CIMB - Shipping Sector Report

September 3, 2012

IMPORTANT DISCLOSURES. INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA

REGIONAL

MALAYSIA

SINGAPORE

INDONESIA

THAILAND

PHILIPPINES

CHINA, HONG KONG

SHIPPING MONITOR SHORT TERM (3 MTH) LONG TERM

WEEKLY REVIEW

Lacking strong demand drivers In addition to an oversupply of ships, demand factors seem to be flagging, resulting in the recent decline in rates across all shipping segments. Slower growth in China, problems in Europe, declining oil imports and consumption in the US have taken a toll on shipping rates.

Figure 1: There were major improvements in container shipping operating profits (US$ m) in 2Q12, but can carriers hold on to their gains?

-600

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0

100

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SITC CSCL STXPO NOL MISC Maersk Hapag-Lloyd HMM Hanjin

1Q12 2Q12

SOURCES: CIMB, COMPANY REPORTS

We remain Neutral on the sector as valuations are cheap, likely reflecting the current tough market conditions. We have Outperform calls on OOIL and SITC, and also like other quality names such as Pacific Basin and MISC. We recently upgraded CSCL from a Trading Sell to Neutral following the decline in its share price.

Market review Asia-Europe container rates declined further, with rates now below levels post-1 March rate hikes. Despite the current peak shipping period, it appears that demand is weak and capacity additions by Evergreen and Hanjin have caused rates to fall dramatically over the past two weeks. AE rates could remain depressed at least until mid-October, when the CYKH/G6 alliances plan to remove some capacity.

Rates on the transpacific trade seem to be faring better, with a smaller decline. Carriers on the TP route

have managed to hold on to the majority of the rate hikes over the past several months.

Capesize rates improved slightly from the previous week, likely on speculation that Chinese steel mills may start to restock on iron ore. Import prices for the raw commodity have fallen below US$100/tonne, taking the market by surprise.

VLCC rates remain under pressure, with current earnings unable to cover cash operating costs. Poten highlighted the need for a strong drive in demand to push rates higher as global utilisation for crude tankers is at a 12-year low of around 80%.

Our take We remain Neutral on the shipping sector. Slower global growth seems to be exacerbating the fall in shipping rates, on top of the oversupply problems. The structural overcapacity could persist for several years and only companies with strong balance sheets will survive.

CIMB Analyst

Raymond Yap Kok Hoe CFA

T (60) 3 20849769 E [email protected]

Sources: CIMB. COMPANY REPORTS

Highlighted Companies

Orient Overseas (International) Ltd

Outperform, target: HK$51.20 (0.9x P/BV). OOIL has one of the lowest gearing levels among long-haul carriers and does not swing between profits and losses as frequently as its peers. The carrier exercises cargo selection to maximise yields.

Neptune Orient Lines Ltd

Neutral, target: S$1.30 (1x P/BV). NOL is finally joining the league of 10,000+ teu ship operators on the AE trade that will help it lower unit costs over the next three years. Its heavy exposure to the US trade will help it benefit from strong TP volumes.

China Shipping Container Lines Ltd

Neutral, target: HK$1.67 (0.6x P/BV). CSCL has the highest operating leverage in our universe and its stock has a high beta. Exposure to the spot market is large, at up to 90% of its Asia-Europe volumes.

SITC International Holdings Company Ltd

Outperform, target: HK$2.35 (0.9x P/BV shipping, 7x P/E land logistics). SITC benefits from the relative rate stability of its intra-Asia exposure, and should benefit from structural cost reduction when it takes delivery of its newbuildings in 2H12.

Pacific Basin Shipping Ltd Neutral, target: HK$3.43 (30% SOP discount). Pacific Basin is well positioned to buy more secondhand ships as prices are now considered low. But it cannot escape the negative earnings impact of a weaker-than-expected spot market.

STX Pan Ocean Ltd Underperform, target: S$1.45 (20% SOP discount). STXPO is the most heavily geared with a substantial portfolio of vessels acquired at high pre-GFC prices. We expect losses for its dry bulk, container and tanker shipping divisions.

MISC Bhd Neutral, TP: RM4.60 (30% SOP discount). MISC’s exit from container shipping will eliminate a major source of losses, but will be partly negated by rising losses for its tanker/chemical divisions. The bright spot is its LNG business with Petronas.

SHIPPING MONITOR

September 3, 2012

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Figure 2: Sector Comparisons

Price Target Price

(local curr) (local curr) CY2012 CY2013 CY2012 CY2013 CY2012 CY2013 CY2014 CY2012 CY2013 CY2012 CY2013

Malaysian Bulk Carriers MBC MK Neutral RM1.47 RM1.57 471 59.4 44.8 -7.7% 0.84 0.84 1.4% 1.9% 3.6% 16.9 15.6 2.0% 2.0%

Pacific Basin Shipping 2343 HK Neutral HK$3.23 HK$3.43 807 49.8 31.3 -37.0% 0.62 0.61 1.2% 2.0% 3.5% 8.0 7.3 1.0% 1.6%

Precious Shipping PSL TB Underperform THB13.30 THB14.30 441 219.7 53.6 12.6% 0.90 0.89 0.4% 1.7% 4.4% 13.1 11.1 1.7% 0.8%

STX Pan Ocean STX SP Underperform S$4.02 S$1.45 663 na na na 0.38 0.45 -18.4% -15.0% -12.2% na 1139.2 1.3% 1.3%

Thoresen Thai TTA TB Not Rated THB15.50 - 351 na 31.9 -0.1% 0.39 0.37 -4.1% 1.2% 1.9% 7.5 6.2 2.2% 2.4%

China COSCO 1919 HK Not Rated HK$2.90 - 5,625 na -93.5 na 0.8 0.8 -6.8% 3.2% 9.0% na 18.1 0.0% 0.5%

China Shipping Devt 1138 HK Not Rated HK$2.93 - 1,926 na 18.0 -31.7% 0.4 0.3 1.4% 4.1% 4.2% 30.3 17.2 0.8% 2.4%

Sinotrans Shipping 368 HK Not Rated HK$1.55 - 798 10.4 9.2 -9.9% 0.36 0.35 3.5% 3.8% 4.0% -1.5 -1.8 2.5% 2.5%

Sincere Navigation 2605 TT Not Rated TWD25.55 - 486 7.9 9.1 -17.7% 0.88 0.85 12.2% 9.5% 6.0% 5.3 5.1 5.6% 5.1%

U-Ming Marine 2606 TT Not Rated TWD45.00 - 1,292 19.7 22.2 -17.8% 1.57 1.61 7.4% 7.2% 5.7% 13.4 15.8 5.1% 3.0%

Dry bulk group na 19.5 na 0.71 0.71 -3.1% 1.9% 4.5% 46.1 16.8 1.2% 1.1%

China Shipping Container 2866 HK Neutral HK$1.46 HK$1.67 3,333 37.1 na na 0.53 0.54 1.4% -2.2% 3.1% 10.5 18.7 0.0% 0.0%

Neptune Orient Lines NOL SP Neutral S$1.10 S$1.30 2,268 23.5 na na 0.85 0.89 3.7% -5.0% 16.3% 8.4 13.6 0.8% 0.0%

Orient Overseas Intl Ltd 316 HK Outperform HK$41.85 HK$51.20 3,377 10.1 9.0 66.7% 0.74 0.69 7.5% 7.9% 11.8% 5.4 5.4 2.5% 2.8%

SITC International 1308 HK Outperform HK$1.90 HK$2.35 633 7.6 6.1 17.4% 0.92 0.83 12.5% 14.2% 14.8% 3.6 2.4 4.6% 5.7%

Evergreen 2603 TT Not Rated TWD16.50 - 1,918 25.5 11.6 na 0.94 0.87 3.6% 7.8% 9.2% 11.5 8.2 0.7% 1.3%

Wan Hai 2615 TT Not Rated TWD15.65 - 1,161 32.8 13.3 45.3% 1.16 1.12 3.5% 8.6% 10.9% 6.2 4.2 0.8% 1.3%

Yang Ming 2609 TT Not Rated TWD12.20 - 1,150 na 16.2 na 1.15 1.03 -4.4% 6.7% 14.6% 14.7 9.0 0.0% 1.2%

AP Moller-Maersk MAERSKA DC Not Rated DKK37,200 - 28,288 8.4 7.7 -6.1% 0.8 0.7 10.8% 9.3% 10.7% 3.2 3.0 0.0% 0.0%

Container group 6.0 6.5 51.3% 0.74 0.69 8.7% 7.5% 10.6% 4.0 3.9 0.4% 0.5%

MISC Bhd MISC MK Neutral RM4.26 RM4.60 6,096 26.4 14.7 52.4% 0.89 0.86 3.3% 5.9% 7.2% 33.3 25.4 2.3% 2.4%

Teekay Corp TK US Not Rated US$29.58 - 2,125 na 132.0 na 1.67 1.70 -3.6% 1.3% na 9.5 8.9 4.3% 4.3%

Frontline FRO US Not Rated US$3.13 - 244 na na na 0.80 4.56 -13.2% -27.8% -48.6% 10.4 10.2 0.0% 0.0%

Tsakos Energy TNP US Not Rated US$5.38 - 302 na 77.5 na 0.35 0.34 -3.2% 0.4% 4.4% 13.2 10.0 9.4% 10.4%

Overseas Shipholding OSG US Not Rated US$6.01 - 186 na na na 0.13 0.15 -11.4% -6.2% -0.7% 23.2 12.5 0.0% 0.0%

