Coal market outlook


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Coal market outlook

  1. 1. May 29, 2013 1
  2. 2. Different types Hard Coal (energy content above 4,500 kcal/kg andwater content lower than 35%)– Thermal Coal: used primarily for power generation andfor industrial applications; and– Coking Coal: used by the iron and steel industry to makecoke Only Hard coal is traded internationally Lignite or Brown coal : Mainly used in regional/localmarkets and almost exclusively for power generationMay 29, 2013 2
  3. 3. So far…. Steam coal trade rose from 304 million tons in 1995 to985 million tons in 2012, an average annual growth rateof 7.2%. Coking coal trade rose from 172 million tons in 1995 to291 million tons in 2012, an average annual growth rateof 3.1%. Total international trade still represents a small shareof coal production. Only 17% of hard coal production is tradedinternationally, whereas this share is above 60% for oiland 33% for natural gas. The global coal market remains a thin market dominatedby few players. Small changes are able to shake andreshape the market.May 29, 2013 3
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  7. 7. Low Rank Coal Trade The growth of low rank steam coal is a new trend in global seaborne trade. Low rank coal also designed as “off-spec” consists of sub-bituminous coalwith a low calorific value (4,900 kcal/kg in the case of Indonesia, 5,500 kcalfor Australia) and a high ash content (up to 24%). Sold at a discount An estimated 200 million tons traded in 2011 Australia is now a regular supplier of low rank coal on the spot market. The suppliers save money as they don’t have to wash the coal. The buyers get lower prices. In the importing countries, low rank coal isblended with other coals.May 29, 2013 7
  8. 8.  Since 2000, most of coal power plants have been designed with thepossibility to burn coals with a wide range of calorific value. As more tonnage is needed to produce the same unit of energy, this newtrend explains part of the high growth in steam coal imports by somecountries (China, South Korea). In Indonesia, low rank coal, accounts for about half of coal reserves in thecountry A ban on exports of low calorific value coal was planned from 2014 so as toenrich the resource to high value product. The government however decided in Jan 2013 not to proceed with theproposed ban as technology required for upgradation of the low rank coalis currently unavailableMay 29, 2013 8Low rank coal trade contd…
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  11. 11. Broadly 70:30 RatioMay 29, 2013 11
  12. 12.  Four countries/regions dominate coal imports China, India, the grouping Japan/South Korea/Taiwanwhich constitutes the traditional Asian buyers, and Europe Together they account for 84% of total coal imports. China became the world’s top importer in 2011, taking overthe position that Japan has occupied for three decades. India became the third largest importer in 2012, overtakingSouth KoreaMay 29, 2013 12Coking Coal – A Global Market
  13. 13.  Concentration of exports in one country, Australia, which accountsfor half of global coking coal trade. Australia is therefore responsible for supplying customers allaround the world with its high-quality coking coals The other exporters include the United States, Canada, Mongoliaand Russia Coking coal exports amounted to 291 million tons in 2012 (254million tons were seaborne trade) Whereas steam coal trade accounts for 15% only of steam coalproduction, coking coal trade reaches 29% of coking coalproduction (2011).May 29, 2013 13Coking Coal – A Global Market
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  15. 15. Major coal ImportersMay 29, 2013 15
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  17. 17. Coal Exporters• Six countries dominate coal exports: Indonesia, Australia, Russia, theUnited States, Colombia and South Africa• They account for 84% of total trade.May 29, 2013 17
  18. 18. Top ten exportersMay 29, 2013 18
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  21. 21. China-Big Turnaround China, which was still a net exporter in 2008, became the world’sfirst coal importer in 2011(Japan has occupied top slot for threedecades). China imported 289 million tons of coal in 2012 (+30% over 2011). China is now responsible for 23% of global coal imports. China is the world’s largest coal producer. Chinese imports, even at record levels, account for 7% only of theChinese market. A small change in Chinese consumption or production is able totransform the status of the country from the number one importingcountry to a self-sufficient country.May 29, 2013 21
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  23. 23.  In 2011, China alone accounted for nearly half theworld’s coal consumptionMay 29, 2013 23
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  29. 29. May 29, 2013 29China domestic coal industry
