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Macroeconomic
Dry
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Shipping Assets
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ICAP Shipping Monthly Report
Global Shipping Analytics
It’s the economy, stupid
Sharp declines in consumer spending in the industrial economies have slashed steel and oil
products demand. A combination of the knock-on effect of this slowdown and an
overheating property market in China has also slashed steelmaking raw material demand.
Globally, US$1.8trn in agreed stimulus plans is expected to rebuild confidence. Imported
commodities in many cases continue to offer the most competitive input, but trade finance
issues continue to frustrate trade volumes. There is some hope that the proposed G20
Summit US$250bn trade finance package may at last oil the wheels of global trade.
Boom and bust exacerbated by pricing distortions
Iron ore price negotiations are purely academic with miners and steelmakers essentially
selling at discounts since the beginning of the year. Regardless of the rhetoric associated
with this annual ritual, it is clear that China is increasingly reliant on imported ore as
evidenced by the growing equitable interests taken in overseas mines by Chinese interests.
Chinese steelmakers are poised to benefit in the long run as a number of EU and US
steelmakers become casualties. Lower commodity prices in general are poised to stimulate
seaborne trade as an alternative to higher priced domestic alternatives in coal and iron ore.
VLCC Market Outlook
VLCC market earnings fell further in the 1st quarter of the year but remained at relatively
firm levels on average in comparison to those seen in other shipping markets, aided by
strong demand for vessels to store cargoes. However, oil market balances point to a much
weaker market during the summer. In this report we analyse quarterly VLCC supply/
demand balances for the next 7 quarters using our proprietary VLCC supply/demand Ready
Reckoner which charts market developments from Q1 2000 to Q4 2010.
Payment guarantees limit manoeuvre
This year represents the start of the major newbuilding influx in the dry cargo and tanker
sectors. At present, supply expansion is the least of the immediate concerns in a market
clouded by problematic trade finance and weak macro economic prospects. The rush of
cancellations at the end of last year and beginning of this appears to be abating, with
governments offering indirect support to yards via investors. Demolition activity has
increased sharply since the end of last year.
In this month’s report...
April 2009
• Trade Finance
• Global Stimulus Packages
• Foreign Direct Investment
• Fixed Asset Investment
• Chinese Steel Market
• Commodity Price
Differentials
• Major Bulk Trade Volumes
• Key Dry Market Indicators
• Forward Oil Supply/
Demand
• Refinery Runs & Utilisation
• Crude Oil Trade
• Oil Products Trade
• Cancellation Issues
• Greenfield Yards
• Investment Activity
• Return On Investment

Macroeconomic
Shipping markets across all sectors have been hit by the double whammy of tightening
availability of trade finance since the Lehman collapse last September and by weaker
underlying economic growth in general. Central governments have acted independently in
the form of stimulus packages and there is growing international resolve towards unified
action as manifested last week at the G20 Summit in London.
Trade finance
Trade finance has been more of an issue in the bulk carrier and container markets where
most of the players lack the clout of multinational oil companies in securing short-term
lending. It is estimated for example that the collapse in trade finance wiped out perhaps
15-20% of dry bulk trade volume during Q4 2008. Pending support from national
governments of the proposed measure, the recent G20 summit in London has proposed an
US$250bn package with which the International Finance Corporation – part of the World
Bank - would underwrite US$10trn of the estimated US$15trn of annual global trade to
stave off growing fears of protectionism.
An example of the problem faced was the collapse in appetite for commercial paper
(essentially an IOU), issued by banks and major corporations with excellent credit ratings,
from hedge funds and other financial institutions concerned about their creditworthiness
following the Lehman collapse, prompting issuers to have to offer drastically increased
interest rates to compensate for risk. To get an idea of this risk premium that buyers of
commercial paper were demanding, the difference in the cost of lending between 30 day
commercial paper and overnight interbank lending (regarded as ‘risk free’) widened from
around 100 basis points (1%) to at one point over 600. Whilst short-term interest rates
on commercial paper have now fallen back to around 100 basis points, largely following
progressive cuts in US interest rates, a brief rebound in appetite for commercial paper
issued by banks at the start of 2009 has now been reversed with levels reverting to the
post-Lehman US$600bn compared to around US$800bn prior. Ratification of the G20
proposal at national level will be needed to inject this much-needed liquidity into the
wheels of trade finance.
Stimulus packages
The other concern is the collapse of consumer spending and the impact that this is having
on corporate profits and jobs across the global economy – a combination of weaker
sentiment on the part of consumers but also the increased reluctance of banks to pass on
slashed interest rates their clients. Hence the return of big government and their stimulus
packages, either stepping in to control these failing businesses or priming the pumps of the
economy through measures such as Keynesian spending plans or tax cuts. The recent G20
Summit included high-minded pledges of US$1.1trn, though this figure still requires
ratification by national governments and may only materialise in part. Prior to the recent
G20 summit, commitments have been made amounting to US$1.8trn, but are dominated
by the US and Chinese offerings which are very different in their scope and potential effect
on shipping market cashflow and asset values. To what extent will these packages
stimulate the demand for crude oil and products, dry bulk commodities and consumer
goods for box shipment?
China
The World Bank has highlighted the Chinese stimulus package as the most integral of the
world’s sovereign government policies to the world economy and, with US$477bn out of
the US$585bn pledged to be spent over 2009/10 earmarked for investment involving
steel consumption, this is of critical importance to the dry bulk sector.
It became apparent back in October 2008 that two important external money flows were
to be lost: foreign direct investment and exports. Whilst FDI represents only a small
proportion of investment in the Chinese economy, less than 5% of the domestic fixed asset
investment total, the loss of exports particularly of consumer goods for the container
market and steel products as a driver for steelmaking raw material demand was critical.
Half of the steel produced in China is used in the construction industry, so with the real
estate market on the slide following a growing backlog of unsold units the consumption of
construction steel slumped. In addition, just over 20% of all steel produced in China ends
up in export channels, with the collapse in steel demand in the industrialised economies,
Chinese steel exports fell sharply. Unlike Europe and the US, China has the reserves to
support such ambitious policies.
