13th December 2005Galbraith's Ltd1 Global Insight Dec 2005 The Freight Market 2005-06 ~ The Analysts...

13th December 200513th December 2005 Galbraith's LtdGalbraith's Ltd 11

Global Insight Dec 2005Global Insight Dec 2005

The Freight Market 2005-06The Freight Market 2005-06~ ~ The Analyst’s ViewThe Analyst’s View

Dr Philip Rogers FICS, FCILTFICS, FCILT

Head of ResearchHead of ResearchGalbraith’s LtdGalbraith’s Ltd

Bridgegate House

124-126 Borough High Street

London SE1 1BL

http://www.galbraiths.co.uk

[email protected]

Ph: +44 20-7898-5555

Fx: +44 20-7959-1086


Market Slide in 2006?Market Slide in 2006?

Average Basket TC Rates

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

$110,000

J an-02 J an-03 J an-04 J an-05

$/day

Capesize

Panamax

Handymax

Source: Baltic Exchange


Freight Summary December 2005Freight Summary December 2005

• Market fell substantially in first half of year Market fell substantially in first half of year from the record high levels in Q4 2004from the record high levels in Q4 2004

• Underlying demand has continued to expand Underlying demand has continued to expand – albeit not quite so rapidly as last year– albeit not quite so rapidly as last year

• Fleet supply is outpacing demand growth Fleet supply is outpacing demand growth when measured in equivalent unitswhen measured in equivalent units

• Market currently trending downward/upwardsMarket currently trending downward/upwards

• Overall average rates remain at the second Overall average rates remain at the second highest level of all timehighest level of all time


Coal Rates from BolivarCoal Rates from Bolivar

Bolivar/ Rotterdam Coal Freight Rates

0

5

10

15

20

25

30

35

J an-02 J an-03 J an-04 J an-05

$/t

Capesize

Panamax


Coal Rates from Richards BayCoal Rates from Richards Bay

Richards Bay/ Rotterdam Coal Freight Rates

0

5

10

15

20

25

30

35

J an-02 J an-03 J an-04 J an-05

$/t

Capesize

Panamax


Coal Rates from AustraliaCoal Rates from AustraliaQueensland/ Rotterdam Coal Freight Rates

0

5

10

15

20

25

30

35

40

45

J an-02 J an-03 J an-04 J an-05

$/t

CapesizePanamax


Freight rate premium from Richards Bay has reversed this year

Coal Rates to ARA ($/ tn)CAPESIZE

Year Bolivar R.Bay Q'land2003 $11.97 $14.62 $19.872004 $19.90 $20.50 $27.64

2005 Ytd $16.27 $16.14 $21.8825/Nov/05 $14.50 $14.00 $19.00

Differential to ARACape Bolivar R.Bay Q'land2003 - +$2.64 +$5.262004 - +$0.60 +$7.14

2005 Ytd - - $0.13 +$5.74


Queensland coal very difficult to compete on freight basis

Coal Rates to ARA ($/ tn)PANAMAX

Year Bolivar R.Bay Q'land2003 $12.83 $15.52 $22.242004 $20.77 $24.09 $33.49

2005 Ytd $18.16 $18.57 $25.8425/Nov/05 $14.00 $14.50 $18.00

Differential to ARACape Bolivar R.Bay Q'land2003 - +$2.69 +$9.412004 - +$3.32 +$12.72

2005 Ytd - +$0.41 +$7.68


US Gulf/ J apan Panamax Grain Daily from 1985

$25.05

7.40

$73.61

0

5

10

15

20

25

30

35

40

45

50

55

60

65

70

75Ja

n-8

5

Jan-8

6

Jan-8

7

Jan-8

8

Jan-8

9

Jan-9

0

Jan-9

1

Jan-9

2

Jan-9

3

Jan-9

4

Jan-9

5

Jan-9

6

Jan-9

7

Jan-9

8

Jan-9

9

Jan-0

0

Jan-0

1

Jan-0

2

Jan-0

3

Jan-0

4

Jan-0

5

$/t


Although Chinese imports of iron ore and steel-related products are driving the surge in demand the knock-on effect is felt across all commodities and in all sizes

Although Chinese imports of iron ore and steel-related products are driving the surge in demand the knock-on effect is felt across all commodities and in all sizes


Dry Bulk DemandDry Bulk Demand


China Bulk Imports

Ore Imports

Steel Imp

0

25,000

50,000

75,000

100,000

125,000

150,000

175,000

200,000

225,000

250,000

275,000

300,000

325,000

350,000

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

1,0

00 T

onnes

Ore Imports Steel Imp Coal ImpScrap Imp Steel Production

In 1990, China's bulk imports of steel and coal-related cargoes amounted to just 20 Mt. By 2000 the total was 100 Mt, by 2003 it was 200 Mt. In 2005 the total will reach 325 Mt.