Teekay Tankers TNK US Not Rated US$3.99 - 316 99.8 30.5 na 0.5 0.5 0.6% 2.1% 8.6% 12.3 8.8 11.3% 14.2%

Odfjell ODF NO Not Rated Nok26.00 - 383 na 33.1 -35.5% 0.4 0.4 -4.4% 3.0% 9.7% 10.8 7.7 1.9% 2.1%

Stolt-Nielsen SNI NO Not Rated Nok108.50 - 1,197 12.7 8.9 22.2% 0.73 0.71 5.7% 8.1% 10.8% 8.3 6.6 5.4% 6.0%

Teekay LNG TGP US Not Rated US$39.72 - 2,869 18.4 17.1 17.7% 2.5 2.8 14.1% 15.2% 18.7% 15.2 14.6 6.8% 7.0%

Golar LNG GLNG US Not Rated US$39.12 - 3,141 18.9 13.1 81.1% 3.88 3.42 21.4% 27.6% 39.8% 13.0 11.8 3.8% 4.4%

Tanker group 95.8 21.8 na 1.16 1.19 1.2% 5.4% 9.9% 13.4 11.4 4.4% 4.7%

Kawasaki Kisen Kaisha 9107 JP Not Rated ¥100 - 1,200 na 24.0 -26.3% 0.39 0.34 -18.0% 1.5% 5.1% 85.9 6.8 0.0% 1.6%

Mitsui OSK Lines 9104 JP Not Rated ¥192 - 2,958 na 51.9 -28.3% 0.37 0.35 -4.6% 0.7% 2.9% 16.6 10.0 2.1% 1.8%

Nippon Yusen KK 9101 JP Not Rated ¥157 - 3,410 na 12.7 -18.9% 0.51 0.44 -11.9% 3.7% 5.9% 13.6 8.2 2.2% 2.4%

Hyundai Merchant Marine 011200 KS Not Rated Won27,500 - 3,484 na 73.6 na 2.86 2.70 -15.5% 3.8% 9.6% 34.7 16.8 0.0% 1.8%

Diversified group na 26.1 -14.0% 0.58 0.53 -10.3% 2.1% 4.9% 19.7 9.3 1.2% 2.0%

Average (all) 31.0 10.5 52.0% 0.77 0.73 1.8% 5.3% 8.4% 8.0 6.6 1.3% 1.5%

EV/EBITDA (x) Dividend Yield (%)Core P/E (x) 3-year EPS

CAGR (%)

P/BV (x) Recurring ROE (%)Company Bloomberg Ticker Recom.

Market Cap

(US$ m)

SOURCES: CIMB, COMPANY REPORTS

Calculations are performed using EFA™ Monthly Interpolated Annualisation and Aggregation algorithms to December year ends

SHIPPING MONITOR

September 3, 2012

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Share price performance

Figure 3: Share price performance

Bloomberg 31-Aug-12 24-Aug-12 WoW chg 1-Aug-12 1-mth chg 1-Mar-12 6-mth chg 1-Sep-11 1-year chg

ticker % % % %

Diversified group

Mitsui OSK Lines 9104 JP ¥196 ¥207 -5.3% ¥229 -14.4% ¥364 -46.2% ¥322 -39.1%

Nippon Yusen KK 9101 JP ¥158 ¥169 -6.5% ¥169 -6.5% ¥237 -33.3% ¥228 -30.7%

Kawasaki Kisen Kaisha 9107 JP ¥105 ¥107 -1.9% ¥115 -8.7% ¥171 -38.6% ¥197 -46.7%

Hyundai Merchant Marine 011200 KS Won27,400 Won28,250 -3.0% Won25,300 8.3% Won31,300 -12.5% Won27,000 1.5%

Tanker group

MISC MISC MK RM4.26 RM4.40 -3.2% RM4.48 -4.9% RM5.60 -23.9% RM6.86 -37.9%

Teekay Corp TK US US$29.58 US$30.91 -4.3% US$30.09 -1.7% US$28.50 3.8% US$25.38 16.5%

Frontline FRO US US$3.13 US$3.93 -20.4% US$3.64 -14.0% US$5.46 -42.7% US$7.13 -56.1%

Tsakos Energy TNP US US$5.38 US$5.72 -5.9% US$4.77 12.8% US$6.37 -15.5% US$5.84 -7.8%

Overseas Shipholding OSG US US$6.01 US$6.53 -8.0% US$5.75 4.5% US$9.06 -33.7% US$16.97 -64.6%

Teekay Tankers TNK US US$3.99 US$4.05 -1.5% US$3.71 7.7% US$4.19 -4.8% US$5.51 -27.5%

Berlian Laju Tanker BLTA IJ Rp196.00 Rp196.00 0.0% Rp196.00 0.0% Rp196.00 0.0% Rp250.00 -21.6%

Odfjell ODF NO Nok25.00 Nok25.00 0.0% Nok30.00 -16.7% Nok38.50 -35.1% Nok35.99 -30.5%

Stolt-Nielsen SNI NO Nok107.00 Nok107.00 0.0% Nok105.00 1.9% Nok126.34 -15.3% Nok116.81 -8.4%

Eitzen Chemical ECHEM NO Nok0.06 Nok0.08 -25.0% Nok0.05 20.0% Nok0.13 -53.8% Nok0.27 -77.8%

Teekay LNG TGP US US$39.72 US$40.89 -2.9% US$39.60 0.3% US$38.65 2.8% US$31.12 27.6%

Golar LNG GLNG US US$39.12 US$41.14 -4.9% US$38.31 2.1% US$42.53 -8.0% US$31.37 24.7%

Teekay Offshore TOO US US$28.39 US$28.85 -1.6% US$28.10 1.0% US$28.58 -0.7% US$24.83 14.4%

Dry bulk group

STX Pan Ocean STX SP S$4.02 S$4.22 -4.7% S$4.70 -14.5% S$8.87 -54.7% S$8.91 -54.9%

Pacific Basin 2343 HK HK$3.23 HK$3.46 -6.6% HK$3.43 -5.8% HK$3.99 -19.1% HK$3.80 -15.1%

Thoresen Thai TTA TB THB15.50 THB15.60 -0.6% THB15.30 1.3% THB20.00 -22.5% THB19.30 -19.7%

Precious Shipping PSL TB THB13.30 THB14.00 -5.0% THB14.41 -7.7% THB15.90 -16.4% THB16.89 -21.3%

Malaysian Bulk MBC MK RM1.46 RM1.54 -5.2% RM1.60 -8.8% RM1.71 -14.5% RM1.87 -21.7%

China COSCO 1919 HK HK$2.94 HK$3.29 -10.6% HK$3.30 -10.9% HK$5.08 -42.1% HK$4.36 -32.6%

China Shipping Devt 1138 HK HK$3.14 HK$3.25 -3.4% HK$3.35 -6.3% HK$5.56 -43.6% HK$5.55 -43.4%

Sinotrans Shipping 368 HK HK$1.57 HK$1.67 -6.0% HK$1.65 -4.8% HK$2.05 -23.5% HK$1.97 -20.4%

Sincere Navigation 2605 TT TWD25.50 TWD25.70 -0.8% TWD25.50 0.0% TWD28.33 -10.0% TWD28.05 -9.1%

U-Ming Marine 2606 TT TWD45.00 TWD45.45 -1.0% TWD46.65 -3.5% TWD48.04 -6.3% TWD44.33 1.5%

Container group

NOL NOL SP S$1.09 S$1.15 -4.8% S$1.16 -6.0% S$1.40 -21.9% S$1.13 -3.5%

OOIL 316 HK HK$41.40 HK$45.65 -9.3% HK$43.85 -5.6% HK$54.30 -23.8% HK$37.95 9.1%

CSCL 2866 HK HK$1.48 HK$1.84 -19.6% HK$1.96 -24.5% HK$2.62 -43.5% HK$1.84 -19.6%

Evergreen 2603 TT TWD16.00 TWD16.80 -4.8% TWD17.00 -5.9% TWD21.40 -25.2% TWD16.35 -2.1%

Wan Hai 2615 TT TWD15.20 TWD16.50 -7.9% TWD15.15 0.3% TWD17.45 -12.9% TWD16.10 -5.6%

Yang Ming 2609 TT TWD11.95 TWD12.80 -6.6% TWD12.60 -5.2% TWD17.90 -33.2% TWD13.48 -11.4%

Hanjin Shipping 000700 KS Won6,180 Won6,060 2.0% Won5,320 16.2% Won9,050 -31.7% Won11,200 -44.8%

AP Moller-Maersk MAERSKA DC DKK36,620 DKK38,240 -4.2% DKK39,300 -6.8% DKK43,340 -15.5% DKK33,783 8.4%

Shipbuilding group

Cosco Corp COS SP S$0.97 S$1.00 -2.5% S$0.97 0.5% S$1.14 -14.7% S$1.05 -8.0%

Yangzijiang YZJ SP S$0.99 S$1.01 -2.5% S$1.00 -1.0% S$1.25 -21.3% S$1.06 -7.2%

Daewoo Shipbuilding 042660 KS Won24,350 Won26,000 -6.3% Won25,500 -4.5% Won35,950 -32.3% Won28,416 -14.3%

Hanjin Heavy Industries 097230 KS Won12,050 Won13,200 -8.7% Won12,200 -1.2% Won21,000 -42.6% Won22,650 -46.8%