It’s the economy, stupidFig. 1. Global Stimulus Packages -$bn
Source Data: various
Fig. 2. USA Stimulus Plan Breakdown -$bn
Source Data: US Gov. Statistics
Fig. 3. Chinese Stimulus Plan Breakdown -$bn
Source Data: Chinese Gov. Statistics
825
53
50 585
48
200
261538.8
China USA IMF
EU Japan Germany
France India UK
275
79
41
15
87
2416
138
6
90
54
tax relief school districts
education pell grant
medicare health info tech
science & tech infrastructure
renewable energy higher education
others
Total:
US$825 bn
Steel-intensive:
US$144 Bn
58
31
54
22
219
508
54
146
high-tech programs
Improving education etc
low-rent house constructions
suburban construction
Infrastructure
post-earthquake rebuild
renewable energy, pollution control
Total:
US$585 bn
Steel-intensive:
US$508 Bn
Total:
US$1.8 tr
2

Macroeconomic
Since removal of the dollar currency peg, the Chinese currency had strengthened against
the dollar. Changes in monetary policy involving increasing the supply of Yuan may weaken
the currency and make Chinese exports more attractive. In addition, the a reversal of the
lending restrictions that had been put in place to prevent the Chinese economy from
overheating have also brought tangible improvements to consumer spending and trade
volumes, helped by falling inflation since midway through last year. The key question mark
is to what extent the stimulus package introduces ‘new’ money. 25% of this investment is
attributed to the re-construction of the worst affected cities of the Sichuan region after
the earthquake of May last year. If this is factored into the projected steel demand
increase, an expectation of a renewed surge in 2009 becomes less likely. Whilst not such a
significant boost to energy demand, the stimulus package looks likely to result in 2009
crude oil imports being far less down on 2008 than they would have otherwise been.
USA
The US stimulus package is designed to support financial institutions and stimulate
microeconomic growth and is quite the opposite of the Chinese package. With only
US$90bn out of US$825bn designated for infrastructure projects – what the somewhat
partisan American Society of Civil Engineers regards as only 4% of the investment required
- the main focus appears to be on stimulating consumer spending. The steel industry would
nonetheless be stimulated; with Deutsche Bank estimating that 15Mt of extra steel
demand would be generated reversing only some of the recent collapse in US steel
production. Where the US plan could be felt positively is in the tanker and container sector.
In November last year, the European Commission announced a €200bn measure to boost
purchasing power and generate growth and jobs. Though this objective approach is typical
of the EC, it also illustrates the majority of the European states unilateral approaches to
revitalising their waning economies. Only a small proportion of this package is expected for
infrastructure (€6.3bn), of which, the emphasis will be on improving energy efficiency
rather than large new construction intensive projects. The focus of the Western economies
is improving credit and entrepreneurial endeavour. This is a relevant approach given the
financial services economy that exists in Europe. Having said this, there are examples
where investment may have a positive repercussions for shipping. In Germany, a €50bn
package was unveiled at the end of January, almost twice that of a similar package in
November. Of this, €17.3bn will be allocated for infrastructure while tax cuts will be made
for the automobile industry. In France, €4bn of a €26bn investment is proposed for
infrastructure, though again, the funding for the automobile industry has brought
accusations of protectionism. Such approaches to stimulus packages must be treated as
the exception rather than the rule in Europe, as most countries have attempted to improve
the balance sheets by encouraging liquidity via fiscal devices only. While these can have an
effect on shipping, the derived demand is a protracted one and there will be no immediate
improvement based on any significant raw material usage.
The Japanese Prime Minister made waves at Davos in February, as he outlined an Asian
infrastructure package funded by his country worth US$17bn. The package, which was
Japan’s attempt to promote the continued cross-border liquidity in Asia through
infrastructure, immediately has one problem: it’s relatively small. If one considers that the
Chinese infrastructure package could generate somewhere between 40 and 160Mt of
steel demand, the US$17bn invested will create a mere 1-4Mt; not exactly volumes that
can invigorate dry bulk freight rates. The Japanese economy itself continues to struggle
and the Government are contemplating a second stimulus package as it recognises the first
of US$57bn has failed to reverse the trend. India has, so far, proved resilient to the down
turn, posting an 8% growth in 2008, a fall of only 1% y-o-y. However, on recognising that
growth is expected to slip another 1% in 2009, the government of the largest democracy
in the world cut VAT by 4% in December in an attempt to encourage spending while R20,
000crore (US$4.1bn) has been proposed to increase liquidity. This approach has been
criticised as too limited in its scope and would expect an amendment in the near future.
The dry sector has most to gain from resolution to the trade finance issue. With lower
commodity prices, in many cases now imported commodities represent the cheapest
option for industrial players and trade finance is one of the major impediments to reducing
input costs and boosting profitability. A rebound in trade volumes could occur quite rapidly
if the proposed G20 package is ratified at national level. Even with the stimulus to the
consumer economy, however, demand for crude oil could be slower to accelerate as it will
take some time for sentiment and purchasing activity to change and in many cases people
have found alternatives modes of consumption that reduce resource consumption.
Fig. 4. BCI vs TED Spread
Source Data: Baltic Exchange, Bloomberg
Source Data: Baltic Exchange, Bloomberg
Fig. 5. Chinese Money Supply vs Export
Fig. 6. Foreign Direct Investment
Source Data: various
0
5,000
10,000
15,000
20,000
25,000
Jul 06 Apr 07 Jan 08 Oct 08
Index
0
1
2
3
4
5
bpBCI TED Spread
0
5
10
15
20
25
Jun 98 Oct 01 Feb 05 Jun 08
%
-40
-20
0
20
40
60
%M2 growth Export growth
0
2
4
6
8
10
12
Jan 06 Nov 06 Sep 07 Jul 08
$bn
India Brazil China
3

Dry
Steel prices and freight – a simple relationship?
The ‘correlation’ of freight and commodities prices has become one of those unquestioned
truisms of the market for some years and, given the importance of the demand for
steelmaking raw materials to the Capesize market, the relationship with steel prices is
reputedly the tightest.
Why then, the increasing interest of non-traditional interests in physical freight and freight
derivatives if they represent no more than yet another asset class correlated to the
underlying macro economic picture? Volatility of course is an attraction, but investment in
freight-market-linked assets is seen as a diversificational strategy since ‘correlation’ is
perhaps too simplistic an explanation.
The freight, commodities and energy price boom was largely a consequence of an
underestimation of the impact of an expanding Chinese economy, which manifested itself
in underinvestment in new productive capacity and logistical networks to meet that
demand. A typical boom-bust cycle ensued with increasingly inflated prices and
exceptionally cheap money justifying investment in progressively marginal additional
sources of raw material supply, transportation and processing. With commodity prices now
having corrected, in the cold light of day a large proportion of more recent investments no
longer make economic sense at current cash flows.
In a perfect market one would expect that the general trend of steel price would also
manifest itself in freight and raw materials prices, articulated through potentially volatile
‘blast margins’ or ‘smelt spreads’ (our terminology, similar to the concept of ‘refinery
margins’ in the crude oil market, ‘spark spreads’ in the power markets and ‘crush margins’ in
soybean market). The interest in this market, however, stems from the distortions created
by the contract pricing mechanism.
The reason - distortion
Contract price negotiations stem from a combination of the inelasticity of supply growth
(at least 2-3 years to build a mine, port, vessel or steel plant), a generally low cost
commodity, and a market structure that has been dominated by a small number of players
leading to a desire for both parties to seek the certainty of long-term agreements. Long-
term agreements in the past 6 months have been placed under exceptional price-pressure
and have been demonstrated to be perhaps not so copper-bottomed.
One solution beginning to get traction with the major players is that of iron ore derivatives.
