METHANOL SHIPPING:

19TH IMPCA

ASIAN METHANOL

CONFERENCE

2 – 3 NOVEMBER, 2016

SINGAPORE

QUINCANNON ASIA PTE LTDKARAN GROVER

SAILING TOWARDS

NEW HORIZONS

AGENDA

METHANOL TRADE DYNAMICS IN BRIEFMETHANOL DEMAND & TRADE FLOWS

METHANOL SHIPPING SHIPPING REQUIREMENTS

THE IMO 2/3 FLEET AT A GLANCE

METHANOL FLEET & CHANGING TRADE FLOWS

VESSEL ECONOMICS – 45K DWT TANKER

SHIPPING MARKETSCURRENT SHIPPING MARKETS

FREIGHT RATES TO MID CHINA

SHIPPING UPDATES & OUTLOOK

SUMMARY

QUINCANNON INTRODUCTION

Q&A

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METHANOL ACCOUNTS FOR ~25% OF

PETROCHEMICAL TRADE

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GLOBAL METHANOL DEMAND

BY DERIVATIVE

BY REGION• CURRENT DEMAND ~80 MIL TONS (2016E)

• EXPECTED TO REACH ~100 MIL TONS BY 2020

• APPROX. 33% OF DEMAND IS FOR THE ENERGY

SECTOR

• 72% OF DEMAND IS IN ASIA

• ~59% OF DEMAND IS IN CHINA &

GROWING!

• CHINA’S GROWTH DRIVEN LARGELY

BY MTO EXPANSIONS

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SOURCE: MMSA

METHANOL TRADE FLOWS

• NEGLIGIBLE US EXPORTS IN 2015 (US WAS NET IMPORTER)

• NEW METHANOL CAPACITY ADDED IN THE US IN 4Q 2015 / 1Q 2016

• BY MID-2016 THE US EXPORTED ABOUT 240,000 MT METHANOL TO CHINA – NET EXPORTER

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SOURCE: MMSA

METHANOL IS SHIPPED ON

SPECIALIZED IMO TANKERS

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SHIPPING REQUIREMENTS

METHANOL IS CLASSIFIED AS MARPOL ANNEX II PRODUCT & REQUIRES

SPECIALIZED TANKERS WITH FOLLOWING ATTRIBUTES:

IMO CLASSIFICATION: IBC CODE SHIP TYPE III OR UP

STRIPPING CAPACITY: (MARPOL CATEGORY “Y”):

• ACCEPTABLE RESIDUE PER TANK (75 LTRS – 150 LTRS PER TANK)

COMPATIBLE TANK COATING:

• STAINLESS STEEL / MARINE LINE / ZINC / INTERLINE 9001

• EPOXY COATED TANKS ARE NOT IDEAL TO CARRY METHANOL

INERTING / PURGING ABILITY:

• FOR TANKS OVER 3000 CBM

• NEW IGS REQUIREMENTS FOR IMO 2 SHIPS (8K – 20K DWT) CONSTRUCTED

AFTER 1 JANUARY 2016

MARPOL ANNEX IINOXIOUS LIQUID SUBSTANCES CARRIED IN

BULK (MARINE POLLUTION)

IMO SHIP TYPE 3PRODUCTS WITH SUFFICIENTLY SEVERE

ENVIRONMENTAL AND SAFETY HAZARDS

WHICH REQUIRE A MODERATE DEGREE OF

CONTAINMENT TO INCREASE SURVIVAL

CAPABILITY IN A DAMAGED CONDITION

IMO POLLUTION CATEGORY YNOXIOUS LIQUID SUBSTANCES WHICH, IF

DISCHARGED INTO THE SEA FROM TANK

CLEANING OR DEBALLASTING OPERATIONS,

ARE DEEMED TO PRESENT A HAZARD TO

EITHER MARINE RESOURCES OR HUMAN

HEALTH OR CAUSE HARM TO AMENITIES OR

OTHER LEGITIMATE USES OF THE SEA AND

THEREFORE JUSTIFY A LIMITATION ON THE

QUALITY AND QUANTITY OF THE DISCHARGE

INTO THE MARINE ENVIRONMENT

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MARPOL ANNEX II & METHANOLPOLLUTION CATEGORIZATION:

AS OF JAN 2007 – RECLASSIFIED FROM IBC CHAPTER 18 TO IMO 3 TYPE

WHAT IS AN IMO SHIP TYPE?