Hyundai Mipo Dockyard 010620 KS Won122,500 Won129,000 -5.0% Won118,500 3.4% Won156,000 -21.5% Won133,112 -8.0%

Kawasaki Heavy Industries 7012 JP ¥166 ¥177 -6.2% ¥184 -9.8% ¥241 -31.1% ¥230 -27.8%

Mitsubishi Heavy Industries 7011 JP ¥324 ¥335 -3.3% ¥321 0.9% ¥377 -14.1% ¥321 0.9%

Keppel Corp KEP SP S$11.19 S$11.39 -1.8% S$11.25 -0.5% S$10.61 5.5% S$8.81 27.0%

SembCorp Marine SMM SP S$5.00 S$5.03 -0.6% S$4.86 2.8% S$5.10 -2.0% S$3.81 31.3%

Shipowners group

Rickmers Maritime Trust RMT SP S$0.32 S$0.32 -1.6% S$0.31 0.8% S$0.29 10.0% S$0.32 -1.0%

Pacific Shipping Trust PST SP US$0.42 US$0.42 0.0% US$0.42 0.0% US$0.42 0.0% US$0.34 23.9%

First Ship Lease Trust FSLT SP S$0.12 S$0.14 -11.6% S$0.15 -18.7% S$0.20 -38.6% S$0.28 -55.7%

Danaos Corp DAC US US$3.65 US$4.09 -10.8% US$4.06 -10.1% US$4.30 -15.1% US$3.86 -5.4%

Seaspan Corp SSW US US$15.87 US$16.00 -0.8% US$15.34 3.4% US$17.95 -11.6% US$12.98 22.2% SOURCES: CIMB, BLOOMBERG

SHIPPING MONITOR

September 3, 2012

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Figure 4: Share price performance

-28% -26% -24% -22% -20% -18% -16% -14% -12% -10% -8% -6% -4% -2% 0% 2% 4%

Eitzen Chemical

Frontline

CSCL

First Ship Lease Trust

Danaos Corp

China COSCO

OOIL

Hanjin Heavy Industries

Overseas Shipholding

Wan Hai

Pacific Basin

Yang Ming

Nippon Yusen KK

Daewoo Shipbuilding

Kawasaki Heavy Industries

Sinotrans Shipping

Tsakos Energy

Mitsui OSK Lines

Malaysian Bulk

Hyundai Mipo Dockyard

Precious Shipping

Golar LNG

NOL

Evergreen

STX Pan Ocean

Teekay Corp

AP Moller-Maersk

China Shipping Devt

Mitsubishi Heavy Industries

MISC

Hyundai Merchant Marine

Teekay LNG

Cosco Corp

Yangzijiang

Kawasaki Kisen Kaisha

Keppel Corp

Teekay Offshore

Rickmers Maritime Trust

Teekay Tankers

U-Ming Marine

Seaspan Corp

Sincere Navigation

Thoresen Thai

SembCorp Marine

Berlian Laju Tanker

Odfjell

Stolt-Nielsen

Pacific Shipping Trust

Hanjin Shipping

SOURCES: CIMB, BLOOMBERG

SHIPPING MONITOR

September 3, 2012

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Container shipping

SCFI rates from Asia to North Europe fell another 7.7% wow or US$110/teu, falling a combined US$404/teu since the 1 August rate hike. Rates have now returned back to levels just after the 1 March hike. The recent sharp fall is likely due to additional capacity deployed on the Asia-Europe (AE) trade lane as Evergreen and Hanjin Shipping started a new 9-ship loop since mid-August, with an average weekly capacity of about 9,160 teus.

Unfortunately, although the CKYH alliance had announced the suspension of one of their five AE loops, the removal of approximately 8,000 teus in weekly capacity will only be implemented from mid-October onwards. Similarly, the G6 Alliance will suspend Loop 3 temporarily, with its last sailing from Shanghai on 6 October. This leaves a two-month gap between the Evergreen/Hanjin capacity addition and the CKYH/G6 capacity deletion.

Despite the current "peak shipping season", rates have faltered over the past two weeks and we could see rates stay under pressure until at least mid-October. More service suspensions need to happen before AE rates can stabilise, as the winter lull is coming quickly. Alphaliner estimates that at least five more AE loops (to North Europe and the Mediterranean) will have to withdrawn to bring slot utilisation rates to viable levels. Over the past few months, slot utilisation for Asia-North Europe (A/NE) has hovered at 80-85% only.

Nevertheless, the transpacific (TP) trade seems to be holding up better, although rates to the US West Coast (USWC) declined 3.2% wow or US$83/feu. Higher slot utilisation was probably the key, averaging about 90% over the past several months.

It was reported that ports along the US East Coast and Gulf of Mexico could face a possible shutdown on 1 October due to the deadlock in negotiations between port employers and the unions. With no sign that the matter will be resolved anytime soon, carriers serving these regions could experience disruption to their services that could affect their financial performance. During last week‟s analysts‟ briefing, CSCL said that its clients were making inquiries about possible contingency plans, but were not yet pressing the panic button. CSCL does not believe that the disruption, if it happens, will drag out over an extended period.

Figure 5: Container freight rates

Last week

31-Aug-12 24-Aug-12 WoW (%) 3Q12 2Q12 1Q12 4Q11 2012 2011 2010

Overall indices

Composite CCFI Index 1,242 1,257 -1.2% 1,282 1,283 972 930 1,168 993 1,132

Comprehensive SCFI Index 1,294 1,334 -2.9% 1,353 1,434 1,071 904 1,278 1,008 1,373

Asia-Europe

SCFI: North Europe (US$/TEU) 1,324 1,434 -7.7% 1,617 1,741 1,010 594 1,438 875 1,784

SCFI: Mediterranean (US$/TEU) 1,371 1,426 -3.9% 1,587 1,833 1,034 794 1,473 969 1,736

CCFI: North Europe 1,707 1,781 -4.1% 1,815 1,790 1,072 962 1,530 1,174 1,731

CCFI: Mediterranean 1,766 1,817 -2.8% 1,909 1,953 1,186 1,176 1,657 1,294 1,822

Transpacific

SCFI: West Coast USA (US$/FEU) 2,485 2,568 -3.2% 2,554 2,429 1,850 1,484 2,246 1,664 2,335

SCFI: East Coast USA (US$/FEU) 3,741 3,855 -3.0% 3,785 3,580 2,998 2,733 3,416 3,010 3,536

CCFI: West Coast USA 1,133 1,116 +1.5% 1,116 1,041 925 862 1,018 939 1,060

CCFI: East Coast USA 1,329 1,328 +0.1% 1,331 1,280 1,131 1,116 1,238 1,172 1,279

North-South trades (US$/TEU)

SCFI: Australia 973 766 +27.0% 835 934 836 752 872 769 1,165

SCFI: East Coast South Am. 1,881 1,891 -0.5% 1,941 1,666 1,468 1,440 1,663 1,490 2,216

SCFI: South Africa 1,013 990 +2.3% 1,030 1,119 1,028 1,052 1,062 992 1,474

Intra-Asia (US$/TEU)

SCFI: Middle East 1,115 1,221 -8.7% 989 1,434 843 707 1,100 837 933

SCFI: East Japan 347 343 1.2% 343 351 334 333 343 338 316

SCFI: Singapore 262 258 1.6% 263 271 231 227 254 211 318

SCFI: Hong Kong 125 125 +0.0% 126 139 153 158 141 155 119

SCFI: Pusan, Korea 187 187 +0.0% 189 167 170 194 174 199 191

SCFI: Kaohsiung, Taiwan 229 232 -1.3% 242 263 263 193 257 195 257

Qtr-to-date Yr-to-date

SOURCES: CIMB, SHANGHAI SHIPPING EXCHANGE

SHIPPING MONITOR

September 3, 2012

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Figure 6: SCFI: Shanghai-USWC (US$/feu) Figure 7: SCFI: Shanghai-USEC (US$/feu)

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SOURCES: SHANGHAI SHIPPING EXCHANGE SOURCES: SHANGHAI SHIPPING EXCHANGE

Figure 8: SCFI: Shanghai-North Europe (US$/teu) Figure 9: SCFI: Shanghai-Mediterranean (US$/teu)

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Figure 12: SCFI: Shanghai-Southeast Asia (US$/teu) Figure 13: SCFI: Shanghai-ANZ (US$/teu)

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Figure 17: Slot utilisation rate on Asia-North Europe (%)

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Figure 18: Idle capacity

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Idle capacity as a % of f leet - RHS

SOURCES: ALPHALINER

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Figure 20: Progression of China-US West Coast SCFI spot rates (up to 20 July)

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Container lines will need to pull a further 75,000 teu from their schedules during the Chinese holidays in October to avoid a collapse in freight rates. As lines ponder blanking off sailings due to the weak high season, SeaIntel has said announced reductions are going to be nowhere near enough. An analysis of 2011 and 2012 in the run up to the Chinese October holiday period has shown that the lines have yet to pull as much out of service as they did in 2011, says SeaIntel chief executive Lars Jensen.

“Our forecast is that carriers can not live with this many blanked off sailings,” Mr Jensen told Lloyd‟s List. He said lines would be forced to announce further cuts in sailings, and is advising shippers to double check schedules with lines. Failing to pull enough slots from the Asia-Europe trade could result in rates falling. If they do, it may be impossible for lines push rates up again once the holiday period is over, Mr Jensen said. (Lloyd's List)

The G6 Alliance and Maersk will suspend a number of Asia-Europe services during China‟s national Golden week holidays in October, although one analyst claimed bearish demand could also be a factor in the service reductions. “With demand so weak in Asia-Europe, lines are using this as an excuse to start their winter service program early,” the analyst added. Four sailings from Asia will be suspended by the G6 Alliance on the Asia-Europe lane from October 3-13. Maersk Line will drop five Asia-Europe sailings from October 1-14. The services affected are its AE5, AE6, AE7 and AE9 loops. (JOC)

The G6 Alliance of containership companies has temporarily suspended one of their Asia-Europe loops (Loop 3) due to „forecasted lack of improvements‟ in the trades.