As a cleared asset class they would enjoy minimal counterparty risk and aid future price
discovery, but also cut through the sclerotic annual contract distortions, of which the
freight market was one of the major beneficiaries in 2008.
Despite Chinese complaints last April, agreed contract iron ore price increases of 65-72%
saw Brazilian iron ore sell FOB at just over US$80/t. A few months later, spot prices for
Chinese domestic ore and Indian ore on a delivered basis into the Chinese market were at
over US$100/t premium to Brazilian contract ores. Fixed contract prices were therefore
creating an exceptional structural distortion in the maximum rate an importer would be
willing to secure freight capacity. In a market where all ore is sold on a spot basis, Brazilian
exporters would have charged progressively more for their iron ore with freight a more
modest beneficiary.
Somewhat ironic is that the distortion in the steel market is not one of China’s making
(unlike in the refinery and power generation sectors, where end user prices of finished
products are largely state controlled) though she has tried to rein in the speculative
excesses of traders by limiting the number of those licensed to import plus charging tariffs
for time spent in inventory.
Of course there is some correlation between steel prices and freight, but it is the price
differential between the cost of ore in the exporting country and the cost of domestic ore
in China where the true relationship lies. Contract prices have become increasingly
meaningless as the last financial year progressed. With spot iron ore prices at their height,
mining companies with period ships at heavy discount to the spot freight market were able
to sell their own cargo on a CIF basis around the domestic Chinese price at spectacular
profit. When Chinese iron ore prices collapsed at the end of last year to well below
Boom and bust exacerbated
by pricing distortions
Fig. 1. Steel Prices vs Producing Costs
Source Data: Steel Business Briefing, Baltic Exchange
Fig. 2. Blast Margins
Fig. 3. Delivered cost of ore in Chinese market
0
200
400
600
800
1000
Jul 07 Jan 08 Jul 08 Jan 09
$/t
1.5t freight C3
1.5t ore Vale contract
0.5t coke (domestic)
steelprice basket
0
100
200
300
400
500
Jul 07 Jan 08 Jul 08 Jan 09
$/t
0
40
80
120
160
200
240
Jul 04 Oct 05 Jan 07 Apr 08
$/t C3 - Brazil-China freight
Brazil FOB
Australian CIF
Chinese domestic
Indian CFR
blast
margin
4

Dry
Australian FOB contract prices, again contracts were circumvented but this time with
miners selling an increasing share of output at a discount to contract. With Chinese
domestic ore prices a few cents per tonne above Brazilian FOB, Vale reputedly offered
cargo on a CIF basis at the contract FOB price – essentially a discount.
The crash
Steelmakers for the bulk of the last 3-4 years have been the highest bidder for the limited
commodity that is freight, but spectacularly exited the position of market-maker as
commodity price differentials distorted by contract prices constrained maximum bids to a
few dollars per tonne.
Combined with the impact of the Lehman Brothers collapse on the availability of trade
credit and a destocking cycle, this served as a hammer blow to the ‘spot’ market. It is
estimated that global trade in dry bulk commodities shrank by around 15-20% in the space
of a few months, sufficient to almost entirely eliminate the demand for the 150-200
Capesize vessels trading in the spot market to leave them mostly at anchor for a few
months.
It is important to note that it was domestic output of iron ore that was first hit. With
shortages of iron ore for the last few years and progressively ramping contract prices, ores
of decreasing quality and increasing cost of extraction had been exploited - a reputed one-
third of Chinese iron ore mining capacity is uneconomic when prices dip below US$100/t.
Current talk of price negotiations is to a certain extent irrelevant. With Vale having already
unofficially cut prices by 30% since the beginning of the year and with Chinese domestic
iron ore prices having witness a modest rebound – differentials between the iron ore prices
have again widened... and, no surprise here, freight rates have again escalated within these
price constraints. As well as creating the attractive price arbitrage opportunities discussed
earlier that appear to have a strong correlation with freight rates on specific routes, lower
iron ore prices are also supportive of the freight market by boosting volume as a
replacement for a higher proportion of Chinese domestic iron ore production.
Chinese steel production rhetoric a red herring
Chinese interests have been at pains to state how low steel output is likely to be this year,
with an obvious impact on freight market sentiment. Iron ore demand is more a function of
the pricing of domestic and imported material than it is absolute levels of steel production.
With production costs of imported ore significantly more competitive, it is these price
differentials (which may or may not be set by annual contract) between Chinese domestic
ore and the various export markets that will determine the volume and to a certain extent
the freight rate for iron ore trade. This is borne out by recent events, Chinese interests
continuing their march of overseas mining acquisitions – up until they hit the buffers of
regulators at least…
Internal factors alone will drive Chinese ore demand in the short to medium term. Initially a
restocking cycle now most of the high cost inventory has been digested, followed by the
stimulus package boosting steel demand in H2 from between 40-160Mt over a 12-18
month period. Export-led growth is unlikely to re-accelerate until industrialised economies
begin to recover in 2010. The current difficult trading environment is squeezing less
efficient steel producers in China much more effectively than earlier central government
attempts to force industry consolidation. The survivors will be predominantly those reliant
on imported commodity rather than those in the interior – where many less efficient
mining operations will be squeezed out by rising resource utilisation fees.
Steel plant closures in EU and US mean that in the medium term, when demand in the
industrialised economies recovers, that an increasing share of this requirement will come
from China, which may also be servicing an expanded Indian demand for steel unmet by
delayed domestic projects.
Lower steel production globally has paradoxically offered the market some support in the
form of slashed coking coal prices on depressed demand. This has had the impact of
making imported coking coal more competitive in China and increasing steelmaker margins
as they switch from more expensive domestic supplies.
Fig. 4. Chinese Steel Inventories
Source Data: Steelhome
Fig. 5. Iron Ore Price Variations - adjusted
Fig. 6. Commodity Imports
Source Data: GTIS
0
50
100
150
200
May 08 Jul 08 Oct 08 Jan 09
$/tonne C3 (Tubarao-Beilun)
Brazilian FOB
Chinese Ex works
Indian CIF
Australian CIF
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
Jan 07 Jul 07 Jan 08 Jul 08 Feb 09
Mt Wire
Deformed steel bars
Total Inventories
0
20
40
60
80
100
120
140
160
Mar 08 Jun 08 Sep 08 Dec 08
Mt/month
China metal ores China coal
S Korea metal ores S Korea coal
EU27 metal ores EU27 coal
Japan metal ores Japan coal
fleet growth trend
5

3mma 12mma
Explanatory note: For the major four shipping routes, differentials between the price of key commodities in major consuming areas and on an FOB
basis from major long-haul exporters are tracked to identify emerging incentives or disincentives for importers to take advantage of long-haul
commodities. Positive differentials encourage trade, negative supresses it. Arbitrage Incentive Indices have been derived for each of the major
routes and for the global market from the basket of relevant commodity prices - index value Jan 2007=1000. Commodities were chosen where
there is a tendency for volatility in volume and where spot tonnage is often sought to transport them.