• THE INTERNATIONAL CODE FOR THE CONSTRUCTION AND EQUIPMENT

OF SHIPS CARRYING DANGEROUS CHEMICALS IN BULK - IBC CODE

PROVIDES DETAILED STANDARDS FOR THE CONSTRUCTION AND

EQUIPMENT OF THREE TYPES OF CHEMICAL TANKERS (TYPES 1, 2 AND 3)

• THE BULK CARRIAGE OF ANY LIQUID PRODUCT OTHER THAN THOSE

DEFINED AS OIL (SUBJECT TO MARPOL ANNEX I) IS PROHIBITED UNLESS

THE PRODUCT HAS BEEN EVALUATED AND CATEGORISED FOR

INCLUSION IN CHAPTER 17 OR 18 OF THE IBC CODE

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CARGO TANK LOCATION AND CONFIGURATION

MARPOL ANNEX II SHIPS:

IMO SHIP TYPE 1

IS A CHEMICAL TANKER INTENDED FOR THE

TRANSPORTATION OF PRODUCTS CONSIDERED TO

PRESENT THE GREATEST OVERALL HAZARD. THE QUANTITY

OF CARGO REQUIRED TO BE CARRIED IN A TYPE 1 SHIP

SHOULD NOT EXCEED 1,250 M3 IN ANY ONE TANK

IMO SHIP TYPE 2

IS INTENDED TO TRANSPORT PRODUCTS WITH

APPRECIABLY SEVERE ENVIRONMENTAL AND SAFETY

HAZARDS WHICH REQUIRE SIGNIFICANT PREVENTIVE

MEASURES TO PRECLUDE ESCAPE OF SUCH CARGO. THE

QUANTITY OF CARGO REQUIRED TO BE CARRIED IN A TYPE

2 SHIP SHOULD NOT EXCEED 3000 M3 IN ANY ONE TANK

IMO SHIP TYPE 3

IS A CHEMICAL TANKER INTENDED TO TRANSPORT

PRODUCTS WITH SUFFICIENTLY SEVERE ENVIRONMENTAL

AND SAFETY HAZARDS. THESE PRODUCTS REQUIRE A

MODERATE DEGREE OF CONTAINMENT TO INCREASE

SURVIVAL CAPABILITY IN A DAMAGED CONDITION. THERE IS

NO FILLING RESTRICTION FOR CHEMICALS ASSIGNED TO

SHIP TYPE 3

CRUDE OIL TANKERCHEMICAL TANKER

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CHEMICAL vs. PRODUCT / CRUDE TANKER

CHEMICAL TANKERS ARE AMONGST THE MOST COMPLEX AND SOPHISTICATED SHIPS

THE IMO 2/3 FLEET AT A GLANCE

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4,244 SHIPS CLASSIFIED AS IMO 2/3 TANKERS100.6 MIL DWT / 111.5 MIL CBM / 10 YRS AVG AGE

1,851 SHIPS / 63.1 MIL DWT 69.8 MIL CBM TRADING NON-IMO PRODUCTS

2,393 SHIPS TRADING IMO 2/3 PRODUCTS 37.5 MIL DWT / 41.6 MIL CBM / 10.5 YRS AVG AGE

180 “METHANOL” TANKERS BETWEEN 37K & 50K DWT8.4 MIL CBM SPACE: 70 ZINC (3.75 MIL CBM) + 31 INTERLINE (1.37 MIL CBM) + 15

MARINELINE (732K CBM) + 64 STAINLESS STEEL (2.55 MIL CBM)

