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Mr. Paras Chheda GESCO - Current Freight Market
- 1. Investor Presentation September 2017 The Great Eastern Shipping Co. Ltd. CURRENT FREIGHT MARKET 1
- 2. Freight market balance 1. TONNAGE DEMAND a) CARGO VOLUMES b) SHIPPING DISTANCE (MILES) v/s 2. TONNAGE SUPPLY a) NEW BUILDING DELIVERIES b) SHIP SPEED – ECO V/S FULL SPEED c) CONGESTION AT PORTS 2
- 3. SECTORS FOR DISCUSSION 1. TANKERS 2. DRY BULK 3. LPG CARRIERS 3
- 5. OIL Demand 5 76.9 84.7 89.7 97.8 1% 1% 1% 2% 3% 2% 1% 2% -1% -1% 4% 1% 1% 2% 1% 2% 1% 2% -2% -1% 0% 1% 2% 3% 4% 0 20 40 60 80 100 120 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Oil Demand (mbpd) Oil Demand (mbpd) Growth (%) (RHS) LPG 9% Naphtha 6% Gasoline 27% Jet/Kero 8% Gas Oil/Dies el 29% Fuel Oil 8% Other 13% Oil Demand by segments
- 6. OIL Trade 6 Long-term CAGR @ 2% (17 years) Strong growth in the last three years - CAGR - 4% 34 33 33 35 37 38 38 38 38 37 38 37 38 37 36 38 39 40 11 11 11 12 13 14 15 16 17 17 18 18 18 19 19 21 21 22 45 44 44 47 50 52 53 54 55 53 55 56 57 56 55 58 61 62 7% -1% -1% 7% 7% 4% 3% 2% 1% -3% 4% 0% 2% -1% -1% 5% 4% 3% -8% -6% -4% -2% 0% 2% 4% 6% 8% 10% 12% 14% 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 Oil Trade (mbpd) Crude Oil Trade Oil Products Trade Total Oil Trade Growth (%) (RHS)
- 7. OPEC EXPORTS 7 OPEC constituted ~40% of total oil production OPEC y-o-y supply growth OPEC floods the market OPEC cuts production Cumulative drop in OPEC exports vs October benchmark
- 8. RISING us production & Exports 8 5.1 5.1 5.0 5.3 5.5 5.6 6.5 7.5 8.7 9.4 8.9 9.2 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 US Crude Oil Production (mbpd) 25 27 29 44 42 47 67 134 351 465 591 1,038 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 US Crude Oil Exports (mbpd) 1.2 1.2 1.2 1.4 1.7 1.6 1.7 1.8 1.9 1.9 1.9 2.1 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 West Africa Crude Exports to Asia (mbpd) Rising US production due to shale oil boom led to crude surplus in Atlantic and increase in West-East crude flows Increase in Shale oil production & removal of ban on crude exports Growth could have been higher in absence of conflicts in Nigeria that impacted production
- 9. OPEC Policy & Impact on prices 9 20 30 40 50 60 70 80 90 100 110 120 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Crude Oil Prices ($/bbl) Surplus led by increase in US production & OPECs decision to pump more oil to maintain market share causing prices to collapse Recent increase in prices as OPEC and Russia decide to freeze production levels to support prices leading to destocking of oil
- 10. Strong margins supportive of growth 10 0 2 4 6 8 10 12 14 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Brent-Rotterdam Refinery Margins ($/bbl) 2014 2015 5-yr Median 2016 2017 2 3 4 5 6 7 8 9 10 11 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Asia Refinery Margins ($/bbl) 2014 2015 5-yr Median 2016 2017 Low crude prices & healthy demand kept margins elevated leading to higher crude runs Margins above 5-yr median for most part of 2017
- 11. Contango & Backwardation 11 -10.0 -5.0 0.0 5.0 10.0 15.0 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Price Spreads ($/bbl) Brent 12m Spread Re-emergence of backwardation led by lower OPEC production and consequent destocking Backwardation - Spot prices higher than forward prices Contango - Shale production grows & OPEC floods the market
