Shipping Supply Analysis : planting the seeds of recovery

Contact : Daejin Lee / daejin82@gmail.com / www.JinreSearch.com
Dry Bulk Supply Review
- The Seeds of Recovery
2016.06.28
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Summary
Seaborne dry bulk trade declined 0.1% in 2015 largely due to a 6% drop in
coal trade and is unlikely to show any significant recovery in the medium
term.
However, record levels of demolition and minimal new orders have given
some hope for fundamental recovery, even though fleet supply is expected
to increase in the near term because of the existing orderbook.
Support for recovery
 High slippage and cancellation of contracts
 Absence of new orders / Shipyard defaulting
 Tonnage adjustment through slow-steaming
Difficulties
 Highly fragmented ownership across many geographical regions
 Massive remaining orderbook / Government backed Shipyards
 Low fuel oil cost
2

Dry Bulk Fleet Size Distribution as of 1st June 2016
 According to Clarksons, the current trading fleet of bulkers over 10,000 dwt consists of
10.728 units equivalent to about 781 million dwt, as of 1st June 2016. This includes 1625
Capesize(100k+) vessels, 2453 Panamax(65-100k) vessels, 3360 Supramax(40-65k) vessels,
and 3290 Handysize(10-40k) vessels.
3

Baltic Dry Index - at bottom ?
 BDI at historical lows with lots of Orderbook & Shipyard capacity, over-supply continues
 The general consensus is that market is at or near the floor and now focus on the shape
of the downturn – namely how long will the downturn last? Is there hope this year?
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
Baltic Dry Index
Super Cycle 2003-2008
China Demand Boom
with Lack of Ship & Shipyards capacity
In line with Shipping Cycle
Over-supply
continues
4

World Seaborne Dry Bulk Trade Demand
 After strong demand growth averaged around 5 percent y-o-y over the last decade,
seaborne dry trades declined by nearly 0.1 percent last year and is forecast to
remain largely flat this year.
0
1,000
2,000
3,000
4,000
5,000
6,000
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
Milliontonnes
DryTradeGrowth(Yr/Yr)
Dry Trade Growth Seaborne Dry Trade Volume
Cargo
5
※ Source : Clarkson

Capesize development & Earning
 The stagnant dry trade growth led Capesize earnings even more correlated to fleet
development (r=-0.80)
 Supply-side adjustment helps to support rates at the moment, and supply development
will be critical for the fundamental recovery of the dry bulk freight market.
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
(3)
(2)
(1)
0
1
2
3
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May
2015 2016
Capesize,$/day
MillionDwt
Fleet Change Cumulative C5TC 2M+
C5TC
6
Fleet

Fleet by Size
 There was a notable shift away from some of traditional sectors in recent years, with
relatively fewer Panamax(65-80k) and Handymax(40-50k) sectors being delivered, in favor
of a larger portion of Kamsarmax and Ultramax delivery.
0
50
100
150
200
(Million Dwt)
Handysize Supramax Panamax Capesize
7

Fleet by Age
 With earnings currently at OPEX or below, even 15 YR Old vessels are near at scrap value
 Tonnage volume of age beyond 15 years which has become pure candidate for
demolition is coincidently matching the size of Orderbook(15% of total fleet).
0
50
100
150
200
250
300
On Order 0-4 years 5-9 years 10-14 years 15-19 years 20+ years
(Million Dwt)
Capesize Panamax
Supramax Handysize
8

Old Fleet in No.
 Around 130 Mdwt were identified that could be removed from the market in the medium
term based on elderly vessels(15.8% of total fleet) approaching their five year special
surveys and/or interim surveys over the next two or three years.
Pre
85
86 87 88 89 90 91 92 93 94 95 96 97 98 99 00' 01'
Handysize 185 35 18 9 17 22 16 23 18 25 67 78 96 59 63 45 62
Supramax 35 17 6 3 13 17 17 8 1 45 64 61 67 60 40 41 98
Panamax 18 2 1 1 9 12 5 5 16 33 36 25 55 46 60 55 111
Capesize 0 2 1 4 2 4 14 26 22 18 9 17 6 18 25 26
0
50
100
150
200
250
300
Numberofvessels
~2001 Mdwt No. 노후선비중
Cape 38.8 194 12.5%
PMX 36.2 490 18.5%
SMX 27.8 593 15.2%
Handy 20.4 838 21.9%
Total 123.2 2115 15.8%
9※ Source : Clarkson, HJS

