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Dry bulk update BDI at 26-year low – get ready to invest

October 2012

Equity research

Jonas Advocaat Kraft Direct: +47 2413 2188

Email: [email protected]

Per Kristian Reppe Direct: +47 2413 2187


Please refer to important disclosures at the end of this document

Market research

Nicolai Hansteen Direct: +47 2287 8817


2

Summary

After almost four years in a difficult dry bulk market, we are now getting closer to a turning point. During next year we estimate the demand growth to exceed supply growth, with following improved utilization and market fundamentals in 2014 and 2015. We believe there is limited downside risk for newbuild prices as they have decreased to historical lows adjusting for inflation. Still, a difficult financing environment and new fuel efficient vessel specs should put additional downward pressure on secondhand values, especially resales.

Market risks of severing banking problems and counterparty risk woes and we expect the dry bulk market to remain challenging throughout 2012 with dwt supply growing at 13%, faster than dwt demand growth at 10%.

In our base case we see demand outpacing supply in 2013-15, and utilization bottoming at 86% in 2012, improving to 91% in 2015

We believe the next 6-9 months should be the time to take drybulk positions in anticipation of a better market balance from 2013 onwards

Chinese steel and iron ore demand is the single most important factor to track going forward

3

BDI close to historical low

Baltic Dry Index

The avg of the YTD Baltic Dry Index (BDI), which measures spot earnings of dry bulk carriers, is at the lowest level seen since 1986

With spot rates for the largest drybulk vessels around opex levels the three first quarters of the current year, the downside is limited and the question is when they will get a sustained recovery

We estimate rates to increase in 2013 compared to the lows of 2012 on the back of slowly improving market fundamentals

Source: Pareto Securities, Bloomberg

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

BDI Low Average

Index

4

Market balance under pressure until 2013…

We estimate 2012 to be the low year for drybulk shipping

Market balance turns positive in 2013 with rates slowly increasing from 2012 lows

DWT supply/demand growth vs capesize rates

Source: Pareto Securities, Clarksons Research Services, Marsoft

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

2000 2002 2004 2006 2008 2010 2012e 2014e

Capesize rate (lhs) Dwt demand growth (rhs) Dwt supply growth (rhs)

y/y growth USD/d

5

… when demand starts growing faster than supply

DWT supply growth vs DWT demand growth

We estimate dwt supply growth to increase by 13% in 2012, versus a DWT demand growth of 10%

Market balance turns positive in 2013 with net supply growth at 6%, below DWT demand growth of 7%

Source: Pareto Securities, Marsoft

5.3%

3.8%

13.4%

11.3%10.0% 6.8%

5.2%

4.1%

7.0%7.7%

14.9% 15.4%

13.3%

6.3%

2.3% 2.6%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2008 2009 2010 2011 2012e 2013e 2014e 2015e

Dwt demand growth Dwt supply growth

y/y growth

6

Utilization should bottom out in 2012…

Utilization expected bottom out in 2012 and slowly improve, but stay below the 10-year average for the foreseeable future

Dry bulk fleet utilization vs BDI

Source: Pareto Securities, Bloomberg, Marsoft

86.8

89.290.5

80

82

84

86

88

90

92

94

96

98

100

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2001 2003 2005 2007 2009 2011 2013e 2015e

Avg BDI (lhs) Utilization (rhs) Utilization 2001-2011 avg (rhs)

Utilization %Avg BDI

7

… and then slowly improve up to 91% in ‘15

We forecast utilization to improve in 2013 and onwards, yet stay below the historical average of 92% and 10-year avg of 93%

Rates should stay below pre-financial crisis levels, but slowly increase from the lows in 2012

Dry bulk fleet utilization


95.7

92.791.6

88.5

86.3 86.8

89.290.5

80

82

84

86

88

90

92

94

96

98

2008 2009 2010 2011 2012e 2013e 2014e 2015e

Utilization 2001-2011 avg

Utilization %

8

Rates expected to slowly increase

Capesize rate forecasts, 2012-15

We make small adjustments to our spot rate forecasts

We expect rates to inch slowly higher from 2012e lows on the back of slowly improving fundamentals


Panamax rate forecasts, 2012-15

Panamax 2013e 2014e 2015e

Base (old): 13,000 (14,000) 16,000 20,000

Capesize 2013e 2014e 2015e

Base (old): 14,000 (13,000) 19,000 (18,000) 28,000 (27,000)

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

2000 2002 2004 2006 2008 2010 2012e 2014e

USDm

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

2000 2002 2004 2006 2008 2010 2012e 2014e

USDm

9

Base, high and low rates forecast

Rates forecast – base/high/low case

Base: Europe in mild recession and slower ton-mile demand growth should fall back to 6.7% in 2013 and after a 7.5% growth in 2012. In our base case, we forecast ton-mile demand to grow by 7% annually 2011-2015.

High: Lower international commodity prices lead to firmer Chinese iron or import growth. This happened at the end of 2011. Ton-mile demand to grow by 8% annually until 2015

Low: European recession leading to a slump in the world economy. Sharp decline in steel demand in OECD countries, while more modest in China. Ton-mile demand to grow by 5% annually until 2015


Base case USD/d 2013e 2014e 2015e 2000-2011 avg

Cape (170' dwt) " 14,000 19,000 28,000 47,000

Pmax (74' dwt) " 13,000 16,000 20,000 25,000

Hmax (51' dwt) " 12,000 14,000 17,000 22,000

Hsize (27' dwt) " 9,000 11,000 13,000 15,000

High case USD/d 2013e 2014e 2015e 2000-2011 avg

Cape (170' dwt) " 21,000 31,000 45,000 47,000

Pmax (74' dwt) " 17,000 21,000 27,000 25,000

Hmax (51' dwt) " 15,000 19,000 23,000 22,000

Hsize (27' dwt) " 11,000 13,000 17,000 15,000

Low case USD/d 2013e 2014e 2015e 2000-2011 avg

Cape (170' dwt) " 8,000 10,000 20,000 47,000

Pmax (74' dwt) " 10,000 13,000 17,000 25,000

Hmax (51' dwt) " 9,000 12,000 15,000 22,000

Hsize (27' dwt) " 7,000 9,000 11,000 15,000

10

Rates forecast below historical break-even

The average 2000-2011 break-even rate is USD 23,000/d and USD 15,000/d for capesize and panamax vessels, while the current break-even is USD 18,600/d and 13,700/d respectively

Our rate forecasts for capes and pmaxes are below historical b/e 2015 and 2014 for capes and pmaxes respectively

Capesize avg break-even 2000-2011

Source: Pareto Securities

Panamax average break-even 2000-2011

Assumptions:

Leverage 60%, interest rate 5%, amortization 15 years, equity rate of return 10%

5,400

4,800

6,400

6,400

23,00018,600

9,00013,000

18,000

27,000

0

5,000

10,000

15,000

20,000

25,000

30,000

OPEX Interest Amort ROE B/E10yr

avg

B/Ecurrent

2012e 2013e 2014e 2015e

USD/d

4,800

2,800

3,700

3,700

15,000 13,70010,000

14,00016,000

20,000

0

5,000

10,000

15,000

20,000

25,000

OPEX Interest Amort ROE B/E10yr

avg

B/Ecurrent

2012e 2013e 2014e 2015e

USD/d

11

Newbuilds at historical troughs: time to get ready to buy

Capesize newbuilding prices at historical low adjusting for inflation, given a NB price of USD 40m

The calculation uses US inflation rate. Inflation adjusted levels probably higher historically, given above inflation growth rates in steel plate and labour costs

Nominal and inflation adjusted capesize NB prices

Source: Pareto Securities, Clarksons Research Services

0

20

40

60

80

100

120

1986 1988 1990 1992 1994 1996 1997 1999 2001 2003 2005 2007 2009 2011

Nominal prices "2012" prices

USDm

12

History points to a significant upside when market turns

There is almost 70% upside to historical avg broker quotes for a cape NB, given a price of USD 40m

Capesize NB cost vs historical inflation adjusted levels


40 40

67

105

0

20

40

60

80

100

120

Current Low Avg High

USDm

68%

163%

13

Resale values are inflated

Given a NB price of USD 40m for a capesize vessel, the NPV of the fuel savings of a vessel which burns 20% less fuel is USD 15m over the lifetime of the vessel

This indicates further downside in resale values, given that resales are trading on par with newbuilds currently

Nominal and inflation adjusted capesize NB prices


40

15

25

40

0

5

10

15

20

25

30

35

40

45

Cape assumed NBcost

NPV bunker savings Cape implied valueresale

Cape resale currentquote

USDm 38%

Assumptions:

WACC 10%, 25 years lifetime, standard consumption 30 tons/d, bunker price IFO 380 cst at USD 650/t, 20% savings fuel efficient design, 205 effective fuel consumption days (65% of days at sea, 55% of seatime in laden condition, 70% of consumption in ballast versus laden condition)

14

Resale is expensive, older assets are cheaper

The current value curve for drybulk vessels indicate that resale values are overstated, whilst older tonnage is more reasonably priced

This is further supported by our view that fuel efficient designs indicate that resale values should decline

Capesize values, current and adjusted for fuel efficiency


40

32

21

9

2522

19

0

5

10

15

20

25

30

35

40

45

0 5 10 15 20 25

Vessel age (years)Current broker values

Value basis resale adj for fuel efficiency and straight line depreciation

USDm

15

Secondhand is not cheap enough yet!

Capesize: cost of 5yr old versus newbuild

Source: Pareto Securities, Clarksons

Panamax: cost of 5yr old versus newbuild

Value of a five year old vessel at 70% of newbuilding cost

1987-2012 average: 86%

1987-2012 low: 51%

Value of a five year old vessel at 76% of newbuilding cost

1976-2012 average: 76%

1976-2012 low: 32%

70%86%

51%

40%

60%

80%

100%

120%

140%

160%

1987 1990 1993 1996 1999 2002 2005 2008 2011

SH % of NB

SH values % of NB prices Avg 1987-2012 Low 1987-2012

76%76%

32%

10%

30%

50%

70%

90%

110%

130%

150%

170%

1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012

SH % of NB

SH values % of NB prices Avg 1976-2011 Low 1976-2012

16

Demand growth expected to remain above historical levels

We forecast ton-mile demand to increase by 7% annually until 2015, faster than the annualized growth of 5% since 2000

Longer freight distances leading to more ton-mile demand

India continues to restrain its iron ore exports with iron ore exports duties of 30%

Reduced iron ore exports from India will most likely be replaced by capesize cargoes, which is negative for panamax rates, but should support cape rates

Dry bulk demand growth (ton-mile)


-2%

0%

2%

4%

6%

8%

10%

12%

0

5,000

10,000

15,000

20,000

25,000

2000 2002 2004 2006 2008 2010 2012E 2014ETotal y/y growth

Bn ton-miles y/y growth

17

Supply growth below historical levels

We expect supply growth until 2015 to remain below historical levels

Supply growth of 10% forecasted in 2012, but then we expect it to slow due to continued high scrapping, slippage and cancellations

Dry bulk fleet size and growth


0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0

100

200

300

400

500

600

700

800

2000 2002 2004 2006 2008 2010 2012e 2014e

Dry bulk fleet y/y growth

Dwtm

18

Dry bulk fleet growth slowing

Dry bulk fleet growth has peaked (in percentage), but continues at unprecedented levels

Dry bulk fleet growth y/y


-5%

0%

5%

10%

15%

20%

25%

30%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Capesize Panamax Handymax Handysize

y/y growth

19

The nominal drybulk orderbook is overstated

Current nominal dry bulk orderbook (dwt) at 22% of the existing fleet, down from 75% at the end of Q3’08

Orders placed prior to the financial crisis may never be delivered:

2006: 4.2m dwt

2007: 29.8m dwt 40% of orderbook

2008: 29.0m dwt

In a difficult dry bulk market, yards have incentives to hold on to the orders and might try to push the orders out in time, i.e. slippage, instead of cancellations

We believe a significant portion of the nominal orderbook will be contingent on market conditions and availability of financing

Dry bulk orderbook (gross)


36%

16%

32%

18% 16 %

22%

9%

0%

5%

10%

15%

20%

25%

30%

35%

40%

VLOC* Capesize Panamax Supramax Handysize Total Pre-financial

crisis orders

% of current fleet

* VLOC: < 230,000 dwt

20

Slippage and scrapping remains high

While cancellations have decreased, slippage has increased the past two years

Due to the prevailing difficult financial environment and dry bulk market imbalance we estimate 12% cancellations going forward and 20% slippage in 2012 decreasing to 15% by 2015.

