capital markets day 2019 - d3grzk40ejrt1i.cloudfront.net · • inbound/outbound modalities •...
TRANSCRIPT
Today’s agenda
Timer Topic Representative
09:00 - 09:30 The future of Odfjell Kristian Mørch CEO Odfjell SE
09:30 – 09:55 Targeting our optimal capital structure Terje Iversen CFO Odfjell SE
09:55 - 10:05 Coffee break
10:05 - 10:35 Meeting the future with a competitive and flexible chemical tanker platform Harald Fotland COO Odfjell SE
10:35 – 11:00 Market outlook Bjørn Kristian Røed Research Odfjell SE
11:00 – 11:05 Final remarks and summary Kristian Mørch CEO Odfjell SE
11:05 – 11:30/12:00 Lunch / Mingling session with light food and drinks
4
• Core business is shipping and storage of bulk liquid chemicals
• Headquarter in Bergen, with offices in 18 countries worldwide
• One of the world’s largest operator of chemical tankers
• «Supersegregators» are our core tanker assets - trading in fixed patterns
• Global network of chemical tank terminals
• Listed on Oslo Stock Exchange since 1986
Odfjell SE
More than 100 years of experience
6
Key figures
Odfjell Group financials (2018)• Gross revenue USD 851 million• EBITDA USD 135 million• Operating result (EBIT) USD -76 million
Employees and offices• 2,530 employees globally (1,663 seafarers, 490 terminal employees, 377 on shore)• 16 offices and 7 tank terminals
Safety• Two serious incidents in 2018. fatality on Bow Sun and bunker spill on Bow Jubail)• Tankers LTIF 2018: 0.40 (2018 target: 0.7)• Terminals LTIF 2018: 0.19 (2018 target: 0.3)
Odfjell Tankers• Number of vessels: 79 (dwt 2.5 million)• Volume shipped: 15 million tonnes per year• 4 595 399 nautical miles sailed by Odfjell fleet in 2018 = 212 times around equator
Odfjell Terminals• Total tank capacity: 2.0 million cubic meters (incl. 550k cbm related party)• Located in Asia, Europe and United States• Ownership and governance setup in process of being changed
7
Our EBITDA performance has improved despite more challenging markets –there is a significant upside when markets improve
EBITDA per division, USD million: Odfjell Tankers EBITDA for every USD1,000/day change in rates:
242191
73 59 61 6698 97
147188
125 109
74
95
109110 96
27
22
40
47
3824
2010 201320092007 2008
169
2011 2012 2014 20162015 2017 2018
316
286
182157
93
11796
191
238
166
135
Chemical tankersLPG/Ethylene Tank terminals*
136163
190217
244271
298325
352379
406433
+7000+1000 +8000+2000 +4000+3000 +5000 +6000 +9000+10000+11000+12000
+27
2008-2018 Average
Source: Odfjell* 2017 and 2018 EBITDA reduced by USD 8 mill and USD 10 mill, respectively due to sale of Oman and Singapore
8
Our EBITDA performance has improved despite more challenging markets –there is a significant upside when markets improve
EBITDA per division adjusted for project Felix, USD million: Odfjell Tankers EBITDA for every USD1,000/day change in rates:
242
191
73 59 61 6698 97
147188
125 109
74
95
109110 96
27
22
40
47
3824
201220082007 2009 2014
117
2010 2011 20152013 2016
135
2017 2018
316
286
182169
157
93 96
191
238
166
LPG/Ethylene Tank terminals* Chemical tankers
136163
190217
244271
298325
352379
406433
+4000+1000 +2000 +9000+3000 +7000+5000 +6000 +8000 +10000+11000+12000
+27
2008-2018 Average
Source: Odfjell* 2017 and 2018 EBITDA reduced by USD 8 mill and USD 10 mill, respectively due to sale of Oman and Singapore
351300
182 168 170 175207 206
147188
125 109
74
95
109110 96
2722
40
47
3824
201420102007 20112008 2009 20132012 2015 2016 2017
226
2018
205
425395
291 278 266
202 191
238
166135
9
Source: Clarksons Platou, Odfjell
110115120125130135140145150155160165170175180185190195Ja
n-09
Jan-
07
Jan-
08
Jan-
04Ja
n-05
Jan-
06
Jan-
10
Jan-
11
Jan-
12
Jan-
13
Jan-
14
Jan-
15
Jan-
16
Jan-
17
Jan-
18
Jan-
19
• Ordered six newbuildings at Hudong Shipyard• Delivery between July 2019 and September 2020• Values for similar vessel are up 15% since our orders
• Two newbuildings concluded on long-term Timecharter• Vessels were delivered in October 2018 and January 2019• Replacing chartered vessels at 20% lower charter-in rate
• Two newbuildings concluded on long-term Bareboat• Delivery in December 2019 and July 2020• Replacing chartered vessel at 20% lower rate and growth
• Acquired 5 vessels and formed a pool with 5 CTG vessels • All vessels have been delivered and are now operated by Odfjell• Purchase options on CTG vessels and receive profit splits
• 4 vessels on long-term BB and formed a pool with 4 SC vessels• Purchase options and profit splits on SC vessels• BB rates secured 30% below comparable charters in our fleet
1
2
3
4
5 Sinochem transaction
Newbuildings
Investment timing secures attractive returns also in weak markets
Our recent tonnage renewal and growth initiatives (28 vessels) are concluded at what looks like an attractive point on the asset curve
Clarksons newbuilding index Timeline
Long-term TC
Long-term BB
CTGT transaction
10
We believe the markets passed the bottom in 2018 and that the fundamentals for chemical tankers and storage are healthy
11
Dem
and
Supp
ly
• Continued healthy GDP growth, but some uncertainty going forwardGDP growth
• Significant increase in production in US and ME with access to cheap feedstock – adding long haul transportation demand