Demand has fallen each month since MarchDemand has fallen each month since March

Dry Bulk Demand

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

Jan-0

0

Jan-0

1

Jan-0

2

Jan-0

3

Jan-0

4

Jan-0

5

1000t

Coal Ore Grain Steel Other Bulk


Seaborne Dry Bulk Trade ~ 2005

Fertilisers

Phosrock Cement

Petcoke

OthersOther

Coking Coal8%

Iron Ore26%

Steam Coal19%

Potash

Gypsum

SulphurChrome Ore

Steel Products

Nickel Ore

Manganese Ore

Scrap

Metal Concentrates

Bauxite

Rice

Grain

Alumina

Salt

Other Oilseeds/ Meals

SugarTapioca

Forest Products

Soyameal

J ust under half of all Dry Bulk Trade isrelated - either directly or indirectly -to the steel industry


Steel Production led by ChinaSteel Production led by China

Major Regional Steel Producers342,646

0

25,000

50,000

75,000

100,000

125,000

150,000

175,000

200,000

225,000

250,000

275,000

300,000

325,000

350,0001

99

0

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

1000t

China EuropeOther Asia CISN&S.America J apan


Iron Ore flat except for ChinaIron Ore flat except for China

Major I ron Ore I mporters

0

50

100

150

200

250

300

350

400

450

500

5501989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Mil

lion T

onnes

J apan S.Korea Taiwan GermanyI taly France China


Coal: Long term growth slowing…Coal: Long term growth slowing…

Major European and Asian Coal I mporters

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

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

1000t

J apan Europe Asian

Europe: Belgium, Denmark, France, Germany, Italy, Netherlands, Spain, UKAsian: China, S.Korea, Taiwan, Hong Kong

Coal = Anthracite + Coking + Steam Coal


Step jumps in Chinese iron ore importsStep jumps in Chinese iron ore imports

China I ron Ore Imports

27,828

37,049

52,020

66,427

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

1q02 2q02 3q02 4q02 1q03 2q03 3q03 4q03 1q04 2q04 3q04 4q04 1q05 2q05 3q05 4q05

1,0

00 t

onnes

Ore Imports 23,120


Grain trade: has been relatively flat for many yearsGrain trade: has been relatively flat for many years

Major Grain Exporters

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

220,000

240,000

1997 1998 1999 2000 2001 2002 2003 2004 2005

1000t

Argentina Australia Canada EU USA USA+Arg+Brz Soyabean


Major Bulk Trades

0

10

20

30

40

50

60

70

80

90

100

110

120

130

140

150

160

1701q00

2q00

3q00

4q00

1q01

2q01

3q01

4q01

1q02

2q02

3q02

4q02

1q03

2q03

3q03

4q03

1q04

2q04

3q04

4q04

1q05

2q05

3q05

4q05

Mil

lion T

onnes

CoalOreGrainOther BulksSteel

NB “Other Bulks” comprises 80+ different trades covering many representative commodities

NB “Other Bulks” comprises 80+ different trades covering many representative commodities


Robust Demand Growth in 2005 & 06Robust Demand Growth in 2005 & 06Region/ Mt Iron Ore Coal Grain Others TotalChina +90 +2 +1 +16 +109Japan & O.Asia +5 +5 +2 +5 +17Europe +8 +0 -2 +3 +9Americas +4 +6 +1 +3 +14Others +2 +5 +1 +15 +23Total +109 +18 +3 +42 +172

So most growth over next 2 years to be seen in iron ore and focused on China

and Asia

The Question:The Question:Will new fleet supply be sufficient to Will new fleet supply be sufficient to

cope with this demand growth?cope with this demand growth?

The Question:The Question:Will new fleet supply be sufficient to Will new fleet supply be sufficient to

cope with this demand growth?cope with this demand growth?