Scrap Volume in No.
 The demolitions have been very high this year, and as of 1st Jun, the volume reached
21Mdwt which was 10% higher than year-ago level
 Low earning and poor outlook for the dry bulk sector provide no incentives for ship
owners to retain their vessels.
0
10
20
30
40
50
60
70
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5
2015 2016
NumberofVessels
Capesize Panamax
Handymax Handysize
10

Recycled Fleet Size & Age Distribution since 2012
 The trend of reduction in the scrapping age has continued, with total 10.8 Mdwt(53%) of
the tonnage leaving the fleet aged less than 20 years.
 The average demolition age usually follows the state of market, and unsurprisingly it
dropped to 23.5 years in 2016, almost two years younger than last year.
Av. Age 2014 2015 2016
Cape 23.6 20.8 20.6
PMX 25.0 23.0 21.0
SMX 26.7 26.0 22.8
Handy 29.1 28.5 29.0
Total 27.3 25.2 23.5
11※ Source : Clarkson, HJS
(Dwt)

Scrap & Earning
 Even though, demolition is the only possible solution for ship owners to survive, the
slower pace of scrapping vessels is expected in the short-term with onset of the
monsoon, the fall in scrap prices, and the hope of seasonal rise in freight rate for the
final quarter of the year.
0
10,000
20,000
30,000
40,000
50,000
60,000
0
5
10
15
20
25
1-10
5-10
9-10
1-11
5-11
9-11
1-12
5-12
9-12
1-13
5-13
9-13
1-14
5-14
9-14
1-15
5-15
9-15
1-16
5-16
9-16
($/day)(Number of vessels,
Million $)
Cape Scrap (Number, 3MA)
Scrap Forecast
Scrap and old ship value spread $Million
Capesize 4TC average (RHS)
12

Dry Bulk New Building Contracting & BDI
 BDI and Dry Bulk NB contracting activities are highly correlated with each other (r=0.7)
 Contracting of bulkers is unlikely to significantly increase in the near term, due to the
current weak prospects in the freight market.
0
100
200
300
400
500
600
700
800
900
1000
(4,000)
(2,000)
0
2,000
4,000
6,000
8,000
10,000
12,000
1-00
7-00
1-01
7-01
1-02
7-02
1-03
7-03
1-04
7-04
1-05
7-05
1-06
7-06
1-07
7-07
1-08
7-08
1-09
7-09
1-10
7-10
1-11
7-11
1-12
7-12
1-13
7-13
1-14
7-14
1-15
7-15
1-16
(No.)
(Pts, $Million)
Contracting Value ($Million)
Contracting Number(RHS)
Baltic Dry Index
13

New Building Contracts by Ship type
 In 2014 Jan-May, there were 712 new vessels ordered. In 2015 Jan-May, there were 503,
this year has been 120 orders placed so far in world shipyards.
 For Dry bulk carriers, in 2015 Jan-May, there were 135 new Vessels ordered. This year has
been only 4 ships if excluding 30 Valemax orders in Chinese shipyards.
30 Valemax
14
(Dwt)

Dry Bulk Orderbook by Size
 Order being placed for 2016 and 2017 are fairly spread across the size sectors from
Capesize to Handysize
 New orders beyond 2018 are mainly focused on Capesize with about 65% and 80% of
Capesize orders being placed in 2018 and 2019 respectively
0% 20% 40% 60% 80% 100%
2016
2017
2018
2019
Capesize Panamax Supramax Handysize
15