Cancelations have varied between 6-19% the past four years

Slippage has varied between 20-48% the past four years

Due to spillovers, the delivery ratio was 68% and 79% in 2010 and 2011 and 89% in 1H’12

Actual deliveries vs scheduled deliveries

Source: Pareto Securities, Worldyards, Marsoft

20

62

118 120

69

22

43

8095

61

110%

70% 68%

79%

89%

0%

20%

40%

60%

80%

100%

120%

0

20

40

60

80

100

120

140

2008 2009 2010 2011 1H'12

Scheduled deliveries Actual deliveries Delivery ratio

Dwtm Delivery ratio

21

Skewed age profile – good scrapping potential

14% of the current fleet is more than 21 years old (91m DWT)

Cape: 10% (27m DWT)

Panamax: 12% (20m DWT)

Handymax: 11% (16m DWT)

Handysize: 33% (29m DWT)

8% of the fleet or 53m DWT is more than 26 years, versus a record 25m DWT scrapped in 2011

Age profile dry bulk fleet


339 8 8 16 9

67

23 17 145

9

72

3127 21

9

145

42

21 39

21

0

50

100

150

200

250

0-5 6-10 11-15 16-20 21-25 26-30 >30

Handysize Handymax Panamax Capesize

mdwt47%

2%

6%6%

12%11%

16%

14%

22

Continued scrapping will reduce supply growth

Run rate basis end Q2’12 points to 33m DWT scrapping

Continued weak markets should provide upside to our delivery ratio estimate

Scrapping and other removals


6 32 3 5

107

25

3841

21

70%

1%

2%

3%

4%

5%

6%

7%

0

5

10

15

20

25

30

35

40

45

2002 2004 2006 2008 2010 2012e 2014e

Scrapping & Other Removals % of fleet

Dwtm % of fleet

23

China is the most important dry bulk player

China is the most important contributor to dry bulk demand and accounted for 37% of all dry bulk imports in 2011

China’s economic condition is therefore crucial for the dry bulk industry

Total dry bulk demand split by major countries/regions


37%

27%

16%

11%

8%

China

Others

Far East

West Europe

Japan

% of total dry bulk demand in 2011

24

Slower, but still relatively healthy Chinese economic growth

IMF (Oct.’12) and OECD (May’12) forecast a GDP growth of 7.8% and 8.2% in 2012, respectively

China has an official 7.5% economic growth rate target (Mar 2012). However, China has historically outpaced their previous 8.0% growth target

Our base case 2012 GDP growth is 7.8%

China GDP growth y/y

Source: Pareto Securities, Bloomberg, OECD, IMF

China inflation y/y

For the second time in 2012, the reserve requirement rate was reduced by 0.5% in May. Most major banks in China must now keep at least 20.0% of their deposits as reserves, estimated to add 400bn yuan (~USD 64bn) to the financial system

Lower inflation should give China more room for further easing, if needed

0

2

4

6

8

10

12

14

2002 2003 2003 2004 2005 2006 2007 2008 2008 2009 2010 2011 2012

Growth y/y

1.9

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12

% growth y/y

25

China economics

Industrial production in China has declined slowly in 2H’12 and China PMI reading contracted in Aug. for the second time since the beginning of 2009

China PMI, manufacturing


China money supply, M2

Money supply in China has shown a firm growth, but since the record-high 30% y/y growth at the end of 2009 it has slowed since then

46

48

50

52

54

56

58

Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12

PMI Manufacturing

0%

5%

10%

15%

20%

25%

30%

35%

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

Jan-06 Oct-06 Jul-07 Apr-08 Jan-09 Oct-09 Jul-10 Apr-11 Jan-12

M2 China Growth YoY

CNYbn Growth %

26

Chinese steel production leads the way

Global steel production is entirely China-driven

Iron ore and coking/met coal both inputs for production of steel

Source: Pareto Securities, Marsoft, Bloomberg

Total steel production by major country/region

46%

7%

12%

12%

22%

China

Japan

Far East

W Europe

Other

2011

27

Chinese steel production leads the way

Chinese steel production

Source: Pareto Securities, Marsoft,

Chinese steel production basically flat y/y the first eight months of 2012 as the Chinese industry struggles with low demand and decreasing steel prices

We forecast Chinese steel production to grow at a slower pace the next years due to softer demand

In a scenario where the Chinese economy slows, this would halt steel production growth

354423

489 501567 639 689

719 748 779 811

0%

5%

10%

15%

20%

25%

30%

0

100

200

300

400

500

600

700

800

900

2005 2006 2007 2008 2009 2010 2011 2012e 2013e 2014e 2015e

Steel production China y/y growth

Mtons

28

Less Chinese steel production would reduce demand

Should Chinese steel production growth fall back to 2008-levels in 2013, overall dry bulk-ton mile demand growth will be 6.2% compared with our base case of 8.7%, all else equal

Recently announced stimulus package of ~USD 150bn on new infrastructure projects over the next two years

¼ of the package introduced in December 2008, the effects could be significantly positive on the steel market, and in effect the dry bulk market.

In the course of 2009 and 2010, production of steel increased by 13%

Iron ore imports up 41% in 2009 (additionally supported by the sharply lower international spot prices for iron ore which created a contango in the market)

Ton-miles growth sensitivity to Chinese steel production (2013e)


4.0%

2.3%

6.7%6.2%

0%

1%

2%

3%

4%

5%

6%

7%

Base case Low case Base case Low case

Steel production growth, China Total dry bulk demand growth

% change

29

Premium quality ore is becoming an increasingly attractive product

The Fe grade of the average global iron ore product is declining over time

This trend is particular apparent in China, where the average grade is well below the global average

China’s import need is not only about need for volumes, but also about need for higher grade material to offset its domestic low grade iron ore

With a falling average grade over time, the relative value of a high grade product is expected to increase over time

Source: Pareto Securities, AME, Zanaga Iron Ore, Pareto Research

World production and Fe grades

0

500

1,000

1,500

2,000

2,500

3,000

3,500

43%

44%

45%

46%

47%

48%

49%

50%

51%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

World production (rhs) World Fe Grade (lhs)

Mt

30

Chinese production sets price floor in iron ore market

Source: Pareto Securities, Steel Business Briefing, Northland Resources

Marginal cash cost of Chinese production is at USD 120-130/t

Over half of Chinese production needs USD 100/t to be profitable

Current Cal 13 and Cal 14 iron ore swap USD 115/ton, USD 110/ton, respectively

Estimated cost curve of Chinese production (adjusted to 62% Fe concentrate)

31

Favorable international ore prices could induce more imports

Chinese iron ore imports

Iron ore imports expected to grow below historical levels

Chinese iron ore demand is driven by steel production, but is also influenced by the level of domestic production

Source: Pareto Securities, Marsoft, Steel Business Briefing, Northland Resources

Chinese iron ore imports as % of steel production

Low international iron ore prices could lead to more imports as Chinese steel mills could switch to more international iron ore

This happened in 2009 as international iron ore prices collapses after the financial crisis and also at the end of last year

275 324 383 443

626 615678

743 786 835 896

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

0

100

200

300

400

500

600

700

800

900

1000

2005 2006 2007 2008 2009 2010 2011 2012e 2013e 2014e 2015e

Chinese iron ore imports y/y growth

Mtons

78% 77% 78%

88%

110%

96% 98%103% 105% 107% 111%

0%

20%

40%

60%

80%

100%

120%

2005 2006 2007 2008 2009 2010 2011 2012e 2013e 2014e 2015e

%

32

Iron ore price gap widening


Large price gap of international iron ore and that of China

Such arbitrage opportunities could boost imports of iron ore

I.ore spread 66% domestic vs 62% CIF, vs Cape rates

-40

-20

0

20

40

60

80

100

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 May-12

Capesize rates (lhs) Iron ore spread (rhs)

USD/d USD/t

0

20

40

60

80

100

120

50

70

90

110

130

150

170

190

210

230

Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11 Jul-11 Dec-11 May-12

Chinese iron ore inventories International ore CIF China, 62%

Domestic ore China, 66%

USD/t mln tons

I.ore 66% domestic vs 62% CIF vs inventories China

Iron ore inventories in China has been stable over the past year and we expect this to continue going forward

Small changes in port stockpiles in China will have no major influence on fixture volume in the short term

33

Chinese iron ore imports could continue to surprise on the upside

Slower economic growth in the developed world will negatively affect seaborne demand

Yet, imports from China may increase on the back of cheaper resources due to deflationary pressures on raw material prices

2009 growth 41% y/y

Assuming iron ore imports to China grows 20% in 2013, overall dry bulk demand growth will be 10.1%, all else equal

Ton-miles growth sensitivity to Chinese iron ore imports


5.8%

20.0%

6.7%

10.1%

0%

5%

10%

15%

20%

25%

Base case High case Base case High case

Iron ore imports growth, China Total dry bulk demand growth

% change

34

Coal is the second most important dry bulk driver

Met (coking) is the coal input for production of steel

Steam (thermal) is coal used to generate power

Several developing countries have built power plants that utilize steam coal over the last years due to the increase in oil and gas prices

Global seaborne dry bulk trade in 2011


34.9%

7.9%

21.6%

10.7%

24.9%

Iron ore

Met Coal

Steam Coal

Grain

Other

% of total ton-miles

35

The Far East is the largest coal importer

Major coal importing countries/regions

The Far East is the most important coal importer, ex coal coastal trade in China

Out of the 997m tons of coal imported globally in 2011 by sea, the Far East accounted for 372m tons of the imports (37%)

Far East coal imports

Coal imports growth to the Far East is estimated to slow somewhat, but remain at healthy levels


37%

17%

18%

18%

10%

Far East

Japan

China (ex

coastal trade)

W Europe

% of total coal imports in 2011

207 229 252 269 293347 372 402

443 480517

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

0

100

200

300

400

500

600

2005 2006 2007 2008 2009 2010 2011 2012e 2013e 2014e 2015eFar East coal imports y/y growth

Mtons y/y growth

36

Chinese coal imports will continue increase at a firm pace…

Major coal importing countries/regions

Coal imports to China (ex coastal trade) accounted for 18% of the global imports by sea in 2011

China coal imports not historically not as important for dry bulk trade as its iron ore imports, but this might change as the country continues to increase its imports

China coal imports (ex coastal trade)