The last sailing for the service will be OOCL Hamburg departing from Shanghai on October 6. After the suspension, all the ports in the loop will be covered by other G6 services, the group said.

“The market environment will be closely monitored for the resumption of the Loop 3 service accordingly,” the group said in joint press releases from each of its members, which include APL, Hapag-Lloyd, Hyundai Merchant Marine, MOL, NYK and OOCL. (Lloyd‟s List)

Container volume through North European ports will remain sluggish this year as the continent‟s economy struggles, Hackett Associates and the

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Bremen-based Institute of Shipping Economics said in their Port Tracker report. Containerized imports from European ports are projected to decline more than 2% this year, compared with a 3.8% increase last year. Exports are expected to rise 2.4% this year, compared with an increase of nearly 11% last year, the report said.

“The European economic data makes for depressing reading. A no-growth GDP in 2Q in Germany is interpreted as a major achievement. Austerity remains the policy,” said economist Ben Hackett. He said virtually any economic gauge points to an economic downturn that will cause the eurozone to follow the U.K., Spain, Portugal and others into recession.

Hackett and Michael Tasto of ISL said weak cargo volumes would affect terminals and pressure carriers to reduce rates. Hackett noted that carriers already are dropping voyages during what normally is the peak season. Carriers cannot expect to squeeze more out of slow-steaming. Hackett said carriers are likely to resume price-cutting, and that 2010 may turn out to be the carriers‟ only profitable year in five years. “They profess to avoid a price war this time around, but we doubt that the habit of a lifetime can be avoided,” he said. (JOC)

Søren Skou, head of the container-shipping Maersk said the Chinese market is facing fundamental changes. "It's pretty clear China is losing competitiveness in a number of industries. Maersk's customers who ship shoes, toys and other labor-intensive goods are increasingly located in countries like Vietnam and Bangladesh," he said.

Weak European demand and other global economic concerns have crimped growth in China's port volumes this year, leading shipping companies to idle vessels. Looking at the key August period for shipping, Mr. Skou said his customers appear to be positioning for satisfactory holiday spending in the US—but not Europe.

Mr. Skou joins others who say the slowdown also reflects how rising costs in China make it a less-competitive manufacturing base. They point to factors such as China's labor costs. Wage income for urban households rose 13% year-to-year in the first half, and average monthly income for migrant workers rose 14.9%, according to Chinese government data.

Chinese industry is also attempting to move up the value chain to export more complex and more profitable products, which if successful would blunt the loss of labor-intensive industries such as apparel. Maersk is already seeing growth in exports from China of more sophisticated goods such as electronics, electrical goods and solar panels. As Chinese auto makers ramp up their international expansion, there was export growth potential for auto components. The chemical, pharmaceutical and aviation industries hold promise.

Concerning the immediate slowdown, Mr. Skou said his confidence in global trade has deteriorated since June, mostly due to recessionary conditions in Europe, but he said volumes world-wide are likely to expand 4% for the full year compared with 2011, compared with about 7% last year. Other shipping companies concur. (WSJ)

Ports up and down the Eastern and Gulf of Mexico coasts of the United States face a possible shutdown on Oct 1 as a result of a deadlock in negotiations between port employers and the main union, the International Longshoremen's Association (ILA). A shutdown would cripple ports including Houston, Savannah, Baltimore, New York and Boston and idle more than 14,000 longshoremen. The Retail Industry Leaders Association's president, Sandy Kennedy, said that it would force retailers to "redirect their supply chains during the crucial period before the holiday shopping season" and "seriously impede the flow of commerce".

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Negotiations between the ILA and the US Maritime Alliance (USMX) broke down last week and there are no plans for them to resume, according to people involved in the talks. The longshoremen's union is seeking to protect jobs threatened by automation. The maritime alliance, a collection of employers at 14 ports and 24 ocean carriers, is seeking to end or phase out work rules put in place a half-century ago that it said are making it hard for their ports to compete with West Coast ports, Canadian ports and railroads. (BT)

Containership orders as a percentage of current fleet are expected to fall to 20% by year-end 2012 and 16% by December next year, according to the latest Macro Report. At one stage, the orderbook stood at 60% of the fleet, and is now around 22%, according to Clarksons Independent container shipping analyst Philippe Hoehlinger says that systemic oversupply remains in the box sector, but the trend is expected to “remain favourable from now to the end of 2013, with some bumps in the road”.

Mr Hoehlinger said that container vessel capacity largely offset the demand side slowdown, with vessel layups and a relatively high pace of demolition combining to compensate for capacity delivery that was slightly above expectations. “It is very difficult to say if that situation will continue in the near future. The figures indicate that „effective‟ supply growth should slow to 5.8% in 2012 and 8.3% in 2013.

On the key Asia-Europe box trades, Mr Hoehlinger predicts that the market situation is expected to change “dramatically” early in 2013. “Contract maturities are more flexible on the Europe-Asia trades than on the transpacific trades. This gives both sides greater scope to renegotiate terms throughout the year.

He believes that the underlying supply/demand situation on Asia-Europe remains “largely favourable” in the third quarter of 2012 and “relatively balanced” in the final quarter of this year, “should carrier efforts to reduce excess capacity continue”. Freight rates are expected to decline but remain at high levels on the trade. (Lloyd's List)

Zim‟s newbuilding programme remains on hold as the Israeli line waits to see how market conditions unfold in the face of renewed uncertainty for the container trades. Zim has 13 ships on order, of which nine 12,600 teu ships are to be built by Samsung Heavy Industries. Hyundai Heavy Industries is due to complete an order for another four 10,000 teu vessels. Delivery times have already been postponed from the dates specified when contracts were signed and 2015 is now the provisional year of completion.

However, Lloyd‟s List understands the delivery schedule remains flexible, with further delays possible if cargo markets and ship finance availability remain subdued. Zim placed its order for 12,600 teu vessels in September 2007, with deliveries originally due in 2012. The price agreed then was US$170m apiece, but the same ships would cost nearer US$115m today. (Lloyd's List)

OOCL said it is delaying the delivery date of the remaining six container ships out of eight with capacities of 8,888 teu units that it ordered from Hudong-Zhonghua Shipbuilding in Shanghai in October 2007. The Hong Kong-based shipping line said that delivery of the six vessels has been revised from the fourth quarter of 2013 to the fourth quarter of 2014, with all the other terms of the shipbuilding contracts remaining unchanged. (JOC)

Maersk Line is considering whether to extend the Daily Maersk concept to other routes. No final decision has been taken yet, as Maersk is still analysing

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performance data that will be published to coincide with the initial 12 months of the service. But anecdotal evidence suggests the concept had proved very successful, said Maersk Line chief executive Søren Skou.

“We are extremely happy with the way it is working, with more than 97% on-time delivery in the Daily Maersk corridor,” he told Lloyd‟s List. “It has gone better than probably anyone had expected.” Maersk has actively promoted daily cut-off times and offered a branded product. Drewry has also ranked Maersk Line number one for global on-time delivery every quarter for the past year. In its latest survey, Maersk had an on-time delivery score of 91%.

Reduced ship speeds have helped Maersk to achieve greater punctuality, said Mr Skou, building more buffer time into the schedule to compensate for unexpected delays. “Slow steaming is making the network more reliable,” he said. Most customers willingly accept slightly longer voyage transits in exchange for guaranteed door-to-door arrival times. (Lloyd's List)

Tramp owners are reacting to the dire outlook for many vessels on the charter market by sending ships to the scrapyard or selling vessels for secondhand trading. “The number of ships sold for demolition is increasing dramatically; this is in particular true for German-owned ships,” a boxship broker said. Actitivity on the charter market continued to remain slow, although some brokers noticed a slight pick-up in inquiries compared to recent weeks.

In the post-panamax segment, Mediterranean Shipping Co secured two 6,000 teu vessels at lower rates. MSC took K-Line ‟s 2010-built, 6,350 teu San Diego Bridge for a period of six to eight months at US$22,500 per day. In addition, it has signed a 6,200 teu relet from Maersk Line for six months at a rate of US$21,000 per day. (Lloyd's List)

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Dry bulk shipping

Average capesize rates increased 13% wow, but coming from such a low base, this adds only a couple of hundred dollars daily to shipowners. Earnings at US$3,300/day is less than half the estimated US$7,500/day operating costs to run a capesize vessel. Rates improved because the Australian miners had to hire additional vessels as typhoons caused slight delays and also on speculation that Chinese steel mills could restock iron ore as prices have fallen below US$100/ton. The panamax market continues to remain lacklustre due to the lack of cargo flows which resulted in rates weakening further, and current earnings falling below cash break-even costs.

Supramax and handysize rates seemed to have bottomed, after declining steadily over the past several weeks. Nevertheless, rates could remain range-bound due to the lack of demand drivers. Severe drought has curbed grain exports while the Indian iron ore market remained quiet due to the monsoon season and oversupply of ships. Indonesia's export restrictions are also limiting cargoes for exports, although activity has picked up and there are signs that trade could improve further in the coming months.

