Nicolai Hansteen - Bulkforum

OUTLOOK
Shipping Markets
Produced for:
Bulkforum
Annual Summit 2010
April 27 th 2010

Light in the tunnel?

The world economy
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Consensus GDP forecast: 2.8 % in 2010
GDP forecasts, 2006-2013
2006 2007 2008 2009 2010 2011 2012 2013
USA 2,7 2,1 0,4 -1,9 2,6 3,1 3,4 3,3
West Europe 3,1 2,7 0,6 -4,0 1,1 2,0 2,4 2,2
Russia 7,8 8,1 5,1 -9,2 2,9 5,5 6,9 6,6
Middle East 5,4 4,9 3,1 -1,9 4,1 5,7 6,1 4,8
PR China 10,7 11,5 8,9 8,7 9,5 9,2 9,0 8,4
Japan 2,0 2,3 -0,7 -5,6 1,2 1,7 2,1 2,3
India 6,3 6,4 4,2 0,3 4,3 5,6 6,3 5,7
WORLD 3,8 3,6 1,6 -2,1 2,8 3,6 3,9 3,7
Source: First Securities, Oxford Economics

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Forecasts on economy too weak?
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Oil and tanker markets

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Oil demand recovering. Huge growth potential in
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Oil production: Shaky prospects for non-OPEC supply.
OPEC countries control 76 % of proven reserves
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Crude oil tanker demand: Waiting for OPEC to boost
sailings... VLCC demand set to grow 9 % y-o-y in 2010
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The VLCC fleet contracted in Q409 due to heavy phaseout.
Scheduled fleet growth for 2010: ~6 %
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Slippage and cancellations likely to reduce 2010
VLCC fleet growth to 4 %
•! Only 6 out of 14 ships got
delivered on schedule in Q4
2009
•! 16 ships relative to 17 on
schedule were delivered in Q1
2010, however many of these
were originally Q4 2009
deliveries
•! 2009 deliveries were 20 % lower
than scheduled
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The market balance: Tighter through 2010. Softening
expected in 2011 due to fleet growth
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Historical price comparisons

Historical price development

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The newbuilding/secondhand ratio needs to tighten
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Dry bulk market prospects

Seaborne trade of dry bulk cargo 2010-’12

Ton-mile demand growing 12 % 2010-’12

Scheduled newbuilding deliveries

Actual newbuilding deliveries
•! Actual newbuilding deliveries so
far in 2010 indicate that:
•! 60% of vessels delivered
•! 40% of vessels not delivered
•! Cancelled, or
•! Deferred

Age profile of fleet
•! About a quarter of the existing vessels are over 20 years of age
•! About 100 million dwt could be candidates for demolition
•! Expect over 40 million dwt to be scrapped 2010-’12
•! Bulk carrier vetting criteria becoming stricter

Demand vs. supply

Vessel capacity utilization
•! Dry bulk vessels are operating
at 92.5% capacity utilization
•! Additional positive stimulus
could tighten utilization
increasingly
•! However, there is a
pronounced risk to the
downside
•! Particularly the influx of
newbuilding deliveries and
less-than-expected scrapping

Capesize freight rate forecast

Second-hand prices

Newbuilding parity line and second-hand prices
Newbuilding parity line Capesize bulk carrier
•!Contract price USD 57 mill.
•!Ship traded for 25 yrs to scrap
•!Residual value USD 8.8 mill.
•!20,000 lightweight ton
•!USD 440 per ton
Newbuilding parity line vs. resale and second-hand prices
•!Resale price USD 71.5 mill.
•!5-year price USD 62 mill.

Newbuilding parity line and second-hand prices
Historical relationship between NB parity line and 5-year prices
Source: Bloomberg/L&S

Vessel valuation
Definitions:
•!Implied book value
•!Attempt to estimate the book value of the vessels by using the original
contracting price + 5 % delivery cost depreciated over 25 years including a
residual scrapping value
•!Implied market value
•!Attempt to estimate the market value of the vessels by using the present
newbuilding price + 5 % delivery cost depreciated over 25 years including
a residual scrapping value
•!S&P evaluation
•!Attempt to estimate the market value of the vessels by assessing willing
buyer/willing seller in the Sale & Purchase market and by comparing with
last done deal

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