Coal imports expected to continue to grow at a firm pace, yet lower than historical levels

Sourcing from Indonesia and Australia

Imports are marginal compared to domestic production, 1-5% since 2003. Exports also marginal


37%

17%

18%

18%

10%

Far East

Japan

China (excoastal trade)

W Europe

Others

% of total coal imports in 2011

31 32 25 38 43 50 5846 54 49

101128 151

194228

267307

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

160.0%

0

50

100

150

200

250

300

350

400

2005 2006 2007 2008 2009 2010 2011 2012e 2013e 2014e 2015e

Chinese steam coal imports (ex Chinese coastal trade)Chinese met coal importsy/y growth

m tons

37

APPENDIX

38

Historical rates and forecasts

Source: Pareto Securities, Clarksons Research Services, Marsoft

Capesize rate forecasts Panamax rate forecasts

Supramax rate forecasts Handysize rate forecasts

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

2000 2002 2004 2006 2008 2010 2012e 2014e

USDm

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

2000 2002 2004 2006 2008 2010 2012e 2014e

USDm

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

2000 2002 2004 2006 2008 2010 2012e 2014e

USDm

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

2000 2002 2004 2006 2008 2010 2012e 2014e

USDm

39

Dry bulk demand – main commodities by import region/country


Iron Ore imports Met coal imports

Steam coal imports Grain imports

615 678 743 786 835 896

134129

133 134134

135

116110

104 112118

120

8191

99105

111116

5054

5768

7785

0

200

400

600

800

1000

1200

1400

1600

2010 2011 2012e 2013e 2014e 2015e

China Japan W Europe Far East Others

m tons

638 697 768 831 900 972

276299

319346

373400

102101

105105

105106

100123

136139

142145

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2010 2011 2012e 2013e 2014e 2015e

China Far East Japan W Europe Others

m tons

58 58 69 72 79 85

57 58 59 59 61 6357 58 58 59 62 6442 42 43 43 44 4536 35

37 3637 3729 28

27 2728 28

24 2627 25

26 2622 28

25 2627 27

0

50

100

150

200

250

300

350

400

2010 2011 2012e 2013e 2014e 2015eChina Africa Far East Near East L AmericaJapan N America W Europe Others

m tons

49 52 49 51 55 57

77 69 73 77 78 78

32 25 38 43 50 5872 73

8397

10711729 27

3238

4349

0

50

100

150

200

250

300

350

400

2010 2011 2012e 2013e 2014e 2015e

W Europe Japan China Far East Others

m tons

40

Global dry bulk demand summary


Million tons 2003 % 2004 % 2005 % 2006 % 2007 % 2008 % 2009 % 2010 % 2011 % 2012e % 2013e % 2014e % 2015e

Iron ore 525 8% 595 13% 667 12% 710 6% 779 10% 858 10% 916 7% 997 9% 1,062 7% 1,137 7% 1,205 6% 1,275 6% 1,352

Met Coal 191 6% 198 3% 204 3% 202 -1% 215 7% 227 6% 206 -9% 258 25% 246 -5% 275 12% 306 11% 333 9% 359

Steam Coal 690 13% 772 12% 834 8% 915 10% 968 6% 1,016 5% 1,059 4% 1,188 12% 1,297 9% 1,407 9% 1,512 7% 1,621 7% 1,734

Grain 265 -1% 258 -3% 271 5% 282 4% 300 6% 309 3% 321 4% 330 3% 339 3% 351 3% 356 1% 370 4% 382

Phosrock 29 -3% 31 6% 33 6% 33 1% 34 3% 32 -5% 27 -15% 29 6% 33 13% 34 2% 34 1% 34 1% 35

Bauxite/Alumina 63 15% 68 7% 78 15% 79 2% 84 6% 86 2% 67 -22% 80 21% 93 15% 97 5% 100 3% 103 3% 107

Steel products 272 -1% 304 12% 295 -3% 329 11% 349 6% 350 0% 267 -24% 314 17% 338 8% 345 2% 362 5% 389 8% 420

Minor Bulks 438 5% 459 5% 478 4% 502 5% 529 5% 516 -2% 476 -8% 541 14% 564 4% 576 2% 597 4% 622 4% 648

Total 2,474 7% 2,684 8% 2,860 7% 3,053 7% 3,258 7% 3,394 4% 3,341 -2% 3,736 12% 3,971 6% 4,221 6% 4,472 6% 4,748 6% 5,035

Billion ton-miles 2003 % 2004 % 2005 % 2006 % 2007 % 2008 % 2009 % 2010 % 2011 % 2012e % 2013e % 2014e % 2015e

Iron ore 2,926 8% 3,279 12% 3,661 12% 3,963 8% 4,399 11% 4,827 10% 5,253 9% 5,639 7% 6,042 7% 6,580 9% 7,031 7% 7,499 7% 7,932

Met Coal 1,062 6% 1,153 9% 1,197 4% 1,169 -2% 1,250 7% 1,293 3% 1,054 -18% 1,394 32% 1,359 -3% 1,508 11% 1,691 12% 1,849 9% 1,992

Steam Coal 2,193 11% 2,323 6% 2,478 7% 2,776 12% 2,892 4% 2,969 3% 3,115 5% 3,393 9% 3,730 10% 4,116 10% 4,468 9% 4,825 8% 5,191

Grain 1,350 1% 1,360 1% 1,445 6% 1,502 4% 1,576 5% 1,661 5% 1,717 3% 1,865 9% 1,853 -1% 1,940 5% 1,996 3% 2,096 5% 2,180

Phosrock 131 -4% 139 6% 150 8% 154 3% 154 0% 145 -6% 132 -9% 136 3% 152 12% 156 2% 158 1% 160 1% 162

Bauxite/Alumina 268 10% 276 3% 320 16% 332 4% 351 6% 361 3% 291 -19% 339 16% 382 12% 397 4% 411 3% 425 3% 439

Steel products 942 3% 986 5% 981 -1% 1,103 12% 1,131 3% 1,196 6% 926 -23% 1,055 14% 1,127 7% 1,180 5% 1,258 7% 1,386 10% 1,524

Minor Bulks 2,057 5% 2,147 4% 2,241 4% 2,357 5% 2,490 6% 2,428 -2% 2,240 -8% 2,546 14% 2,650 4% 2,710 2% 2,811 4% 2,927 4% 3,048

Total 10,929 6% 11,662 7% 12,473 7% 13,357 7% 14,243 7% 14,879 4% 14,728 -1% 16,367 11% 17,295 6% 18,587 7% 19,825 7% 21,166 7% 22,467

Total Fleet 2003 % 2004 % 2005 % 2006 % 2007 % 2008 % 2009 % 2010 % 2011 % 2012e % 2013e % 2014e % 2015e

Tonne Demand (m tonnes ann): 2,474 7% 2,684 8% 2,860 7% 3,053 7% 3,258 7% 3,394 4% 3,341 -2% 3,736 12% 3,971 6% 4,221 6% 4,472 6% 4,748 6% 5,035

Avg. Distance (n. miles): 4,417 0% 4,345 -2% 4,361 0% 4,375 0% 4,371 0% 4,383 0% 4,406 1% 4,380 -1% 4,355 -1% 4,403 1% 4,433 1% 4,458 1% 4,462

Tonne-mile Demand (b tm ann): 10,929 6% 11,662 7% 12,473 7% 13,357 7% 14,243 7% 14,879 4% 14,728 -1% 16,367 11% 17,295 6% 18,587 7% 19,825 7% 21,166 7% 22,467

Adjusted

Speed (knots): 13.0 0% 13.0 0% 13.0 0% 13.0 0% 13.0 0% 12.9 -1% 12.8 -1% 12.6 -1% 11.9 -6% 11.6 -3% 11.6 0% 11.7 1% 12.0

Loading factor (tonnes/dwt): 0.9 0% 0.9 0% 0.9 0% 0.8 0% 0.8 0% 0.8 0% 0.8 0% 0.8 0% 0.8 0% 0.8 0% 0.8 0% 0.8 0% 0.8

Productivity (tm/dwt): 38,152 -2% 38,018 0% 38,594 2% 38,636 0% 37,814 -2% 37,529 -1% 35,762 -5% 35,079 -2% 33,318 -5% 32,514 -2% 32,465 0% 32,941 1% 33,596

Dwt demand, dry trades (m dwt): 287 8% 307 7% 323 5% 346 7% 377 9% 397 5% 412 4% 467 13% 519 11% 572 10% 611 7% 642 5% 669

Fleet productivity 2003 % 2004 % 2005 % 2006 % 2007 % 2008 % 2009 % 2010 % 2011 % 2012e % 2013e % 2014e % 2015e

Average loaded haul (n miles): 4417 -0.3% 4345 -1.6% 4361 0.4% 4375 0.3% 4371 -0.1% 4383 0.3% 4,406 0.5% 4,380 -0.6% 4,355 -0.6% 4,403 1.1% 4,433 0.7% 4,458 0.6% 4,462

Ballast factor (ball./loaded): 0.7 0.0% 0.7 0.0% 0.7 0.0% 0.7 0.0% 0.7 0.4% 0.7 1.2% 0.7 0.8% 0.7 1.0% 0.7 0.8% 0.7 1.2% 0.7 0.8% 0.7 0.1% 0.7

Speed (knots): 13.0 0.1% 13.0 0.2% 13.0 -0.1% 13.0 0.0% 13.0 0.0% 12.9 -0.8% 12.8 -1.0% 12.6 -1.5% 11.9 -5.7% 11.6 -2.6% 11.6 -0.1% 11.7 1.3% 12.0

Steaming time (days): 24.0 -0.4% 23.6 -1.8% 23.7 0.4% 23.8 0.3% 23.8 0.1% 24.2 1.6% 24.6 1.8% 24.9 1.3% 26.4 5.9% 27.5 4.4% 27.8 1.1% 27.7 -0.7% 27.1

Port,canal,delay time (days): 13.9 4.4% 14.0 1.0% 14.1 0.6% 14.1 -0.4% 14.8 5.0% 14.6 -0.9% 14.8 1.0% 15.0 1.2% 14.9 -0.2% 15.0 0.2% 15.0 0.0% 15.0 0.0% 15.0

Voyage length (days): 37.9 1.3% 37.6 -0.8% 37.8 0.5% 37.8 0.1% 38.5 1.9% 38.8 0.6% 39.4 1.5% 39.9 1.3% 41.3 3.6% 42.5 2.8% 42.8 0.7% 42.6 -0.4% 42.1

Avg. offhire per year (days): 12.0 0.0% 12.0 0.0% 12.0 0.0% 12.0 0.0% 12.0 0.0% 12.3 2.1% 14.9 21.4% 13.6 -8.4% 15.0 10.1% 16.8 11.7% 16.9 0.7% 14.5 -14.1% 12.0

Voyages per year: 9.3 -1.3% 9.4 0.8% 9.3 -0.5% 9.3 -0.1% 9.2 -1.9% 9.1 -0.7% 8.9 -2.2% 8.8 -0.9% 8.5 -3.9% 8.2 -3.3% 8.1 -0.8% 8.2 1.1% 8.4

Loading factor (tonnes/dwt): 0.9 0.0% 0.9 0.0% 0.9 0.0% 0.8 -0.1% 0.8 -0.1% 0.8 0.0% 0.8 -0.2% 0.8 -0.2% 0.8 -0.2% 0.8 -0.2% 0.8 -0.2% 0.8 -0.2% 0.8

