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The Impact on Shipping Markets of the Economic Development in China & India
IUMI Conference, Paris
Peter Malpas
20 September 2011
Disclaimer The information contained within this report is given in good faith based on the current market situation at the time of preparing this report and as such is specific to that point only. While all reasonable care has been taken in the preparation and collation of information in this report Braemar Shipping Services Plc (and all associated and affiliated companies) does not accept any liability whatsoever for any errors of fact or opinion based on such facts. Some industry information relating to the shipping industry can be difficult to find or establish. Some data may not be available and may need to be estimated or assessed and where such data may be limited or unavailable subjective assessment may have to be used. No market analysis can guarantee accuracy. The usual fundamentals may not always govern the markets, for example psychology, market cycles and external events (such as acts of god or developments in future technologies) could cause markets to depart from their natural/usual course. Such external events have not been considered as part of this analysis. Historical market behaviour does not predict future market behaviour and shipping is an inherently high risk business. You should therefore consider a variety of information and potential outcomes when making decisions based on the information contained in this report. All information provided by Braemar Shipping Services Plc is without any guarantee whatsoever. Braemar Shipping Services Plc or any of its subsidiaries or affiliates will not be liable for any consequences thereof. This report is intended solely for the information of the email recipient account and must not be passed or divulged to any third parties whatsoever without the written permission of Braemar Shipping Services Plc. Braemar accepts no liability to any third parties whatsoever. If permission is granted, you must disclose the full report including all disclaimers, and not selected excerpts which may be taken out of context.
For more information, contact Research on +44 (0)20 7903 2785 or email research@braemarseascope.com
Braemar Shipping Services Plc
Shipbroking Dry Cargo Tankers / LNG / FSPO Sale and Purchase New Building Demolition
Technical Port construction Naval Architecture Vessel & condition surveys Ship construction supervision
Environmental Pollution control Incident response
Logistics Port Agency Customs clearance Containers
Braemar (Incorporating The Salvage Association )
Braemar (Incorporating The Salvage Association) is a leading international marine
surveying and marine consultancy, operating from a worldwide network of offices.
Part of the Technical Division of Braemar Shipping Services Plc, the company
employs 70 highly experienced marine surveyors and marine consultants around the
world offering a broad range of expert services.
BRAEMAR (Incorporating The Salvage Association)
– Incorporates The Salvage Association, giving 155 years experience in surveying;
– Global network of surveyors;
– 70 + staff surveyors plus network of associates;
– Master Mariners, Chief Engineers, Naval Architects, Ship Managers, Superintendents and Classification Surveyors & Scientists.
– Managed through 5 regional hubs at:
» London;
» Singapore;
» Dubai;
» Piraeus;
» New York;
» In addition to a further 15 offices located in key marine centres
– Head office in London.
Summary of Services
Supported by advanced technical services such as naval architecture, metallurgy, risk engineering, forensic engineering and other specialist services.
Hull &
Machinery
Protection &
Indemnity
Warranty &
Risk Management
Casualty surveys
Causation
Loss prevention / mitigation
Salvage support
Ship repair costs / advice
Main engine(s) damage
Auxiliary machinery
Hull construction surveys
JH surveys
Fire damage
Casualty surveys
Condition surveys
Pre-entry/full/follow up surveys
Loss prevention / mitigation
Incident / casualty investigation
Technical failures
Cargo surveys / damage
Expert witness services
Casualty management
Expert technical services
Towage approvals
Voyage approvals
Shipyard surveys (JH143)
Fire risks
Platform set-downs
Lay-up & re-activation
Vessel condition / suitability
Offshore renewables installation
Project cargo loading/discharge
Platform / cargo load-outs
Paul Hill
Braemar (Incorporating The Salvage Association)
will be presenting a workshop
later in the conference on
The Evolution of Passenger Ships:
A Risk Perspective
Synopsis
Macro Overview
Tanker Markets
LNG
Dry Cargo
Freight Markets
Shipbuilding
Global GDP Projections: Key emerging economies leading global recovery
Source: IMF World Economic Outlook April 2011
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
2009 2010 2011 2012 2013 2014 2015 2016
GDP Annual Change
Advanced economies Emerging and developing economies World
India’s & China’s economic performance
0%
2%
4%
6%
8%
10%
12%
14%
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
China India GDP growth
Tanker Markets
Chinese Refining Capacity
3
5
7
9
11
13
15
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
Mill
ion
bp
d
Capacity Per Oil and Gas Journal High Case Braemar Case Low Case
+ 6m bpd
+ 3.5m bpd
+ 2m bpd
Chinese Owned VLCC Traffic
• In Q1 2011, China had nearly met its 50% target, importing 47% of spot cargoes on Chinese owned VLCCs…
• This has increased from just 15% in 2004
• …This followed carefully planned
growth in Chinese owned ships on spot business after 2004…
Non Chinese Owned 53%
Chinese Owned 47%
Percentage of Spot Cargoes Discharging in China fixed on Chinese Owned VLCCs - Q1 2011
0
20
40
60
80
100
120
2004 2005 2006 2007 2008 2009 2010
Mill
ion
Car
go T
on
ne
s
Spot Cargo Tonnes Fixed on Chinese Owned Vessels versus non Chinese Owned Vessels
Chinese Owned Ships Non Chinese Owned Ships
China’s Impact on Tanker Market
• Global oil demand growth of about 2.0% to 2.5% per annum in next five years.