index 3mma 12mma index
1538Backhaul Arb Incentive
index 3mma 12mma
Pacific Raw Material Demand met by…
Atlantic raw material supply
US China soybeans
US Japan corn
9.18 11.46 52.13
10.19
Pacific raw material supply
45%
12mma %yoy
22.82 49%
26.68 21%
-3%
5.65 36%5.77
3mma
18.11
28.21
19.66
6.24 24%
21.76
3.57
6.80
4.28
9.569.06
3.09 2.72
Mar-09
21.65
31.47
20.03
Brazil - total grain (Mt)
4.22
Indicative commodity price differentials driving longer haul trade
Argentina - total grain (Mt) 3.25 3.81 4.564.89
9.60US - total grain (Mt) 10.39
dark spread (dunno)
-40%
4.35 5.13 23%
0.00 0.00 0.0%
US grain sales (Mt) 20.14
8.67 10.7712.26
3.40
-30.9%
2.2civilian steel ships (m. dwt)
41.0cement equipment ('000t)
Chinese output of major industrial products
iron ore (Mt)
coal (Mt)
coke (Mt) 24.2
South Africa - iron ore (Mt) 2.06 2.87 2.292.35
South Africa - coal (Mt) 6.14 6.20 5.10
India - iron ore (Mt) 7.68 9.90 10.90
26.62
9.351.66
7.16
26.53
18.96
10.30
5.33 6.51
15.1726.74
26.41
Brazil - iron ore (Mt) 17.91 13.75 17.51
Australia - iron ore (Mt) 19.36 23.43
Export volumes - major exporters
Nov-08 Dec-08 Jan-09
Australia - coal (Mt) 21.88 21.55 19.9823.75
Feb-09Oct-08
China FAI steel use ($bn) 29.08 31.62 soy crush margins (dunno) bloomberg? 0.00 0.0%
China FAI construction ($bn 0.00 32.09 -100.0%
21.00 -41.4%China - coastal coal (Mt) 29.08 31.62 -30.9%
India coal avail. (no. critical) 29 35 26.1%steel prod - USA (Mt) 3.76 3.92 -54.2%
Japan nuclear outage (%) 33.17 34.80 -29.4%steel prod - S.Korea (Mt) 3.15 3.45 -24.5%
China coke inventory (Mt) 2.62 2.56 -4.7%steel prod - Japan (Mt) 5.48 6.45 -44.2%
13.4%
steel prod - EU27 (Mt) 10.06 9.65 -41.0% China coal inventory (Mt) 15.53 16.92 -0.2%
Latest 3mma %yoy
steel prod - China (Mt) 40.42 40.22 4.0% China ore inventory (Mt) 65.55 60.50
Key dry bulk market indicators
Feb-09 3mma %yoy
white goods (million units) 7.7 7.8 24.2%
2.8 44.5%
power equipment (GW) 16.2 14.2 105.1%
44.8 18.8%
automobiles ('000 units) 852.8 737.4 26.9%
37.6 -13.0%
metal smelting eqt. ('000t) 52.6 43.8 43.9%
40.8machine tools ('000 sets)
3mma %yoy
engines (GW) 36.6 29.6 -25.0%
Feb-09
212.6 0.3%
46.1 46.4 7.0%
1.7 1.7 4.7%
82.9 94.7 39.1%
23.3 -5.7%
steel products (Mt)
alumina (Mt)
thermal power output (TWh)
Feb-09
196.6
43.9
203.7
cement (Mt)
plate glass (million weight box)
58.2
Australia China coal
Australia Japan coal
India China iron ore
Fronthaul Arb Incentive 1326
index 3mma 12mma
191.47 175.64
41.4 4.1%
Brazil China iron ore
Brazil China soybeans
3mma %yoy
55.5 9.3%
196.3 15.6%
250.99
152.46 131.57 182.57
Transpacific Arb Incentive
$/t 3mma 12mma
Australia China iron ore
80.12 67.05 46.77
$/t 3mma 12mma
-53.07 -49.44 -6.94
25.79 18.84 5.44
33.41 25.65 18.58
30.34 28.38 35.19
-1695 -1876 1178
12.46
Atlantic Raw Material Demand met by…
Atlantic raw material supply Pacific raw material supply
$/t 3mma 12mma $/t 3mma
163.01
12mma
South Africa EU coal 1.71 2.47 19.41 Australia EU coal -3.71 -2.35
177.47
Colombia EU coal 1.00 3.64 18.89 China US steel 7.05 -18.17
EU US steel 25.37 -7.61 -14.46 China EU steel -18.32 -10.56
-146 -142
Freight Arb Incentive -104 -218 1649
Transatlantic Arb Incentive 135 151 1117
Iron ore exports monthly (Mt)
Data Source: GTIS, various
Chinese Fixed Asset Investment
1230 2216
Data Source: USDA FAS
Data Source: CNBS
Indian Power Plant Coal Supply
Data Source: various
US Outstanding Grain Sales (Mt)
0
5
10
15
20
25
30
35
40
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
Braz Aus Ind
15%
20%
25%
30%
35%
Feb-05
Aug-05
Feb-06
Aug-06
Feb-07
Aug-07
Feb-08
Aug-08
Feb-09
yoy% growth
0
10
20
30
40
50
60
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
units with <7 days coal
0
10
20
30
40
50
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
outstanding sales
Please note the most recent data is estimated from a number of sources
6

Tanker
VLCC Earnings Decline as Expected
VLCC earnings declined further in Q1 09 to levels ranging from some 20% to 30% below
Q4 2008 levels and some 20% to 52% below Q1 2008 levels, depending on the route
(see Fig. 1). Nevertheless earnings in Q1 remained at relatively high levels, given the state
of the world economy and other shipping markets. Earnings essentially followed the direc-
tion that we had expected, although they have found lower levels than we had anticipated
six months ago as a result of the rapid slump in economic growth and oil demand.
Earnings for TD1 (AG-USG) and TD3 (AG-East) came in almost exactly at the levels of our
last forecast update in early February ($33,750 and $45,000 respectively) while TD4
(WAF-USG) exceeded our expectation ($49,500). Our calculated returns in Q1 for the
AG-East and WAF-USG round voyage routes and the triangulated AG-USG-WAF-China-
AG route were all, on average, above what we would expect to be most owners’ breakeven
levels, although these figures do not allow for any waiting time.
Storage use has of course played a very large part in supporting rates and at the start of
April we can still positively identify 34 VLCCs from the trading fleet that are anchored for
crude oil storage in the US Gulf (10), Arabian Gulf (8), Mediterranean (5), UKC (5), West
Africa (4) and offshore Singapore (2). There may also be other vessels that we have not
yet positively identified that would take the total up to around 40 vessels engaged in stor-
age at the time of writing. There are also a handful of other vessels that have either been
fixed for voyages with storage options or that are known to have anchored with cargoes
on board in northwest Europe in the last couple of weeks.