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  33. 33. China is essentially a “cost minimizer” Chinese coal imports are driven by coal price arbitrage betweendomestic and international coal prices. The high cost of moving coal to the heavily industrialized coastalarea has enabled the entry of import coals to compete with domesticcoal products “Swing buyer” in the coal market In early 2011, when Australian coal prices,China was a net exporter,with Chinese traders reselling their coal cargoes In 2012, imports grew sharply (up 30%) driven by low internationalpricesMay 29, 2013 33
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  35. 35. May 29, 2013 350510152025303540455055West Australia -Qingdao Freight (USD/tonne)West Australia -Qingdao Freight (USD/tonne)
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  39. 39. Consolidation Drive Push to move small individual minesinto the ownership of the SOEmining companies Creation of 14 large coal productioncenters These bases to be operated by 20companies Out of which 10 will have an outputabove 100 mtpa and others shouldhave above 50 mtpa Production growth to continue,despite the ongoing closures ofsmaller mines, albeit cost pressure toexistMay 29, 2013 39
  40. 40. China InfrastructureExpansion According to the 12th FYP by 2015 Chinese coal transported viarailways is projected to be 2.6 Bt, which corresponds to an averageannual growth of 5.4%. Railway capacity dedicated to coal is expected to grow to around 2.8Gt to 3-3.3 Gt by 2015. Construction of new power plants closer to the mine site Construction of ultra high voltage (UHV) grid systems The current plan is to invest RMB 500B in the roll out of this grid to2015. The UHV grid will then extend to some 40,000 km and by 2020 thetarget is to reach 300 GW of transmission capacity. This should also reduce operational transmission losses from 6.6%to 5.7%.May 29, 2013 40
  41. 41. 12th Five Year Plan –Production Boost The plan foresees a huge development of coal production inwestern regions (the Xinjiang region mainly), which account for72% of the new capacity to be added during the five-year plan. This corresponds to a capacity of an additional capacity of 530million tons per year. The government aims to build 17 super-large coal mines in theregion, boosting annual coal output of Xinjiang to 400 million tonsby 2015.May 29, 2013 41
  42. 42. Challenges… Xinjiang region is located nearly 3,000 km away from majornortheastern ports. Xinjiang holds 40% of the countrys coal resources (2.19 trillion tons),but produced only 120 million tons in 2011 (an estimated 140 milliontons in 2012). Water management will be a key issue for coal miners The railway from the west to the east is still very limited To tackle this issue, a railway line is under construction between theXinjiang region and the Gansu Province which will be able to transport50 million tons a year by 2015. Coal by wire is also under considerationMay 29, 2013 42
  43. 43. China coal import boomunderway?? Domestic production and consumption to be capped at 3.9 billion tons by 2015. Most analysts forecast a growth in coal consumption to 4.3 billion tons by 2015,requiring a large call on imports (almost 400 million tons depending on the actuallevel of production) However, if the government manages to actually cap coal consumption at 3.9 billiontons, China could regain its self-sufficiency Imports in that case would be limited to specific coal qualities, mainly coking coaland high caloric value thermal coal, which are not widely available on the Chinesemarket 12th Five-Year Plan foresees a diversification of the electricity mix away from coal. Share of non-fossil fuels in generating capacity- Expected to increase to 30% by 2015(up from 20% currently). Efforts are focused on the development of hydropower (more than 50% of theincrease in non-fossil energy consumption by 2020)May 29, 2013 43
  44. 44. Diversification Is Already UnderwayMay 29, 2013 44
  45. 45. Disconnect..May 29, 2013 45
  46. 46. Coal Prices have beenDeregulated Price liberalization has notyet led to a rise indomestic coal prices Current overcapacity inthe Chinese market Impact is not yet seen onthe competitiveness ofimported coal relative todomestic coalMay 29, 2013 46
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  49. 49. Bearish OutlookMay 29, 2013 49
  50. 50. Market RumoursMay 29, 2013 50 Chinas NEA is framing a policy to curb import of low grade thermal and coking coalby imposition of import ban Unconfirmed reports say that thermal coal with low calorific value less than4,500kcal/kg, ash content of more than 25% and a sulphur content of more than 1%will be banned. Possible ban on coking coal import with more than 12% ash content, 1.75% sulphurand more than 12% total moisture Timeline for the implementation is not clear NEA is also proposing to tighten coal import procedures by setting criteria forChinese coal importersa. Registered capital of more than RMB 5000 millionb. Traded volumes of 100 mn tonnes in the past three yearsc. Must have adequate stockyards Market participants are skeptical about implementation of this policy. Indonesia would be the biggest looser with almost 100 mn tonnes at stake. The limit on sulphur would also effect US coal miners. The proposal will get support from Chinese coal miners, who are reeling undersevere cost pressures amid low cost imports