Dry Bulk Orderbook as of 1st June 2016
 Despite record levels of demolition and minimal new orders, fleet supply is expected to
increase because of the existing orderbook.
 The large amount of existing contracts that are to be delivered over the next few years
focused on Year 2016 and 2017
112
44 40
15
175
99
32
3
289
170
28
7
160
112
39
17
0
50
100
150
200
250
300
350
2016 2017 2018 2019
On Order
Numberofvessels
Capesize (100k+) Panamax (65-100k)
Supramax (40-65k) Handysize (10-40k)
16

Dry Bulk NB Contracting by Country of Build
 In 2016, all 30 Valemax ships ordered in Chinese Shipyards, which will be scheduled for
delivery across 2018/2019 while none of dry bulk vessel ordered in Korean Yard
 Japanese yards has become increasingly more competitive due to the depreciation in the
Yen versus the US dollar, thereby securing large new building orders for 2017-2018
30 Valemax
17
(Dwt)

Dry Orderbook by Country of Build
 Dry bulk ships are being ordered primarily in China and to a lesser extent, Japan
 It is expected that almost half of the orders placed in China will likely be either cancelled
or delayed this year while most of the orders in Japan will be delivered on schedule.
0
10
20
30
40
50
60
2016 2017 2018 2019 2016 2017 2018 2019 2016 2017
China Japan Korea
(Mdwt)
백만
Capesize
Panamax
Supramax
Handysize
18

Fleet & Orderbook Change in 2016 so far
 The pace of cancellations and new building contract renegotiations has continued at the
strong level, with 90 vessels being adjusted from the orderbook which will be scheduled
for delivery this year. (310 delivered / 400 removed from the schedule in 2016)
310
-400
95
52 24 6
-223
-157
-500
-400
-300
-200
-100
0
100
200
300
400
2016 2017 2018 2019 2020
Delivery in
2016
On Order On Order
Summary
Total
Numberofvessels
Capesize (100k+) Panamax (65-100k) Supramax (40-65k) Handysize (10-40k) Sum
19

Fleet & Orderbook Change - Capesize
 New 30 Valemax ships ordered which will be scheduled for delivery across 2018/2019.
 12 Capesize vessels being adjusted from the orderbook which will be scheduled for
delivery this year. (61 delivered / 73 removed from the schedule in 2016)
61
-73
9
22
13
0
-29
-35
-80
-60
-40
-20
0
20
40
60
80
2016 2017 2018 2019 2020
Delivery in
2016
On Order On Order
Summary
Total
Numberofvessels
VLOC(260k+) Large Cape(200-260k) Capesize(160-200k) Small Cape (100-160k) Total (100k+)
30 Valemax in Chinese Shipyard
20

Delivery Volume in Number
 In the first five months of 2016, Clarksons reported the delivery of 295 units over 10,000
dwt, for a total of 24.7 million dwt. This included 56 Capesize vessels of 10.4Mdwt, 65
Panamax of 5.3Mdwt, 103 Supramax of 6.3Mdwt, 71 Handysize of 2.6Mdwt.
0
20
40
60
80
100
120
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5
2015 2016
Numberofvessels
Capesize Panamax Handymax Handysize
21

Delivery rate in 2016
 Compared to the orderbook at the beginning of 2016, which indicated 92.7m dwt to be
delivered this year, the number of new deliveries of Chinese yard and Japanese yard so
far showed a delivery rate of about 33%(by dwt) and 80% in 2016 respectively.
80%
33%
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
0%
20%
40%
60%
80%
100%
120%
140%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
MillionDwt
Japan Delivery Rate China Delivery Rate
Japan Delivery(RH) China Delivery(RH)
22

Slow steaming, Bunker cost & Earning
10.5
10.7
10.9
11.1
11.3
11.5
11.7
11.9
0
20
40
60
80
100
120
140
160
9-14 10-14 11-14 12-14 1-15 2-15 3-15 4-15 5-15 6-15 7-15 8-15 9-15 10-15 11-15 12-15 1-16 2-16 3-16 4-16 5-16
Vesselspeed,Knots
Brent,&C5TCIndex100=2014.09
Brent C5TC Speed (right)
 Multiple correlation(R=0.78) among Brent price, Capesize speed, and earning explains
that either of higher earning or lower bunker cost could result in speed acceleration
which would unlock further capacity onto the market, delaying any longer term sustained
freight recovery.
상관계수 속도 유가 운임
속도 1 -0.49 -0.42
유가 -0.49 1 0.66
23