• Most oil demand growth will come from China, which could add about 6mpbd of refinery capacity by 2015.
• This would make China almost the equal of the US in daily refinery throughput of around 14.0-14.5 mbpd.
• But AG-China is a shorter route than AG-USG, so the quantum of Chinese imports will have to grow quickly to create equal tonne-mile demand of a US refinery.
• China has capacity to build 30 VLCCs a year. Even if overseas owners are not ordering due the poor freight / TC markets, China Inc. might decide to keep its yards busy and build more VLCCs to control more of its oil imports.
• China will be a more powerful competitor in oil shipping in the coming decade.
India Installed Refining Capacity by Company
0
20
40
60
80
100
120
140
160
180
200
Mill
ion
met
ric
ton
nes
EOL, Jamnagar
RPL, Jamnagar
RIL, Jamnagar
MRPL
Other Public Sector
CPCL
KRL
BPC
HPC
IOC
Source: India Petroleum Planning & Analysis Cell
Indian Product Exports
0
10'000
20'000
30'000
40'000
50'000
60'000
'00
0 M
etri
c To
nn
es
Diesel Naphtha Gasoline Fuel Oil ATF Others
Source: India Petroleum Planning & Analysis Cell
LNG
China’s LNG Imports
0
5
10
15
20
25
30
35
40
2006 2007 2008 2009 2010 2012 2015
Million tonnes
Dry Cargo
Steel drives the market!
44
62
52
60
73
25 23
7
20 22
World Australia India China Cape Trade
% Dry Bulk Cargoes Steel Related Steam Coal
Steel Consumption Potential
60
126
444
285
596
1204
127 216
656
344
672
1430
0
200
400
600
800
1000
1200
1400
1600
0
200
400
600
800
1'000
1'200
1'400
1'600
India Brazil China USA Japan South Korea
population (million)
per capita steel cons (kg)
cons/cap 2010 cons/cap 2020 pop 2010 pop 2020
Japan Steel Consumption
200
700
1'200
1'700
2'200
2'700
3'200
3'700
4'200
4'700
5'200
0
10
20
30
40
50
60
70
80
90
100
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
national consumption consumption per capita kg/capita Million tonnes
China steel consumption
0
100
200
300
400
500
600
700
0
100
200
300
400
500
600
700
800
900
1'000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
national consumption consumption per capita Million tonnes kg/capita
India Steel Consumption
-
20
40
60
80
100
120
140
0
20
40
60
80
100
120
140
160
180
200
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
national consumption consumption per capita Million tonnes kg/capita
China; Largest Steel Producer
0
200'000
400'000
600'000
800'000
1'000'000
1'200'000
1'400'000
1'600'000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
M tonnes
China Japan United States India Russia South Korea Germany Brazil Ukraine Turkey
China Annual Iron Ore Imports
0
200
400
600
800
1'000
1'200
1'400
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Million Tonnes
Hancock
55mtpa by 2014
Ferraus
15mtpa by 2014
PMI
2.5 mtpa
Brockman
18.5 mtpa by 2014
Moly Mines
1.2 mtpa
Australasian Resources
Evaluating 12 mtpa
CITIC Pacific
21 mtpa by 2012
Iron Ore Holdings
Evaluating 15 mtpa
Atlas Iron
2011; 6mtpa
2013; 12mtpa
API
30mtpa
FMG
Targeting 155
mtpa by 2015
from 55 mtpa
BC Iron
3 mtpa to 5 mtpa
in 2012
Rio Tinto
Expanding to
333 mtpa by
2015 from
225 mtpa
BHP
155 mtpa 2011
240 mtpa by 2014
China monthly coal imports
0
2
4
6
8
10
12
14
16
18
Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11
Million Tonnes
Port Congestion The intenligble demand
China Coal Imports
0
50
100
150
200
250
300
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
mt Steam Coking
China Coal Import Sources
0
25
50
75
100
125
150
175
200
225
250
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
Million Tonnes
Mozambique
Laos
New Zealand
Colombia
North Korea
United States
Canada
South Africa
Russia
Mongolia
Vietnam
Australia
Indonesia
China Annual Coal Imports vs. Consumption
0
500
1'000
1'500
2'000
2'500
3'000
3'500
4'000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
million tonnes Imports Consumption
Indian Capesize Ports & UMPP sites
• India’s port investment program lags China’s by a decade.