YOUNG FLEET – 8.5 YRS AVG AGE

32 SHIPS OLDER THAN 15 YRS AND 8 SHIPS OLDER THAN 20 YRS

42 SHIPS FOR CAPTIVE METHANOL TRADE

209 NEW BUILDS / 4.8 MIL DWT / 5.3 MIL CBM IN THE PIPELINE

(SEPT 2016 – 2019) 75 SHIPS ALREADY DELIVERED BETWEEN JAN-AUG 2016

181 SHIPS SUITABLE FOR METHANOL

1640 SHIPS SUITABLE FOR METHANOL 26.7 MIL

DWT / 29.6 MIL CBM / 11.5 YRS AVG AGE

STAINLESS STEEL SPACE ACCOUNTS FOR 78% OF

ALL NEW BUILDS (BY CBM)

29 SHIPS (37-50K DWT) / 1.3 MIL CBM OF NEW BUILDS BY 2019

4 ZINC (228K CBM) + 4 INTER LINE (214K CBM) + 21 STAINLESS

STEEL (895K CBM) SUITABLE FOR METHANOL

IMO 2/3 NEW BUILDS DELIVERY

TYPICAL METHANOL CARRIER & ECONOMICS

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SIZE RANGE: 13,000 DWT UP TO ~50,000 DWT AVERAGE SIZE HAS INCREASED OVER THE YEARS

AVERAGE SPEED: 14 KNOTSUSUAL TRANSIT TIMES:

• 19 – 21 DAYS MIDDLE EAST GULF - MID CHINA

• 33 – 36 DAYS US GULF / CARIBS - MID CHINA

• 07 – 09 DAYS SE ASIA - MID CHINA

• 17 – 20 DAYS NEW ZEALAND - MID CHINA

ABILITY TO LOAD MULTIPLE CARGOESMULTIPLE TANKS WITH INDIVIDUAL MANIFOLD, PUMPS & LINES

FOR EACH TANK

DEDICATED SHIPSBALLAST BACK ECONOMICS OR CLEAN/REFINED PETROLUEM

PRODUCTS BACKHAUL CARGOES

30-33 TONNES / DAY BUNKER CONSUPTIONUSD 8,500 PER DAY IN BUNKER COST FOR AN MR

(BSS USD 250 / MT BUNKERS)

CURRENT TIME CHARTER RATES: USD 15,500 –16,500 PDFROM US$ 13,500 – 14,500/ DAY IN 2014

FROM US$ 19,500 – 21,000/ DAY IN 2015

NEWBUILD COST: ~ $ 37.0 MILLION

DAILY FINANCE COST: ~ $ 10,150

(80% FINANCED @ 8% OVER 12 YEARS) FINANCE COSTS ARE RISING RAPIDLY & SHIP FINANCE / PE MONEY HAS

DRIED UP

FINANCIAL COSTS

CREW: $ 3,500

MAINTENANCE: $ 2,000

INSURANCE: $ 700

ADMINISTRATION: $ 800

BREAK EVEN LAY-UP $ 7,500

VESSEL DAILY

OPERATING COSTS

~ $ 17,850 / DAYT/C BREAK EVEN

~ $ 15,500 – 16,500 / DAYCURRENT T/C RATES

~ $ 3.05 MILLION

(11,500 LDT @ $305 ~ 25 YEARS)

RESIDUAL SCRAP

VALUE

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GROWTH OF THE MEOH-SUITABLE MR FLEETC

BM

# O

F S

HIP

S

(NEWBUILDS VS. SCRAPPED SHIPS)

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SHIPPING MARKETSSLOWDOWN IN 2016STRONG MARKET IN 2H 2015

SOURCE: TRADEWINDS SHIPPING NEWSPAPER

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CURRENT SHIPPING MARKETS

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ALL TANKER MARKETS HAVE SLOWED DOWN ACROSS THE BOARD IN 2016• OVERCAPACITY OF TONNAGE IS THE PRIMARY DRIVER FOR THE SLOW DOWN