- 12. Floating Storage 12 40 41 48 54 56 56 54 48 51 60 58 51 55 51 60 67 72 68 70 58 59 59 65 59 59 55 60 59 62 63 59 55 48 43 41 43 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2015 2016 2017 VLCCs in Floating storage AG Far East MED S. America Sing-indo UKC/N. Sea Unknown USA WAF Grand Total Vessels released from floating storage due to easing of sanctions on Iran & as crude structure is in backwardation Crude oil prices in contango incentivizing storage on ships
- 13. OB/Fleet trending lower 13 17% 21% 20% 25% 27% 26% 43% 43% 44% 32% 28% 18% 12% 13% 14% 20% 14% 12% -40 10 60 110 160 10% 20% 30% 40% 50% 60% 70% 80% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Thousands Tanker OB/Fleet (%) Average VLCC Earnings ($/day) Robust economic growth, strong growth in China and low fleet growth Conversion of VLCCs into Bulkers squeezing vessel supply Economic meltdown following sub-prime crisis in the US OPEC floods the market causing spurt in trade growth & floating storage Vessel supply hits the market amid stagnant demand OPEC changes policy; cuts production to support prices. Sharp increase in vessel supply worsened by release of floating storage in 2017 Weak trade growth
- 14. Export-Oriented refineries boosting products trade growth 14 (800) (600) (400) (200) -- 200 400 600 800 1,000 1,200 1,400 2013 2014 2015 2016 CDU Capacity Additions (kbpd) Middle East India Other Asia FSU North America Europe Africa Saudi Arabia - Satorp Refinery Saudi Arabia - Yanbu Refinery UAE - Ruwais Refinery India - Paradip Inefficient European refineries shut down Export-oriented refineries in Middle East and India
- 15. -5.00 0.00 5.00 10.00 15.00 20.00 25.00 30.00 H12000 H12001 H12002 H12003 H12004 H12005 H12006 H12007 H12008 H12009 H12010 H12011 H12012 H12013 H12014 H12015 H12016 H12017 H12018 H12019 Net NB Deliveries (mn dwt) FLEET SUPPLY MODERATING 15 Fleet growth likely to taper off
- 16. DRY BULK MARKET TRENDS 16
- 17. Dry BULK Trade 17 Iron ore, 1490, 29% Minor Bulk , 1906, 37% Grains, 515, 10% Coal , 1198, 24% Total Dry Bulk Trade in 2017 was 5.1bt Iron ore Minor Bulk Grains Coal Iron ore, Coal and Grains account for ~63% of the DB Trade Note : Minor Bulk includes Steel products, Forest products, Agribulks,Fertilizer, Bauxite, Cement & others
- 18. TREND of DRY BULK TRADE 18 2370 2409 2506 2658 2896 3075 3254 3489 3555 3428 3843 4077 4341 4586 4834 4835 4903 5109 8.4% 1.6% 4.0% 6.1% 9.0% 6.2% 5.8% 7.2% 1.9% -3.6% 12.1% 6.1% 6.5% 5.6% 5.4% 0.0% 1.4% 4.2% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 0 1000 2000 3000 4000 5000 6000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Dry Bulk Trade - MT Iron ore Minor Bulk Grains Coal World Seaborne Dry Bulk Trade % Growth DB Trade grew @4.6% CAGR (17yrs) +ve growth every year; Except 2009 and 2015 Strongest Growth witnessed betn 2003-08 : +6.0% CAGR
- 19. China is the largest driver of Dry BULK trade 19 184 38 97 152 238 180 179 234 66 -127 415 235 263 245 248 1 68 206 78 76 57 62 67 93 102 106 17 217 94 152 150 202 122 -26 85 91 -200 -100 0 100 200 300 400 500 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Incremental Trade - Dry Bulk & China (MT) Incremental Dry Trade - MT Incremental China Trade - MT Since 2000, China has accounted for ~60% of the Incremental Dry Bulk Trade growth
- 20. Baltic Cape Earnings Trajectory 20 12.6% 13.0% 8.4% 10.9% 18.8% 21.8% 22.0% 34.0% 65.1% 77.7% 65.6% 56.5% 37.4% 20.3% 23.6% 22.9% 16.9% 10.8% 20,902 12,949 11,918 40,330 69,058 50,128 45,139 116,049 106,025 42,656 33,298 15,639 7,680 14,580 13,800 6,997 6,374 14,065 0.0% 50.0% 100.0% 150.0% 200.0% 250.0% - 20,000 40,000 60,000 80,000 100,000 120,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Baltic Cape 4T/C - $/Day OB/Fleet - % Cape 4 T/C 2000-03 Excess fleet supply; OB to fleet low 2003-08 China becomes factory of the world; double digit steel/electricity production growth 2009 Lehman brothers/ Subprime crisis 2010-11 Mini Stimulus by China 2015 Chinese coal imports collapse; Emphasis on Env; Supply side reforms 2013-14 Iron ore displacement theory; Ban on Indonesian bauxite/Nickel exports 2016 BDI touches 30yr low in Feb H2 2016 China property stimulus
