Net growth
50
31
30
40
27
25
38
34
30
21
20
20
19
18
16 16 17
15
14
16
15
14
12
10
18
17
16
12
11
13
12
9
11
11
11
9
7
5
No of Vessels
No of Vessels
Delivered
60
40
5
20
27
22
20
10
10
13
18 17
16
17 16
21
23
20
16
15
12
8
23
17
22
16
14
13
10
7
21
0
0
-10
-5
-20
-10
-30
-15
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Jan-10
Apr-12
Apr-10
Jul-10
Oct-10
Supramax
Scrapped
Jul-11
Oct-11
Jan-12
Apr-12
Scrapped
Net growth
Delivered
Net growth
50
41
40
40
41
28
22
20
30
29
27
20
30
27
17
17
19
21
18
13
12 12
10
24
20
27
23
22
29
26
14
9
No of Vessels
30
29
33
30
33
32
25
No of Vessels
Apr-11
Handysize
Delivered
50
30
Jan-11
10
12 11
18
15
20
16 15
10
16
14
7
7
2
0
11
13
10
12 13
7
1
0
4
-3
-7
-10
0
-20
-10
-30
-40
-20
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Q2 delivery spike a statistical aberration, but
acceleration in Panamax fleet growth a concern
25
Deliveries by quarter in million dwt
20
15
geared
pmax/ppmax
cape
geared pro rata
10
pmax/ppmax pro rata
cape pro rata
5
0
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
2008
2009
2010
2011
2012
2013
2014
© ICAP Shipping International Limited 2012
Positive economic choice to torch: Mid90s-built
DH VLCC secure $20m, $10m for a Cape
Geared BC 36m dwt 25yo+
0
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
5
Pmax/PPmax BC 14m dwt 25yo+
0
10
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
5
10
0
5
10
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
Scrapped
pre-crisis
Trading fleet
Proportion of launched fleet
Capesize BC 7m dwt 25yo+
Current fleet m.dwt
© ICAP Shipping International Limited 2012
Chinese yard profit margins – bulk carriers
%
Debt finance
availability remains
tight – for new debt and
funding next stages of
existing projects
Panamax
Capesize
Supramax
Handysize
Source: IHS Fairplay, ICAP Shipping
© ICAP Shipping International Limited 2012. All rights reserved.
Debt finance availability squeezes NB market
m dwt
Bulkers
Tankers
Containers
Other
LNG
Offshore
LPG
250
200
150
100
50
Source Data: ICAP Shipping
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
0
© ICAP Shipping International Limited 2012. All rights reserved.
Chinese and Indian combined crude oil trade reaching
levels where iron ore transformed dry market
Shares of global trade in key commodities for the tanker and dry cargo sector
China – iron ore
surge in Chinese
share of global iron
ore trade coincided
with transformation of
dry bulk freight market
India – crude oil
plus
China – crude oil
almost reaching
2003 trade share of
iron ore
46
Concluding thoughts
China and India lack resources
Indian takeoff imminent
OECD still not ‘recovered’
Low yard margins and tight lending limits orders
Financial constraints render some orderbook mythical
Commercial obsolescence will also constrain supply
Iron ore supply and Capesize fleet
1800
Million dwt
Mtpa rate
Vale
Rio
BHP
FMG
Africa
450
Capesize fleet (rhs)
1600
400
1400
350
1200
300
1000
250
800
200
600
150
400
100
200
50
2015
2014
2013
2012
4Q 11
3Q 11
2Q 11
1Q 11
4Q 10
3Q 10
2Q 10
1Q 10
4Q 09
3Q 09
2Q 09
0
1Q 09
0
© ICAP Shipping International Limited 2012. All rights reserved.
Can this additional iron ore be consumed?
• Extra 600Mtpa between now and 2015
• 200Mtpa to replace ~500Mtpa low grade domestic ore
• 300Mtpa growth (6% cagr steel consumption growth)
• 100Mtpa ROW - 60Mtpa additional steel consumption
• There are additional junior miner projects, success based
upon production cost and speed of execution
• Capesize ordering will no doubt resume once optimism
and debt finance in more plentiful supply
Thank you
Produced by ICAP Shipping Research
CKO, Global Head of Research, Consultancy and Information Strategy – James Leake
Head of Oil & Tanker Research – Simon Newman
Senior Tanker Analyst – Stavroula Betsakou
Tanker Analysts – Oliver Burdick, Lichun Zhang
Head of Dry & Basic Materials Research – Georgi Slavov, MD
Dry Analysts – Nneka Chike-Obi, Rui Guo, Stefan Ljubisavljevic
ICAP Shipping International Limited, 2 Broadgate, London EC2M 7UR United Kingdom +44 20 7459 2000
shippingresearch@icap.com
www.icapshipping.com
ICAP Shipping Derivatives Limited and ICAP Shipping Tanker Derivatives Limited are authorised and regulated by the Financial Services Authority
© ICAP Shipping International Limited 2012.
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