Productivity (tm/dwt): 34,970 -1.6% 34,672 -0.9% 34,618 -0.2% 34,683 0.2% 33,983 -2.0% 33,842 -0.4% 33,184 -1.9% 32,614 -1.7% 31,108 -4.6% 30,356 -2.4% 30,254 -0.3% 30,697 1.5% 31,308

Fleet utilization 2003 % 2004 % 2005 % 2006 % 2007 % 2008 % 2009 % 2010 % 2011 % 2012e % 2013e % 2014e % 2015e

Dwt demand

Dwt demand, dry trades: 287 7.9% 307 7.0% 323 5.4% 346 7.0% 377 8.9% 397 5.3% 412 3.8% 467 13.4% 519 11.3% 572 10.0% 611 6.8% 642 5.2% 669

Combis in oil: 9 -18.4% 5 -45.2% 5 -7.2% 4 -0.8% 3 -31.7% 2 -32.0% 3 53.6% 4 17.6% 4 2.0% 4 9.2% 3 -31.4% 2 -39.7% 1

Total dwt demand: 295 6.9% 312 5.5% 328 5.2% 350 6.9% 380 8.4% 399 5.0% 415 4.1% 471 13.4% 523 11.2% 576 10.0% 613 6.5% 644 5.0% 670

Total fleet size: 312 2.1% 326 4.4% 346 6.2% 368 6.4% 390 6.0% 417 6.8% 447 7.3% 514 14.9% 591 15.1% 667 12.8% 707 6.0% 722 2.1% 740

Laid up and idle: 17 -43.3% 14 -15.0% 18 29.1% 18 -2.6% 10 -41.3% 18 75.1% 32 77.9% 43 34.1% 68 57.2% 91 34.1% 94 2.6% 78 -16.7% 70

Fleet util ization (%): 95 4.7% 96 1.0% 95 -1.0% 95 0.4% 97 2.3% 96 -1.7% 93 -3.1% 92 -1.2% 88 -3.4% 86 -2.4% 87 0.5% 89 2.8% 91

41

Demand summary by region


China (m tons) 2003 % 2004 % 2005 % 2006 % 2007 % 2008 % 2009 % 2010 % 2011 % 2012e % 2013e % 2014e % 2015e %

Iron Ore 148 33% 208 40% 275 32% 324 18% 383 18% 443 16% 626 41% 615 -2% 678 10% 743 10% 786 6% 835 6% 896 7%

Met Coal 3 505% 7 139% 5 -25% 3 -47% 3 18% 4 40% 31 603% 32 5% 25 -23% 38 55% 43 14% 50 15% 58 16%

Steam Coal 274 17% 320 17% 359 12% 402 12% 433 8% 469 8% 534 14% 638 20% 697 9% 768 10% 831 8% 900 8% 972 8%

Grain 24 54% 29 21% 30 5% 32 6% 31 -2% 40 27% 49 22% 58 19% 58 0% 69 20% 72 4% 79 10% 85 8%

Steel Products 43 48% 33 -24% 27 -17% 19 -31% 17 -9% 16 -9% 22 41% 17 -22% 16 -6% 15 -8% 17 14% 19 10% 21 10%

Total 492 26% 596 21% 696 17% 779 12% 868 11% 972 12% 1,261 30% 1,360 8% 1,473 8% 1,633 11% 1,749 7% 1,883 8% 2,032 8%

Far East (m tons) 2003 % 2004 % 2005 % 2006 % 2007 % 2008 % 2009 % 2010 % 2011 % 2012e % 2013e % 2014e % 2015e %

Iron Ore 65 4% 67 3% 68 2% 68 0% 71 4% 79 11% 61 -22% 81 32% 91 12% 99 10% 105 6% 111 6% 116 4%

Met Coal 43 6% 45 5% 48 6% 47 -1% 54 14% 60 12% 56 -7% 72 28% 73 1% 83 14% 97 17% 107 11% 117 9%

Steam Coal 131 6% 149 14% 159 7% 182 14% 199 10% 209 5% 237 13% 276 17% 299 9% 319 7% 346 8% 373 8% 400 7%

Grain 47 0% 44 -6% 48 9% 55 14% 51 -7% 45 -11% 54 19% 57 6% 58 2% 58 0% 59 2% 62 4% 64 4%

Phosrock 11 -4% 12 9% 13 8% 14 4% 13 -2% 13 -3% 13 0% 13 0% 14 6% 14 2% 15 2% 15 2% 15 2%

Steel Products 65 -11% 78 19% 78 0% 78 1% 95 21% 87 -8% 77 -12% 93 21% 93 1% 98 5% 100 3% 106 6% 114 7%

Total 362 1% 394 9% 414 5% 443 7% 482 9% 493 2% 498 1% 591 19% 628 6% 671 7% 722 8% 774 7% 826 7%

Japan (m tons) 2003 % 2004 % 2005 % 2006 % 2007 % 2008 % 2009 % 2010 % 2011 % 2012e % 2013e % 2014e % 2015e %

Iron Ore 132 2% 135 2% 132 -2% 134 2% 139 3% 140 1% 106 -25% 134 27% 129 -4% 133 3% 134 1% 134 0% 135 1%

Met Coal 80 1% 80 0% 79 -1% 80 1% 80 0% 81 1% 66 -19% 77 17% 69 -10% 73 7% 77 5% 78 1% 78 1%

Steam Coal 82 10% 94 14% 96 2% 91 -5% 101 10% 105 4% 92 -13% 102 11% 101 -1% 105 4% 105 0% 105 0% 106 0%

Grain 30 -3% 30 0% 29 -1% 29 -1% 28 -4% 28 -1% 28 2% 29 1% 28 -3% 27 -3% 27 3% 28 1% 28 0%

Phosrock 1 4% 1 2% 1 1% 1 6% 1 0% 1 0% 1 -8% 1 6% 1 0% 1 0% 1 0% 1 0% 1 0%

Bauxite/Alumina 2 -1% 2 16% 2 0% 2 0% 2 0% 2 0% 2 0% 2 0% 2 13% 2 0% 2 0% 2 0% 2 0%

Steel Products 3 -5% 4 44% 5 21% 4 -17% 5 7% 4 -6% 3 -34% 5 55% 5 21% 6 14% 6 4% 7 0% 7 0%

Total 329 3% 346 5% 344 0% 342 -1% 355 4% 361 2% 297 -18% 349 17% 335 -4% 347 4% 353 2% 354 0% 356 1%

W Europe (m tons) 2003 % 2004 % 2005 % 2006 % 2007 % 2008 % 2009 % 2010 % 2011 % 2012e % 2013e % 2014e % 2015e %

Iron Ore 133 1% 140 5% 142 2% 138 -3% 140 1% 142 2% 90 -37% 116 29% 110 -5% 104 -5% 112 8% 118 5% 120 2%

Met Coal 41 3% 43 5% 49 13% 48 -2% 52 9% 55 5% 32 -41% 49 51% 52 7% 49 -7% 51 5% 55 7% 57 4%

Steam Coal 135 7% 143 6% 147 2% 158 8% 143 -9% 147 2% 126 -14% 100 -21% 123 23% 136 11% 139 3% 142 2% 145 2%

Grain 32 -11% 26 -18% 26 -1% 25 -3% 37 46% 36 -3% 23 -35% 22 -4% 28 25% 25 -10% 26 4% 27 2% 27 0%

Phosrock 6 -5% 6 -1% 5 -4% 5 -9% 5 8% 5 -4% 4 -32% 4 19% 5 12% 5 0% 5 0% 5 0% 5 0%

Bauxite/Alumina 21 22% 25 16% 25 1% 25 0% 25 0% 25 0% 20 -20% 24 20% 25 4% 25 -1% 25 0% 25 0% 25 0%

Steel Products 67 5% 73 9% 75 3% 95 28% 105 10% 102 -3% 62 -40% 80 30% 90 13% 80 -11% 82 2% 87 6% 92 6%

Total 434 3% 455 5% 468 3% 495 6% 508 3% 512 1% 357 -30% 396 11% 433 10% 424 -2% 440 4% 457 4% 471 3%

42

Demand summary by major commodity (imports)


Iron ore imports (m tons annualized)

W Europe

Japan

China

Far East

Others

Total

Met coal imports (m tons annualized)

W Europe

Japan

China

Far East

Others

Total

Steam coal imports (m tons annualized)

W Europe

Japan

China

Far East

Others

Total

Grain imports (m tons annualized)

W Europe

Japan

China

Far East

N America

L America

Near East

Africa

Others

Total

2009 2010 % 2011 % 2012e % 2013e % 2014e % 2015e

90 116 29.3% 110 -5.2% 104 -5.4% 112 7.6% 118 4.8% 120

106 134 27.3% 129 -4.1% 133 3.1% 134 0.5% 134 0.3% 135

626 615 -1.8% 678 10.3% 743 9.5% 786 5.8% 835 6.3% 896

61 81 32.2% 91 11.8% 99 9.5% 105 6.0% 111 5.7% 116

33 50 49.0% 54 9.0% 57 5.1% 68 19.0% 77 12.6% 85

916 997 8.7% 1,062 6.6% 1,137 7.0% 1,205 6.0% 1,275 5.8% 1,352

2009 2010 % 2011 % 2012e % 2013e % 2014e % 2015e

32 49 50.5% 52 7.4% 49 -7.1% 51 4.9% 55 6.7% 57

66 77 16.8% 69 -10.4% 73 6.6% 77 5.4% 78 0.6% 78

31 32 5.3% 25 -23.4% 38 55.0% 43 13.6% 50 15.4% 58

56 72 28.4% 73 1.3% 83 13.8% 97 17.3% 107 10.7% 117

22 29 32.9% 27 -5.3% 32 17.7% 38 18.0% 43 14.5% 49

206 258 25.2% 246 -4.9% 275 11.9% 306 11.5% 333 8.6% 359

2009 2010 % 2011 % 2012e % 2013e % 2014e % 2015e

126 100 -20.7% 123 23.0% 136 10.6% 139 2.7% 142 2.0% 145

92 102 10.7% 101 -0.5% 105 3.7% 105 0.1% 105 0.4% 106

559 638 14.3% 697 9.1% 768 10.2% 831 8.2% 900 8.4% 972

236 276 16.8% 299 8.5% 319 6.7% 346 8.3% 373 7.8% 400

71 72 2.3% 77 6.3% 80 3.8% 91 13.9% 101 10.8% 111

1083 1188 9.7% 1,297 9.2% 1,407 8.5% 1,512 7.4% 1,621 7.2% 1,734

2009 2010 % 2011 % 2012e % 2013e % 2014e % 2015e

23 22 -3.9% 28 25.4% 25 -10.2% 26 3.7% 27 1.9% 27

28 29 1.4% 28 -3.3% 27 -3.5% 27 2.8% 28 0.7% 28

49 58 19.2% 58 0.0% 69 19.7% 72 3.8% 79 10.0% 85

54 57 5.6% 58 2.0% 58 -0.1% 59 1.8% 62 4.4% 64

24 24 -3.2% 26 9.9% 27 2.8% 25 -4.7% 26 1.4% 26

34 36 4.9% 35 -2.7% 37 6.2% 36 -3.3% 37 2.3% 37

50 42 -17.2% 42 0.0% 43 2.6% 43 1.8% 44 1.7% 45

54 57 6.3% 58 1.5% 59 1.5% 59 1.3% 61 3.2% 63

4 5 36.3% 6 17.3% 6 -3.9% 6 -3.6% 6 1.8% 6

321 330 2.6% 339 2.9% 351 3.5% 356 1.2% 370 4.0% 382

43

Demand summary by major commodity (exports)