• Continued high demand growth in Asia driving tonne-mileStructural shift
• IMO 2020 to drive demand for transportation of refined oil products (especially bunker trade)IMO 2020
• Very limited orders in core segment (last stainless steel order was in July 2018)
• Chemical tanker ~7% orderbook which is ~2% fleet growth p.a.Orderbook
• Strong CPP and vegoil market• Swing tonnage reverting to their core marketSwing tonnage
• Increased scrapping (all things equal)• Slow steaming and retrofitting to positively impact supplyIMO 2020
+4%p.a. + tonne-mile effect
+2%p.a. +/- Swing tonnage
12
Historically about 50-60% contract coverage – with recent increase in spot rates we have reduced our share of contracts
Spot rate, USD per ton Contract coverage, percentage of total volume
48%55% 57%
60% 61%58%
61% 60% 59%
50% 50%
1Q-174Q-16 2Q-17 1Q-18 2Q-18 Future coverage
3Q-17 4Q-17 3Q-18 4Q-18 1Q-19
-1.7%
-6.8%
COA coverage Average
2Q-181Q-17 4Q-174Q-16 1Q-192Q-17 3Q-17 1Q-18 3Q-18 4Q-18
+15% +17%
CoA rate Spot rate
28
24
20
16
12
8
4
00 10 20 30 40 50 60 70 80 90
Greathorse
Ace Navig8
Average fleet age, Years
Odfjell
MOL
Fairfield/Iino
Bahri
Stolt
Womar
Sinochem
MTMM
Hansa
Chembulk
Core deep sea fleet (Current operated fleet), # of vessels
Ultratank
IMC/Aurora
Team
Zodiac
Sabic
Wilmar
Bryggen
The current global core deep sea market is dominated by a few players, but we still face competition from a wide range of competitors
13
Size: Fleet size, DWT
Operated fleet, as of January 31st 2019
Source: Odfjell Fleet Overview
We have a network of 7 terminals with a mix of mature and growth terminals
1. All USD figures represents Odfjell SE’s ownership share and is based on FY 2018, 25% ownership share at NNOT included2. Total EBITDA excludes global management fee allocation being booked at Odfjell Terminals BV (Holding company)
Antwerp(NNOT)
Houston(OTH)
Charleston(OTC)
Ulsan(OTK)
Dalian(OTD)
Jiangyin(OTJ)
Tianjin(ONTT)
Peru, Argentina, Brazil
Global
Storage capacityIn k CBM 348 380 79 314 120 100 138 553 2,032
Start-upYear Non-operated 1983 2013 2002 1998 2007 2016 Related party -
Revenues1
USD mill 11 40 6 5 4 2 1 - 69
EBITDA1
USD mill 5 17 2 2 3 1 0 - 322
Odfjell SE ownership(%)
25.0% 51.0% 51.0% 25.5% 25.5% 28.1% 25.0% n.a.
Europe US AsiaSouth
America
14
15
Terminals - focus areas for the next years
• Complete Lindsay Goldbergs exit, and restructuring of our terminal governance setup
• Focus on terminals with synergies with Chemical Tankers
• Optimise and grow current footprint
• Grow outside current footprint
Strategic priorities Focus areas next 3 years
1 Reorganize our terminal setup with HQ integrated in Bergen, with 3 separate regions (US, Europe and Asia)
2 Focus on “Better solutions” with supply chain integration together with Odfjell Tankers
3 Improve and Optimize Houston
4 Growth within Houston footprint (3 available areas within current footprint that can be developed)
5 Growing outside current footprint is 2nd priority
A key focus is to improve synergies between Odfjell Tankers and Odfjell Terminals – helping to de-bottleneck our customers’ supply chains
Chemicalproduction sites
Storageterminals
Seabornetransport
Storageterminals
Distribution to end-user or internal further processing
Resourceretrieval
Base petroch. refineries
Manufacturing
Specializedchemicalplants
Bulk plant/wholesalers
DomesticdistributionExport
• Production rates• Shutdown calendar• Packaging capacities• Production constraints• Campaigning constraints
Rail/truck/pipe/barge
• Available routes• Lead times [days]• Incoterms• Lot sizes
• Available routes• Voyage durations [days]• Regularity/predictability• Spot/CoA and freight rates• Lot sizes
• Storage location(s)• Inbound/outbound modalities• Asset base/capacities• Speed and efficiency• Customer service• Inventory targets• Inventory max/min• Inventory class max
• Customer demand• Discretionary demand• Customer approvals• Substitutions
• Safety stocks• Production schedule• Production capacity
Supply chain for US exporter of chemicals (illustrative)
Chemical supply chain challenges: Supply chain complexity is growing Cost efficiency increasingly important Pressure to improve asset productivity Growing US & MEG production creates price pressure for Asia and Europe producers Increased seaborne trade versus domestic production creates logistics bottlenecks
Odfjell improvements will be through: Improve operational efficiencies for Odfjell and our customers Improve predictability for Odfjell and our customers’ services Reduce berth congestion at Odfjell Terminals Reduce port time and uncertainty for Odfjell Tankers Improve customers and own competitiveness in a commoditized market
16
• We will meet IMO 2020 by using LSFO
• Current price indications around USD 49¹ above HFO prices
• Bunker adjustment clauses in our contracts to reflect new fuel
IMO 2020 less than 6 months away. We do not believe in scrubbers, so we are focusing on compliant fuel and reducing consumption…
17
LNG
Scrubber
LSFO
• Retrofit not economically attractive
• LNG could be attractive for our newbuildings
• Access to LNG is a concern and creates uncertainty before 2020
• Installing scrubbers on all vessels is time consuming and not economically attractive