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  52. 52. India Although India is the third largest producer of coal(577 million tons in 2012), Domestic production is insufficient to cover thecountry’s fast-growing needs Large-scale blackout experienced in July 2012. In 2012, the country imported a record 134 milliontons (15% over 2011) Consequently India appears as the next area ofsurging coal imports Ultimately, India could overtake China as theworlds largest importing country. As 40% of the population still lacks access to electricity Large power plants, most often located on the coastand powered by coal, resulting in a high demand forimported coal.May 29, 2013 52
  53. 53. Indian Coal DynamicsMay 29, 2013 53
  54. 54. India’s Coal Imports-200 mtsby 2017??India is the world’s fourth largest producer ofsteel (77 million tons produced in 2012)Reserves of coking coal are of poor quality (34million tons imports in 2011).May 29, 2013 54
  55. 55. India’s Power(less) Ambition India has an ambitious electrification program -Initiative for theconstruction of 14 coal-based UMPPs each with a capacity of 4 GW. India’s current power capacity is approx 224 GW, with 58% basedon coal (130 GW) The new 12th Five-Year Plan (FY2012/13-2016/17) has confirmedthis program, with the aim of adding 64 GW of thermal capacity inthe next five years, almost entirely powered by coal (63 GW). Coal consumption could reach 980 mn tons v/s production estimateof approx. 795 mn tons by 2016-2017 Gap would be approx. 185 mn tons Government has introduced the so-called captive mines policy toopen State mines to private investment. Out of over 200 coal blocks, containing coal reserves of over 50billion tons, only 30 mines have started production and contributedmerely 36.3 million tons in FY 2011 against a target of 104 mn tonsMay 29, 2013 55
  56. 56. India’s Power(less) Ambitionscontd.. Licenses are now auctioned to avoid discretionary allocation. A fierce battle has developed between the Ministry of Coal and the Ministry of theEnvironment. However a large part of the increase is expected to come from the captive mines,which contribution to domestic supply is very uncertain.May 29, 2013 56
  57. 57. India’s Overseas Shopping SpreeMay 29, 2013 57• Coal India is ready with a war chest of USD 6.3 bn and18 investment bankers to identify overseas coal assets tomeet domestic needs• There have received 32 proposals from Indonesia,Australia, Mozambique, South Africa,Chile andColombia• India’s second largest power generator Tata Power isscouting for cheap coal assets in US, Canada andColombia
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  59. 59. JST Japan, South Korea and Taiwan constitute the traditionalAsian buyers’ group The three countries, which do not produce coal, rely onimported coal to fuel coal-based power generation andto manufacture steel products. Japan imported around 182 million tons in 2012 (approx108 mt steam coal) South Korean imports have increased rapidly fromIndonesia (129 mn tons in 2011)May 29, 2013 59
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  61. 61. Taiwan Majority is steam coal (62 million tons) mostly used inTaipower’s coal-fired power plants The country also imported 3.8 million tons of cokingcoal.May 29, 2013 61
  62. 62. Europe European coal imports rose by 14% in 2011 and 11% in2012 Abundance of US coal at low price and the collapse ofCO2 prices, coal has regained its competitiveness in thepower sector. U.S. steam coal exports to Europe (including Turkey)jumped 124% to 18 million tons in 2011 and 90% to 31million tons in 2012. Coal gained a larger share of European electricitygeneration, at the expense of natural gasMay 29, 2013 62
  63. 63. Golden Age of Coal in Europe ?May 29, 2013 63
  64. 64. Surge in Atlantic Trade…. In 2012, EU imported around. 210 mtsMay 29, 2013 64
  65. 65. German Coal Fired Power Stations Due to Open By 2020Operator Location MWDateDue StatusTrianel Lunen 750 2013 In TrialEnBW Karlsruhe 874 2013 In ConstructionGDF Wilhelmshaven 800 2013 In ConstructionSteag Duisberg 725 2013 In ConstructionE.ON Datteln 1055 2013 In ConstructionRWE Hamm 1600 2013 In ConstructionVattenfall Hamburg 1640 2014 In ConstructionGKM Mannheim 911 2015 In ConstructionMIBRAG Profen 660 2020 A/W ApprovalRWE Niederaussem 1100 n/a A/W ApprovalGETEC Buttel 800 n/a A/W ApprovalDow Stade 840 n/a A/W ApprovalMay 29, 2013 65
  66. 66. Europe Future In the future, European coal consumption and imports will mainlybe driven by national policies and are contrasted among countries. While the United Kingdom and Spain absorbed most of the U.S. andColombian tonnages made available on the market in 2012, thetrend may be short-lived as new regulations unfavorable to coalburning are put in place in both countries. In Germany, at the opposite, the phase-out of nuclear power, leadsto resurgence in coal consumption. The building of new hard coal-fired power plants will increase imports.May 29, 2013 66
