pradeep rajan platts shipping

WHAT’S IMPACTING THE DRY BULK MARKETS

Pradeep Rajanpradeep.rajan@spglobal.com

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Consists of a global team, working from offices in London, Singapore and Houston

Publishes three daily reports: Dirty Tankerwire, Clean Tankerwire and Dry Freight Wire

Hundreds of daily assessments, real time news, analysis, unique reports, podcasts, videos

Hands-on expertise in freight markets through daily engagement with a wide variety of sources, including brokers, charters, shipowners, traders, agents etc.

Robust methodology to ensure transparency and integrity in all assessments

PLATTS SHIPPING

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LATEST FROM PLATTS: TIME CHARTER EQUIVALENTS

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• After prolonged consultation with the industry, Platts launched TCE assessments for Supramax, Panamax and Capesize vessels to reflect the $ per day pricing derived from the respective voyage rates published on a $ per metric tons basis in the Platts Dry Freight Wire

• Platts TCE assessments are derived from voyage charter freight rates, which are largely considered as a leveling factor for the shipping market. The calculation is done meticulously with a set of standardized parameters such as vessel size, port cost, bunker consumption/cost, vessel speed etc., which are obtained through an exhaustive industry survey

• Dry bulk shipping companies track their earnings in $/day and having a TCE index to compare against time charter and voyage charter rates, makes it an ideal index that can be used to hedge freight risk

• The TCE analysis along with technical analysis can offer guidance to shipowners, operators and charterers to make informed trading decisions

LATEST FROM PLATTS: TIME CHARTER EQUIVALENTS

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• Supply Side Dynamics: The Balancing Act

• Demand Side: The Steel Track

• Demand Side: The Coal Track

AGENDA

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BALANCING ACT: NEWBUILDING ORDERS FALLING

Source: Banchero Costa

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BALANCING ACT: DEMOLITION BRINGING DISCIPLINE

Source: Banchero Costa

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BALANCING ACT: SPUR IN SECONDHAND ACTIVITY

Source: Banchero Costa

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WORLD STEEL PRODUCTION: CHINA HAS LION’S SHARE

2015 2016

Source: World Steel Association

11Source: World Steel Association

WORLD STEEL PRODUCTION: THE GIANT IS CHINA

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WORLD STEEL PRODUCTION ANNUAL GROWTH TREND

Source: World Steel Association

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STEEL EXPORTS-IMPORTS HELPS TON MILE DEMAND

Source: World Steel Association

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WORLD DEMAND OUTLOOK – LOOKING POSITIVE

Central/S America2016 2017 40.8 MT 42.5 MT

World 2016 2017

1,502 MT 1,510 MT

Source: World Steel Association

*MT - Million metric tons

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CHINA IRON ORE HUNGER CONTINUES UNABATED

Source: China Customs

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CHINA IRON ORE IMPORT FROM INDIA, IRAN SPIKE

Source: S&P Global Platts

• In 2011, India accounted for around 10% of China’s total imports• In 2016, India exported over 15 million mt, which is 1.5% of China’s total imports

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SCRAPPING HELPING CAPESIZE FREIGHT RATE

Source: S&P Global Platts, Banchero Costa

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INDIAN STEEL EXPORTS UP AS CAPACITIES SPIKE

• India’s finished steel exports in 2016 December soared 92% on-year to 747,000 mt

• Current steel capacity is 122 million mt/year but it is underutilized

• Overall finished steel output during last April-January up 10.7% on-year to 82.87 million mt – making for an annualized total of 99.4 million mt/year

• Consumption up by 3.5% y-o-y to 68.89 million mt (or 82.6 million mt annualized)

• India could become world’s 2nd biggest steel producer after China in the next 12-18 months as steelmakers add capacities in anticipation of upcoming demand

Source: S&P Global Platts

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CHINA BACK TO THE COAL PLAY

Source: S&P Global Platts

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ASEAN COAL IMPORTS STAYING HEALTHY

Source: S&P Global Platts

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COLOMBIAN COAL EXPORTS BY REGION

Source: S&P Global Platts

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COLOMBIAN COAL ADDS TO TON MILE DEMAND

Source: S&P Global Platts

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POWERING UP - CHINA CONSUMPTION STEADY

Source: S&P Global Platts

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POWER HUNGRY - MAKE IN INDIA MAY BE WORKING

Source: S&P Global Platts

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CREST & TROUGH – JAPAN CONSUMPTION SEE-SAWING

Source: S&P Global Platts

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PERIODIC SPARKS – SOUTH KOREA DEMAND HOLDING

Source: S&P Global Platts

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POWER TRIP – THAILAND HAS A SLIGHT DEMAND DIP

Source: S&P Global Platts

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POWERING UP – MALAYSIAN DEMAND INCREASING