Dry Bulk Fleet SupplyDry Bulk Fleet Supply


Structure of Dry Bulk Fleet by SizeStructure of Dry Bulk Fleet by Size

Bulk Carrier Size Distribution at 1-Nov-05

Handysize (10-40)47%

Panamax (60-80)20%

Capesize (+80)11%

23%

25%

33%

Handymax (40-60)22%

19%

Handysize (10-40)Handymax (40-60)Panamax (60-80)Capesize (+80)

Data shown represent number of vessels (inner ring) and million deadweight (outer ring)

Total No: 5,847/ MDwt: 322.4


Bulk Carrier Scheduled Newbuildings

0

10

20

30

40

50

60

70

80

90

100

110

10-40 Handysize 40-60 Handymax 60-80 Panamax +80 Capesize #

No.

of

Sh

ips

For Delivery 2005 No.For Delivery 2006 No.For Delivery 2007 No.For Delivery 2008+ No.

No. of Ships on Order is large in all sizesNo. of Ships on Order is large in all sizes


……but when put in Dwt terms !but when put in Dwt terms !

Bulk Carrier Orderbook at 1-Nov-05

0.53

1.28 1.351.771.98

5.404.92

12.77

1.45

3.80

4.47

9.95

0.70

2.43

1.82

10.93

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

11.00

12.00

13.00

10-40 Handysize 40-60 Handymax 60-80 Panamax +80 Capesize #

Mil

lion D

wt

For Delivery 2005 Dwt



For Delivery 2008+ Dwt


Fleet Developments Dry BulkFleet Developments Dry Bulk

Bulk Carrier Fleet Changes

+8

+11

-0

+4

+9

+12

+9 +8

+19

+21

+25

+19

+12

+3

-15

-10

-5

0

5

10

15

20

25

30

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

MD

wt

Potential ScrappingTo be delivered DwtScrapped Ytd DwtDelivered Ytd DwtNet Change Dwt

Future scrapping is NOT a forecast. For 2005~09 the figures are indicative only.


Fleet Supply ~ huge orderbookFleet Supply ~ huge orderbook

Bulk Carrier Deliveries & NBs No.01-Nov-05 2003 2004 2005 2006 2007 2008+

Capesize 33 47 63 96 71 63Panamax 18 76 77 65 60 24Handymax 65 76 104 101 72 45Handysize 49 60 73 74 53 21

2005 includes deliveries to date

Bulk Carrier Deliveries & NBs Mdwt01-Nov-05 2003 2004 2005 2006 2007 2008+

Capesize 5.4 8.0 9.9 12.8 10.0 10.9Panamax 1.4 5.8 5.8 4.9 4.5 1.8Handymax 3.3 4.0 5.6 5.4 3.8 2.4Handysize 1.3 1.8 2.1 2.0 1.4 0.7Total 11.4 19.5 23.4 25.1 19.7 15.9

2005 includes deliveries to date


Net Fleet ChangesNet Fleet Changes

So on 7 voyages per year the net fleet growth should be able to cope with the estimated cargo

growth of 170 Mt

So on 7 voyages per year the net fleet growth should be able to cope with the estimated cargo

growth of 170 Mt

Bulk Carrier Net Change MDwt01-Nov-05 2003 2004 2005 2006 2007 2008+Capesize 80+ 5.0 8.0 9.8 11.5 8.0 7.9Panamax 1.1 5.8 5.8 3.5 2.4 1.8Handymax 2.8 3.8 5.5 5.0 3.0 2.1Handysize -0.5 1.4 1.8 1.1 -0.2 0.6Total 8.4 18.9 22.9 21.1 13.1 12.4

Cargo Carried basis Mt Mt MtNo of Voyages pa x6 137 127 79 Mt

x7 160 148 92 Mtx8 183 169 105 Mt

Sensitivity: If cargo growth (demand) has been underestimated Sensitivity: If cargo growth (demand) has been underestimated and the actual growth is 50% more than 170 Mt & reaches 255 and the actual growth is 50% more than 170 Mt & reaches 255 Mt this should still be capable of being carried by the fleet Mt this should still be capable of being carried by the fleet expansion over 24 months as the cargo capability is expansion over 24 months as the cargo capability is 160+148=308 Mt160+148=308 Mt


Supply/Demand – Dry BulkSupply/Demand – Dry Bulk

•Dry Bulk DemandDry Bulk Demand•Since mid-2003 demand has Since mid-2003 demand has been dominated by all things been dominated by all things Chinese. As compared to Chinese. As compared to 2002 iron ore imports have 2002 iron ore imports have jumped from 111 Mt to 265 jumped from 111 Mt to 265 Mt; steel exports have risen Mt; steel exports have risen from 5.4 Mt to 21 Mt; coking from 5.4 Mt to 21 Mt; coking coal imports have risen from coal imports have risen from 1 Mt to 8 Mt 1 Mt to 8 Mt •In other countries (to In other countries (to generalise) only steam coal generalise) only steam coal imports have continued to imports have continued to rise consistently (albeit rise consistently (albeit weakly)weakly)•Fundamentals more Fundamentals more important than economic important than economic “headlines”“headlines”