• REFINED PRODUCTS (CPP) / FUEL ADDITIVES ARE NO LONGER COMPETING W/ CHEMICALS AND METHANOL FOR SPACE

• “SWING TONNAGE” IS NOW MOSTLY EMPLOYED IN THE CHEMICALS MARKET AS THE CPP MARKET IS ALSO HEAVILY OVER

SUIPPLIED WITH 100+ NEW TANKERS SINCE OCT 2015• OTHER SEGMENTS OF THE INDUSTRY ARE COMPETING WITH EACH OTHER & HAVING A PRONOUCNED IMPACT

FREIGHT RATES ARE FALLING DESPITE CLIMBING BUNKER PRICES• TONNAGE OVERSUPPLY & LOWER EARNINGS FOR BOTH SPOT AND COA PLAYERS

• 60-70% OF THE CHEMICAL BUSINESS IS CONTRACTED

WEAKER SENTIMENT & A PROLONGED TOUGH SUMMER• THE BULLISH SENTIMENT AND EARNINGS FROM 2015 HAVE DISAPPEARED

• LOWER TIME CHARTER RATES FOR ALL SIZES AND SECTORS

• CHEAP FINANCE HAS DISAPPEARED FROM SHIPPING

• CONSOLIDATION IN THE CHEMICAL TANKER INDUSTRY IS WELL UNDERWAY – SPECIALLY WITH SMALL OPERATORS

• INCREASED SCRAPPING ACTIVITY IN JULY DRIVEN BY RISING STEEL PRICES

USG TO FAR EAST:• USG TO FAR EAST TRADE LANE HAS COOLED DOWN SIGNIFICANTLY COMPARED TO EARLY 2016 PRIMARILY DUE TO OVER

SUPPLY OF TONNAGE IN THE USG• RATES ARE DOWN 40% COMPARED TO THEIR PEAK IN MARCH / APRIL

MIDDLE EAST TO FAR EAST:• RELATIVELY SLOW / SOFT MARKET THIS YEAR WITH FEWER SPOT VOLUMES AND NO SHORTAGE OF OPEN SHIPS

• SPOT RATES ARE DOWN 25% COMPARED TO 2015 WITH WEAKER CHEMICAL AND CPP MARKETS

• TRAMP OWNERS ARE STRUGGLING TO FIND PROFITABLE EMPLOYMENT

• EASING OF IRANIAN SANCTIONS HAVE HAD NO MAJOR IMPACT

FREIGHT RATES TO MID CHINAVOLATILITY IN USG – FAR EAST MARKET

• MR TYPE CARGO (LARGE CARGO) SIZE

• MANY PLAYERS

• LOW CONTRACT RATION MORE SPOT CARGOES

• SUPPLY CENTER = DEMAND CENTER

• RESULT: HIGHLY VOLATILE MARKET

FR

EIG

HT

RA

TE

, $/M

T

IFO

380

FU

JAIR

AH

, $/M

T

SPOT FREIGHT RATES ARE A FUNCTION OF SUPPLY AND DEMAND

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SHIPPING UPDATES & OUTLOOK

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OVER SUPPLY OF TONNAGE TO CONTINUE TILL ATLEAST 2019• 209 ADDITIONAL SHIPS EXPECTED BETWEEN NOW AND END OF 2019

• SLOWDOWN IN NEW ORDERS

• SUPPLY-DEMAND IMBALANCE TO CONTINUE AND 2017 EXPECTED TO BE SIMILAR TO 2016

• ADEQUATE FLEET TO ACCOMMODATE CHANGE OF TRADING PATTERNS (USG/CARIBS TO FE) AND TON MILE DEMAND

• COA RATES UNDER PRESSURE AND TOUGH CONTRACT RENEWAL PERIOD

• OWNERS KEEN TO SECURE VOLUMES IN CONTRAST TO 2015

PRIVATE EQUITY & CHEAP FINANCE HAS DRIED UP FOR SHIPPING• FINANCE RATES ARE RISING RAPIDLY AS PRIVATE EQUITY / HENDE FUNDS HAVE LOST THEIR APPETITE FOR SHIPPING AND HAVE