Source: S&P Global Platts

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CHINA COAL DEMAND LIFT SUPPORTING FREIGHT

Source: S&P Global Platts

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COAL FROM RUSSIA’S FAR EAST GOING PLACES - 2013

Source: Scatterflow analysis through CFlow, Platts trade flow software

*From Nakhodka

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COAL FROM RUSSIA’S FAR EAST GOING PLACES - 2016

Source: Scatterflow analysis through CFlow, Platts trade flow software

*From Nakhodka

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• Australian thermal coal exports are expected to be 206 million mt in 2017, up from 197 million mt in 2016

• Indonesian shipments are expected to be at 282 million mt for 2017, substantially down from 330 million mt in 2016

• Colombia’s export volumes for 2017 expected to be 87 million mt from 83 million mt in 2016

• Russia’s export could touch 140 million mt in 2017, up from 135 million mt in 2016

• South African exports to be at 81 million mt in 2017, up on year from 78 million mt

• US export tons in 2017 are estimated at 18 million mt, down from 20 million mt in 2016

• China's and India's import volumes for thermal coal in 2017 are predicted to stay unchanged on-year at 157 million mt and 166 million mt

• Negligible change is expected for North-east Asia importers Japan, Korea and Taiwan, which have a combined intake of 299 million mt

HOW IT COULD LOOK IN 2017

Source: S&P Global Platts, Australia’s Department of Trade & Industry

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• Market participants expecting a stable and steady freight market environment. Strong sentiment heard from iron ore and coal sectors with Chinese demand forecast in the positive territory

• Discipline in newbuilding orders and perk up in secondhand sales are helping to balance the supply side, which is offering owners control over freight negotiation

• Inbound and outbound dry bulk trade from India picking up, which is adding to demand in this sector. Visible increase in limestone imports and iron ore exports

• Pick up in dry bulk commodity prices helping increase ton-mile demand, thanks to arbitrage plays

• Forward Freight Agreement market seeing an increase in trading volumes, especially in the Panamax and Supramax segments

WILL 2017 BE A SMOOTH VOYAGE?

#PlattsLOF

R CRUDE PRICES AFTER OPEC’S 2016 CUT?WHATS HAPPENING IN THE OIL MARKETS

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CAN THE CUTS BRING BALANCE?

Saudi Arabia has taken the lead, with Russia following

Compliance appears strong so far

Cuts come at a time of record output and seasonal lulls

A lasting deal is not easy

Saudi Arabian crude output (mmb/d)

Source: S&P Global Platts

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OPEC AND NON-OPEC CUTS FOR H1-17

SudanBrunei

South SudanBahrain

Equatorial GuineaMalaysia

KazakhstanAzerbaijan

OmanMexicoRussia

IranNigeria

LibyaGabon

EcuadorQatar

AlgeriaAngola

VenezuelaKuwait

UAEIraq

Saudi Arabia

-100 0 100 200 300 400 500

(exempt)

OPEC

NON-OPEC

(in ‘000 b/d)

Source: OPEC, S&P Global Platts

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OPEC COMPLIANCE

*(million b/d)

Source: OPEC

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US CRUDE OIL EXPORTS PRE-, POST-BAN LIFT

USASwitzerland

Spain

South Korea

France

India

0 5,000 10,000 15,000

Top 10 destinations pre-ban lift, Dec-14 to Nov-15 (‘000 b)

Netherlands

Italy

UK

Singapore

Japan

Dec-14

Feb-15

Apr-1

5Jun

-15Au

g-15Oct-

15Dec-

15Feb

-16Ap

r-16

Jun-16

Aug-1

6Oct-

160

100200300400500600700800

Pre ban lift Post ban lift

Source: Banchero Costa

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US RIGS & STOCKS

Source: EIA, Baker Hughes North American Rig Count

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GLOBAL MARKET BALANCES

Source: EIA, S&P Global Platts

In million b/d)

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CHINA’S CRUDE OIL IMPORTS ON THE UPWARD PATH

Record 8.6 mil b/d in Dec 2016

• China imported a total of 7.6 million b/d of crude in 2016, up 13.3% from 6.7 million b/d in 2015

• China continues to build its strategic petroleum reserves

• Crude import licenses granted to independent refiners from mid-2015

First batch of 2017 Crude Import Quotas for China’s independent refiners

Source: S&P Global Platts China Oil Analytics

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IMO MARPOL 2020 – CUTTING SULFUR AT SEA

IMO Sulfur Limit (%S)

Source: IMO

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• Chinese crude demand growth has slowed but keeps going

• Further potential for additional crude supplies from Libya, Nigeria

• Reviews of refinery slates and technology as MARPOL 2020 nears

• Cuts by OPEC and others could provide a fragile new floor

• Flexible US shale output has set the ceiling

FURTHER ISSUES FOR 2017

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Q&A SESSION