Oil Market Balance Points to Further Weakening
In spite of the ongoing storage employment, earnings as we enter Q2 have fallen once
again, to levels around $20,000/day for AG-East voyages. As we reported in our August
2008 Tanker Monthly Report we expected the market to weaken into Q2 09, which we
thought would see the bottom of the market, due to weaker seasonal demand during the
Northern Hemisphere spring time, seasonal refinery maintenance programmes and reduc-
tions in OPEC production. All of these assumptions have held true, but we did not expect at
the time that oil demand would collapse to the extent that it has—leading refiners to dras-
tically cut runs—that OPEC would need to cut production so dramatically and adhere to
the cuts to such an extent, or that storage employment would play such a significant role.
The quarterly oil market balances shown in Figure 2 clearly illustrate why we expect the
market to be weaker in Q2 with a further reduction in demand and another sharp reduction
in oil supply. The latest data for January showed that OPEC had not reduced production
sufficiently at that time to balance the market—with total global oil supply still exceeding
the average level of global demand expected in Q1. However, February data showed that
this situation seems to have changed and oil supply finally appeared to fall below demand
for the first time since Q4 2007. With even higher levels of compliance with OPEC quotas
in Q2 we now expect to see a period in which global crude oil inventories are run down
during the summer, helping to tighten the market, and paving the way for higher crude oil
prices later in the year unless demand proves to be incredibly weak.
This will have two effects on the tanker market. Firstly there will be less demand for VLCCs
due to the lower levels of OPEC production and exports. Secondly the tighter oil market
balance should gradually lead to the unwinding or narrowing of the contango in crude oil
prices, resulting in the re-delivery of tonnage back into the market. Neither of these proc-
esses are expected to take place in an even fashion. VLCC demand may increase as refiners
seek to buy more cargoes in May/June for refineries returning from maintenance. The con-
tango may well narrow and then widen several more times—potentially encouraging more
short-term storage plays in the process.
At present we expect that oil demand will increase in the third and fourth quarters, on a
quarter-on-quarter basis if not year-on-year, and this increase together with higher oil
prices will spur higher levels of OPEC production and more demand for VLCCs to export
cargoes. Unfortunately, from the VLCC owners’ perspective, there will be two major coun-
teracting factors to this predicted increase in demand:
1) The anticipated re-delivery of tonnage from storage employment
2) Further newbuilding deliveries
The net effects of these developments are considered in our model on the following page.
VLCC Market OutlookFig. 1. Monthly Av. VLCC Sport Market Earnings
Source Data: ICAP Shipping
Fig. 2. Quarterly Oil Market Balances
Source Data: IEA (Historicals/Demand Forecast), ICAP Shipping (OPEC
Forecast), IEA (non-OPEC Forecast) adjusted by ICAP Shipping
AG - USG
RV
AG - Far
East RV
WAF - USG
RV
AG - USG -
WAF -
China - AG
Q1 07 38,978 47,008 58,337 62,978
Q2 07 35,092 38,116 43,250 54,739
Q3 07 15,487 21,714 22,948 33,289
Q4 07 57,984 80,709 61,563 78,931
Q1 08 69,502 90,578 71,301 95,876
Q2 08 93,756 136,011 124,367 136,812
Q3 08 64,413 98,442 91,151 99,148
Q4 08 47,803 61,543 70,705 73,433
Q1 09 33,440 44,660 56,513 54,056
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
Q1
07
Q2
07
Q3
07
Q4
07
Q1
08
Q2
08
Q3
08
Q4
08
Q1
09
$/day
AG - USG RV
AG - Far East RV
WAF - USG RV
AG - USG - WAF - China - AG
82.5
83.0
83.5
84.0
84.5
85.0
85.5
86.0
86.5
87.0
87.5
Q106
Q206
Q306
Q406
Q107
Q207
Q307
Q407
Q108
Q208
Q308
Q408
Q109
Q209
Q309
Q409
m bpd Global Oil Demand Global Oil Supply
Stock build
Stock draw
Jan. 09 Supply
Feb. 09 Supply
7

Tanker
If the strong relationship between VLCC earnings and the supply/demand changes shown
in our Ready Reckoner above persist, the direction of the market throughout the summer is
clear, based on the assumptions used in our model. Bearing in mind that it seems likely that
storage employment for VLCCs will now persist well into the second quarter, our August
2008 prediction that Q2 would see the bottom of the market may not now turn out to be
the case. However, our model points to the conclusion that the two factors outlined on the
previous page will more than offset the increase in trade demand in Q3 and therefore the
markets could soften further. In fact the cumulative changes in supply and demand reflect
a net market balance in the 3rd quarter that is similar to the situation that was seen during
the weak market of Q2 2002. The situation in Q4 2009 does not improve much if we
assume that all storage tonnage returns to the trading market. Furthermore our supply side
outlook assumes 10% slippage of deliveries and the removal of 35 VLCCs from the trading
fleet by the end of the year—which is a high number bearing in mind the lack of many al-
ternative options for vessels other than scrapping and storage. However, it would seem
logical that a period of much weaker rates during the summer, and likely lower employ-
ment levels, would be enough to encourage more owners to remove single hull vessels
from the market—especially if the prospects of a strong re-bound in rates and employ-
ment levels for single hulls seems limited. Even in 2010, where we have assumed a 1.0
million bpd re-bound in world oil demand and an increase in OPEC crude oil production of
1.6 million bpd, the recovery of the market would seem to be modest and gradual due to
strong fleet growth in 2009 and further fleet growth in 2010, in spite of the fact that we
have estimated that a further 45 vessels will be removed from the market in 2010.
Of course history teaches us that looking at these supply/demand balances does not nec-
essarily produce a conclusive outlook for freight rates (although there has been a 73%
correlation this decade) as other factors have a habit of intervening. Apart from the wild
cards that often affect the market, we must consider whether there is enough consolida-
tion in the market and determination among owners to resist a prolonged downturn in
rates for the remainder of the year. In 2007 we saw earnings persistently averaging
around $20,000/day from July until mid-November. These weak levels together with ris-
ing bunker prices encouraged slow steaming which helped to tighten the market, although
rising OPEC output and the “Hebei Spirit” incident were arguably the main drivers of the
rise in rates. There are also uncertainties with respect to the unwinding of the contango
and storage positions and of course with respect to the timing and delivery of the new-
building programme, both of which are crucial to the outlook, although VLCC deliveries
appear to be progressing on schedule so far in 2009. There are also downside sensitivities
since we cannot be certain at this point that demand will start to recover in the second half
of the year. In 2010 there will also be the question of how the increased use of double
hulls affects the market. However, our annualised supply/demand balances show that,
although it would represent a tight market, there would be enough double hull tonnage to
cover all shipments in 2010 if the market were to move in that direction. Analysis of the
fundamentals point to several quarters of weakness at the moment, but we may yet see
some of the support factors that we outlined in our December Tanker Monthly Report
come into play to drive the market back up towards healthier levels.