Iron Ore Exporters (m tons annualized)

W Europe

N America Atlantic

S America Atlantic

S America Pacific

Asia

S Pacific

Africa

Total

Met coal exporters (m tons annualized)

N America Atlantic

N America Pacific

S Pacific

Others

Total

Steam coal exporters (m tons annualized)

E Europe

N America Atlantic

S America Atlantic

Asia

S Pacific

Africa

Others

Total

Grain all exporters (m tons annualized)

W Europe

N America Atlantic

N America Pacific

US Gulf

S America Atlantic

S Pacific

Others

Total

1H'11 1H'12 y/y 2009 2010 % 2011 % 2012e % 2013e % 2014e % 2015e %

41 46 11.8% 34 42 22.5% 43 3.1% 46 8.3% 48 2.7% 49 2.6% 50 2.6%

37 42 12.2% 32 31 -3.5% 38 23.9% 44 14.9% 47 6.2% 48 3.0% 49 2.5%

299 320 7.1% 265 300 13.1% 318 5.7% 331 4.2% 362 9.4% 389 7.6% 408 4.9%

22 22 -0.8% 15 17 14.8% 22 28.4% 25 13.0% 28 12.1% 28 1.3% 29 2.1%

170 131 -22.9% 151 150 -0.5% 145 -3.5% 120 -16.7% 111 -7.6% 102 -8.2% 95 -7.2%

400 470 17.4% 364 398 9.3% 436 9.4% 488 12.0% 520 6.5% 554 6.5% 604 9.1%

62 80 29.6% 55 58 6.1% 61 4.9% 82 34.0% 90 9.5% 104 16.0% 116 11.8%

1,032 1,111 7.7% 916 997 8.7% 1,062 6.6% 1,137 7.0% 1,205 6.0% 1,275 5.8% 1,352 6.1%

1H'11 1H'12 y/y 2009 2010 % 2011 % 2012e % 2013e % 2014e % 2015e %

62 62 -0.2% 32 48 51.4% 60 25.4% 64 7.1% 70 8.9% 72 3.1% 74 2.6%

26 28 7.1% 20 25 24.0% 26 3.6% 30 16.0% 33 12.0% 37 12.0% 41 10.9%

118 137 15.8% 127 152 20.0% 127 -16.2% 142 11.8% 160 12.3% 174 8.7% 185 6.7%

32 37 13.6% 28 34 20.1% 33 -2.7% 39 17.8% 44 12.6% 50 14.7% 59 16.9%

239 263 10.4% 206 258 25.2% 246 -4.9% 275 11.9% 306 11.5% 333 8.6% 359 7.8%

1H'11 1H'12 y/y 2009 2010 % 2011 % 2012e % 2013e % 2014e % 2015e %

74 87 17.8% 73 69 -5.1% 76 9.6% 90 19.0% 96 6.3% 100 4.2% 104 4.0%

30 37 23.4% 12 15 26.8% 31 103.1% 40 29.3% 46 14.8% 49 6.5% 52 7.8%

76 79 3.1% 65 70 7.9% 77 10.7% 80 4.1% 86 7.0% 93 8.7% 103 9.9%

548 575 4.9% 477 525 10.1% 555 5.6% 582 5.0% 611 4.9% 642 5.0% 674 5.0%

131 173 31.8% 147 148 0.9% 152 2.4% 182 19.4% 202 11.5% 221 9.2% 240 8.6%

62 72 16.4% 63 67 4.9% 68 1.4% 73 7.9% 77 6.1% 86 11.0% 94 9.2%

322 347 7.9% 246 294 19.2% 339 15.4% 361 6.3% 394 9.2% 431 9.5% 468 8.5%

1,243 1,369 10.2% 1,083 1,188 9.7% 1,297 9.2% 1,407 8.5% 1,512 7.4% 1,621 7.2% 1,734 6.9%

1H'11 1H'12 y/y 2009 2010 % 2011 % 2012e % 2013e % 2014e % 2015e %

24 20 -17.4% 24 29 18.1% 25 -13.4% 21 -17.6% 22 4.5% 22 0.0% 22 0.0%

18 21 15.8% 21 18 -12.8% 20 9.0% 21 6.1% 21 -1.0% 21 1.0% 21 0.8%

38 30 -21.0% 32 35 10.9% 35 -1.7% 31 -10.3% 32 3.9% 34 6.3% 34 0.3%

94 81 -14.2% 80 89 10.8% 86 -3.5% 83 -3.4% 86 2.9% 90 4.8% 92 2.3%

45 49 11.0% 24 36 51.4% 36 1.3% 42 15.4% 39 -7.7% 41 4.9% 43 5.9%

27 33 24.3% 20 20 1.0% 26 28.0% 30 15.6% 27 -9.6% 28 3.3% 29 4.2%

87 119 36.8% 120 102 -14.9% 112 9.4% 124 10.5% 130 4.9% 135 4.1% 141 4.3%

333 354 6.2% 321 330 2.6% 339 2.9% 351 3.5% 356 1.2% 370 4.0% 382 3.2%

44

Main dry bulk commodity flow 2010/2011 (annualized)


Commodity Main exporters to China 1H'11 1H'12 y/y

Asia (India) 162.3 124.9 -23.1%

Australia 267.9 329.3 22.9%

S America (Brazil) 142.8 161.5 13.1% Imports to China 1H'11 1H'12 y/y

Iron ore 663.9 727.9 9.6%

Met coal Australia 8.7 14.1 62.7% Met Coal 22.5 36.8 63.5%

Steam Coal 115.7 181.1 56.5%

Australia 13.8 39.6 187.0%

Indonesia & Others 89.4 105.4 17.8%

Commodity Main exporters to Far East 1H'11 1H'12 y/y

S America (Brazil) 22.9 28.9 26.6%

Australia 55.4 58.6 5.8% Imports to Far East 1H'11 1H'12 y/y

Iron ore 85.8 98.8 15.2%

Met coal Australia 50.3 59.2 17.7% Met Coal 69.9 77.8 11.3%

Steam Coal 292.3 307.7 5.3%

Australia 48.9 53.5 9.5%

S Africa 28.4 30.9 8.9%

Indonesia 185.6 197.6 6.4%

Commodity Main exporters to Japan 1H'11 1H'12 y/y

S America (Brazil) 33.9 35.4 4.5%

Australia 76.0 81.3 7.0%

Imports to Japan 1H'11 1H'12 y/y

Australia 36.2 37.7 4.1% Iron ore 123.5 130.9 6.0%Indonesia & Others 14.8 15.5 4.8% Met Coal 69.2 69.0 -0.3%

Steam Coal 98.1 103.0 5.1%

Australia 62.9 73.3 16.6%

Indonesia & Others 22.7 17.8 -21.7%

Commodity Main exporters to W Europe 1H'11 1H'12 y/y

Iron ore S America (Brazil) 62.8 55.9 -11.0%

Imports to W Europe 1H'11 1H'12 y/y

US Gulf & Atlantic 28.5 27.6 -3.0% Iron ore 109.7 101.1 -7.8%

Australia 14.7 15.4 4.4% Met Coal 49.5 49.4 -0.2%

Steam Coal 121.1 134.0 10.7%

USSR 32.0 34.7 8.5%

Colombia 43.4 43.5 0.4%

S Africa 13.8 13.8 0.3%

Iron ore

--------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------

Steam coal

-----------------------------------------------------------------------------------------------------

Steam coal

-----------------------------------------------------------------------------------------------------

Iron ore

--------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------

Steam coal

Iron ore

Met coal

-----------------------------------------------------------------------------------------------------

Steam coal

-----------------------------------------------------------------------------------------------------

Met coal

45

Steel production by major 4 regions


China (in mton) 2007 % ∆ 2008 % ∆ 2009 % ∆ 2010 % ∆ 2011 % ∆ 2012e % ∆ 2013e % ∆ 2014e % ∆ 2015e % ∆

Steel production 489 16% 501 2% 567 13.3% 639 12.6% 689 8% 719 4% 748 4.0% 779 4.1% 811 4%

Iron Ore Imports 383 18% 443 16% 626 41% 615 -2% 678 10% 743 10% 786 6% 835 6% 896 7%

Met Coal Imports 3 18% 4 40% 31 603% 32 5% 25 -23% 38 55% 43 14% 50 15% 58 16%

Japan (in mton) 2007 % ∆ 2008 % ∆ 2009 % ∆ 2010 % ∆ 2011 % ∆ 2012e % ∆ 2013e % ∆ 2014e % ∆ 2015e % ∆

Steel production 120 3% 119 -1% 88 -26% 110 25% 108 -2% 110 2% 112 2% 112 0% 113 1%

Iron Ore Imports 139 3% 140 1% 106 -25% 134 27% 129 -4% 133 3% 134 1% 134 0% 135 1%

Met Coal Imports 80 0% 81 1% 66 -19% 77 17% 69 -10% 73 7% 77 5% 78 1% 78 1%

Far East (in mton) 2007 % ∆ 2008 % ∆ 2009 % ∆ 2010 % ∆ 2011 % ∆ 2012e % ∆ 2013e % ∆ 2014e % ∆ 2015e % ∆

Steel production 143 10% 149 4% 140 -6% 163 16% 182 11% 188 3% 202 8% 216 7% 228 6%

Iron Ore Imports 71 4% 79 11% 61 -22% 81 32% 91 12% 99 10% 105 6% 111 6% 116 4%

Met Coal Imports 54 14% 60 12% 56 -7% 72 28% 73 1% 83 14% 97 17% 107 11% 117 9%

W Europe (in mton) 2007 % ∆ 2008 % ∆ 2009 % ∆ 2010 % ∆ 2011 % ∆ 2012e % ∆ 2013e % ∆ 2014e % ∆ 2015e % ∆

Steel production 215 1% 203 -5% 143 -30% 177 24% 181 2% 173 -4% 174 1% 183 5% 188 3%

Iron Ore Imports 140 1% 142 2% 90 -37% 116 29% 110 -5% 104 -5% 112 8% 118 5% 120 2%

Met Coal Imports 52 9% 55 5% 32 -41% 49 51% 52 7% 49 -7% 51 5% 55 7% 57 4%

Major 4 regions 2007 % ∆ 2008 % ∆ 2009 % ∆ 2010 % ∆ 2011 % ∆ 2012e % ∆ 2013e % ∆ 2014e % ∆ 2015e % ∆

Steel production 967 10% 972 0% 937 -4% 1089 16% 1159 6% 1189 3% 1235 4% 1289 4% 1339 4%

Iron Ore Imports 733 10% 804 10% 883 10% 947 7% 1008 6% 1079 7% 1137 5% 1198 5% 1267 6%

Met Coal Imports 189 7% 200 6% 185 -8% 229 24% 218 -5% 243 11% 269 11% 290 8% 310 7%

46

Historical iron ore prices and swaps


Iron ore swaps

Date SPOT Oct 12 Nov 12 Dec 12 Q412 Q113 Q213 Cal 13

22-Oct-2012 $117.5 $112.8 $116.2 $115.4 $114.8 $116.0 $116.0 $114.9

D (+/-) $ $0.0 $0.5 $2.5 $1.9 $1.65 $2.34 $2.34 $2.73

D (+/-) % 0.0% 0.4% 2.2% 1.7% 1.5% 2.1% 2.1% 2.4%

W (+/-) % 4.4% 2.6% 6.1% 5.5% 4.7% 5.1% 5.1% 5.3%

$1 $3 $2 $2 $2 $2 $3

Iron Ore Swaps

70

110

150

190

Jan Mar May Jul Sep Nov

$/m

t

2011 2012 Forward Curve

47

Chinese macro

Inflation China, y/y growth Steel prices, China

Industrial production China, y/y growth China PMI (manufacturing)