• Scrubbers are not sustainable in the long-term
• Majority of competitors are not installing scrubbers
1. The LSFO price is a Platts estimation as the product is not sold/bought ont the market yet.
Scrubber picture
18
…but we will be well positioned through significantly more economic fleet, and we work towards adjusting our BAC’s to cover compliant fuel
1. Adjusting for older vessels expected to be redelivered/scrapped next 3 years and 6 x Hudong in addition to 3 x larger BB/TC to be delivered
Efficiency measures Total bunker consumption per ‘000 DWT
286
222 218
251230
214193 186 182 183 177
0
50
100
150
200
250
300
201720112010 2012 20142013 20162015 2018 2019Future1
-36%
-3%
Process and routines
Retrofitting
Newbuilds
• Weather routing with annual savings of 2,000 tonnes fuel
• Propeller polishing and hull cleaning with savings of 2.5 tonnes/day
• Anti-fouling program reduce need for hull cleaning• Reversed Osmosis with savings of 1 ton fuel/day on
boilers • Propulsion System with savings of 20,000 tonnes fuel
• Concluded 31 newbuilds to the fleet• Newbuilds with a significant fuel advantage
19
We continue to work on alternative fuels and energy solutions which includes a Fuel Cell Project – initially as auxillary engines
35 % fuel
45 % CO2 emissions
90 % SOx emissions
80 % NOx emissions
• Zero emissions in port, significant emission reductions at sea
• Patented solution currently under development
• Odfjell represented in the project as the only ship owner
• The fuel cell will be piloted on an Odfjell ship within next two years
Features and mechanisms Estimated emission reductions
Sustainability is high on the agenda
20.419.0 18.2 18.1 18.0 17.9 17.4 17.5
16.4 16.6
1416182022
2015 2016201320122009 2010 2011 2014 2017 2018
EEOI trend for the Odfjell Fleet*Gram CO2 per tonne cargo transported 1 nautical mile
Environment Safety
Health Local communities
Anti-corruption
Operational excellence• Continue improvement programs in Odfjell Tankers• Focus on synergies between Tanker and Terminal
Terminals – Back to operations and profit• Complete the restructuring and develop our tank terminal division• Grow our Houston terminal
Financial strength• Maintain our strong balance sheet• Be able to act if attractive opportunity arises
Capital Allocation• Investments: Look at growth opportunities in Houston• Dividends: Target attractive dividends (market dependent)• Deleverage: Reduce our debt levels (market dependent)
Tankers: From growth and renewal to quality of service to customers• We have one of the most energy efficient and competitive fleets in the world and a solid
business intelligence system – now this has to be converted to world class services
21
Our current strategic priorities
Zero incidentsSafety performance
Target an operated fleet of about 100 vessels, to benefit from scale advantagesTankers scale
Average revenue growth of 10% per year (over time)Revenue / Top-line
Industry leading EBITDA marginProfitability
22
Delivering safely, on time, on spec and being competitively pricedCustomer service
Our long-term ambition level and targets remain unchanged
Our finance strategy
24
Efficient capital structure
Access to attractive capital resources
Manage risk
Accomodate operational strategy
Secure growth and flexibility
Attractive returns to shareholders
• A capital structure that provides operational and financial flexibility at attractive cost of capital
• A diversified portfolio of capital sources and counterparties to secure flexibility and a competitive cost of capital
• The financial strategy needs to manage the impact of operational and financial risks related to our business throughout cycles
• To be financially capable to accomodate our operational strategy
• We need to have the financial capability to grow and be able to act quickly as opportunities arise
• Ensure to return surplus liquidity to shareholders throughout the cycle
Source: Odfjell
25
Efficient capital structure
Secure growth and flexibility
Access to attractive capital resources
Accomodate operational strategy
Manage riskAttractive returns to shareholders
An efficient capital structure is a key to succeed with our financial strategy
26
15 000
0
5 000
10 000
20182012
-32%
0
50
100
20182012
-25%
20
-10
100
30
-13%
2012
9%
2018
Targeting an efficient capital
structure
21.0 19.2 18.2 17.5 17.0 15.9 16.5 15.8 15.6 15.6 15.4
0
20
40
201820152009 20142010 20122011 2013 2016 2017 2019
-26%
Achieving an optimal capital structure to ensure strong cash flows in any market a priority after achieved operational competitiveness in recent years
32% reduction in operating expenses
25% reduction in G&A
26% reduction in average daily fuel consumption
Terminals back to profit
Source: Odfjell
27
02468
10121416
19951987 20001990 2005 2010 2015 2018
Odfjell NIBD/EBITDA Chemical producers NIBD/EBITDA
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1985 1990 1995 2000 2005 2010 2015 2020
Odfjell SE P/BV Chemical producers P/BV
Returns trends alongside tankers... But with lower high’s, higher low’s and higher average’s...
...And we generate higher high’s, lower low’s and similar average’s as the industry...
...But the extended downcycle has disconnected our leverage profile from the industry...
...Alongside a substantial increase in our cost of equity...
Odfjell Tankers 1987-2008 Average:3.5xOdfjell Tankers 2009-2018 Average: 9.1x
Odfjell SE 1987-2008 Average:1.5xOdfjell SE 2009-2018: Average: 0.5x
*Odfjell Tankers ROIC adjusted for savings related to Project Felix also pre-2015
-10
0
10
20
30
-10%
21%
Crude & Product TankersOdfjell Tankers
9%18%
5%1%
High Low Average
-10
0
10
20
Odfjell Tankers Crude & Product Tankers
11%
18%
1%7%
9% 9%
High Low Average
Odfjell Tankers NIBD/EBITDA vs Chemical producers
We are exposed to cyclical downturns with returns in line with the industry, but the downturn has disconnected our leverage from historical levels
1987-2018: Odfjell Tankers ROIC vs Chemical producer peer group1987-2018: Odfjell Tankers ROIC vs Tanker peer group
Odfjell P/BV vs Chemical producers
10 years of weak markets has increased our loan-to-values and we target to reduce leverage going forward
28
36%
50% 49%
56% 55%
45%
50%
56%59%
62% 63%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
60%
65%
20102008 2009 2011 20152012
55%-60%
2013 2014 2016 2017 2018 Target
LTV considerations
• Underlying market and pressure on 2nd hand values
• Changes in funding sources and access to attractively priced sale-leaseback financing
• However, we target lower LTVs going forward with a refocus on lower total cost of funding (and break-even)
• Retain leverage capacity for cyclical downturns and investment opportunities
Odfjell tankers : Historical loan-to-value
Source: Odfjell, External broker values from 2016 and onwards, NPV for impairment testing 2008-2015
Odfjell continues to get strong support from close relationship banks – but debt markets have changed and we have to adapt to remain competitive
29
Banks • Traditional shipping banks have reduced their exposure or exited the shipping space…• … and Far East and Asian banks are moving up the league tables
Age restricitons • Banks reluctant to offer attractive financing for older tonnage. Max. 20 year “target” for several lenders due to internal bank policies
Max. 20-25 years profileSubstantial scrap value buffer retained in the
groupAverage age of ODF fleet: 13yrs
Pressure on margins on older tonnage
• Lenders demands higher margins on older tonnage in order to compensate for higher capital ratio on “mature” vessels
Odfjell impact• Steeper amortization profiles impacting our cash break-even as we repay loans over a
shorter period of time and/or are pushed into the more expensive sale-leaseback markets
~25 bps margin “premium” for longer profiles
2019 “finance cost” per day:Mortgaged loans: ~USD 12,900
Finance lease existing vessels: ~USD 14,400 Finance lease new vessels ~ USD 13,425
ODF IBD in 2009:Bank loans: 60%
Finance lease: 20%Bonds: 20%
ODF IBD in 2019:Bank loans: 38%
Finance lease: 39%Bonds: 23%
Source: Odfjell
Our long-term target is to reach a cash break-even level between USD 18,000/day and USD 19,500/day
30
26,524
23,883
26,315 25,86427,279
25,37026,099
23,137 22,85123,657
22,222
20132008 2009 201420112010 2012 2015 2016 2017 2018 Target
18,000/19.500
LTV considerations
• We target to lower our cash break-evento USD18,000 – USD19,500 per day
• This positions us to generate positive cash flow in every cycle
• This is to ensure we can deliver on ourfinancial strategy
• Timing to succesfuly reach these levelsare market dependent
• We believe this will lower our cost ofcapital and improve ourcompetitiveness in the future
Odfjell tankers : Historical break-even
We are therefore targeting a future debt structure that ensures strong cash flow generation in every chemical tanker cycle…
31
Description Today, USD mill
• Secured and amortized debt
• Non-amortising debt
Source: Odfjell
• Average amortization profile
• Unencumbered assets, including undrawn revolvers
• Total debt
Target range, USD mill USD/day effect:
Reduction:USD 850-1,600/day
Reduction:USD 0-250/day
Reduction:USD 2,200/day
Reduction:USD 200/day
Reduction:USD 3,250-4,250/day
860 500
650
263200
250
5.7 years 8.0 years
25 75
1,100750
900
…and our target is to have access to the equity capital markets as lowering our cost of equity is a key to lower our overall cost of capital
32
Funding sources Equity
Source: Odfjell, Bloomberg, Steem 1960, * Valuation only accounts for Odfjell Tankers on-balance sheet vessels and their associated debt (i.e. no corporate or JV factors included)
Odfjell Tankers external fleet valuation Dec-18 (USD mill) (excludes TC/BB vessels)
Market value fleet 1,346
Equity instalments NB 54
Excess market value NB 79
Total 1,478
Odfjell Tankers vessel debt 878
Net fleet value 6002.3%
3.9%
6.3%
2.5%
4.4%
6.0%
0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%4.5%5.0%5.5%6.0%6.5%
Margin
Mortgage funding Sale/lease back Bonds Equity ?
