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.

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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