Dry Fleet Outlook
 The severity of the freight market weakness forced owners to recycle their ships in
near record level last year and is forecast to do so this year. However, considering
the large amount of existing contracts, dry fleet will continue to expand albeit at a
slower pace for next 2-3 years.
3%
4%
3% 2%
7% 7% 7% 7% 7%
10%
17%
15%
11%
6%
4%
2%
1% 1%
4%
-10%
-5%
0%
5%
10%
15%
20%
(60)
(40)
(20)
0
20
40
60
80
100
120
MilliondwtofVessels
Dry
Dry Deliveries Dry Demolition Orderbook Total Growth
Removal
Delivery
24

Capesize Outlook
 Last year, while the fleet has shrunk by five vessels, the larger size of new builds led 0.3%
fleet growth in dwt term and for now is forecast to increase modestly around 0~1%
across 2016/2017 before facing 30 Valemaxes in 2018
5% 5%
3%
5%
9% 9% 9% 9% 9%
19%
23%
19%
12%
5% 5%
0% 0% 0%
3%
-10%
-5%
0%
5%
10%
15%
20%
25%
(20)
(10)
0
10
20
30
40
50
MilliondwtofVessels
Cape
Cape Deliveries Cape Demolition Orderbook Growth
Removal
Delivery
25

Panamax Outlook
 파나막스 섹터는 연비가 높은 대형 캄사르막스(80-84k)선형의 유행으로 2010-2013년까지
연평균 10%수준의 매우 높은 선복 증가율을 기록했으나 지난해부터 인도량 감소와 해체량
증가로 1%대로 성장율이 하락함. 현재 섹터 중 가장 저조한 수익을 보이고 있어 해체량이
더욱 증가할 것으로 예상 됨에 따라 당분간 증가율은 약 0~1%에 머물 것으로 전망됨
7%
9%
4%
1%
8% 8% 8%
6% 6% 5%
12% 12% 12%
9%
4%
1%
0%
1%
3%
-10%
0%
10%
20%
30%
(10)
0
10
20
30
MilliondwtofVessels
PMX
PMX Deliveries PMX Demolition Orderbook Growth
Removal
Delivery
26

Supramax Outlook
 수프라막스 섹터는 지난해 다른 선형들이 모두 약 0~1% 수준의 낮은 선복 증가율을 보였음
에도 홀로 8%의 매우 높은 성장율을 기록함. 여전히 막대한 신조 주문 잔량이 남아 있고 현
존 선대 역시 대부분 2010년 이후 인도된 모던 선박들로 구성되어 해체량 규모 역시 기대하
기 힘들어 2017년까지도 약 4~5% 수준의 높은 선복 증가율이 유지 될 것으로 예상됨.
2%
9% 8%
5%
7%
9%
7% 7%
8%
11%
20%
18%
12%
7%
5%
8%
5%
4%
7%
-10%
0%
10%
20%
30%
(10)
0
10
20
30
MilliondwtofVessels
SMX
SMX Deliveries SMX Demolition Orderbook Growth
Removal
Delivery
27

Previous Reports : includes freight forecasts
(1) Bulk Supply : The Seeds of Recovery (Korean / English)
(2) Tanker Supply : Oil Prices and Oversupply (Korean)
(3) Coal Trade Market : The end of the coal era, soon or yet? (Korean / English)
(4) Iron Ore Trade Market : Chinese steel market (Korean)
(5) Understanding Bulk Shipping Market (Korean)
(6) Shipping Market Chartpack
(7) Shipping Supply Chartpack
We invite any comments and/or questions you may have. if you need bespoke
reports & analysis, we would love to meet specific client needs. To discuss any
individual requirements please contact below
Daejin Lee / Commodity Research / Shipping / FFA
Mob: +82-10-3462-5311
Email: / daejin82@gmail.com
Thank you

Shipping Supply Analysis : planting the seeds of recovery

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