jun-18 jun-19
Odfjell Terminals Book value of equity Mar-19
Odfjell Terminals equity value (Mar-19) 158
Target B/E range
Our long-term break-even target range translates into sustainable cash flow generation across all cycles
33
27
55
82
109
136
164
191
218
245
273
300
327
0
50
100
150
200
250
300
350
21,00019,00018,000
USD mill
24,00020,000 22,000 23,000 25,000 26,000 27,000 28,000 29,000 30,000
0
* Reflecting 2021 fleet composition (fully invested) and cash flow generated after all expenses paid (TCE evenues less opex, G&A, interest cost and 2021 amortisation schedule). Cash flow is based on how the fleet and capital structure would look like in 2021 as of today, and is therefore subject for change
TCE rate per day (USD)
All-time low(2018)
Odfjell Tankers : Cash flow in various rate scenarios and cycles
Target B/E range
These break-even levels will position us to distribute dividends to shareholders across the cycle…
34
816
2533
4149
5765
7482
9098
1427
4155
6882
95109
123136
150164
0
20
40
60
80
100
120
140
160
180
USD
mill
22,00021,00018,000 19,000 20,000 23,000 25,00024,000 26,000 27,000 28,000 29,000 30,000
* Based on a break-even of USD18,000/day. Reflecting 2021 fleet composition (fully invested) and cash flow generated after all expenses paid (TCE evenues less opex, G&A, interest cost and 2021 amortisation schedule). Cash flow is based on how the fleet and capital structure would look like in 2021 as of today, and is therefore subject for change. Market cap based on closing price 28 May 2019 (NOK28.2) and USD/NOK8.73
Low cycle Mid cycle High cycle
TCE rate per day (USD)
30% pay-out50% pay-out
3% - 5%
6% - 11%
10% - 16%
13% - 21%
16% - 27%
19% - 32%
23% - 38%
26% - 43%
29% - 48%
32% - 54%
35% - 59%39% - 64%
Dividend yield range (low-high)
Odfjell Tankers : No dividend policy determined by Odfjell, but the below show dividend potential in various rate and pay-out scenarios across cycles
Target B/E range
…and at the same time generate sufficient cash for investments, debt balloons, extraordinary dividends and deleveraging if needed…
35
1938
5776
95114
134153
172191
210229
1427
4155
6882
95109
123136
150164
020406080
100120140160180200220240
18,000
USD
mill
24,00019,000 20,000 22,00021,000 23,000 25,000 26,000 27,000 28,000 29,000 30,000
* Based on a break-even of USD18,000/day. Reflecting 2021 fleet composition (fully invested) and cash flow generated after all expenses paid (TCE evenues less opex, G&A, interest cost and 2021 amortisation schedule). Cash flow is based on how the fleet and capital structure would look like in 2021 as of today, and is therefore subject for change.
Low cycle Mid cycle High cycle
TCE rate per day (USD)
30% pay-out50% pay-out
Odfjell Tankers : Excess cash potential in various rate and pay-out scenarios across cycles
36
Efficient capital structure
Secure growth and flexibility
Access to attractive capital resources
Accomodate operational strategy Manage risk
Attractive returns to shareholders
An efficient capital structure is a key to succeed with our financial strategy
Capital Markets Day 2019COO, Harald FotlandMeeting the future with a competitive and flexible chemical tanker platform
38
Training
• Revised training program with enhanced focus on development of core competencies
• Three step leadership training program for senior officers
• Well integrated concept for onboard training and familiarization
Data/systems
• On-line monitoring of key vessel parameters
• Digitalized systems for cargo stowage, cleaning and condition monitoring
• Systematic monitoring of consumption, port performance, predictability, and reliability
Culture/routines
• A unique safety quality system, developed and improved over decades
• Top tier retention rate for officers and crew
• Frequently consulted by class, maritime authorities, port authorities and manufacturers on issues related to transportation of liquid chemicals
• Open and honest dialogue promoted through a no blame culture
• Focus on safety programmes and campaigns, accompanied and followed-up by frequent onboard visits by responsible Superintendents and Senior Management
We have a zero incident ambition
Our commercial and operational platform is second to none in the industry
Port Captains (Houston, Singapore, Dubai and Santos)• Four Port Captains with strategic location, enabling trade specific guidance • All with sea service time from our super segregators, as Captain or Chief Officer
Technical and Marine Superintendents• Seventeen Superintendents at Head Office, coordinating daily activities with vessels• 11 of 17 have sea service time from our super segregators. Captain/Chief Officer – Chief Engineer/2nd Engineer
Marine Support Group• Five dedicated cargo handling advisors at Head Office, offering support on board and within shore organization• All with sea service time from our super segregators, as Captain or Chief Officer
Vessel operators• 21 operators at Head office• 8 of 21 vessel operators at Head Office have sea service time from our super segregators, as Captain or Chief Officer
39
IMO 2020 SummaryCompetitiveness Digitalization
86%91%
95%96%
100%95%
87%95%
100%100%100%100%
96%100%100%100%100%
91%96%96%
Bow Sun
Bow Clipper
Bow SummerBow Star
Bow SpringBow Sky
Bow SiriusBow Sea
Bow SagaBow Jubail
Bow Fortune
Bow Cardinal
Bow FlowerBow FloraBow FirdaBow Faith
Bow Fagus
Bow ChainBow CedarBow Cecil
40
At least 24 of 26 crew members have served on
board same class before
96% of all officers have served on
board same class before
At least 12 of 26 crew members have served on
board same vessel before