0

2

4

6

8

10

12

14

16

18

20

22

24

Sep-09 Feb-10 Jul-10 Dec-10 May-11 Oct-11 Mar-12 Aug-12

China Industrial production

% growth Y/Y

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

6,500

Oct-09 Feb-10 Jun-10 Oct-10 Feb-11 Jun-11 Oct-11 Feb-12 Jun-12 Oct-12

Steel Rebar Steel Plate

CNY/t

1.9

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12

% growth y/y

46

48

50

52

54

56

58

Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12

PMI Manufacturing


48

Chinese macro cont’d


China new monthly loans, y/y growth Shangai Composite Index

Fixed asset investment, China Total monthly exports, China

-100%

-50%

0%

50%

100%

150%

Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12

growth y/y

New monthly loans

2,000

2,200

2,400

2,600

2,800

3,000

3,200

3,400

Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12

20%

22%

24%

26%

28%

30%

32%

34%

36%

Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12

growth y/y

Fixed Asset Investment

177

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

80

100

120

140

160

180

200

Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12

Monthly exports growth y/y

USD bn growth y/y

49

Chinese steel prices take a hit


China domestic steel plate 20mm, CNY/t

Steel plate price has rebounded somewhat, but is still down 17% the last 12 months

3614

3,000

3,200

3,400

3,600

3,800

4,000

4,200

4,400

4,600

Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12

Chinese steel plate 20mm

CNY/t

50

Dry bulk freight rates

Source: Clarksons , Pareto Securities

Capesize spot rates

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

Jan Feb Mar Apr May June Jul Aug Sept Oct Nov Dec

5 Yr Avg 2011 2012 Current

USD/d

Panamax spot rates

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000



USD/d

Supramax spot rates

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000



USD/d

Handysize spot rates

0

5,000

10,000

15,000

20,000

25,000

30,000



USD/d

51

Firm iron ore volume exports from Australia, slower from Brazil

Brazilian iron ore exports averaged at 22.9m tons the first nine months of 2012, 3.5% lower than the same period last year

Iron ore exports, Brazil


Iron ore exports, Australia

Australian iron ore exports averaged at 39.1m tons the first eight months of 2012, 14% more than the same period last year

28

-30%

-20%

-10%

0%

10%

20%

30%

40%

0

5

10

15

20

25

30

35

40

Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12

Iron ore exports, Brazil y/y growth

mtons/month y/y growth

42

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

0

5

10

15

20

25

30

35

40

45

50

Jun-10 Oct-10 Feb-11 Jun-11 Oct-11 Feb-12 Jun-12Iron ore exports, Australia y/y growth

mtons/month

52

Dry bulk fleet development

Dry bulk fleet (mdwt)


Total dry bulk fleet (mdwt)

New orders

Orderbook [end year]

Deliveries & misc. Additions

Scrapping & Other Removals

Net additions to the fleet

Orderbook / Fleet Ratio (%)

Total dry bulk fleet size [end year]

Net supply

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012e 2013e 2014e 2015e

17 10 21 34 33 24 46 160 90 31 80 25 20 30 56 66

36 25 32 54 70 72 96 237 306 290 285 204 112 78 98 131

14 20 15 12 21 24 26 25 32 51 83 98 91 61 36 33

6 9 6 3 2 2 3 1 5 10 7 23 36 31 13 4

8 12 8 8 19 22 23 23 26 41 77 75 55 30 23 29

13% 9% 11% 18% 22% 21% 26% 60% 73% 63% 53% 33% 17% 11% 14% 18%

275 287 295 304 323 345 368 391 418 459 536 611 666 696 719 748

4.2% 2.9% 2.9% 6.2% 6.9% 6.7% 6.4% 6.7% 9.9% 16.7% 14.0% 9.0% 4.5% 3.3% 4.0%

53

Capesize fleet development

Capesize fleet


Capesize (mdwt) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012e 2013e 2014e 2015e

New orders 5 4 7 12 15 13 20 88 48 16 24 14 5 9 17 22

Orderbook [end year] 10 8 11 19 28 33 45 124 158 150 132 93 41 22 29 43

Deliveries & misc. Additions 5 5 4 5 8 9 11 11 14 28 42 50 49 27 10 8

Scrapping & Other Removals 1 2 1 0 0 0 1 0 2 1 3 11 16 18 9 3

Net additions to the fleet 4 4 3 5 8 9 10 10 12 26 39 40 33 9 1 5

Orderbook / Fleet Ratio (%) 12% 9% 13% 20% 27% 30% 37% 95% 111% 88% 63% 37% 15% 8% 10% 15%

Cape fleet size [end year] 83 86 89 94 102 111 121 131 143 169 208 248 281 290 291 296

Net supply 4.3% 3.0% 5.8% 8.7% 8.6% 8.8% 8.3% 9.3% 18.5% 22.9% 19.2% 13.4% 3.1% 0.4% 1.7%

Capesize (# of vessels) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012e 2013e 2014e 2015e

New orders 27 23 39 71 89 75 119 519 279 96 139 80 30 51 100 131






Cape fleet size [end year] 486 507 522 553 601 653 710 769 841 996 1,224 1,459 1,655 1,706 1,712 1,741

Net supply 4.3% 3.0% 5.8% 8.7% 8.6% 8.8% 8.3% 9.3% 18.5% 22.9% 19.2% 13.4% 3.1% 0.4% 1.7%

54

Panamax fleet development

Panamax fleet (mdwt)


Panamax (# of vessels) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012e 2013e 2014e 2015e

New orders 57 32 95 162 135 81 139 396 254 95 430 199 110 132 230 278






Pmax fleet size [end year] 943 1,026 1,067 1,084 1,168 1,262 1,373 1,463 1,549 1,634 1,839 2,090 2,380 2,566 2,692 2,846

Net supply 8.8% 4.0% 1.6% 7.8% 8.0% 8.8% 6.6% 5.9% 5.5% 12.5% 13.6% 13.9% 7.8% 4.9% 5.7%

Panamax (mdwt) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012e 2013e 2014e 2015e

New orders 4 2 7 12 10 6 10 29 19 7 32 15 8 10 17 21






Pmax fleet size [end year] 70 76 79 80 86 93 102 108 115 121 136 155 176 190 199 211

Net supply 8.8% 4.0% 1.6% 7.8% 8.0% 8.8% 6.6% 5.9% 5.5% 12.5% 13.6% 13.9% 7.8% 4.9% 5.7%

55

Supramax fleet development

Supramax fleet (mdwt)


Supramax (mdwt) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012e 2013e 2014e 2015e

New orders 5 3 5 7 6 3 11 29 14 4 17 6 3 6 11 14






Smax fleet size [end year] 45 49 52 55 59 64 69 74 81 90 106 124 137 143 146 151

Net supply 8.4% 7.9% 5.4% 6.8% 8.9% 7.7% 7.4% 8.5% 11.1% 18.9% 16.6% 10.2% 4.6% 2.2% 3.5%

Supramax (# of vessels) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012e 2013e 2014e 2015e

New orders 102 53 104 143 116 63 206 569 273 82 325 126 61 118 216 275

Orderbook [end year] 184 139 157 235 280 243 373 882 1,102 980 980 739 424 269 365 521





Smax fleet size [end year] 879 953 1,028 1,083 1,157 1,260 1,357 1,457 1,581 1,756 2,088 2,434 2,683 2,808 2,870 2,969

Net supply 8.4% 7.9% 5.4% 6.8% 8.9% 7.7% 7.4% 8.5% 11.1% 18.9% 16.6% 10.2% 4.6% 2.2% 3.5%

56

Handysize fleet development

Handysize fleet (mdwt)


Handysize (mdwt) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012e 2013e 2014e 2015e

New orders 3 1 2 2 2 2 5 13 10 4 8 4 3 4 9 12




Net additions to the fleet -2 -2 -1 -1 1 1 0 2 1 0 6 3 1 -2 0 3


Hsize fleet size [end year] 78 76 75 74 75 76 76 78 80 79 85 88 89 87 87 90

Net supply -2.5% -1.5% -1.0% 1.0% 1.7% 0.3% 2.2% 1.9% -0.5% 7.2% 3.3% 1.5% -2.2% -0.3% 3.4%

Handysize (# of vessels) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012e 2013e 2014e 2015e

New orders 93 45 84 89 81 78 185 481 359 130 289 147 106 163 348 430




Net additions to the fleet -58 -71 -43 -28 29 47 9 61 54 -14 211 104 47 -71 -10 108


Hsize fleet size [end year] 2,887 2,816 2,773 2,745 2,774 2,821 2,830 2,891 2,944 2,931 3,142 3,246 3,293 3,222 3,212 3,320

Net supply -2.5% -1.5% -1.0% 1.0% 1.7% 0.3% 2.2% 1.9% -0.5% 7.2% 3.3% 1.5% -2.2% -0.3% 3.4%

57

Slippage and cancellations dry bulk fleet

Dry bulk actual deliveries vs scheduled deliveries

Source: Pareto Securities, Worldyards

Dry bulk actual deliveries vs scheduled deliveries

Drybulk deliveries - DWT

Scheduled

1st Jan.

Ahead of

schedule On time Cancelled Slippage

Actual

deliveries

2008 20 0 14 2 4 22

2009 62 1 29 12 20 43

2010 118 3 63 23 30 80

2011 120 12 36 13 58 95

1H'12 69 4 29 4 32 61

Q1'12 40 1 17 3 19 29

Q2'12 29 3 12 1 13 32

Drybulk deliveries - % of orderbook at 1st January

Scheduled

1st Jan.