• However, the Ministry of Shipping does have a Maritime Agenda for port development for the decade to 2020.
• US$1.1bn of tax-free bonds will be issued from 2011 to fund 12 port development projects.
• Port capacity is planned to treble to three billion tonnes by 2020.
• Large Capesizes may still have to be lightered offshore.
• 16 UMPPS are planned at nine sites in India. Those in Jharkand, Madhya Pradesh, Chhattisgarh and Orissa will use domestic coal. The rest are designed to use imported coal.
• So far only Mundra, Sasan, one at Krishnapatnam, one at Sundergarh and Tilaiyya are under construction.
• Each UMPP could consume up to 20m tonnes of thermal coal per year.
Mundra, Gujarat (2 UMPP), Coal terminal
planned
Gangavaram, Vizag, 17m draft)
Krishnapatnam (2 UMPP). Port expansion to 300m LOA, 50m beam, 18m draft
Akaltara, Chhattisgarh
Tadri, Karnataka
Sasan, Madhya Pradesh
Established Capesize Port
Site of UMPP
Giriye, Maharashtra (2 UMPP)
Sundergarh, Orissa (3 UMPP)
Cheyyar, Tamil Nadu (2 UMPP)
Tilaiyya, Jharkhand
Proposed Capesize Port
Dhamra, 18m draft
Chennai (275m LOA, 16.2m draft)
Mormugao (14m draft)
Magdalla (deep water anch. 17.5m draft)
India an Emerging Coal Market
By 2015 India’s share of Global Coal Trade will be 16% compared to 15% for China.
Coal imports just 20m tonnes in 2006 rising to 169m tonnes in 2015 of which:
• 47% from Australia
• 30% from Indonesia
• 11% from South Africa
0
20
40
60
80
100
120
140
160
180
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Million tonnes Steam Coking
Agribulks into Major Consumers
0
20'000
40'000
60'000
80'000
100'000
120'000
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
k tonnes Japan China
Demand conclusion
Strong growth in global steel production
China is the key driver
Continued strong growth in Chinese iron ore imports
India expected to add significantly to trade demand
Continued strong growth in thermal coal trades
Long term positive outlook for cape employment
Freight Markets
0
50'000
100'000
150'000
200'000
250'000
Mrz
-99
Mai
-99
Au
g-9
9
No
v-9
9
Feb
-00
Mai
-00
Au
g-0
0
No
v-0
0
Feb
-01
Mai
-01
Au
g-0
1
No
v-0
1
Feb
-02
Mai
-02
Au
g-0
2
No
v-0
2
Feb
-03
Mai
-03
Au
g-0
3
No
v-0
3
Feb
-04
Mai
-04
Au
g-0
4
Okt
-04
Jan
-05
Ap
r-0
5
Jul-
05
Okt
-05
Jan
-06
Ap
r-0
6
Jul-
06
Okt
-06
Jan
-07
Ap
r-0
7
Jul-
07
Okt
-07
Jan
-08
Ap
r-0
8
Jul-
08
Okt
-08
Jan
-09
Ap
r-0
9
Jul-
09
Okt
-09
$ per day cape panamax supramax handysize
Record Spot Rates An historical perspective
Commencement of
Chinese Rapid
Development
Chinese Credit
Crunch
Cooling
Chinese Steel
Demand &
Reducing
Congestion
Record Chinese
Iron Ore imports GFC
0
5'000
10'000
15'000
20'000
25'000
30'000
35'000
40'000
45'000
50'000
2-A
ug-
10
16
-Au
g-1
0
30
-Au
g-1
0
13
-Se
p-1
0
27
-Se
p-1
0
11
-Oct
-10
25
-Oct
-10
8-N
ov-
10
22
-No
v-1
0
6-D
ec-
10
20
-De
c-1
0