Figure 3 captures supply and demand develop-
ments in the VLCC market since the start of this
decade, measured on a quarterly basis.
While this is not as detailed as our annual supply /
demand model that captures all VLCC trading
routes this Ready Reckoner model provides what
we believe to a good estimate of changes in the
market balance from quarter to quarter.
The model shows a strong correlation (73%) be-
tween the net changes in supply and demand over
the course of this decade and the development of
VLCC earnings.
The model uses the following assumptions:
Cumulative Changes in AG & WAF VLCC Demand
are calculated by taking the quarter-on-quarter
changes in crude oil production in the Arabian Gulf
and West Africa since Q1 2000 and applying fixed
ratios to the changes in crude oil volumes to ac-
count for changing volumes estimated to be ex-
ported by VLCCs from each of these sources. In
addition we also apply fixed ratios for destinations
of these exports e.g. for U.S., European and east-
ern discharge. We then calculate the change in the
number of vessels that would be required to ser-
vice these changes in trade based on appropriate
voyage lengths and convert this into dwt tonnes.
By adding the changes in all previous quarters back
to Q1 2000 we arrive at the cumulative total in
each quarter. While we acknowledge that the use
of fixed ratios in terms of VLCC liftings and desti-
nations means that some changes in demand will
not be captured, we feel that overall the most
important changes in demand are reflected in the
model.
Cumulative changes in non-AG & non-WAF VLCC
Demand are taken from our annualised model
reflecting all of the major changes in VLCC trade
and vessel demand, excluding those involving Ara-
bian Gulf and West African exports, such as in-
creased exports from Venezuela to China, in-
creased fuel oil trade from the Atlantic Basin to
the Far East and increased long-haul crude oil ex-
ports from Ceyhan and North Africa using VLCCs.
The annual changes are then converted into quar-
terly changes on an even basis.
Cumulative Changes in Storage Use are our esti-
mates of the amount of dwt tonnage of vessels
normally engaged in trading that are being used
for storage purposes on an average basis across
each quarter.
Cumulative Changes in Supply are derived from a
quarterly breakdown of the annual changes in
VLCC fleet supply (including deliveries, scrapping,
conversions and other removals). We have then
calculated the cumulative increase since Q1 2000.
Changes in Demand minus Changes in Supply
(Cumulative) are the result of subtracting the
changes in supply since Q1 2000 from the sum of
the total changes in demand including Arabian Gulf
and West African exports, non-Arabian Gulf and
non-West African exports and storage employ-
ment. This effectively produces the net change in
the market balance since Q1 2000.
Fig. 3. Quarterly VLCC Supply/Demand Ready Reckoner
-12.0
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
22.0
24.0
26.0
28.0
30.0
32.0
34.0
36.0
38.0
40.0
Q100
Q101
Q102
Q103
Q104
Q105
Q106
Q107
Q108
Q109
Q110
Mn. Dwt
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
$100,000
$110,000
$120,000
$130,000
$140,000
$150,000
$160,000
$170,000
$180,000
$190,000
$200,000
$/day
Cumulative Changes in Storage Use
Cumulative Changes in non-AG& non-WAFVLCC Demand
Cumulative Changes in AG& WAFVLCC Demand
Cumulative Changes in Fleet Supply
Changes in Demand Minus Changes in Fleet Supply (Cumulative)
VLCC Earnings AG-East
8

Crude Oil Trade (m bpd)
Oil Products Trade (Thousand bpd)
Comments
Forward Oil Supply/Demand (m bpd)
Refinery Runs & Utilisation (m bpd)
Data Source: IEA
World Refinery Throughput (m bpd)
Data Source: IEA (Historicals/Demand Forecast),
ICAP Shipping (OPEC Forecast), IEA (non-OPEC
Forecast) adjusted by ICAP Shipping
Data Source: ICAP Shipping
Crude Oil Tonne-Miles (Bn)
US Product Trade (m bpd)
Data Source: US EIA
World Oil Demand & Supply (m bpd)
36.20
Tanker markets are suffering from extremely low refinery throughput at present. That of course means low demand
for crude oil and low levels of production of refined products. Refiners have been cutting runs as a result of weak
demand for products and poor refining margins. At present the situation is exacerbated by seasonal maintenance
programmes, but these should come to an end during the 2nd quarter. Global throughput is expected to increase in
Europe and the U.S. initially with Japanese and Korean refineries returning from maintenance schedules at the end
of the quarter. This should mean that we see a slight increase in tanker demand and fewer re-lets in the market.
19.5%
70 9.7%133
38.05 38.02 40.15 41.34
2010 2011 2012
38.31
79
88 38
125 105
Year Ago
132
14
2009YTD
131.0%
14 13 58 88 5 1608.9%
108 7347
Year Ago %∆
2007
133 139
2007 2008 2009YTD Latest
37.4%
Fuel Oil
Latest
8684
96 114 104
181
2
444 397 441 550
107
85 -62.3%32128 28
397 38.5%
-86.8%
%∆
%∆
5 46 2
OECD N/Am. 18.3 17.9 15.6
20082007
1,256 29.1%1,204 1,395 1,537 1,622
177
Year Ago
17.4 17.4 17.3
Latest2007 2008 2009YTD
10270
n/a
33.8%
279 248 12.7%
1,188
Jet Kerosene
-42.4%
295 192 280
Jet Kerosene
378 356 6.3%368
-3.0%
2007 2008 2009YTD Latest Year Ago %∆
4.60 4.48
2009
4.14
5.104.83
4.26
-5.3%
2.82 2.78 n/a 2.81 2.60 7.9%
4.68 4.75 n/a
2.35 2.98 2.98
9.80 9.49 9.06
4.10
12.5%
-8.7%
-8.9%9.95
2.65
-8.0%
Year Ago %∆Latest
3.29
Q2 2006 Q3 2006 Q4 2006
JanNov
85.0 85.4
May Jun
87.0 86.7 86.1 86.0
Q1 2007 Q2 2007
2007
85.5 85.2
83.9 82.8
17.4 17.0 16.9
Q3 2007 Q4 2007
Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009
Mar
85.0 86.5
83.5 85.1
85.1 85.8 87.2
84.6 84.6
17.1 17.3
Apr May
12.8 12.8
Jul Aug Sep Oct
2008 20092008 2008 2009 1H
Jun
2009
2008
13.1
17.2 17.9 17.1
13.4
2008 2008 200920092008 2009
Feb 2009
1H (e)
OECD Eur. 13.5 13.4 13.313.6 13.8 13.8
Oct Jan
20.9 21.3 21.4 20.8
10.03
85.8
Supply
Demand
84.6
72.8
Feb
All Asia 22.4 22.0
2.38
85.3
3.05
3.74
73.2 72.3
Aug Sep
21.5
Q1 2006
2008
21.7 21.3 21.2
13.3
Dec
JulMar Apr
71.9
20.8 20.6
World Total 75.4 75.1 71.5
83% 82% 84%
83.9 84.9 85.9 86.2
22.0
71.4 71.7
2008 2008 2008
21.0
72.5 72.8 73.9
2008 2009
2008
86.8 85.7 85.2 84.9
Utilisation 2008 2008 20082008 2008 2008
Supply
Demand
71.1 71.6
84.5 84.0
12.4 13.1 13.5
Runs
OECD N/Am. 84% 83% 84% 87%
OECD Eur.