Ahead of

schedule On time Cancelled Slippage

Actual

deliveries

2008 1% 71% 9% 20% 110%

2009 1% 47% 19% 33% 70%

2010 2% 53% 19% 25% 68%

2011 10% 30% 11% 48% 79%

1H'12 5% 42% 6% 46% 89%

Q1'12 2% 44% 7% 48% 73%

Q2'12 10% 40% 5% 44% 110%

58

Values


Newbuilding values, capesize and panamax Newbuilding values, supramax and handysize

Second hand values (5Y old), capesize and panamax Second hand values (5Y old), supramax and handysize

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Supramax Handysize

USDm

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Capesize Panamax

USDm

0

20

40

60

80

100

120

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Capesize Panamax

USDm

0

10

20

30

40

50

60

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Supramax Handysize

USDm

59

Current vessel value overview

Source: Pareto Securities, Pareto S&P

Year \ Class

Newbuild

-3

-2

-1

0

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26 / Scrap

Capesize Kamsarmax Panamax Supramax Handysize

170,000 80,000 75,000 55,000 37,000

46 30 29 27 22

46 30 29 27 22

46 30 29 27 22

43 30 28 26 22

40 30 27 25 21

38 29 26 24 20

37 28 25 23 19

35 26 24 23 18

34 25 23 22 17

32 24 22 21 16

30 23 21 20 15

28 22 19 19 14

25 21 18 17 14

23 20 16 16 13

21 19 15 15 12

19 17 14 14 11

17 16 13 13 10

16 14 11 11 10

14 13 10 10 9

12 11 9 9 8

12 11 9 9 8

11 10 8 8 7

11 10 8 8 7

10 9 8 7 6

10 9 7 6 4

10 8 7 6 4

10 8 7 5 4

9 7 6 5 3

9 7 6 5 3

9 6 6 4 3

9 6 6 4 3

60

Shipping returns dry bulkers

Source: Pareto Securities, Clarksons Research Service

Shipping Asset Returns 5-yr old Newbuilding Implied* Implied*

Market Price Order Price Break-even N/B parity Spot 1-year 3-year

Size USDm USDm*** 1-yr T/C 3-yr T/C 1-yr T/C 3-yr T/C T/C rate/d T/C rate/d Rates T/C rate T/C rate

EBITDA multiple IRR (rem life)

Secondhand

Dry Bulkers

Capesize 170kdwt 32 46 11.5 11.5 6% 6% 16,400 20,000 16,000 14,000 14,000

Panamax 73kdwt 22 29 21.8 16.1 0% 3% 12,600 14,300 6,000 8,500 9,500

Supramax 55kdwt 21 27 15.3 12.2 3% 6% 11,800 13,200 6,900 9,000 10,000

Handysize 35kdwt 16 22 13.4 10.9 5% 7% 9,700 11,200 6,600 8,000 8,750

Bulker Average 15.5 12.7 4% 5%

61

Disclaimers and disclosures

This document provides additional disclosures and disclaimers relevant to research reports and other investment recommendations (“Recommendations”) issued by Pareto Securities AS (“Pareto”), cf. the Securities Act Section 3-10 with further regulations. This document also provides additional disclosures and disclaimers relevant to research reports and other investment recommendations (“Recommendations”) issued by E. Öhman J:or Fondkommission AB (”Öhman”) from the Swedish Securities Markets Act (2007:528), the Swedish Financial Instruments Trading Act (1991:980), the Swedish Financial Supervisory Authority’s (Finansinspektionen’s) regulations and general guidelines regarding investment recommendations directed to the general public and the management of conflicts of interest (FFFS 2005:9), and the Swedish Financial Supervisory Authority’s regulations governing investment services and activities (FFFS 2007:16). Standards and supervision Pareto and Öhman are companies included in the Pareto Group of companies. Pareto is under the supervision of the Financial Supervisory Authority of Norway. Öhman is a Swedish Securities firm subject to supervision by the Swedish Financial Supervisory Authority. Pareto complies with the standards for Recommendations issued by the Norwegian Securities Dealers Association and the Norwegian Society of Financial Analysts and Öhman to the equivalent standards for Recommendations in Sweden. Basis and methods for assessment Recommendation for shares and share related instruments are based on price targets fixed with different valuation methods that may include analysis of earnings multiples (absolute and relative), valuation of a company using DCF calculations (discounted cash flow) and by carrying out net asset value (NAV) assessments. Price targets are changed when earnings and cash flow forecasts are changed. They may also be changed when the underlying value of the issuer’s assets changes or when factors impacting the required rate of return change. Pareto and Öhman credit analysts provide credit ratings which is a framework for comparing the credit quality of rated debt securities. The ratings are based on the same rating scale as international rating agencies and represent the opinion of Pareto and Öhman as to the relative creditworthiness of securities. A credit rating on a standalone basis should not be used as a basis for investment operations. Pareto and Öhman may also provide credit research with more specific price targets. These price targets are based on different valuation methods. These methods may include analysis of key credit ratios and other factors describing the securities creditworthiness, peer group analysis of securities with similar creditworthiness and different DCF-valuations. Definitions of key terms in Pareto and Pareto Öhman Equity: Buy: Pareto and Öhman expect this financial instrument’s total return to exceed 10% over the next six months. Hold: Pareto and Öhman expect this financial instrument’s total return to be 0-10% over the next six months. Sell: Pareto and Öhman expect this financial instrument’s total return to be negative over the next six months. Credit ratings: Please be aware that all credit ratings mentioned in this report are Pareto’s or Öhman’s own credit rating estimates unless otherwise mentioned. Please also note that all descriptions of loan agreement structure and loan agreement features are also obtained from sources which Pareto or Öhman believes to be reliable, but Pareto or Öhman does not represent or warrant their accuracy. Be aware that investors should go through the specific complete loan agreement before investing in any bonds and not base an investment decision based solely on information contained in this report. Definitions of credit ratings: AAA Best Quality AA+ / AA / AA- Strong ability for timely payments A+ / A / A- Somewhat more exposed for negative changes BBB+ / BBB / BBB- Adequate ability to meet payments. Some elements of protection. BB+ / BB / BB- Speculative risk. Future not well secured B+ / B / B- Timely payments at the moment, but very exposed to any negative changes CCC+ /CCC/ CCC- Default a likely option The distribution and history of ratings can be found in the semi-annually published High Yield Bond Reports available at www.pareto.no.

V. 10.12

http://www.pareto.no/

62


Risks related to investments and Recommendations The risk associated with investments in financial instruments, including those issued by the company or companies mentioned herein, may generally be high, as their market value may be affected by many different elements, some of which may be specific to the company in question whereas others may depend on the general financial and political situation at large. Past performance may not be repeated and should not be seen as an indication of future performance. The value of investments and the income from them may go down as well as up and investors may forfeit all principal originally invested. Investors are not guaranteed to make profits on investments and may lose money. Exchange rates may cause the value of investments in other currencies than the currency invested in by the investor and the income arising from them to rise or fall. Recipients are urged to base their investment decisions upon such information, analysis and investigation as they deem necessary and they are urged to understand that statements regarding future prospects may not be realized and that past performance is not necessarily a guide to future performance. No liability whatsoever is accepted for any direct, indirect or consequential loss arising from the use of this research report or any information or opinion which may be set forth herein. There may be uncertainties with respect to the accurateness and reliability of any information, interpretation and assessment. There are uncertainties and risks attached to the correctness of any Recommendation by Pareto and Öhman and with respect to forward looking statements and expectations. No agreement with the issuer concerning Recommendations Unless otherwise is stated on the first page, the Recommendation has not been presented to the issuer before dissemination. 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Updating of Recommendations Pareto and Öhman have no fixed schedule for updating. Positions in securities Recipients should be aware that Pareto, Öhman and any member or affiliate of the Pareto Group, and any officers, directors or employees of the Pareto Group or any such other entity may from time to time (a) have a long or short position in the securities (including derivative instruments thereof) of companies mentioned herein, (b) buy or sell such securities, (c) provide corporate finance services to such companies or in relation to such securities. In addition, Öhman or other members or affiliates of the Pareto Group may make a market in the securities mentioned in this report. Information with regard to such potential conflicts of interest is provided in the section below. Guidelines on conflicts of interest Pareto and Öhman have drawn up guidelines for dealing with conflicts of interest within the Pareto Group. The guidelines include rules and measures aimed at achieving a sufficient degree of independence between various departments, business areas and sub-business areas within the Pareto Group in order to, as far as possible, avoid conflicts of interest from arising between such departments, business areas and sub-business areas as well as their customers. One purpose of such measures is to restrict the flow of information between certain business areas and sub-business areas within the Pareto Group, where conflicts of interest may arise and to safeguard the impartialness of the employees. For example, the Corporate Finance departments and certain other departments included in the Pareto Group are surrounded by arrangements, so-called Chinese Walls, to restrict the flows of sensitive information from such departments. Pareto’s and Öhman’s internal guidelines also include, without limitation, rules aimed at securing the impartialness of, e.g., analysts working in Pareto’s or Öhman’s research department, restrictions with regard to the remuneration paid to such analysts, requirements with respect to the independence of analysts from other departments within Pareto or Öhman rules concerning contacts with covered companies and rules concerning personal account trading carried out by analysts.

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Company-specific disclosures Disclosure of positions in financial instruments Please see Appendix A and D for an overview of positions in financial instruments held by Pareto, Öhman and related companies and persons. Disclosure of assignments and mandates Please see Appendix B and D for an overview of (a) all financial instruments in which Pareto, Öhman or related companies are market makers or liquidity providers, (b) all financial instruments where Pareto, Öhman or related companies have been lead managers or co-lead managers over the previous 12 months and (c) all issuers of financial instruments to whom Pareto, Öhman or related companies have rendered investment banking services over the previous 12 months. Please be aware that agreements and services that are still subject to confidentiality are excluded. Previous Recommendations For an overview of Pareto’s Recommendations in the financial instruments of the issuing company the last 12 months, including data on changes in Recommendations, please log on to www.pareto.no, type in company name or symbol in the search field and click search. Under “Pareto Info / Analyse”, or under "Research", you will find previous Recommendations. Please be aware that certain informal Recommendations may be excluded. For an overview of Öhman’s Recommendations in the financial instruments of the issuing company the last 12 months, including data on changes in Recommendations, please log on to www.paretoohman.se Statistics on Recommendations Please see Appendix C for quarterly statistics on the overall ratio of “Buy”, “Hold” and “Sell” in Pareto’s and Öhman’s Recommendations in financial instruments, including a split with respect to issuers where Pareto and Öhman have provided investment banking services the previous 12 months. Restrictions in distribution of research reports Restrictions by law The distribution of research reports in certain jurisdictions may be restricted by law and persons into whose possession this document comes should inform themselves about, and observe any such restrictions. This research report is directed only at persons who (i) are outside the United Kingdom or (ii) have professional experience in matters relating to investments falling within Article 19(5) of the UK Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Order”)), or (iii) are persons falling within articles 49(2)(a) to (d) (“high net worth entities, unincorporated associations etc.”) of the Order (all such persons being referred to as “relevant persons”). This research report must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this communication relates is available only to relevant persons and will be engaged in only with relevant persons. Additional provisions on Recommendations distributed by Pareto Securities Inc. in the United States This part applies to research reports prepared by Pareto and distributed by Pareto in the United States by Pareto Securities Inc. This research report is intended for distribution in the United States to institutional investors only. Pareto Securities Inc. is a broker-dealer registered with the U.S. Securities and Exchange Commission and is a member of FINRA & SIPC. U.S. persons seeking more information about any of the securities discussed in this report, or wishing to execute a transaction in these securities, should contact Pareto Securities Inc. at 150 East 52nd Street, NY 10022, Tel. 212 829 4200. To the extent required by applicable U.S. laws and regulations, Pareto Securities Inc. accepts responsibility for the contents of this publication. Investment products provided by or through Pareto Securities Inc. or Pareto are not FDIC insured, may lose value and are not guaranteed by Pareto Securities Inc. or Pareto. Investing in non-U.S. securities may entail certain risks. This document does not constitute or form part of any offer for sale or subscription, nor shall it or any part of it form the basis of or be relied on in connection with any contract or commitment whatsoever. The securities of non-U.S. issuers may not be registered with or subject to SEC reporting and other requirements. The information available about non-U.S. companies may be limited, and non-U.S. companies are generally not subject to the same uniform auditing and reporting standards as U.S. companies. Market rules, conventions and practices may differ from U.S. markets, adding to transaction costs or causing delays in the purchase or sale of securities. Securities of some non-U.S. companies may not be as liquid as securities of comparable U.S. companies. Pareto Securities Inc. and/or Pareto may have material conflicts of interest related to the production or distribution of this research report which are disclosed on the following Appendix A and Appendix C.