3-J
an-1
1
17
-Jan
-11
31
-Jan
-11
14
-Fe
b-1
1
28
-Fe
b-1
1
14
-Mar
-11
28
-Mar
-11
11
-Ap
r-1
1
25
-Ap
r-1
1
9-M
ay-1
1
23
-May
-11
6-J
un
-11
20
-Ju
n-1
1
4-J
ul-
11
18
-Ju
l-1
1
1-A
ug-
11
$ per day cape panamax supramax handysize
Recent Spot Rates Developing Oversupply
Cape Fronthaul v Backhaul
-50'000
0
50'000
100'000
150'000
200'000
250'000
300'000
Jun
-01
Dez
-01
Jun
-02
Dez
-02
Jun
-03
Dez
-03
Mai
-04
No
v-0
4
Mai
-05
No
v-0
5
Mai
-06
No
v-0
6
Mai
-07
No
v-0
7
Mai
-08
No
v-0
8
Mai
-09
Okt
-09
Ap
r-1
0
Okt
-10
Ap
r-1
1
$ /day C9 C11
Cape Fronthaul v Backhaul
-20'000
-10'000
0
10'000
20'000
30'000
40'000
50'000
60'000
70'000
80'000
90'000
Jan
-10
Jan
-10
Feb
-10
Mrz
-10
Mrz
-10
Ap
r-1
0
Mai
-10
Mai
-10
Jun
-10
Jul-
10
Au
g-1
0
Au
g-1
0
Sep
-10
Okt
-10
Okt
-10
No
v-1
0
Dez
-10
Dez
-10
Jan
-11
Feb
-11
Feb
-11
Mrz
-11
Ap
r-1
1
Mai
-11
Mai
-11
Jun
-11
$ /day C9 C11
Cape Employment (Fronthaul v Backhaul)
0
50
100
150
200
250
300
350
400
450
500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
M Dwt Atlantic > Pacific Pacific > Atlantic
Cape employment Fronthaul & Backhaul net imbalance
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Imbalance
E.g. Imbalance in 2009 created additional demand for 46 x 170,000 dwt Standard Capes
Capesize (120,000+ dwt) Average Size Current & On Order Fleet
150'000
160'000
170'000
180'000
190'000
200'000
210'000
220'000
230'000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Dwt
Shipbuilding
Bulker Fleet & Orderbook in Numbers
1'011
1'994
926
1'404
1'666
266
51
1'225
70
572
22
565
782
123 82
416
0
200
400
600
800
1'000
1'200
1'400
1'600
1'800
2'000
Small Handy
Large Handy
Handymax Supramax Panamax Post-Panamax
Mini Capesize
Capesize
No
. of
vess
els
Fleet Orderbook
OB/F 7% 29% 2% 40% 47% 46% 161% 34%
Global Fleet by Build Region for Vessels Delivered in 2000, 2005 & 2010 (By GT)
-
10
20
30
40
50
60
70
80
90
100
2000 2005 2010
mill
ion
Gro
ss T
on
ne
s Americas
ROW
Europe
Japan
S Korea
China
-
20
40
60
80
100
120
140
160
2000 2005 2010
mill
ion
Dw
t
Americas
ROW
Europe
Japan
S Korea
China
Global Fleet by Build Region for Vessels Delivered in 2000, 2005 & 2010 (By Dwt)
Wrap-Up
• Chinese economic development was the main contributor to the shipping super-cycle.
• China is now the leading global shipbuilding in Dwt terms.
• Shipbuilding capacity may not be able to deliver all newbuilding contracts on time. Cash-weakened owners may struggle to obtain delivery finance. Expect a return of cancellations and slippage, especially dry cargo.
• The timing of market recovery post 2013 depends on:
– Industrialisation & urbanisation rates in emerging markets
– The response of emerging markets to commodity price changes
– Supply response to demand changes (scrapping, new orders)
Bulker Delivery Schedule
Jan 2011
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