Class familiarity Specific vessel familiarity
Our crews have unique familiarity with our super-segregators
92%
50%50%
55%48%
54%50%
30%41%
33%54%
42%52%
48%50%
42%33%
59%57%57%
33%
Bow Saga
Bow Firda
Bow Sun
Bow Sirius
Bow SummerBow Star
Bow Clipper
Bow SpringBow Sky
Bow Flower
Bow Sea
Bow Jubail
Bow Cardinal
Bow Fortune
Bow Flora
Bow Cedar
Bow FaithBow Fagus
Bow Chain
Bow Cecil
34%
IMO 2020 SummaryCompetitiveness Digitalization
6.6
5.14.7 4.6
3.74.0 4.0
0
1
2
3
4
5
6
7
2013 2014 2015 2016 2017 2018 2019
Rigorous focus on safety has led to continuous improvement in fleet performance• Extensive training program• Stringent assessment prior to promotions• Company-wide knowledge sharing of “lessons learned”• Improved vessel monitoring system
CDI & SIRE inspections• All ships under Odfjell management participate in both the Chemical
Distribution Institute and Ship Inspection Report Program inspection regime
• The scores are assessment of compliance at the time of the inspection
Fleet performance is continuously improving for Odfjell vessels
41
Fleet performance all Odfjell vessels, Average number of observations CDI & SIRE
IMO 2020 SummaryCompetitiveness Digitalization
42
2222
22 2222 25
2935
2013 2014 2015 2016 2019 20202017 2018
Super-segregators Large Stainless Steel Medium Stainless steel Coated Regional
* Fleet as of year-end. 2019 and 2020 fleet assumes renewals of all our current short-term TC
Comments:• Adapting to the evolution of the super-segregator trade
• Stronger margins through higher share ofspeciality chemicals shipped
• Size matters – We are able to satisfycustomer needs globally
• Improved flexibility through more cargo space and tanks
• Increased exposure to strong demand for deep-sea shipments
Comments:
2004-20101993-2004 2010->
46-52 tanks
40-44 tanks
30-40 tanks
Maturity of super-segregator trade by no of tanks
We are growing our super-segregator fleet which adapts our fleet to the evolution of the super-segregator trade
Odfjell Tankers: Fleet development by vessel type
IMO 2020 SummaryCompetitiveness Digitalization
43
Gross market TCE rates: USD per day
Gro
ss p
rofit
Odf
jell:
USD
per
day
Pool (excl. profit sharing) Alternative (TC)Pool (incl. profit sharing)
Average age of TC/BB redeliveries of 13 years
Reduced downside for Odfjell
Reduced upside for Odfjell
Pool significantly reduces downside vs external vessels on normal TC and only some upside is capped in very favorable market conditions
TC/BB redeliveries in 2017-2019: Pool set up explained:
02468
1012141618202224
Bow
Ara
tu
Age
Cels
ius
Mex
ico
Bow
Mek
ka
Bow
Her
on
Cels
ius
Mon
aco
Bow
Sag
ami
Bow
Kis
o
Cels
ius
Man
hatta
n
Cels
ius
May
fair
Cels
ius
Mia
mi
Gio
n Tr
ader
Sout
hern
Jag
uar
Sout
hern
Ibis
Hor
in T
rade
r
Kris
tin K
nuts
en
Stel
lar W
iste
ria
Cels
ius
Mum
bai
Bow
Fuj
i
Bow
Riy
ad
Bow
Que
rida
Bow
Asi
a
Bow
Sin
gapo
re
Average
We have redelivered older inefficient vessels on charter of which some have been replaced by efficient pool vessels with valuable economics for Odfjell
IMO 2020 SummaryCompetitiveness Digitalization
44
Peer 3 Peer 2
0,023
Peer 1 Odfjell Tankers
0,026
0,020
0,02424.3
22.4
20.1
15.9
1998 20082005 2016
Energy efficiency index: Odfjell vs peers J19 fuel consumption by year of construction*
• The efficiency index measures how cost effective our fleet is relative to peers. This ensures that Odfjell is a natural counterpart for chemical majors competing in a commoditized market, where Odfjell ensures that they can remain competitve
• There has been major changes in fuel consumption of basic chemical tankers the last 20 years. This creates higher barriers for older tonnage to compete withmodern tonnage. Odfjell is therefore constantly focused on improving the efficiency and performance of our fleet
*There are larger variations of fuel consumption within vessel classes
We operate one of the world’s most fuel-efficient stainless-steel tanker fleetsIMO 2020 SummaryCompetitiveness Digitalization
Bow Sea
Bow Cecil
Bow Aquarius
Bow TriumphCTG Magnesium
Bow Cardinal
Competitor 1
Competitor 10
Competitor 9
Competitor 8
Competitor 2
Competitor 1Competitor 1
Competitor 1
Compettitor 2
Competitor 3
Competitor 6
Competitor 4
Competitor 5
Competitor 1
Competitor 7
• Only two players with more than two vessels in the area, a third player with two vessels and remainder of competition has one vessel45
Port of Houston May 2019
A large and global platform ensures that we can meet our customers various demands by being flexible and able to solve their logistical needs
IMO 2020 SummaryCompetitiveness Digitalization
46
• Limited number of scrubbers installed onboard chemical tankers and our scrubber study concludes that its not an option for us today• Odfjell is therefore focused on other measurements to achieve a competitive advantage as bunker dynamics are changing
• Preparations has been ongoing since 2016• Testing of new compliant fuel has been conducted on several vessels from various suppliers• A number of suppliers in need of emptying storage tanks for HFO in 4Q and we are prepared to consume compliant fuel earlier if needed
Preparations
Competitors
• Risk Management team is established, and we will keep track on every bunker tank and reduce possibility of “pocket fuel” onboard• Continue bunker detective surveys as usual to ensure correct ROB is reported
Risk Management
• 50-60 per cent of our consumption is passed on to customers through bunker adjustment charges in contracts• 15 per cent of our consumption is MGO and this is expected to be stable into 2020• This leaves Odfjell exposed to uncertain pricing of new compliant fuel for 25 to 35 per cent of our consumption from January 2020