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  68. 68. Indonesia Massive transformation The country has significant reserves (Kalimantan and Sumatra) ofbituminous and sub-bituminous coal, well-suited to the needs ofIndian and Chinese power stations, Indonesia’s two main markets. Enjoys a strategic geographical position, very favorable productioncosts and internal transport logistics (mainly by barge). Coal production reached an estimated 409 million tons in 2012. The country produces a large quantity of sub-bituminous coal, aswell as “off-spec” coal with a calorific value under 4,100 kcal/kg,lignite and PCI.May 29, 2013 68
  69. 69. One of the lowest costs ofproduction Indonesia enjoyed one ofthe lowest costs ofproduction in the world. Easiest mines aredepleting and the countryhas to turn to moredifficult mines, locatedfarther from the ports,and deeper. The cost of production,including domestictransportation cost arenow risingMay 29, 2013 69
  70. 70. Indonesia trade patternMay 29, 2013 70
  71. 71. Indonesia is feeling thepressure too!! Coal exports increased by 18 million tons only to 327 million tons in2012. Small coal mines, often operated illegally, were shut down inresponse to lower prices. The major producers, such as Bumi and Adaro, which operate someof the country’s least expensive mines, also saw their marginssqueezed. All companies have announced costs reductions and cut in coaloutput and miners are reconsidering expansion plans.May 29, 2013 71
  72. 72. Challenges ahead• Indonesian domestic consumption is booming• The uncontrolled rise in coal exports has led the government to prioritizethe domestic use of coal over its exports and to introduce more regulationin the sector.• A ban on exports of low calorific value coal was planned from 2014.• Government decided in January 2013 not to proceed with the proposedban and instead to control coal output by giving each producing regionan annual mining quota• The government has also mandated producers to set aside part of theirproduction for domestic consumption (20-25%).• A tax on the export of unprocessed coal is also under consideration,although no date has been fixed yet.• The government plans to raise coal mining royalties• A new regulation, requires foreign investors in mining companies to divest51% of their shares by the 10th year of production, but uncertainties remainover applicability and pricing.May 29, 2013 72
  73. 73. Australia Largest player until 2011,overtaken by Indonesia inthat year Largest exporter of cokingcoal Represents nearly 50% ofthe global coal exports Most of the hard coalreserves are found in thestates of Queensland andNew South Wales (95% ofAus hard coal production) Very sensitive to weatherevents…2011 rainsdisrupted Queenslandcoking coal productionMay 29, 2013 73
  74. 74. May 29, 2013 74Australia
  75. 75. Australian supply is not allcheap Mining companies in Australia have to struggle with high production costsand a decrease in productivity. Current production costs are among the highest in the world The industry has to move to lower quality deposits that are more costly toexploit New developments are further away from major rail and portinfrastructure. Input costs such as labor, machinery, equipment’s hire and diesel fuel haveall increased dramatically. Margins are further squeezed by the rising cost of infrastructure access, theappreciation of the Australian dollar against the U.S. dollar and escalationin capital costs. Australia introduced a carbon tax in July 2012.The tax applies to the miningof coal, as opposed to the burning of coal for electricity generation. The government also introduced a new tax on profit of coal and iron orecompanies in July 2012 (the Minerals Resource Rent Tax).May 29, 2013 75
  76. 76. Australia- port capacity issues Australia’s coal exports have been plagued by a structural shortage of railand port capacity over the past six years. Australia has started to lose its competitive edge and its share of the worldthermal coal trade has declined since 2006. Coal exports are serviced by nine major coal ports and export terminalslocated in the states of Queensland and New South Wales. Recent expansions to capacity at Hay Point and Abbot Point ports addedsome 50 million tons a year. Australia is increasing infrastructure capacity to add about 60 million tons ayear to annual coal export capacity by 2015. An additional capacity of 200 million tons a year is planned in the mediumterm.May 29, 2013 76