•Fleet SupplyFleet Supply•Although the fleet Although the fleet continues to expand and continues to expand and vessels are, on average, vessels are, on average, larger as designs are larger as designs are optimized and economies optimized and economies of scale prevail, these of scale prevail, these vessels are added to the vessels are added to the fleet at a steady pace and fleet at a steady pace and have sometimes not have sometimes not matched the “step matched the “step jumps” in importsjumps” in imports•The current orderbook is The current orderbook is huge and dominated by huge and dominated by Capesize tonnageCapesize tonnage•Congestion is Congestion is increasingly a factor increasingly a factor when these demand when these demand surges occursurges occur


Will Cape growth exceed Chinese Will Cape growth exceed Chinese demand?demand?

China I ron Ore Import v Capesize Fleet

55,200 51,900 55,39069,990

92,480111,311

148,195

208,079

265,399

305,000

335,000360,000

380,000

7782 81 82

8791

9498

107

117

129

137

145

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

1,0

00 t

onnes

0

10

20

30

40

50

60

70

80

90

100

110

120

130

140

150

MD

wt

Ore Import Capesize (+80)


Conclusion ~ Dry Bulk MarketConclusion ~ Dry Bulk Market

• Demand remains very firm but the fleet Demand remains very firm but the fleet continues to expand at a rapid pace and continues to expand at a rapid pace and appears more than adequate to cope with appears more than adequate to cope with demand growth in 2006demand growth in 2006

• There are mixed views about the short-term There are mixed views about the short-term direction for Q1 2006 with very firm demand direction for Q1 2006 with very firm demand underpinning the marketunderpinning the market

• Owners:Owners: Sentiment is changing – in 2005 Sentiment is changing – in 2005 they had hoped for a strong market recovery they had hoped for a strong market recovery as per 2004; instead most now expect a as per 2004; instead most now expect a strong stable market in contrast to the strong stable market in contrast to the exceptional “fireworks” of the final quarter exceptional “fireworks” of the final quarter of last yearof last year

• Charterers:Charterers: believe the market is coming believe the market is coming down but are reluctant to take too much risk down but are reluctant to take too much risk and compromise their cargo commitmentsand compromise their cargo commitments


Overall Freight Market remains firm…Overall Freight Market remains firm…BFI / BDI Annual Summary

1,289

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

6,500

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

BFI/

BD

I Ja

n 1

985=

1,0

00

Max AverageMin Avg <2003Avg >2003

The BFI / BDI is a composite freight market Index covering Capesize, Panamax and Handymax vessels

Owners have no reason to scrap … yetOwners have no reason to scrap … yet


Sensitivities or where it could all go wrong!Sensitivities or where it could all go wrong!

• Oil price continues to rise to >$80Oil price continues to rise to >$80• Sentiment continues to focus on China but Sentiment continues to focus on China but

major event occurs in another countrymajor event occurs in another country• China announces cut-backs in steel China announces cut-backs in steel

industry and imports of iron oreindustry and imports of iron ore• China actually exceeds even most China actually exceeds even most

optimistic expectationsoptimistic expectations• Congestion prevents demand being Congestion prevents demand being

satisfied and freight rates reach record satisfied and freight rates reach record levelslevels

• Paper trading leads to market distortionsPaper trading leads to market distortions


FFA rate ideas heading downwards….FFA rate ideas heading downwards….

Freight Forward Agreements

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

110,000

01-J

an-2

000

01-J

an-2

001

01-J

an-2

002

01-J

an-2

003

01-J

an-2

004

01-J

an-2

005

01-J

an-2

006

01-J

an-2

007

01-J

an-2

008

$ p

er

day

Avg 4TC CapeFFAs CapeAvg 4TC PanamaxFFAs PanamaxBHMIFFAs Hmax


The Freight Market Outlook 2005-06The Freight Market Outlook 2005-06

Galbraith’s Ltd

Bridgegate House

124-126 Borough High Street

London SE1 1BL

http://www.galbraiths.co.uk

[email protected]

Ph: +44 20-7898-5555

Fx: +44 20-7959-1086


Back-up slides – not part of Back-up slides – not part of presentationpresentation


Dry Bulk Freight Market Daily Since 1985

2,352

554

06-Dec-04, 6,208

1,600

0

1,000

2,000

3,000

4,000

5,000

6,000

7,0001

98

5

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

4th

Jan

19

85

= 1

,00

0

BFI / BDI Avg +25%Average Avg -25%

(5th Aug 1986)

(1st May 1995)

From 1985 to mid-2003 much of the freight market fell within ±25% of long term average. However market “rules” were re-written in 2003 due to the exceptional and sustained Chinese demand for raw materials especially iron ore.