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Additional provisions on Recommendations distributed by Auerbach Grayson & Company This part applies to research reports prepared by Öhman and distributed by Auerbach Grayson & Company in the United States. This research report may be distributed in the United States by Auerbach Grayson & Company Only if it’s an Öhman report, via the terms of a 15a6 agreement and is intended for distribution in the United States to institutional Investors only. Auerbach Grayson & Company is a broker-dealer registered with the U.S. Securities and Exchange Commission and is a member of the FINRA & SIPC. U.S. entities seeking more information about any of the issuers or securities discussed in this report should contact Auerbach Grayson & Company at 25 West 45th Street New York, NY 10036 Tel. 1 212-453-3549. Investment products provided by or through Auerbach Grayson & Company or Öhman are not FDIC insured, may lose value and are not guaranteed by Auerbach Grayson & Company or Öhman. Investing in non-U.S. securities may entail certain risks. This document does not constitute or form part of any offer for sale or subscription, nor shall it or any part of it form the basis of or be relied on in connection with any contract or commitment whatsoever. The securities of non-U.S. issuers may not be registered with or subject to SEC reporting and other requirements. The information available about non-U.S. companies may be limited, and non-U.S. companies are generally not subject to the same uniform auditing and reporting standards as U.S. companies. Fluctuations in the values of national currencies, as well as the potential for governmental restrictions on currency movements, can significantly erode principal and investment returns. Market rules, conventions and practices may differ from U.S. markets, adding to transaction costs or causing delays in the purchase or sale of securities. Securities of some non-U.S. companies may not be as liquid as securities of comparable U.S. companies. Auerbach Grayson & Company and/or Öhman may have material conflicts of interest related to the production or distribution of this research report which, with regard to Öhman, are disclosed herein. Additional information for recipients in Singapore This part applies to research reports prepared by Pareto and distributed by Pareto Securities Asia Pte Ltd (“Pareto Securities Asia”) in Singapore. Pareto is a company established under the laws of Norway being licensed and supervised by Norwegian regulators. Pareto Securities Asia is an exempt financial advisor under the Singapore Financial Advisers Act and a subsidiary of Pareto. This report is directed only to "accredited investors", "expert investors" and "institutional investors" as defined in the Singapore Securities and Futures Act. This report is intended for general circulation amongst such investors and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should seek advice from a financial adviser regarding the suitability of any product referred to in this report, taking into account your specific financial objectives, financial situation or particular needs before making a commitment to purchase any such product. Please contact Pareto Securities Asia, 16 Collyer Quay, # 27-02 Hitachi Tower, Singapore 049318, at +65 6408 9800 in respect of any matters arising from or in connection with this report. This report does not provide individually tailored investment advice or offer tax, regulatory, accounting or legal advice. The securities or other financial instruments discussed in this report may not be suitable for all investors. This report has been prepared and issued for distribution to professional investors only and all recipients should seek independent investment advice prior to making any investment decision based on any information contained in this report. Prior to entering into any proposed transaction, recipients should determine, in consultation with their own investment, legal, tax, regulatory and accounting advisors, the economic risks and merits, as well as the legal, tax, regulatory and accounting characteristics and consequences, of the transaction. Disclaimers and Copyright Disclaimer Neither the information nor any opinion which may be expressed herein constitutes a solicitation by Pareto or Öhman of purchase or sale of any securities nor does it constitute a solicitation to any person in any jurisdiction where solicitation would be unlawful. All information contained in this research report has been compiled from sources believed to be reliable. However, no representation or warranty, express or implied, is made with respect to the completeness or accuracy of its contents, and it is not to be relied upon as authoritative. Pareto, Öhman and the analyst accept no responsibility and expressively disclaim any and all liabilities for any and all losses related to investments caused by or motivated by Recommendations from Pareto or Öhman. Any person receiving a Recommendation from Pareto or Öhman is deemed to have accepted this disclaimer. The disclaimer shall apply even if a Recommendation is shown to be erroneous or incomplete or based upon incorrect or incomplete facts, interpretations or assessments or assumptions by Pareto or Öhman, and irrespective of whether Pareto or Öhman or any person related to Pareto or Öhman can be blamed for the incident. Copyright This Recommendation is subject to copyright. Research reports issued by Pareto or Öhman may not be reproduced, redistributed or republished by any recipient for any purpose or to any person. Pareto or Öhman holds all rights in this Recommendation, and this document cannot be copied or made available to the public without Pareto’s or Öhman’s written consent. Any infringement of Pareto or Öhman rights in this Recommendation can be pursued legally whereby the infringer will be held liable for any and all losses and expenses occurred by the infringement.

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Appendix B

Disclosure requirements pursuant to the Norwegian Securities Trading ST Regulation § 3-11, letters d-f, ref the Securities Trading Act Section 3-10

Overview over issuers of financial instruments where Pareto Securities AS have prepared or distributed investment recommendation, where Pareto Securities AS or related companies have been lead manager/co-lead manager or have rendered publicly known not immaterial investment banking services over the previous 12 months:

Appendix C

Disclosure requirements pursuant to the Norwegian Securities Trading ST Regulation § 3-11 (4)

Column I shows the overall ratio of “Buy”, “Hold” and “Sell” in Pareto’s Recommendations in financial instruments.

Column II shows the ratio of “Buy”, “Hold” and “Sell” in Pareto’s Recommendations in financial instruments where Pareto Have provided investment banking services to the issuer the previous 12 months.

Appendix A

Disclosure requirements pursuant to the Norwegian Securities Trading Regulations section 3-10 (2) and section 3-11 (1), letters a-b

Pareto Securities AS does not alone or - together with affiliated companies or persons – own a portion of the shares exceeding 5 % of the total share capital in any company where a recommendation has been produced or distributed by Pareto Securities AS.

Pareto Securities AS may hold financial instruments in companies where a recommendation has been produced or distributed by Pareto Securities AS in connection with rendering investment services, including Market Making.

Please find below an overview of material interests in financial instruments held by employees in Pareto Securities AS, in companies where a recommendation has been produced or distributed by Pareto Securities AS.

By material interest is meant holdings exceeding a value of NOK 50 000.

Column I Column II

Buy 67.5% 92.10%

Hold 23.8% 5.30%

Sell 8.7% 2.60%

This overview is updated quarterly (last updated 16.10.2012).

CompanyAnalyst

holdings

Total

holdingsCompany

Analyst

holdings

Total

holdings

Algeta - 500 Olav Thon Eiendomsselskap - 938

Archer - 17 500 Orkla - 194 202

Bonheur - 15 800 Petroleum Geo-Services - 14 800

BW Offshore - 80 486 Polarcus Limited - 280 612

BWG Homes 18 000 18 210 Protector Forsikring - 499 000

Cermaq - 3 000 Questerre Energy - 276 429

Discovery Offshore - 12 000 Renewable Energy Company - 55 637

DNB - 73 783 S.D. Standard Drilling - 100 000

DOF - 30 000 SalMar - 58 400

EOC Limited - 25 000 Sandnes Sparebank - 6 295

Farstad Shipping - 21 700 Seadrill - 4 550

Fred Olsen Energy 100 300 Selvaag Bolig - 50 000

Frontline - 10 000 Ship Finance Ltd - 2 768

Gjensidige Forsikring - 74 393 Solstad Offshore - 4 100

Golden Ocean Group - 50 380 Sparebank 1 Nord-Norge - 20 637

Havila Shipping - 12 450 Sparebank 1 SR-Bank - 134 252

Höegh LNG - 59 893 Sparebanken Øst - 22 349

Itera 40 000 41 000 Spectrum - 197 000

Kongsberg Gruppen - 73 700 Statoil - 45 450

Lerøy Seafood Group - 36 400 Storebrand - 2 263

Marine Harvest Group - 20 000 Subsea 7 - 75 406

Morpol - 116 214 Telenor - 39 000

Norsk Hydro - 422 173 TGS-NOPEC - 7 450

Norske Skogindustrier - 37 496 Veidekke - 42 400

Northland Resources - 362 000 Wilh. Wilhelmsen Holding A - 404

Noreco - 245 807 Yara International - 31 528

Odfjell - 7 300

This overview is updated monthly (last updated 30.09.2012)

- Aker - Houston American Energy Corp - Rocksource

- Aker Floating Production - Höegh LNG - Saga Tankers

- Aker Seafoods - Idex - SalMar

- Austevoll Seafood - Interoil - Scana Industrier

- BassDrill - Kistefos - Scandinavian Insurance Group

- Bergen Group - KrisEnergy Holding - Seadrill

- BW Offshore - Lyse Energi - Selvaag Bolig

- Clearwater - Marine Aluminium Holding - Sevan Marine

- Codfarmers - Mecom Group - Shamaran Petroleum

- Concedo - NEC - Siemens

- DDI - Neptune Offshore - SinOceanic

- DNB - Noreco - SinOceanic Shipping

- Dockwise - Norse Energy Corp - Songa Offshore

- DOF - North Atlantic Drilling - Sparebank 1 SR Bank

- Dolphin Group - North Energy - Sparebanken Møre

- Eitzen Maritime - Northland Resources - Sparebanken Øst

- Electromagnetic Geoservices - Ocean Yield - Statoil

- Equinox - OSX - Teekay

- Expro Intl Group Holdings - Pacific Drilling - Teekay LNG

- Floatel - Panoro Energy - Tizir

- GasLog - Polarcus Ltd. - Troll

- Global Investment Group Finance - Prosafe SE - TTS Group

- Haikui - Prospector Offshore Drilling - Voss Resort

- Havila Shipping Protector Forsikring - Wilh. Wilhelmsen

- Hercules Offshore Reservoir Exploration Technology - Xtreme Drilling and Coil Services

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Appendix D

This part applies to research reports prepared by Öhman. Disclosure of positions in financial instruments The beneficial holding of the Pareto Group is 1% or more of the total share capital of the following companies included in Öhman’s research coverage universe: Isconova, and Ruric. The Pareto Group has material holdings of other financial instruments than shares issued by the following companies included in Öhman’s research coverage universe: RusForest and PA Resources. Disclosure of assignments and mandates During the past 12 months, members of the Pareto Group have been lead manager or co-lead manager of publicly disclosed issues or offers of or with regard to securities of the following companies included in Öhman’s research coverage universe: Africa Oil, Isconova, Shamaran Petroleum and Trigon Agri. During the past 12 months, members of the Pareto Group have provided other investment banking services to and received compensation for such services from the following companies included in Öhman’s research coverage universe: Africa Oil, BlackPearl Resources, Isconova, JLT Mobile Computers, RusForest, Trigon Agri and Shamaran Petroleum. Members of the Pareto Group provide market making or other liquidity providing services to the following companies included in Öhman’s research coverage universe: 2Entertain, Africa Oil, Beijer Electronics, Black Pearl Resources, Cloetta, Coastal Contacts, Episurf, Fastighets AB Balder, G &L Beijer, Isconova, JLT, NAXS, Partnertech, Prevas, Ruric, Shamaran Petroleum, Tethys Oil and Trigon Agri. Members of the Pareto Group have entered into agreements concerning the inclusion of the company in question in Öhman’s research coverage universe with the following companies: Africa Oil, Coastal Contacts, Isconova, RusForest, Trigon Agri and Shamaran Petroleum. This overview is updated continuously. Previous rating system (up to 16 Sep 2011) Rating Expected total return in six to twelve months OUTPERFORM The stock is expected to outperform the return on our Nordic sector universe NEUTRAL The stock is expected to perform in line with the return on our Nordic sector universe UNDERPERFORM The stock is expected to underperform the return on our Nordic sector universe

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