  77. 77. Sunset industry??? The reduced margins coupled with the recent fall in coal prices havemoderated Australia’s coal industry expansion. Mining companies have announced reviews of their investmentplans. BHP Billiton, Xstrata, Rio Tinto, Anglo and Peabody all cut output attheir highest cost mines or even close them. Workforce reduction amounted to 3,500 jobs from April to September2012. The future expansion of Australian coal exports is strongly linkedwith gains in productivity and a recovery in international coal prices. Development in competing countries, Indonesia and the UnitedStates for steam coal, Mongolia, Mozambique, the United Statesand Canada for coking coal, will be a determining factor as well asthe evolution of demand in importing countries, China and IndiaparticularlyMay 29, 2013 77
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  80. 80. US The collapse of U.S. gas prices, to $4/million Btu in 2011 and even$2.75/million Btu in 2012, linked with the “shale gas revolution”,has made coal uncompetitive in the electricity sector (92% of thetotal coal demand) U.S. coal demand dropped 4% in 2011 and 11% in 2012. Thereduction in domestic demand has forced U.S. miners to look foroverseas outlets. Their exports surged by 31% in 2011 and 16% in 2012. They reached112 million tons in 2012, more than twice the level of 2009.May 29, 2013 80
  81. 81. Coal use is a taboo in US!! Stricter environmental standards in terms of coal production and itsconsumption in power plants cloud the future of coal in the country. The expected outcome of the new regulations on air pollution is theretirement of 27 GW of capacity between 2012 and 2016 Decrease in the coal demand has resulted in a decrease in the coalproduction in the country In 2013/2014,coal is likely to atleast partially gain its lost market sharevisa vis gas (as gas prices have bounced back from low levelsunsustainable for shale gas producers)May 29, 2013 81
  82. 82. US Export OutletMay 29, 2013 82
  83. 83. US Competitiveness No large coal ports on the U.S. West coast, steam coal (as well ascoking coal) has to be exported from the Gulf coast. Large maritime freight disadvantage compared with Australian orIndonesian coal. Steam coal prices therefore have to be sufficiently high to coverproduction, internal transportation, handling costs, and maritimefreight(this was the case in 2011). The fall in steam coal prices sinceFebruary 2012 makes this new business unprofitable. Trade to Europe at current prices (US$90/t beginning of December2012) is not profitable for most mines. Therefore although exports were at record levels in 2012, theyshould decrease in the short termMay 29, 2013 83
  84. 84. US – Still a swing supplier?? They enter the international coal market when prices are high andwithdraw when prices come down Exports have started to decrease compared with their peak levelreached in June and July 2012 and the scale back is expected tocontinue in 2013. The EIA expects that coal exports will decline in 2013 but remainabove 90 million tons for the third straight yearMay 29, 2013 84
  85. 85. PRB coal exports to Asia??? There are several projects of new ports and railways under the planningstage. Two large port projects have been proposed in Washington State,Longview Terminal and Gateway Pacific Terminal. Along with three smaller projects in Oregon State, the proposals wouldadd between 115 and 138 million tons a year in total export capacity . In addition, 10 proposed terminals, although each small in scale, wouldtogether add 86 to 138 million tons a year in port capacity along the GulfCoast. Projects face strong local opposition and challenging permitting issues. Community and environmental groups are concerned about coal dust fromincreased train traffic and the broader climate impacts from the coal beingburned overseas. Pending construction of new ports on the West coast of the United States,the port capacity of the West coast of Canada is being used.May 29, 2013 85
  86. 86. US West Coast port infra plansMay 29, 2013 86
  87. 87. Expansion of Panama Canal Many of Colombias port expansion projects lie on the Caribbean near the eastwardopening of the Panama Canal. Slated for completion by 2015, the Panama Canal expansion should enhanceopportunities for coal exports to Asian markets. The freight cost will be largely reduced as it will then be possible for smallerCapesize ships (the so-called "Post-Panamax" vessels) to use the canal instead ofhaving to sail around the Cape of Good Hope Also, a 220 km railway line between the port of Cartagena (on the Atlantic coast)andthe Pacific Ocean is under consideration by the Chinese Development Bank China and Colombia are also considering an 800 km railway from central Colombiato the Pacific and expansion of the port of Buenaventura on the Pacific coast. The US$2.7 billion project would be funded by the Chinese Development Bank andwould facilitate coking coal exports to China. In 2012, India’s Aditya Birla Group announced its plan to purchase a US$1 billionstake in Drummonds Colombian coal mines. Greater exports of Colombian coal to Asia in the future could be expectedMay 29, 2013 87
  88. 88. Supplies to Increase!!May 29, 2013 88
  89. 89. So what to expect for thefuture??…May 29, 2013 89
  90. 90. May 29, 2013 90Moderate Growth...!!