- 21. Chinese IRON ORE – MAJOR DEMAND DRIVERS 21 15% 22% 20% 26% 20% 17% 18% 22% 16%17% 27% 25% 13% 16% 9% 1% 3%3% 0% 5% 10% 15% 20% 25% 30% 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 China National Floor space under Construction National Floor space under construction (Mn Sqm) % Growth
- 23. SEABORNE COAL TRAde 23 -66 -55 -45 -28 -19 73 127 155 223 260 233 161 196 211 31 42 47 53 59 87 110 126 157 176 218 214 189 181 (100) (50) - 50 100 150 200 250 300 China & India Net Coal Imports declining - Mt China India 191 191 207 206 208 166 160 181 203 197 198 186 159 162 33 33 40 47 51 53 61 66 68 72 79 85 94 105 0 50 100 150 200 250 SEA offsetting decline in EU Coal Imports - Mt Europe SEA China was a net exporter of coal before 2009
- 26. Global LPG landscape 26 LPG Production 1. 60 % of global LPG is recovered during extraction of natural gas and oil from earth. 2. 40 % is produced by refining of crude oil. 36 28 37 22 26 13 126 288 -- 50 100 150 200 250 300 350 North America Latin America Europe FSU Middle East Africa Asia World LPG Consumption for 2017 (Mt) 31 % of global LPG demand constitutes seaborne trade
- 27. Seaborne lpg trade 27 44 42 44 47 51 52 52 55 55 54 55 59 61 63 71 78 87 90 -5% 5% 7% 8% 2% 0% 7% -1% -2% 2% 8% 3% 4% 13% 10% 11% 3% -6.00% -4.00% -2.00% 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 0.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00 80.00 90.00 100.00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Global LPG Trade Mt World Seaborne LPG Trade (Mt) % Growth Trade grew @4.3% CAGR (17yrs) Accelerated growth after 2010 : +7.40% CAGR
- 28. Asia demand driving lpg trade 28 4 3 3 4 7 12 16 18 4 5 6 6 8 9 10 12 12 12 13 12 12 11 11 11 6 6 6 6 6 5 7 8 26 27 28 28 32 38 44 49 1% 0% 1% 5% 8% 19% 25% 29% 0% 5% 10% 15% 20% 25% 30% 35% 0 10 20 30 40 50 60 2010 2011 2012 2013 2014 2015 2016 2017 Asia LPG Imports (Mt) China India Japan South Korea Total Share of Imports from US
- 29. VLGC earnings trajectory 29 25,15325,909 23,203 36,167 29,685 17,252 24,241 32,419 34,290 38,954 24,03522,729 5,998 17,094 30,67130,084 36,300 77,255 88,128 22,489 14,995 0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 200% - 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Orderbook / Fleet Ratio VLGC Timecharter Equivalent Rates (Long Run Historical Series) Negative Trade Growth Global demand growth flat Lehman Brothers Sub – prime Crisis Pick – Up in US Exports Panama Canal Expansion OB build – up in anticipation of increase in LPG production associated with LNG in Middle East
- 30. Us Lpg production outlook looks positive 30 0 500 1000 1500 2000 2500 3000 3500 4000 0 2000 4000 6000 8000 10000 12000 Jan-97 Sep-97 May-98 Jan-99 Sep-99 May-00 Jan-01 Sep-01 May-02 Jan-03 Sep-03 May-04 Jan-05 Sep-05 May-06 Jan-07 Sep-07 May-08 Jan-09 Sep-09 May-10 Jan-11 Sep-11 May-12 Jan-13 Sep-13 May-14 Jan-15 Sep-15 May-16 Jan-17 Sep-17 US Oil & LPG Production (kb / day) U.S. Field Production of Crude Oil (Kb / day) US Gas Plant LPG Production (Kb / day) 20 year correlation - + 0.92
- 32. IMO 2020 FUEL REGULATION OPTIONS FORSHIPOWNERS 1. SWITCHTO LOWSULFURFUELOIL – MOSTPREFFEREDOPTION a) MGOV/SLSFO(BLEND) 2. EXHAUST GAS SCRUBBER– NEXTBESTALTERNATIVE a) UPFRONTCAPITALEXPENDITURE 3. USE LNG a) LIMITEDINFRASTRUCTURE 32
- 33. Where in the shipping cycle?? 33
- 34. Thank You 34
Editor's Notes
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