However, the Indonesian government's plan to impose regulatory constraints over thermal coal exports could derail any possibility of rates recovery for the smaller vessels like supramax. Lloyd's List reported that taxes imposed will make rival exporters more competitive and countries like China and India could instead source coal from further away, benefiting the capesizes and panamaxes. While Indonesia has enacted a 20% tax on exports of unprocessed minerals, it excluded coal but is contemplating other measures to control coal exports.

Figure 21: Dry bulk freight rates

Last week

31-Aug-12 24-Aug-12 WoW (%) 3Q12 2Q12 1Q12 4Q11 2012 2011 2010

Baltic Dry Index 703 717 -2.0% 898 1,019 881 1,914 937 1,550 2,753

Baltic Capesize Index 1,172 1,124 +4.3% 1,230 1,422 1,618 3,305 1,443 2,247 3,473

Baltic Panamax Index 735 828 -11.2% 963 1,197 1,010 1,823 1,067 1,743 3,108

Baltic Supramax Index 857 853 +0.5% 1,045 1,067 833 1,389 976 1,375 2,145

Baltic Handysize Index 459 474 -3.2% 584 614 465 690 551 717 1,124

3,308 2,927 +13.0% 4,585 6,016 6,554 28,553 5,848 15,836 32,875

Iron ore Tubarao-Beilun, 165k dwt 14,455 13,102 +10.3% 16,385 20,700 19,998 46,176 19,330 29,572 47,932

Tubarao-Rotterdam, 165k dwt -4,935 -5,316 -7.2% -3,542 -1,075 -845 30,392 -1,624 12,746 32,667

Western Australia-Beilun, 165k dwt 2,865 522 +448.9% 3,522 4,972 4,266 29,184 4,337 14,808 29,611

Goa-Beilun, 145k dwt 4,850 4,766 +1.8% 6,378 12,431 9,176 26,601 9,666 15,588 28,070

Coal Queensland-Japan, 145k dwt -4,362 -4,730 -7.8% -98 1,053 2,791 25,493 1,402 10,963 26,584

5,840 6,586 -11.3% 7,624 9,530 7,913 14,555 8,439 13,940 24,858

Coal Newcastle-Japan, 70k dwt 4,726 5,939 -20.4% 6,525 8,632 6,453 12,949 7,281 11,951 23,686

Richards Bay-Rotterdam, 70k dwt -1,152 -1,177 -2.1% -1,628 -1,372 -1,772 1,737 -1,586 2,766 13,330

8,960 8,918 +0.5% 10,776 11,247 8,658 14,397 10,165 14,351 22,359

6,672 6,858 -2.7% 8,334 9,219 6,958 9,788 8,152 10,505 16,384

Iron ore Tubarao-Beilun, 165k dwt 17.50 17.15 +2.0% 17.75 19.56 20.41 28.69 19.41 22.53 26.19

Tubarao-Rotterdam, 165k dwt 7.30 7.30 +0.0% 7.34 8.10 8.87 15.09 8.19 11.15 13.66

Western Australia-Beilun, 165k dwt 7.00 6.60 +6.1% 6.89 7.35 7.78 11.93 7.39 9.06 10.35

Goa-Beilun, 145k dwt 8.40 8.40 +0.0% 8.59 10.64 10.27 15.05 9.97 11.49 13.69

Coal Queensland-Japan, 150k dwt 7.25 7.15 +1.4% 7.88 8.34 9.35 13.62 8.59 10.38 11.87

Coal Newcastle-Japan, 70k dwt 13.50 14.10 -4.3% 14.04 15.48 15.76 17.90 15.21 17.12 20.68

Richards Bay-Rotterdam, 70k dwt 12.50 12.60 -0.8% 11.69 12.25 13.17 14.33 12.45 14.62 17.72


Capesize spot rates (US$/tonne)

Panamax spot rates (US$/tonne)

Capesize average TCE (US$/day)

Panamax average TCE (US$/day)

Supramax average TCE (US$/day)

Handysize average TCE (US$/day)

SOURCES: CIMB, CLARKSON RESEARCH SERVICES

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Figure 22: Baltic capesize and panamax TCE/day (US$/day) Figure 23: Baltic supramax and handysize TCE/day (US$/day)

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SOURCES: CIMB, CLARKSON RESEARCH SERVICES SOURCES: CIMB, CLARKSON RESEARCH SERVICES

Figure 24: Bulk vessel profit/loss (US$/day)

Ship type Capesize Panamax Handymax Handysize

Current TCE 3,308 5,840 8,960 6,672

Operating cost -7,500 -6,500 -6,000 -5,000

Cash earnings -4,192 -660 2,960 1,672

Interest cost -3,605 -2,148 -1,956 -1,726

Depreciation cost -4,636 -2,762 -2,515 -2,219

Daily profit/(loss) -12,433 -5,570 -1,511 -2,273

Breakeven TCE 15,741 11,410 10,471 8,945 SOURCES: CIMB, MOORE STEPHENS, CLARKSON RESEARCH SERVICES

With a handful of supramaxes located in Africa and India remaining idle this week, most supramax bulk carrier markets worldwide bottomed out after falling ceaselessly for a month and a half. In the Atlantic basin, there was even some cautious talk of improvement in some regions, particularly South America. Activity in the basin increased, as charterers tried to fix ships before a substantial upswing materialised.

In the US Gulf, in spite of reasonably strong demand for pet coke cargoes out of the US and coal out of Colombia, rates levelled off with brokers calling the market “tricky”. Charter earnings on trips bound to Asia remained low.

European rates remained stable again this week, but brokers said more cargo demand was required for any sustained upward movement to materialise. However, with the harvest in the Black Sea states looking particularly poor, little is expected on the grains front.

In the Pacific rates also bottomed out this week, but brokers were not at all certain the market was set for a rebound any time soon, with some describing the trade as “lacking direction”. Even though some of the ships idled last week had been able to pick up spot cargoes, rates out of India continued to trend downward slightly. Brokers reported a slight improvement in coal trades out of Indonesia this week, a trade that had fallen quiet recently. (Lloyd's List)

Twin typhoons — Bolaven and Tembin — are wreaking havoc along the north Asia coastline, making life difficult for inhabitants and businesses in the region, including the capesize market. The storms caused the spot rates for the largest bulk carriers to stir at long last, rising and falling several times over

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the past week, but overall they look to be heading down again in the week ahead. Ships unable to unload or otherwise waiting out the storms in North China have missed scheduled dates, opening opportunities for owners with tonnage in position for prompt loading dates in Australia. The flurry of activity affected the Western Australia to China route, but left other routes in the Pacific and from South Africa to China unchanged. A significant oversupply of vessels in the Atlantic is helping to keep a lid on rates. (Lloyd's List)

Indonesian government‟s plan to impose regulatory constraints over thermal coal exports remains uncertain. In early June, Indonesia announced that it was planning an export tax on coal exports to secure supply for domestic use. The government has imposed regulations aimed at gaining a higher share of state revenue from the mining industry, including cutting foreign ownership and placing a 20% tax on exports of unprocessed minerals. But the government held back from imposing similar restrictions on coal, which represented 13% of Indonesia‟s total exports in 2011.

Energy and minerals minister Jero Wacik said, “Indonesia‟s need for coal will increase strongly, so exports will need to be controlled." However, the minister gave no details of the scope of measures to curb coal exports, or to set a level for the proposed export tax. Interestingly, the parlous state of dry bulk market rates has added to Bumi‟s and Adaro‟s woes, because it has made rival exporters more competitive. In June, Chinese imports of thermal coal from South Africa and the US increased month on month, while imports from Indonesia fell.

Meanwhile, Indonesia‟s government continues to waffle on about the export tax. In late July, a government official told Platts, the energy publication, that Mr Wacik has “already decided not to impose an export tax on coal”. Estimates of the toll that a 20% tax would exact on Indonesia‟s coal trade may have contributed to Mr Wacik‟s about-turn. A new levy on exports may not be in the cards, but other controls certainly will be. Like India, Indonesia faces growing power demand and lagging supply. Indonesia‟s government is under extreme pressure to ensure what has come to be called energy security.

For shipping, a tapering off of Indonesian thermal coal exports wouldn‟t necessarily be a bad thing. China and India would have to source more coal from further away, even when freight rates eventually rebound. This could improve the eventual prospects for the two of the most beset dry bulk ship classes in the market; capesize and panamax vessels. These ships have more limited access to Indonesian coal ports than supramax and handysize vessels, but are highly competitive on trades from South Africa, Colombia and the US. (Lloyd's List)

India's iron ore exports declined to 61.8m tonne in 2011-12, an estimated 36.7% fall. Compared to this, the country iron ore exports had touched 97.66m tonne in 2010-11. The fall in export volumes can be attributed to a government decision to raise export duty on iron ore from 20% ad valorem to 30% ad valorem on all grades of ore with effect from December 30, 2011. (Economic Times)

Iron ore prices could bottom out soon, as levels drop to toward the average cost curve of Chinese mines, Jiao Yushu, a consultant for the China Metallurgical Mines Assn (MMAC) said. “Prices of iron ore have fallen to US$95 per tonne, and the room to fall further is limited. Otherwise, many domestic mines will have to suspend production,” Jiao said. “The average domestic cost of iron ore was around US$98 per tonne in 2011,” he added.