Fuel consumption and
exposure
• Odfjell are committed to our customers and promote transparency into how we calculate the bunker adjustment charges (BAC)• We expect increased bunker costs to reflect the new compliant fuel and increased bunker costs will be passed on to customers
Bunker Adjustment
charges
• We are preparing our fleet to consume new 0.5% compliant fuel from January 2020Odfjell’s position
• IMO 2020 regulation set result in a clamp down of HFO bunkering infrastructure due to a dramatic drop in demand for HFO at ports• We bunker 80% of our volumes in 10 ports where new compliant fuel is available. In smaller ports, MGO will be available and there are
expectations that new fuel alternatively will be shipped if there’s an available marginFuel availability
Our positioning for IMO 2020 from an operational perspectiveIMO 2020 SummaryCompetitiveness Digitalization
47
Digitalization is high on the agenda in Odfjell to make our operations and customer interaction less time-consuming
Live demonstration made at CMD venue
IMO 2020 SummaryCompetitiveness Digitalization
48
• The fleet growth within super-segregators is important to improve our scale and flexibility to meet customer demandsFleet growth
• We are confident that we are now controlling one of the world’s most efficient stainless-steel vessels that makes us highly competitive Competitiveness
• We are well prepared for IMO 2020 operationally and we consider the regulations as an opportunity to improve our competitiveness furtherIMO 2020
• Our fleet can carry “everything” and we are prepared to take advantage of improved CPP marketsSwing tonnage
Summary
• Our commercial and operational platform is second to none in the industryPlatform
IMO 2020 SummaryCompetitiveness Digitalization
Product
Methanol
Average nautical milesSeaborne trade (MT mill.) Tonne-miles (Billions)
50
2016 2017
Vego
ilIn
orga
nic
Org
anic
27.8 27.7
2016 2017
Para-xylene/Xylenes 19.4 20.8Ethylene Glycol 12.2 14.2Styrene 8.1 8.0Benzene 6.9 7.8MTBE 6.3 6.5Ethylene Dichloride 2.9 3.2Toluene 2.9 2.9
3,984 4,1191,858 1,7884,414 4,4083,304 3,050
3,055 2,577
4,211 4,415
6,100 5,4691,926 1,690
Sulphuric Acid 12.6 14.1 2,575 2,709
Caustic Soda 10.4 11.6 4,455 4,655
Phosphoric Acid 5.1 5.4 4,926 4,815
Palm oil 40.4 48.5 3,608 3,433
Soybean Oil 10.7 10.4 6,431 6,010
Oth
er Ethanol 6.8 7.6 5,373 4,671
Molasses 5.2 5.0 3,069 2,960
Others 47.2 47.2 3,359 3,483
Total 239.1 247.8 3,857 3,795
2016 2017
Tonne-mile growth (%)
2016 2017
110.8 113.036.0 34.353.9 57.626.8 23.0
21.1 17.4
26.5 25.6
17.7 17.25.6 4.8
32.4 34.4
46.3 53.5
25.1 23.4
145.8 151.7
68.8 69.6
36.5 36.4
16.0 17.8
158.6 164.3922.3 940.5
15% 3%13% 3%-4% 16%
7% -9%-23% -5%14% 8%5% -1%6% -12%
-9% 18%
13% 16%
20% 4%-11% 1%
-4% -11%
23% -3%-1% -7%
-2% 4%
2% 2%Source: Odfjell, Drewry, ICIS, Customs data
Sunflower Oil 8.4 9.8 3,670 3,694 30.8 38.9 19% 17%
Trend2019-21
GDP (+)
GDP
GDP (-)
Mega trends Inorganics & vegoils Supply & IMO 20202018 Long-term outlook
2018
29.022.614.87.28.2
6.0
3.12.9
15.0
11.2
5.4
51.8
11.2
8.8
5.0
49.9259.4
9.0
2018
3,9661,9074,4863,250
2,9634,5334,8061,655
3,127
4,464
4,778
3,618
5,477
5,068
2,880
3,454
3,776
3,644
2018
113.034.357.623.0
17.425.617.24.8
34.4
53.5
23.4
151.7
69.6
36.4
17.8
172.2979.7
38.9
2018
1%16%6%
-4%21%
-5%
-15%-2%23%-7%
-1%13%
-2%
26%
-3%
5%
4%
-9%
2018 and was another year of strong demand within our segment
51
Vertical integration+ + +
-
US ShaleCrude vs Natural
gas
China domestic capacity
‘’War on pollution’’ + ?
EV & Mobility
Organics Inorganics & vegoils Supply & IMO 20202018 Long-term outlook
The chemical mega-trends highlighted keeps affecting our markets and will continue to do so going forward
Source: Odfjell CMD 2018
52Source: ICIS, IHS, Odfjell
Production vs consumption and surplus/deficit development in key chemical production hubs, MT millions
20
25
30
35
40
45
50
55
0
50
100
150
200
250
300
350
2014
2020
E
2017
2016
2021
E
2018
2011
2012
2019
E
2013
2015
2010
Production
Demand
Deficit
China production vs consumption
MEG production vs consumption
24
26
28
30
32
34
36
0
10
20
30
40
50
60
70
2020
E
2018
2011
2016
2017
2019
E
2021
E
2010
2012
2013
2014
2015
Production Demand Surplus
2
4
6
8
10
12
14
16
0
20
40
60
80
100
120
2019
E20
20E
2017
2016
2018
2021
E
2010
2011
2012
2013
2014
2015
USA production vs consumption
Production
Demand
Surplus
Organics Inorganics & vegoils Supply & IMO 20202018 Long-term outlook
Three areas evolving as main hubs for production of liquid chemicals and therefore also main hubs for seaborne trade of chemicals
53
Source: ICIS, Drewry, Odfjell
USA 31%+8 mill Tonnes
Demand
Drivers: • Attractive feedstock• Gas based chemicals• Long-haul shipments• Chemical building block
prices under pressure?
Organics Inorganics & vegoils Supply & IMO 20202018 Long-term outlook
2019-2021 export growth:
Three main areas evolving as key chemical hubs for seaborne trade - US
Source: Argus, Bloomberg, Odfjell
Organics Inorganics & vegoils Supply & IMO 20202018 Long-term outlook
Comment
Comment
123456789
0
20
40
60
80
100
120
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
USD/
barr
el
USD/
Mnb
tu
Crude oil prices Natural gas prices
0
200
400
600
800
1,000
1,200
1,400
2019201020082009 2015201320112012 2014 201620172018
-63%US Ethylene Far East Ethylene
2020
6051
20192017 2018
66
2021
55
72
58
7769
79 80
• Higher oil price has improved competiveness for US gas based chemical producers
• Numerous talks of a 2nd ‘’investment wave’’ with higher oil prices...