Panamax Basket TC Rates

$4,536

$8,731

$5,303 $5,907

$10,819

$17,591

$10,162

$9,568

$12,117 $12,042 $12,453

$37,982

$51,083

$40,842

$25,269

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

$55,000

J an-99 J an-00 J an-01 J an-02 J an-03 J an-04 J an-05

$/day

Up to 2002 freight rates traded in a relatively modest band; since then the market has moved up to a new higher level with a wider trading range

Up to 2002 freight rates traded in a relatively modest band; since then the market has moved up to a new higher level with a wider trading range


Handymax (45,500 Dwt) TC Rates

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000

J an-02 J an-03 J an-04 J an-05

$/d

ay

USG/ ContCont/ FET/ P RVFE/ ContCont/ USG


Handymax rates have mirrored overall market with larger trading range and more volatility

Handymax rates have mirrored overall market with larger trading range and more volatility


Shipping DynamicsShipping Dynamics

Cargo DemandCargo Demand ShipbuildingShipbuilding Fleet supplyFleet supply

Grain – 2 seasonsGrain – 2 seasons Age profileAge profile DeliveriesDeliveries

Coal – 2 commoditiesCoal – 2 commodities ContractingContracting DeletionsDeletions

Iron Ore – multiple Iron Ore – multiple driversdrivers Yard capacityYard capacity Lay-upLay-up

>20 other significant >20 other significant commoditiescommodities Ordering in wavesOrdering in waves Slow steamingSlow steaming


Cape, P’max & H’max modern; old fleet for HandysizeCape, P’max & H’max modern; old fleet for Handysize

Age Profile Bulk Carrier Fleet17

11

21

665

66

61

15

3

801

241

266

53

58

210

154

129

13

102

195

192

171

35

119

375

316

293

28

155

266

380

302

27

140

333

0% 20% 40% 60% 80% 100%

Handy 1

0-

40

H'm

ax 4

0-

60

P'm

ax 6

0-

80

Sm

l C

ape

80-1

40

Lrg

Cape

140+

Age 30+ Age 25-29 Age 20-24 Age 15-19 Age 10-14 Age 5-9 Age 0-4


Panamax size optimised ~ Impact of Panamax size optimised ~ Impact of KamsarmaxesKamsarmaxes

Bulk Carriers 60-85,000 Dwt

60,000

65,000

70,000

75,000

80,000

85,000

1975 1980 1985 1990 1995 2000 2005 2010

Built/ Delivery

Dw

t

FleetNewbuildings

Excludes 6 vessels built pre-1975

75 on order


Representative "Panamax" Bulk CarriersType >25 yrs >15 yrs Modern KamsarmaxName Athena Sea Synergy Amalia Clipper DevonDwt 60,520 69,352 75,100 82,800Built 1979 1989 2000 2005LOA 224.99 225.00 224.93 229.00Beam 32.20 32.24 32.24 32.26Draft 12.45 13.23 13.82 14.35Cubic (m3) 74,674 81,813 89,423 97,000Owner Natalca (Gr) Blossom (Gr) Neda (Gr) MitsubishiBuilder Hitachi Tsuneishi Hitachi TsuneishiExtra Dwt - +8,832 +14,580 +22,280Extra Cubic - +7,139 +14,749 +22,326Panama Canal limitations: 32.26m BeamJapanese grain ports: 229m LOA (225m LOA preferred)

Port Kamsar: 229m LOA

Evolution of PanamaxesEvolution of Panamaxes

Other yards building “Kamsarmax” type designs include the 3 Japanese shipyards: Universal, Oshima

and Sanoyas

13th December 2005Galbraith's Ltd1 Global Insight Dec 2005 The Freight Market 2005-06 ~ The Analysts...

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Transcript of 13th December 2005Galbraith's Ltd1 Global Insight Dec 2005 The Freight Market 2005-06 ~ The Analysts...