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“Domestic iron ore miners need to cut production costs, so as to sustain production in the longer run. And of course, there are mines with lower costs in China as well,” Jiao said. The MMAC has been lobbying the government for cuts in resource taxation, value-added tax and other additional charges the miners must bear. Jiao disagreed with the market estimate of 62% capacity utilisation at Chinese domestic mines, but said that the rate remains unclear.China‟s iron ore output this year will exceed the 1.3bn tonnes recorded in 2011, he said. (Metal Bulletin)

International demand for seaborne iron ore will either remain unchanged or see a decline while supply continues to increase, Baosteel group's GM of raw material purchasing department Zhang Dianbo said. The supply of seaborne iron ore will increase by 50m tonnes in the second half of this year, he said. New iron ore capacities planned for the coming years include about 150m tpy from Brazil, 200m tpy from West Africa, 200m tpy from Australia, and 50m tpy from Canada, Zhang said. "Both global steel and iron ore markets are heading towards oversupply," he warned. (Metal Bulletin)

Global iron ore demand could fall lower in the second half of 2012 than in the first six months, according to Baosteel head of purchasing Zhang Dianbo. The remainder of 2012 could bring a decrease in output as Chinese investment in infrastructure and industrial facilities continues to slow. Shipbroker Clarksons still predicts a 6% growth in global seaborne iron-ore trade this year. But that seems unlikely if Chinese steel output begins to contract, since the country accounts for approximately half the world‟s steel imports.

With iron ore demand waning and supply still undergoing a meteoric rise, the big question for shipowners is whether lower prices will drive China‟s relatively expensive domestic iron-ore mines underwater, forcing the country to import more — cheaper — ore from overseas. Most iron-ore traders thought the global iron ore price had a natural floor of US$100 per tonne, as below that level it would become impossible for Chinese domestic producers to meet demand in a cost-effective manner.

However, the current market has proved them wrong, with the price of a tonne of imported iron ore in China falling below. Oddly, analysts say domestic iron ore in China continues to trade at a US$30 premium when taking other costs, including shipping, into account. Ironically, part of this spread stems from falling capesize rates. However, it raises the question why China‟s steel mills continue to buy locally, despite such a massive price disadvantage. Quicker delivery and better credit terms have been cited as reasons why steel mills prefer home-sourced raw materials to overseas imports. (Metal Bulletin)

Of the 31 voyages carried out or under way by Vale‟s 14-strong 400,000 dwt ore carrier fleet since the huge bulkers started to be delivered in 2011, a third have discharged in Oman and another third at the transhipment hub Vale created in the Philippines earlier this year. Despite not being able to berth and discharge at Chinese, the Brazilian iron ore major has managed to keep these huge vessels employed. In addition to Sohar and Oman, Vale is building a land-based transhipment hub in Malaysia. (Lloyd's List)

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Tanker shipping

VLCC rates were little changed from the previous week as excess tonnage continue to pressure rates and demand showing no signs of improvement. According to Weber, 70 September cargoes have already been covered with a further 40-50 remaining for the month. It is projecting that 73 VLCCs will be available, favouring the charterers as owners are unlikely to put up much resistance.

Average suezmax rates stayed relatively flat, but rates on the West Africa-US trade route managed to inch up 6.6% wow. But overall, markets were stale and dull due to lack of cargoes and excess ships. Fearnleys is expecting rates to stagnate at low levels for some time.

Aframax rates in the Caribbean improved 25% wow due to the uncertainty of vessel availability from Hurricane Isaac. However, the impact was minimal and rates could likely fall in the coming week. Over to the Mediterranean, rates fell due to excess tonnage with no disruptions from weather delays or strikes to help shipowners.

Poten in its weekly reported painted a bleak outlook for the tanker market, expecting tankers to remain mired in low utilisation rates and weak earnings, unless the global economy rebounds. China which has seen growth slowed recently is a major concern as the country is a major source of tanker tonne-mile demand. European oil demand will also need to pick up strongly as many refiners are located in the region.

Crude tanker utilisation is hovering near 80% with current earnings below cash operating expenses. At this low utilisation rate, a small improvement in demand is unlikely to make any meaningful positive impact to rates. Hence, we need to see a massive jump in demand to pull the tanker markets out of the doldrums. This seems unlikely as tanker supply continues to grow while tanker demand has been impacted negatively by weak global growth and rising domestic crude production in the US.

Figure 25: Tanker freight rates

Last week

31-Aug-12 24-Aug-12 WoW (%) 3Q12 2Q12 1Q12 4Q11 2012 2011 2010

Baltic Dirty Tanker Index 627 618 +1.5% 629 740 814 813 738 788 898

Baltic Clean Tanker Index 581 579 +0.3% 573 610 688 743 629 726 731

7,273 7,637 -4.8% 10,459 36,808 36,114 23,018 29,775 22,137 42,638

AG-FE Ras Tanura-Chiba 3,356 3,138 +6.9% 3,064 32,708 31,916 18,689 24,791 18,212 41,615

AG-USG Ras Tanura-LOOP -11,531 -12,185 -5.4% -8,938 12,279 3,959 592 3,733 2,489 20,944

WA-USG Bonny-LOOP 11,477 10,754 +6.7% 15,497 38,080 42,176 28,451 33,794 24,841 43,466

9,966 10,044 -0.8% 14,100 21,056 25,113 20,704 20,774 17,238 29,593

MED-MED Sidi Kerir-Lavera 8,389 9,998 -16.1% 16,123 25,568 32,305 32,650 25,641 25,110 36,301

WA-USAC Bonny-Philadelphia 4,675 4,385 +6.6% 8,462 16,404 20,329 17,481 15,820 13,368 26,217

10,550 10,052 +5.0% 12,652 15,273 15,180 14,927 14,564 12,726 18,155

CARIB-USG Curacao-Texas 7,290 5,833 +25.0% 8,904 13,273 15,672 8,574 13,041 8,225 17,032

SEA-FE Jakarta-Chiba 12,800 12,687 +0.9% 11,328 9,034 7,941 7,617 9,218 8,007 14,652

MED-MED Sidi Kerir-Trieste 9,161 10,381 -11.8% 13,964 16,567 15,430 21,945 15,475 13,562 19,820

UKC-UKC Sullum Voe-Wi'shaven 13,975 13,723 +1.8% 16,434 21,800 19,334 24,806 19,504 18,599 24,220

AG-SEA Ras Tanura-Singapore 14,806 8,705 +70.1% 12,748 12,986 14,130 10,758 13,350 12,721 15,711

LR1 tanker Ras Tanura-Chiba 75k 11,789 10,985 +7.3% 14,379 7,918 3,003 6,858 7,754 10,462 14,539

Handysize Selected routes 8,560 7,899 +8.4% 8,667 10,934 15,642 13,395 12,100 12,644 13,148

MR tanker Selected routes 25-55k 2,374 3,016 -21.3% 4,110 5,794 4,805 7,505 4,994 7,587 7,756

Aframax average TCE (US$/day)

Clean tanker average TCE (US$/day)


VLCC average TCE (US$/day)

Suezmax average TCE (US$/day)


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Figure 26: Crude tanker TCE shipping rates (US$/day)

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Figure 27: Product tanker TCE shipping rates (US$/day)

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Figure 28: Tanker vessel profit/loss (US$/day)

Ship type VLCC Suezmax Aframax MR product

Current TCE 7,273 9,966 10,550 2,374

Operating cost -12,807 -11,436 -10,245 -8,185

Cash earnings -5,534 -1,470 305 -5,811

Interest cost -7,441 -4,526 -3,951 -2,570

Depreciation cost -9,567 -5,819 -5,079 -3,304

Daily profit/(loss) -22,542 -11,815 -8,725 -11,685

Breakeven TCE 29,815 21,781 19,275 14,059 SOURCES: CIMB, MOORE STEPHENS, CLARKSON RESEARCH SERVICES

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September 3, 2012

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Figure 29: Dirty tanker fleet utilisation Figure 30: Nominal dirty tanker earnings vs fleet utilisation

SOURCES: CIMB, POTEN SOURCES: CIMB, POTEN

The number of tanker fixtures for discharge in South China has fallen in the last three months to levels last seen 18 months ago, as China’s oil demand growth slows. In August to date, Clarksons records 46 fixtures for discharge in South China, with the monthly figure expected to reach July‟s level of 55 bookings, above the 45 ships fixed in June. However, the number of fixtures to South China reached an all-time high in March of 82 and had hovered around the 70 mark in April and May. China‟s imports are now slowing as inventory restocking and filling of strategic petroleum reserves are moderated.

China‟s apparent oil demand in July, which includes refinery output plus net product imports, is estimated at 9.2m barrels per day, up 1.7% year on year. In contrast, it reports that China‟s apparent oil demand has averaged 9.4m bpd in 2012. The recent weakness was partly due to heavy rain that boosted hydroelectric production, but also due to weaker economic activity that affected oil demand.

Recently, Brent oil has been around US$4 per barrel more expensive than the Dubai benchmark, indicating that it is profitable to source relatively more oil from the Middle East rather than West Africa, hence reducing trading distances. This has weakened tonne-mile demand, particularly for the VLCC sector which hauls oil over long distances to the country. (Lloyd's List)

The future does not look promising for the Middle East Gulf to US Gulf crude tanker route as US crude production continues to rise. The latest figures from the Energy Information Administration show total US crude production will average 6.3m barrels per day in 2012 — an increase of 600,000 bpd from last year and the highest level since 1997. Projected US crude production will rise even higher, to 6.7m bpd in 2013.