• ...But macro uncertainty has limited new investments...
• ...But a new wave of investments not a question of if but when
• US based producers reaping the benfit from low cost natural gas feedstock relative to Asia...
• ...But there are risks of oversupply of Ethylene and the largest derivative, Polyethylene (PE)...
• ...And PE which comes in solid form is also impacted by Chinese tariffs...
• ...This could put further pressure on Ethylene prices in the US
Crude oil and natural gas prices
Global ethylene price development, USD/tonne Ethylene & PE capacity expansions, Mt millions
ChinaUSA
US gas based chemical producers benefitting from higher oil price – Potential oversupply in Ethylene and PE could push feedstock prices even lower
54
Source: ICIS, Customs data, Odfjell, * Includes chemicals where import/export dynamics are relevant for abovementioned import replacement, i.e. increased Benzene imports is not a part of the dataset
2013 2014 2015 2016 2017 2018
-33.5%
+32.7%
Imports Exports
Organics Inorganics & vegoils Supply & IMO 20202018 Long-term outlook
• Larger investments in liquid chemical facilities has mainly replaced imports since 2015...
• Despite increased exports, the net effect has therefore been minimal...
• ...And more a negative as this has created intense supply pressure on the back-haul routes to the US...
Comment:
0
5
10
15
20
25
2017
USD/
tonn
e
2013 2014 20162015 2018
TranspacificTransatlantic
Front haul rates less back haul rates
US import/export development for relevant liquid chemicals
Increased US exports has not had a meaningful impact on chemical tankers due to replacement of imports yet…
55
Organics Inorganics & vegoils Supply & IMO 20202018 Long-term outlook
Region Country Company Product Start-up Capacity (ktonnes)
Americas USA Natgasoline Methanol Aug-18 1750Americas USA Shintech EDC Mar-19 250Americas Chile Methanex Methanol Jun-19 600Americas USA Sasol Ethylene Glycol Sep-19 250Americas USA Lotte Ethylene Glycol Sep-19 700Americas USA ME Global Ethylene Glycol Sep-19 700Americas Trinidad MHTL Methanol Sep-19 900Americas USA BASF Aniline Nov-19 250Americas USA Formosa Ethylene Glycol Dec-19 750Americas USA BASF MDI Dec-19 300Americas USA Yuhuang Methanol May-20 1800Americas USA Formosa EDC Jun-20 250Total 8,300
Source: ICIS, IHS, Argus, Company data, Odfjell
…But we are now standing at the cusp of the first wave of new export oriented liquid chemical plants to commence operations in the Atlantic
56
• USA became a net exporter late 2018 and the NatGasoline first restarted in February after a longer maintenance period
• Utilsation of plants started in in 1H19 expected to accelerate utilsation in 2H 19. Sasol’s Ethylene Glycol plant started in February, but not expected to reach normal utilisation before September
• With the exception of 50% of Methanex volumes in Chile expected to be shipped to Brazil (replacing Trinidad volumes), the majority of volumes are expected to be shipped long-haul, with a mix between the Far East and Europe
Source: Odfjell
Three main regions developing as key hubs for chemical production, MT millions cumulative
Organics Inorganics & vegoils Supply & IMO 20202018 Long-term outlook
Middle East 22%
+8 mill TonnesDemand
Drivers: • Attractive feedstock• Vertical integration• Crude & Gas based
chemicals• Long-haul shipments
2019-2021 export growth:
USA 31%+8 mill Tonnes
Demand
Drivers: • Attractive feedstock• Gas based chemicals• Long-haul shipments• Chemical building block
prices under pressure?
2019-2021 export growth:
Three main areas evolving as key chemical hubs for seaborne trade – US followed by the Middle East
57
Source: IEA, OPEC, Odfjell
Organics Inorganics & vegoils Supply & IMO 20202018 Long-term outlook
90
100
110
120
130
140
150
160
170
180
190
200
210
2010 2015 2020 2025 2030 2035 2040
ChemicalsRefined productsCrude Oil
CAGR:2.5%
CAGR:0.6%
CAGR:0.5%
Gasoline:
Fast growingSlow growing
Chemicals:
Lower margin
and
but
High volume
Higher margin
and
but
Lower volume for now
A refiners dilemma as integration is more complex:
Investments in the Middle East - Its all about the demand growth to maximise and extend the lifetime of its barrels
Long-term demand forecast:
58
Source: IHS, Odfjell
Organics Inorganics & vegoils Supply & IMO 20202018 Long-term outlook
• The majority of refineries east of Suez are non integrated (where demand is)
• The Middle East constructs mainly vertically integrated refineries...
• ...These are in the 1st quartile when it comes to net cash margins ...
• ...While non integrated refineries are mainly in the 4th quartile
Comment
-30
-25
-20
-15
-10
-5
0
5
10
15
20
25
30
Net
cas
h m
argi
n,US
D/ba
rrel
of c
rude
Fully integrated Ethylene IntegratedNon Integrated Paraxylene Integrated
5,000 10,000 15,000 20,000 25,000 35,00030,000
1st Quartile 2nd Quartile 3rd Quartile 4th Quartile
Vertically integrated chemical facility enhance competitiveness on top of the region having the world’s lowest feedstock cost
59
Source: IHS, Odfjell
Organics Inorganics & vegoils Supply & IMO 20202018 Long-term outlook
6,000
8,000
4,000
0
2,000
10,000
Tota
l che
mic
al p
rodu
ctio
nca
paci
ty, m
tpa
Aramco/Sabic JV
Aramco/CLG/CB&I
‘’By 2030, the COTC complex is expected to be a significant contributor to Saudi Arabia’s GDP and play a
key role in helping the continued economictransformation away from Crude exports to higher-value
industrial products, further stimulating the Kingdom’seconomic diversification, as enunciated in Vision 2030’’
SABIC CEO Yousef Al-Banyan, April 2018
‘’Saudi Aramco is going beyond the quick wins and is instead prioritizing investments in groundbreaking R&D
technology. The Joint Development agreement with CB&I and CLG is a technology first which position Saudi
Aramco to maximize the value of each barrel of crude oilit produces in the near future’’
Saudi Aramco president Amin H.Nasser Jan-2018
Crude-to-Chemical plants are a game-changer in the chemical industry with materially higher chemical production capacity than older plants
Global Naphtha steam cracker capacity
60
8%17%
72%
0%10%20%30%40%50%60%70%80%90%
100%
Aramco/Sabic JVPetro RabighGlobal refinery industry
DieselOthersGasolineJet/Kerosene
Chemicals
• Saudi Arabia has through technology development initiated the process to construct the world’s largest chemical plant
• This is crude-to-chemical plants (COTC) that yields as much as 72% chemicals as the technology bypass the refinery process...