Nov Dec
87% 86% 84% 74% 82% 83%
2008 2009 YTDFY
82%
85% 84% 85% 83% 85% 86% 86% 84% 82% 84% 84% 81% 85% 81%
OECD Pac. 87% 88% 84% 81% 77% 83% 85% 84%84%
4.11
85% 79%
2009YTD
85% 85%
3.05 3.31
3.74
85% 84% 84%
84%82% 85%
85%
81% 79%
82% 82%
3.58
4.10
Middle Distillates
84% 82% 84%83%World Total
9,9988,544 8,773 8,167
348 420
9,532
888
113
0.9% 0.7% -5.5%
Gasoline
1,121 1,053 1,051
229
2008
33
0.5% 2.7% -6.9% 7.6%
Total Imports by Country
China
Japan
Korea
Global Seaborne Trade
%∆ Y-o-Y
Billion Tonne-Miles
Sing+Taiwan+Thailand
US1
Germany+Netherland+UK
France+Italy+Spain
China Exports4
Fuel Oil
US Exports3
All Products
China Imports4
Gasoline
Middle Distillates
Jet Kerosene
Fuel Oil
%∆ Y-o-Y
US Imports3
Gasoline
Middle Distillates
Seaborne Crude Trade2
Data Source: IEA Oil Market Report
Data Source: IEA Oil Market Report
Data Source:
3
US EIA and 4
China Customs Statistics
Data Source: GTIS, except
1
which US EIA and
2
which ICAP Shipping
5.0% 5.6% 3.0%
8.5% 4.9%
8,787
82.5
83.0
83.5
84.0
84.5
85.0
85.5
86.0
86.5
87.0
87.5
Q106
Q306
Q107
Q307
Q108
Q308
Q109
Q309
Oil Demand Oil Supply
71.0
71.5
72.0
72.5
73.0
73.5
74.0
74.5
75.0
75.5
76.0
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
World Refinery Thoughput
6,500
7,000
7,500
8,000
8,500
9,000
9,500
10,000
10,500
2000
2002
2004
2006
2008
2010
2012
-7.00%
-5.00%
-3.00%
-1.00%
1.00%
3.00%
5.00%
7.00%
9.00%
Bn Tonne-Miles % Change
2.70
2.90
3.10
3.30
3.50
3.70
3.90
4.10
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
1.10
1.20
1.30
1.40
1.50
1.60
1.70
1.80
US Products Imports (LHS)
US Products Exports (RHS)
9

Shipping Assets
Strong quarterly supply growth is in prospect for both the dry bulk and tanker sectors for
the next 2-3 years, yet for the next 18 months growth rates have opposite trajectories.
The bulkcarrier fleet is at the start of a long period of accelerating growth, whilst Q1 2009
represents the high water mark for quarterly tanker deliveries until perhaps 2011 with
growth rates slowing in the meantime, further decelerated by removal of single hull
tankers and the pushing back by some investors of orders.
Where are all the cancellations? From the events of Q4, the idea that the orderbook would
be decimated by cancellations was discussed at length with some commentators
suggesting that a 50% reduction could emerge in the dry bulk sector alone. Involuntary
cancellations could have resulted from the perspective of the investor or the yard, where
the tightness of credit frustrated contractual agreement. With it unclear whether values on
delivery would be significantly discounted to purchase price, some investors were even
tempted to leave deposit monies on the table or at least come to some terms with the
yard to cancel some of their orders at a price.
There are a number of possible reasons for the slowdown in cancellations. Stronger rates
certainly helped, along with a sense that supply growth will to a certain extent be kept in
check by demolition and slippage. Demolition has surged with over 5Mdwt being scrapped
in Q4 2008 and 3.5Mdwt being scrapped so far in 2009. Vessels demolished so far this
year are much younger at 20yo than that for the last decade of nearer 30. There still
remain a significant body of vessels that make ideal scrapping candidates, 14% over 25yo
and 20% over 20yo, following several years of negligible removals. Slippage is expected to
result in a similar deduction in expected deliveries this year. Based on last year’s slippage of
dry bulk and looking at the number of greenfield yards which are to deliver this year and
their possible performance, 16% of what is scheduled to be delivered in 2009 may not hit
the water until 2010. Many of the more recently signed contracts contain ‘payment
guarantees’ as well as the usual refund guarantees sought by the buyer. Additionally there
is increased support and encouragement from Governments, in particular the Chinese.
After the Korean government pledged to support its shipbuilding industry, the Chinese
government has gone further with the policy of offering to take on debt unwanted by
traditional shipfinance banks or providing finance to support yards in building vessels on
their own account. Another option on the table is to set up a system similar to that of the
German KG system. Unlike the problems facing the over-leveraged German system, the
savings rate in China is one of the highest in the world, money has also exited equity
positions and investors are seeking alternative strategies for their portfolios, the current
dip in asset values may provide an ideal opportunity.
On the tanker side, deliveries of VLCCs in Q1 appear exactly on schedule, with 24.2% of
the 66 due this year having been delivered. The Suezmaxes are slightly behind, with just
15.0% delivered, but it is expected further 2009 orders will be moved into 2010.
Aframaxes appear ahead of schedule with 28.0% of the 107 delivered, whilst Panamaxes
lag with 19.6% of the 51 delivered. The MRs (45-55k dwt) are struggling to deliver the
183 slated for 2009, with just 15.3% delivered, whilst the Handy sector (27-45k dwt) is
fairing marginally better with 17.8% delivered. Whilst the mostly on-target deliveries will
be a concern for freight rates, the low levels of fleet growth seen in some sectors last year,
due to smaller numbers of deliveries and the removal of many vessels for conversion
projects in the first part of the year, will be providing some help. Whilst the scope for
conversion projects has now been vastly reduced, single-hull vessels still need to be phased
out, meaning owners may opt to cash in at the breakers yard before the rush begins,
especially if freight rates remain at depressed levels.
Overall, it appears that the worst of the negative effect of the oversized orderbook is yet
to be felt. Deliveries of tankers are on target, if not a little slow, while bulker deliveries are
to be slow until H2 2009, when the majority of cape deliveries are made. With only 77
bulkers (3.22Mdwt) delivered of a total 962 (71.4Mdwt) there is clearly a long way to go
and rates could look very different again later in 2009.