Highlighting this, US crude imports have dropped from 10.1m barrels per day in 2006 to 8.9m bpd in 2011. Oil experts have even said if the decline continues at the present rate, the US could become a net crude exporter by the end of the decade. It is already a net exporter of oil products. Such a dramatic development would open up a new trade pattern for tankers. (Lloyd's List)

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An increasing number of aframax cargoes are being fixed privately across the European spot market, with charterers circumventing brokers to deal with owners direct as rates continue to hover at extremely weak levels. “The current market dynamics favour this type of trading,” one broker said. “There is not a lot of volatility. Everybody is doing the same rates so it is difficult for us to make a difference.” Shipowners‟ willingness to go along with this could also be seen as “a sign of desperation” on their part.

Rates have continued to fall in severely overtonnaged markets to the point where lay-up becomes a realistic alternative for shipowners, providing the market with a natural floor. TCE earnings is estimated to be US$2,984 per day — a number far removed from the average operating cost of an aframax vessel, which shipping accountant Moore Stephens said averaged well above US$8,000 per day in its last survey.

The Caribbean and US Gulf market saw a number of cargoes disappear after a massive explosion ripped through storage vats units near a refinery in Venezuela. In addition, Hurricane Isaac arrived in the Caribbean over the weekend and is en route to the US, shutting down production at most offshore facilities. According to the US Bureau of Safety and Environmental Enforcement, domestic production had been cut by 1.1m barrels per day, equivalent to around two 80,000 tonne aframax cargoes per day.

Some news from the European aframax market offered reason for hope of improvement, however. Loading programmes from Russia‟s Primorsk and Ust-Luga ports showed the amount of cargo shipped from these ports was set to increase from 7.4m tonnes to 7.8m tonnes next month. Brokers reported that this was part of a long-term trend in which the Russian ports in the Baltic Sea were seeing increasing business, as more oil is pumped through the second tranche of the Baltic Pipeline System. (Lloyd's List)

Equity analysts are calling foul over “a misrepresentation of the market” by the Baltic Exchange, arguing that tanker owners are earning thousands of dollars more than reported time charter equivalent figures suggest. Nearly half the crude tanker routes are reporting TCE earnings in the red. The Baltic Exchange‟s reported earnings misrepresent the market because of the way in which daily earnings are calculated. Shipbroker panellists submit Worldscale rates on a daily basis to the Baltic Exchange, which then calculates the equivalent daily earnings.

To do this, it makes assumptions on variables such as transit time, port and bunker costs and — most importantly — vessel speed, assuming that vessels always sail at 14.5 knots on both the laden and ballast legs of a round voyage. In reality, however, slow steaming has become commonplace. Because shipowners consume less fuel, they retain a larger portion of the overall charterhire. (Lloyd's List)

An explosion at a refinery in Venezuela has killed at least 41 people and halted production at the facility. The Amuay refinery is part of Paraguana Refining Centre, located in the western part of the country. With a total capacity of 955,000 barrels per day, Paraguana is the second-biggest refinery in the world. The part of the facility that had to be shut down on Saturday has a capacity of 645,000 barrels per day. However, Venezuelan government officials have said the effect on exports should be limited.

The explosion destroyed several storage tanks, but according to the country‟s energy minister, Rafael Ramirez, no refining facilities were damaged in the blast, meaning production could resume within two days. The docks at the refinery‟s loading terminal were closed after the explosion, leaving tankers moored at sea. This means crude exports from the country will also be hampered. Amuay Bay mainly handles aframax crude tankers and product tankers. (Lloyd's List)

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For the first time this year, slowing growth in oil demand is spurring analysts to cut estimates for earnings in the tanker industry's largest vessels. The International Energy Agency (IEA) reduced its oil-demand forecast and predicted slower growth in 2013. Stockpiles in the US, the biggest importer, are already near a 22-year high. Slower growth will worsen the glut in shipping, with the VLCC fleet projected to expand 6.9% in 2012, according to Clarkson. The world's biggest shipbroker anticipates demand for the vessels will rise 3.9%.

IEA's forecast for slowing demand growth in 2013 may be partly offset by shifting trade patterns that are lengthening tanker journeys. About 700,000 bpd that used to be delivered within the Atlantic is now going to Asia. China will overtake the US next year as the largest customer for all sizes of crude tankers. (Bloomberg)

Frontline chief executive Jens Martin Jensen has painted a depressing picture of the crude tanker market. With a global fleet of 610 VLCCs, including 587 double-hulled ships and 95 still on order, plus earnings below operating costs on all routes, reducing tonnage on the water remains the only way to bring about a recovery. “Business and rates like this cannot go on for much longer,” Mr Jensen said. “It is safe to say that owners are starting to the feel the squeeze.”

The likelihood of tanker lay ups taking place in significant numbers is still in doubt due to the loss of oil major approvals. Investing in laying up a vessel for a set period can be costly, particularly so if it is difficult to regain oil company approvals when vessels are reactivated. Frontline is sticking to its strategy of disposing of older vessels from its non-core fleet, with a handful still to be offloaded before the end of the year. (Lloyd's List)

Europe could be on the verge of mirroring Japan — albeit on a less extreme level — by shutting off some of its nuclear reactors and requiring more LNG to make up the energy shortfall. A Belgian nuclear reactor has been taken offline due to defects and experts have not ruled out permanent closure of the unit. As with Japan, though, nuclear’s loss will be LNG’s gain. While Europe will not go as far as Japan and switch off all its reactors, other closures could follow the Belgian shutdown amid heightened safety fears — and LNG would be the obvious choice to take up the slack. (Lloyd's List)

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Commodity prices and currencies

Crude oil prices inched up slightly from the previous week as investors continue to weigh in on the possibility of additional stimulus as hinted by Federal Reserve chairman Ben Bernanke, despite seemingly slower growth in China. The HSBC China manufacturing PMI for August fell to 47.6, the lowest reading since March 2009. Any reading below 50 signals a contraction in overall activity.

The weak Chinese macro data has also negatively affected sentiment in the steel industry, with clearer signs that demand may stay stagnant. Steel prices declined 1-3% last week. Iron ore import prices fell sharply, declining 9.3% wow to US$98/ton, taking the market by surprise as many expected prices to hold.

Figure 31: Economics & Commodities

Last week Qtr-to-date Yr-to-date

31-Aug-12 24-Aug-12 WoW (%) 3Q12 2Q12 1Q12 4Q11 2012 2011 2010

Brent crude (US$/barrel) 115.46 115.14 +0.3% 107.93 109.05 118.55 109.28 111.84 112.64 79.90

Sing bunker (US$/ton) 688.00 691.00 -0.4% 645.53 673.40 744.75 690.46 687.89 672.87 474.87

China: Iron ore spot cfr imports (US$/ton) 98.00 108.00 -9.3% 125.19 142.73 147.12 147.85 138.34 172.46 151.92

China: Domestic iron ore (US$/ton) 161.30 161.20 +0.1% 166.06 168.51 173.12 183.20 169.23 195.98 154.95

China: Rebar (Rmb/ton) 3,506 3,549 -1.2% 3,752 4,169 4,238 4,347 4,053 4,738 4,167

China: HRC (Rmb/ton) 3,405 3,511 -3.0% 3,773 4,262 4,265 4,297 4,100 4,658 4,241

China: CRC (Rmb/ton) 4,468 4,526 -1.3% 4,694 5,106 5,214 5,339 5,005 5,491 5,600

China: Wire rod (Rmb/ton) 3,528 3,566 -1.1% 3,764 4,187 4,259 4,496 4,070 4,783 4,244

Qinhuangdao 6800 kc coal FOB (US$/ton) 116.10 116.10 +0.0% 119.39 140.77 143.66 153.60 134.61 148.03 115.09

Newcastle 6700 kc coal CFR (US$/ton) 95.05 94.95 +0.1% 93.84 102.83 121.63 127.56 106.10 129.61 110.70

Euro US$1.26 US$1.25 +0.5% US$1.23 US$1.28 US$1.31 US$1.35 US$1.28 US$1.39 US$1.33

Yen ¥78.39 ¥78.67 +0.4% ¥78.87 ¥80.08 ¥79.39 ¥77.33 ¥79.45 ¥79.72 ¥87.79

Renminbi Rmb6.35 Rmb6.35 +0.1% Rmb6.37 Rmb6.33 Rmb6.31 Rmb6.36 Rmb6.34 Rmb6.46 Rmb6.77

HK$ HK$7.76 HK$7.76 +0.0% HK$7.76 HK$7.76 HK$7.76 HK$7.78 HK$7.76 HK$7.78 HK$7.77

Ringgit RM3.12 RM3.10 -0.7% RM3.14 RM3.11 RM3.06 RM3.15 RM3.11 RM3.06 RM3.22

S$ S$1.25 S$1.25 +0.3% S$1.25 S$1.26 S$1.26 S$1.29 S$1.26 S$1.26 S$1.36

Baht THB31.30 THB31.22 -0.3% THB31.54 THB31.28 THB30.98 THB31.00 THB31.27 THB30.48 THB31.72

Rupiah Rp9,572 Rp9,519 -0.6% Rp9,472 Rp9,309 Rp9,079 Rp8,983 Rp9,286 Rp8,772 Rp9,086

US$ LIBOR - 3m (%) 0.42% 0.42% -0.01% 0.47% 0.51% 0.51% 0.48% 0.48% 0.34% 0.34% SOURCES: CIMB, BLOOMBERG

Oil traded near the lowest level in two weeks on speculation Tropical Storm Isaac’s impact on output in the Gulf of Mexico will be limited. Gasoline was near a four- month high as a fire spread at Venezuela‟s biggest refinery. Isaac was near hurricane intensity as it headed for landfall south of New Orleans, according to the National Hurricane Center. (Bloomberg)