  91. 91. • Overall, expect fairly moderate volume growth (4-5% at best) in coaltrade over the medium term• Distance travelled is likely to improve going forward as Atlantic basinexporters overcome infrastructure hurdles to meet rising Asian demand• Expect bouts of volatility in sync with price arbitrage opportunityMay 29, 2013 91Moderate Growth Contd...!!
  92. 92. • Supply disruptions- Both weather-related (e.g. Queenslandfloods) and man-made (e.g. industrial action at mines, rail andports)• Forex risk- USD appreciation against AUD,RMB etc can directlyimpact seaborne competitiveness• Govt Policies- esp Chinese,India,Indonesia• Power deregulation in India• Enviromental PoliciesMay 29, 2013 92Key risks...!!
  93. 93. May 29, 2013 93Grain & Minor Bulk Trade!!3063193213433453672702802903003103203303403503603703802007 2008 2009 2010 2011 2012Seaborne Grain tradeGrains5 year CAGR of 4.21%1366 136311971359148115440200400600800100012001400160018002007 2008 2009 2010 2011 2012Seaborne minor bulk tradeSeaborne minor bulk…5 year CAGR of 2.48%
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  95. 95. May 29, 2013 95Medium Term Supply OutlookCAPESIZE FLEET SUPPLY PROJECTIONSYear 2013E 2014E 2015E 2016E 2017E 5 yr CAGR (%)Capesize - Current fleet 284NB Orderbook contracted post 2010 15 10 29 20 20NB Orderbook contracted pre 2010 9 5 1Slippage 20%Slippage dwt > 2010 3 2 6 4 4Slippage dwt < 2010 5 2 0Net deliveries (full cancelation) 12 11 25 22 20Net deliveries (half cancelation) 16 13 26 22 20Demolition age @25yrs 4 2 5 3 6Net Supply (100% contracted <2010) 279 292 300 321 340 354 4.86%% growth 4% 3% 7% 6% 4%Net Supply (50% contracted <2010) 279 296 307 328 347 361 5.29%% growth 6% 4% 7% 6% 4%PANAMAX FLEET SUPPLY PROJECTIONSYear 2013E 2014E 2015E 2016E 2017E 5 yr CAGR (%)Panamax - Current fleet 183NB Orderbook contracted post 2010 21 13 16 11 11NB Orderbook contracted pre 2010 6 2Slippage 20%Slippage dwt > 2010 4 3 3 2 2Slippage dwt < 2010 3 1Net deliveries (full cancelation) 17 14 16 12 11Net deliveries (half cancelation) 20 15 16 12 11Demolition age @25yrs 8 2 2 2 1Net Supply (100% contracted <2010) 175 192 204 218 229 239 6.38%% growth 10% 6% 7% 5% 4%Net Supply (50% contracted <2010) 175 196 209 222 233 243 6.74%% growth 12% 7% 6% 5% 4%
  96. 96. May 29, 2013 96Medium Term Supply OutlookHANDYMAX FLEET SUPPLY PROJECTIONSYear 2013E 2014E 2015E 2016E 2017E 5 yr CAGR (%)Handymax - current fleet 142NB Orderbook contracted post 2010 11 4 14 9 9NB Orderbook contracted pre 2010 2 0 0Slippage 20%Slippage dwt > 2010 2 1 3 2 2Slippage dwt < 2010 1 0 0Net deliveries (full cancelation) 9 6 12 10 9Net deliveries (half cancelation) 10 6 12 10 9Demolition age @25yrs 9 1 