Distressed sales have also been a feature of the dry market, particularly for those exposed
to period or paper positions vastly out of kilter with settlement. With the strengthening of
dry rates during first quarter, the removal of casualties and a steady reduction in the
number of players exposed the fear of widespread defaulting is now easing.
Payment guarantees limit manoeuvreFig. 1. Dry bulkcarrier orderbook
Source Data: LR Fairplay
Fig. 2. Tanker orderbook m.dwt/qtr
Fig. 3. Chinese ship plate RMB/t 10-20mm
Fig. 4. Contracting activity - March 2009
0
1
2
3
4
5
6
dry bulk tanker container other
options
contracts
0
5
10
15
20
25
30
2006 2007 2008 2009 2011 2012
0
3
6
9
12
15
18
2006 2007 2008 2009 2011 2012
3,500
4,300
5,100
5,900
6,700
7,500
8,300
Jan 07 Sep 07 May 08 Jan 09
10

4.99
7.44
28.50
0.70
0.15
0.46
1.57
4.98
49.09
1.14
4.00
3.03
0.00
0.32
0.30
0.30
0.00
0.00
0.15
0.00
21.51
48.34
2.33
8.30
3.58
9.71
8.09
16.32
7.13
1.82
2014
39%
15%
58%
32%
31%
40%
47%
48.17
1.92
8.79
19.42
15.63
76.31
6.37
13.56
11.04
Size
11.38
33.96
2011
10.33
54.61
20102009
150%31.05
6.3%
9.6%
70%
38%
4.9%
6.2%
6.2%
6.9%
154.83
5.47
0.00
0.85
99%
%
11.33
12.51
14.96
11.18
416.03
71.20
1.56
1.42
1.17
0.00
29.83
1.32
0.25
1.21
27.00
25.00
-
-
24.50
25.57
0.45
0.53
0.08
0.05
0.00
0.20
0.00
0.26
0.11
0.05
$258.42
14.5%
7.9%
-
0.21
0.00
0.06
0.11
0.00
0.00
$0.00
$0.00
$0.00
$0.00
$2.65
$7.70
325.00
-
310.00
-
-
-
$2.37
$6.55
13.1%
7.6%
18.8%
16.2%
8.8%
14.0%
8.5%
18.6%
7.93
0.08
8.3%
$0.00
8.2%
China NB
13.1%
Re-sale
10.3%
5-yr Old P/E
0.95
0.03
0.06
0.21
0.00
0.00
0.21
0.00
1.07
12.2%
14.4%
6.0%
10-yr Old
10.4%
5.4%
10.6%
15.2%
4.1%
15.8%
32.9%
28.6%
74.4%
Investment by Shipping Sector ($bn) Investment, Sales and Scrapping
Handymax
Panamax
P-Pmx
Capesize
$12.25
$4.92
$2.93
$13.55
Handy
Handysize
VLCC
Suezmax
Aframax
Panamax
MR
29.3%
25.1%
55.1%
$1.60
8.7%
14.9%
14.5%
9.6%10.2%
8.1%
0.87
3.32
2013
Capesize
Panamax
13.41
Internal Rate of Return (IRR)
SK NB
69%
39%
293.16
27.31
Aframax
Panamax
VLCC
Handy
$0.04
$0.00
$0.04
$0.00
77.84
105.92
20.63
140.43
Fleet and Orderbook
21.03
$0.34
$1.01
10.72
44.38
Over 15 Over 20
$4.70
$6.37
Handysize
$9.34
Panamax
Handymax
Handysize
Supramax
MR
Suezmax
$2.33
$5.65
VLCC
Suezmax
Aframax
LR1
153.65
46.33
20.35
31.86
16.05
23.55
19.02
14.20
5.65
3.84
%DH
MR
Size
392.35
Age
57.89
27.95
6.26
Capesize
P-Pmx
2009
0.61
0.44
0.20
0.00
1.08
$9.15
$13.63
$9.91
$5.82
$24.08
2010
$6.67
$10.01
$7.23
$6.29
$14.70
2011
Investment on Deliveries ($bn)
1
$0.24
Average 3m
$1.01
Average 12m
Monthly Contracting Investment ($bn)1
$0.00
Feb-2009
$0.53
$0.31
$0.47
$0.21
$8.81
$4.10
$2.29
$3.12
$4.93
$12.31
$1.48
$6.14
$3.96
$0.27
$0.00
$0.00
$0.04
$0.09
$0.18
$0.18
$263.00
$264.53
$0.00
$0.00
$0.00
$0.09
$0.00
$0.00
$0.00
$0.00
29.05
Total dwt (Mdwt)
$250.00
$255.25
1.84
0.43
31.32
30.33
Scrap (YTD)1
1.89
YTDFeb-2009
Secondhand Sales (Mdwt)2
Average $/ldtAverage Age
Over 25
109.20
42.93
Fleet
Capesize
P-Pmx
Panamax
Handymax
Handysize
TOTAL
39.8%
38.9%
87.9%
22.3%
TOTAL
MR
Handy 9.95
2.74
5.48
0.74
Capesize
Orderbook
VLCC
Suezmax
Aframax
Panamax
4.91
4.87
5.48
5.09
5.19
-
6.41
7.10
7.66
7.12
34.87
27.30
82.44
58.58
37.39
8.68
8.82
9.51
8.82
88.69
14.17
4.04
6.75
17.52
15.09
31.12
9.25
4.42
6.26
4.85
7.07
1.54
0.81
1.62
10.46 85%
73%
94%
85%
90%
90%
81%
13.07
6.58
2012
35.28
P-Pmx
Panamax
Handymax
Handysize
TOTAL
VLCC
Handy
TOTAL
Suezmax
Aframax
Panamax
MR
69.75
8.94
20.14
8.73
25.30
23.58
71.61
0.00
0.53
9.61
6.18
15.89
0.52
0.45
1.62 0.33
108.78
3.75
53.62
41.55
139.63 30.79
17.13
8.18
4.72
Second Hand Sales (Mdwt)
P/E Ratio (Years)
6.78
151.75 0.26
30.06
2.67
3.00
4.76
Data Source: 1
LR Fairplay and 2
ICAP Shipping
Data Source: LR Fairplay and ICAP Shipping
Data Source: LR Fairplay, ICAP Shipping
b) Repayments over 18 years for NB and
Re-sale, 10 years for Second-Hand
d) Other assumptions: scrap price 500/ldt,
escalation in operation costs 3% and
interest rate 4%
IRR Assumptions
c) Vessels owned to 20-year anniversary,
e.g. 5 year olf vessel owned for 15 years
a) Debt/Equity Ratio 60%/40%
0
2
4
6
8
10
12
14
16
18
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Dry Bulk Tankers
0
1
2
3
4
5
6
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Dry Bulk Tankers
0
1
2
3
4
5
6
7
8
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
P/E Cape P/E VLCC
P/E MR
11

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