A Chinese steel inventory overhang that has cut spot demand for iron ore and forced prices to their lowest levels since November 2009 may take as long as nine months to unwind, leaving it up to iron ore producers to cut output to shore up prices, ANZ Bank said Tuesday. (Platts)

Vale expects iron ore prices to rebound this year because current prices aren‟t profitable for producers in China and other countries. Iron-ore below US$120 a metric ton is a “short-lived” situation, the company‟s Investor Relations Director Roberto Castello Branco said. (Bloomberg)

China's benchmark power-station coal price rose for the first time in four months as stockpiles declined at the nation's biggest port for shipping the fuel. (Bloomberg)

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Figure 32: Singapore bunker fuel (US$/MT) and Eur Brent Crude (US$/bbl)

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Figure 33: China domestic iron ore prices versus spot prices in India

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Figure 34: Domestic Chinese coal price vs. Newcastle price (US$/tonne)

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Figure 35: Domestic Chinese steel prices (Rmb/tonne)

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This publication is strictly confidential and is for private circulation only to clients of CIMBI. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMBI. Neither this report nor any copy hereof may be distributed in Indonesia or to any Indonesian citizens wherever they are domiciled or to Indonesia residents except in compliance with applicable Indonesian capital market laws and regulations.

Malaysia: This report is issued and distributed by CIMB Investment Bank Berhad (“CIMB”). The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMB has no obligation to update its opinion or the information in this research report.

This publication is strictly confidential and is for private circulation only to clients of CIMB. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMB.

New Zealand: In New Zealand, this report is for distribution only to persons whose principal business is the investment of money or who, in the course of, and for the purposes of their business, habitually invest money pursuant to Section 3(2)(a)(ii) of the Securities Act 1978.

Singapore: This report is issued and distributed by CIMB Research Pte Ltd (“CIMBR”). Recipients of this report are to contact CIMBR in Singapore in respect of any matters arising from, or in connection with, this report. The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets

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Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBR has no obligation to update its opinion or the information in this research report.

This publication is strictly confidential and is for private circulation only. If the recipient of this research report is not an accredited investor, expert investor or institutional investor, CIMBR accepts legal responsibility for the contents of the report without any disclaimer limiting or otherwise curtailing such legal responsibility. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMBR.

As of September 2, 2012, CIMBR does not have a proprietary position in the recommended securities in this report.

Sweden: This report contains only marketing information and has not been approved by the Swedish Financial Supervisory Authority. The distribution of this report is not an offer to sell to any person in Sweden or a solicitation to any person in Sweden to buy any instruments described herein and may not be forwarded to the public in Sweden.

Taiwan: This research report is not an offer or marketing of foreign securities in Taiwan. The securities as referred to in this research report have not been and will not be registered with the Financial Supervisory Commission of the Republic of China pursuant to relevant securities laws and regulations and may not be offered or sold within the Republic of China through a public offering or in circumstances which constitutes an offer within the meaning of the Securities and Exchange Law of the Republic of China that requires a registration or approval of the Financial Supervisory Commission of the Republic of China.

Thailand: This report is issued and distributed by CIMB Securities (Thailand) Company Limited (CIMBS). The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBS has no obligation to update its opinion or the information in this research report.

This publication is strictly confidential and is for private circulation only to clients of CIMBS. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMBS.

Corporate Governance Report:

The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information.

The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. CIMBS does not confirm nor certify the accuracy of such survey result.

Score Range 90 – 100 80 – 89 70 – 79 Below 70 or No Survey Result

Description Excellent Very Good Good N/A

United Arab Emirates: The distributor of this report has not been approved or licensed by the UAE Central Bank or any other relevant licensing authorities or governmental agencies in the United Arab Emirates. This report is strictly private and confidential and has not been reviewed by, deposited or registered with UAE Central Bank or any other licensing authority or governmental agencies in the United Arab Emirates. This report is being issued outside the United Arab Emirates to a limited number of institutional investors and must not be provided to any person other than the original recipient and may not be reproduced or used for any other purpose. Further, the information contained in this report is not intended to lead to the sale of investments under any subscription agreement or the conclusion of any other contract of whatsoever nature within the territory of the United Arab Emirates.

United Kingdom: This report is being distributed by CIMB Securities (UK) Limited only to, and is directed at selected persons on the basis that those persons are (a) persons falling within Article 19 of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (the “Order”) who have professional experience in investments of this type or (b) high net worth entities, and other persons to whom it may otherwise lawfully be communicated, falling within Article 49(1) of the Order, (all such persons together being referred to as “relevant persons”). A high net worth entity includes a body corporate which has (or is a member of a group which has) a called-up share capital or net assets of not less than (a) if it has (or is a subsidiary of an undertaking which has) more than 20 members, £500,000, (b) otherwise, £5 million, the trustee of a high value trust or an unincorporated association or partnership with assets of no less than £5 million. Directors, officers and employees of such entities are also included provided their responsibilities regarding those entities involve engaging in investment activity. Persons who do not have professional experience relating to investments should not rely on this document.

United States: This research report is distributed in the United States of America by CIMB Securities (USA) Inc, a U.S.-registered broker-dealer and a related company of CIMB Research Pte Ltd solely to persons who qualify as "Major U.S. Institutional Investors" as defined in Rule 15a-6 under the Securities and Exchange Act of 1934. This communication is only for Institutional Investors and investment professionals whose ordinary business activities involve investing in shares, bonds and associated securities and/or derivative securities and who have professional experience in such investments. Any person who is not an Institutional Investor must not rely on this communication. However, the delivery of this research report to any person in the United States of America shall not be deemed a recommendation to effect any transactions in the securities discussed herein or an endorsement of any opinion expressed herein. For further information or to place an order in any of the above-mentioned securities please contact a registered representative of CIMB Securities (USA) Inc.

Other jurisdictions: In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is only for distribution to professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

Recommendation Framework #1 *

Stock Sector

OUTPERFORM: The stock's total return is expected to exceed a relevant benchmark's total return by 5% or more over the next 12 months.

OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index over the next 12 months.

NEUTRAL: The stock's total return is expected to be within +/-5% of a relevant benchmark's total return.

NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months.

UNDERPERFORM: The stock's total return is expected to be below a relevant benchmark's total return by 5% or more over the next 12 months.

UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index over the next 12 months.

TRADING BUY: The stock's total return is expected to exceed a relevant benchmark's total return by 5% or more over the next 3 months.

TRADING BUY: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index over the next 3 months.

TRADING SELL: The stock's total return is expected to be below a relevant benchmark's total return by 5% or more over the next 3 months.

TRADING SELL: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index over the next 3 months.

* This framework only applies to stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand and Jakarta Stock Exchange. Occasionally, it is permitted for the total expected

returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.

CIMB Research Pte Ltd (Co. Reg. No. 198701620M)

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Recommendation Framework #2 **

Stock Sector

OUTPERFORM: Expected positive total returns of 10% or more over the next 12 months.

OVERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of +10% or better over the next 12 months.

NEUTRAL: Expected total returns of between -10% and +10% over the next 12 months.

NEUTRAL: The industry, as defined by the analyst's coverage universe, has either (i) an equal number of stocks that are expected to have total returns of +10% (or better) or -10% (or worse), or (ii) stocks that are predominantly expected to have total returns that will range from +10% to -10%; both over the next 12 months.

UNDERPERFORM: Expected negative total returns of 10% or more over the next 12 months.

UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of -10% or worse over the next 12 months.

TRADING BUY: Expected positive total returns of 10% or more over the next 3 months.

TRADING BUY: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of +10% or better over the next 3 months.

TRADING SELL: Expected negative total returns of 10% or more over the next 3 months.

TRADING SELL: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of -10% or worse over the next 3 months.

** This framework only applies to stocks listed on the Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily

outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2011.

ADVANC - Excellent, AMATA - Very Good, AOT - Excellent, AP - Very Good, BANPU - Excellent , BAY - Excellent , BBL - Excellent, BCP - Excellent, BEC - Very Good, BECL - Very Good, BGH - not available, BH - Very Good, BIGC - Very Good, BTS - Very Good, CCET - Good, CK - Very Good, CPALL - Very Good, CPF - Very Good, CPN - Excellent, DELTA - Very Good, DTAC - Very Good, GLOBAL - not available, GLOW - Very Good, GRAMMY – Excellent, HANA - Very Good, HEMRAJ - Excellent, HMPRO - Very Good, INTUCH – Very Good, ITD - Good, IVL - Very Good, JAS – Very Good, KBANK - Excellent, KTB - Excellent, LH - Very Good, LPN - Excellent, MAJOR - Very Good, MCOT - Excellent, MINT - Very Good, PS - Excellent, PSL - Excellent, PTT - Excellent, PTTGC - not available, PTTEP - Excellent, QH - Excellent, RATCH - Excellent, ROBINS - Excellent, SC – Excellent, SCB - Excellent, SCC - Excellent, SCCC - Very Good, SIRI - Very Good, SPALI - Very Good, STA - Very Good, STEC - Very Good, TCAP - Very Good, THAI - Very Good, THCOM – Very Good, TISCO - Excellent, TMB - Excellent, TOP - Excellent, TRUE - Very Good, TUF - Very Good.

CIMB - Shipping Sector Report

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