STARTED TO OFF-LOAD SHIPPING ASSETS AND FOCUSING MORE ON THE CORE BUSINESS

• CONSOLIDATION IS EXPECTED TO CONTINUE IN A LOW-PROFITABILITY ENVIRONMENT

• INCREASED SNP / TIME CHARTER ACTIVITY & OPPORTUNITIES FOR DISTRESSED ASSESTS

IRANIAN SANCTIONS & VOLUMES• NO PREMIUMS CURRENTLY

• CLARITY POST US ELECTIONS

• PNI & BANKING CHALLENGES EXPECTED TO BE OVERCOME & BUSINESS EXPECTED AS USUAL

REGULATORY CHANGES ON THE HORIZION WILL ASSIST WITH CONSOLIDATION• 8 SEP 2017 - BALLAST WATER MANAGEMENT REQUIREMENTS (USD 500,000 – USD 1 MILLION)

• 1 JAN 2020 – LOW SULPHUR FUEL OIL REQUIREMENTS (USD 3-5 MILLION)• METHANOL / LNG AS AN ALTERNATE TO MARINE FUEL

• INCREASED COSTS EXPECTED TO BE PASSED ON TO CHARTERERS AND FREIGHT RATES TO REFLECT SAME

• INCREASED SCRAPPING ACTIVITY AND LIKELIHOODOF THE FLEET SHRINKING

NEW PANAMA CANAL• NO REAL IMPACT CURRENTLY FOR THE METHANOL BUSINESS

• CHINESE PORT / BERTH RESTRICTIONS DRIVING VESSEL SIZE

THE IMPORTANCE OF SHIPPING TO THE METHANOL BUSINESS CANNOT BE OVEREMPHASIZED

• METHANOL IS ONE OF THE LARGEST TRADED COMMODITES & METHANOL DEMAND IS EXPECTED TO CONTINUE TO GROW

• METHANOL REQUIRES TO BE SHIPPED ON SPECIALIZED TANKERS

• SHIPPING COSTS ACCOUNT FOR A SUBSTANTIAL PERCENTAGE OF THE TOTAL COST COMPARED TO OTHER COMMODITIES

• CURRENT SHIPPING MARKETS ARE VOLATILE & PRESENT OPPORTUNITIES FOR OPTIMIZATION WITH STRATEGIC PLANNING

SUMMARY

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QUINCANNON ASIA PTE LTD: BRIEF INTRODUCTION

NEW YORK

SINGAPORE

SHANGHAIWORLDWIDE COVERAGE INCLUDING

TRANSATLANTIC, TRANSPACIFIC,

INTRA-AMERICAS AND MIDDLE EAST

GULF

COVERING MIDDLE EAST GULF &

INDIA, SOUTH EAST ASIA, FAR

EAST ASIA & TRANSPACIFIC

TRADE LANES

SERVICING CHINA

DOMESTIC AND FAR

EAST MARKETS

• CHEMICALS & SPECIALTY LIQUIDS• METHANOL & DERIVATIVES• VEGOILS & DERIVATIVES• ETHANOL• LUBE-BASE OILS / CPP

INDEPENDENT SHIPBROKERS, ESTABLISHED IN 1974 IN NEW YORK AND SPECIALIZED IN THE BULK MARINETRANSPORT OF THE FOLLOWING:

•PETROCHEMICAL GASES & OLEFINS

• LPG

•TIME CHARTER OF VESSELS

•SECOND-HAND SALES

•RESEARCH, REPORTS & CONSULTING

QUINCANNON OFFICES:

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THANK YOU / Q&A

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