1 1 1Net Supply (100% contracted <2010) 140 142 147 158 167 176 4.70%% growth 2% 3% 7% 6% 5%Net Supply (50% contracted <2010) 140 144 148 159 168 177 4.88%% growth 3% 3% 7% 6% 5%DRYBULK FLEET SUPPLY PROJECTIONSCurrent fleet 2013 2014 2015 2016E 2017E 5 yr CAGR (%)DryBulk Total 695NB Orderbook contracted post 2010 52 29 66 45 45NB Orderbook contracted pre 2010 19 8 2Slippage 20%Slippage dwt > 2010 10 6 13 9 9Slippage dwt < 2010 10 4 1Net deliveries (full cancelation) 42 34 58 49 45Net deliveries (half cancelation) 51 38 59 49 45Demolition age @25yrs 40 6 9 6 8Net Supply (100% contracted <2010) 679 696 724 774 816 853 4.68%% growth 3% 4% 7% 6% 5%Net Supply (50% contracted <2010) 679 706 738 788 831 868 5.03%% growth 3% 4% 7% 5% 4%
  97. 97. May 29, 2013 97Yardwise breakup of the orderbook..CAPE ORDER BOOK (TOP 10)Shipyard % of totalJapan Marine Utd 13.18%Shanghai Waigaoqiao 11.00%Namura Shipbuilding 9.69%Imabari S.B. 7.97%Jiangsu Rongsheng 7.39%STX Dalian 6.62%STX SB 1.72%Sungdong S.B. 4.89%Beihai Shipyard 4.24%Koyo Dock K.K. 4.03%Shanghai Jiangnan 2.82%Total Top 10 73.55%PANAMAX ORDER BOOK (TOP 10)Shipyard % of totalOshima S.B. Co. 9.38%Tsuneishi Zosen 7.42%Japan Marine Utd 6.03%Imabari S.B. 5.53%Jiangsu Rongsheng 4.84%Jinhai Heavy Ind. 3.83%Jiangsu New YZJ 3.01%Jiangsu Eastern 3.00%STX S.B. 2.84%STX Dalian 0.36%Tsuneishi Zhoushan 2.66%Total Top 10 48.91%HANDYMAX ORDER BOOK (TOP 10)Shipyard % of totalOshima S.B. Co. 9.88%CIC (Jiangsu) 8.68%Mitsui SB 6.23%STX Dalian 5.43%Tsuneishi Zhoushan 5.31%Hantong S.Y. 5.12%Taizhou Sanfu 4.48%Tsuneishi Cebu 3.99%Bohai Shipbld. 3.84%STX S.B. 3.62%Total Top 10 56.59%HANDYSIZE ORDER BOOK (TOP 10)Shipyard % of totalSaiki Hvy. Ind. 7.11%Imabari S.B. 6.51%Weihai Samjin 5.48%Zhejiang Yangfan 5.04%Chengxi Shipyd. 4.03%Hakodate Dock 3.80%Jinling Shipyard 3.69%SPP Shipbuilding 3.57%Onomichi Dockyd 3.45%Hyundai Mipo 3.39%Total Top 10 46.07%
  98. 98. May 29, 2013 98
  99. 99. May 29, 2013 99Overall conclusion• Iron trade growth to likely outperform coal trade growth• Capesizes to outperform Panamax in the medium term• At current NB prices, 10 yr BE for a NB Cape dely (Japan) would weapprox. USD 16,300/day• Long term Capes to Panamax Spot Earnings ratio has been close to 1.6• Booking NB Capes at USD 16,300/day BE would be equivalent tobuilding a NB Panamax with a USD 10,200/day BE• Overall would suggest– Build 2 NB Capes dely Q3/Q4 2015• Atleast book Cal 2015 FFA contract fro 2 Capes @ USD 14,000/day– Build 2 NB Supramax dely Q3-Q4 2015– Build 2 NB Kamsarmax dely Q4 2015/ Q1 2016• Unless S/H market for Panamaxes corrects 15% below currentmarket levels
  100. 100. May 29, 2013 100Overall conclusion
  101. 101. May 29, 2013 101