• This compares to a 8% chemical yield on average in the global refinery industry
Global Naphtha steam cracker capacity
Source: ICIS, IHS, Argus, Company data, Odfjell
Organics Inorganics & vegoils Supply & IMO 20202018 Long-term outlook
Region Country Company Product Start-up CapacityMiddle East Iran Kaveh Methanol Feb-19 2300Middle East Iran Kimiya Bandar Caustic Soda Feb-19 119Middle East Saudi Arabia Aramco Benzene May-19 266Middle East Saudi Arabia Aramco Para-xylene May-19 1320Middle East India Bharat Petroleum 2-EH Jun-19 47Middle East Iran Marjan Methanol Jun-19 2300Middle East Saudi Arabia Jubail United Methanol Jun-19 650Middle East United Arab Emirates Emirates Chemical Factory Caustic Soda Jun-19 56Middle East Saudi Arabia Aramco Mixed xylenes Jul-19 865Middle East Saudi Arabia Aramco Para-xylene Jul-19 700Middle East Saudi Arabia Aramco Toluene Jul-19 500Middle East Saudi Arabia Basic Chem Ind Caustic Soda Jul-19 78Middle East India - Maharashtra Reliance Ethylene Glycol Oct-19 55Middle East Oman ORPIC Benzene Nov-19 46Middle East Iran Bushehr Methanol Apr-20 1650Middle East India Indian Oil Corp Ethylene Glycol May-20 270Middle East Oman ORPIC MTBE May-20 90Middle East Saudi Arabia Gulf Farabi PC AlkylBenzene Jun-20 120Middle East Saudi Arabia Jubail United Ethylene Glycol Jan-21 700Total 12,132
We are amid a major ramp-up in Middle Eastern supply that will accelerate in the second half and into 2020 on higher utilisations
61
• More delays and lower utilsation is expected from new plants in the Middle East compared to the US• Volumes from Iran has less significant impact on the market due to the political situation, but volumes are still absorbing tonnage
62Source: Odfjell
Three main regions developing as key hubs for chemical production, MT millions cumulative
Organics Inorganics & vegoils Supply & IMO 20202018 Long-term outlook
China 16%+10 mill Tonnes
Demand
Drivers: • Demand centre• Competitive New vertically
integrated industry• New trading hub w/increased
exports
2019-2021 import growth:
Middle East 22%
+8 mill TonnesDemand
Drivers: • Attractive feedstock• Vertical integration• Crude & Gas based
chemicals• Long-haul shipments
2019-2021 export growth:
USA 31%+8 mill Tonnes
Demand
Drivers: • Attractive feedstock• Gas based chemicals• Long-haul shipments• Chemical building block
prices under pressure?
2019-2021 export growth:
Three main areas evolving as key chemical hubs for seaborne trade – US followed by the Middle East and China
Source: ICIS, Odfjell
Organics Inorganics & vegoils Supply & IMO 20202018 Long-term outlook
9 9 9 1013 15 16
6 6 77
89
91111 11
12
13
1415
0
5
10
15
20
25
30
35
40
45
2017 2021E2015 2016 2020E2018 2019EPX BenzeneStyrene
0
1
2
3
4
5
6
7
8
9
10
11
12
Far East SE AsiaAG OthersStyrenePX Benzene
2015 2018
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
OthersAGFar East SE Asia
72% 17% 8% 3% 62% 20% 16% 2%
Market share (%)
China will increase its self-sufficiency rate of mainly three products where they are more competitive relative to its main suppliers…
China domestic production of Styrene, Benzene and PX, Mt million China imports of Styrene, Benzene and PX by source, Mt million
63
Source: ICIS, Odfjell
Organics Inorganics & vegoils Supply & IMO 20202018 Long-term outlook
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Mill
ion
tonn
es c
apac
ity
Zhejiang Petrochemicals
Hengli Petrochemicals • China is more competitive than Korea/Japan/Taiwan
for PX due to:• New plants• Vertically integrated plants• Modern refineries recently completed• Lower construction costs• Lower labor costs
• Makes equally sense for China to produce PX domestically as they rely on the same feedstock as Korea/Japan/Taiwan...
• ...Therefore no need for the feedstock to be shipped to PX suppliers before cracked and shipped to China
• Two new PX plants in China is the similar size as North America, South America, Europe and Japan PX capacity combined
Comment
China’s new capacity is modern, large and mainly vertically integrated with newly constructed large refineries that secures their competitiveness…
Global Para-xylene (PX) capacity by size, Mt million
64
Source: Argus, ICIS, Odfjell
Organics Inorganics & vegoils Supply & IMO 20202018 Long-term outlook
200
300
400
1,400
29 Aug 2016 29 Aug 2017 29 Aug 2018
000
tonn
es
Implied weekly China production Benzene HoustonBenzene Korea Benzene ARA
100
120
140
160
600
1,100
1,600
2,100
05 Jan 2015 05 Jul 2016 05 Jan 2018
000
tonn
es
Implied weekly China production Styrene Korea Styrene China
100
150
200
250
300
500
700
900
1,100
1,300
1,500
13 Jun 2016 13 Jun 2017 13 Jun 2018
000
tonn
es
Implied weekly China production Para-xylene Korea
0,0
1,8
0,2
1,2
0,6
1,4
1,0
0,4
0,8
1,6
2014 2015 2016 2017 2018
1,5
1,2 1,3
0,8
1,3
China SEAIndia Europe Others
3,300
3,400
3,500
3,600
3,700
3,800
3,900
1,4001,5001,6001,7001,8001,9002,0002,1002,200
2015 2016 2017 2018
Nau
tical
mile
s
Average miles des ChinaAverage miles ex Korea
2.13
1.85
1.57
1.161.26 1.221.33
1.61
2015 2016 2017 2018North East Asia des China Other sources des China
The price pressure leads to a shift in trade flow as producers look for new markets – As exemplified by Styrene, new destinations ensures miles counter lower volumes
Global Benzene prices vs China production, Mt million
This has led to price pressure for Benzene, Styrene and PX in North East Asia and disruption of to trade flows
Global Styrene prices vs China production, Mt million Korea PX prices vs China production, Mt million
Korea ships more Styrene to SEA & India, Mt million ...and combined increasing average milesOther sources replaces Korean exports, Mt million
65
Source: ICIS, Odfjell, * About 2 mtpa capacity in Europe and other Asia included in total new liquid chemical capacity
Organics Inorganics & vegoils Supply & IMO 20202018 Long-term outlook
259
22
2018 chemical tanker trade 2019-2020 plant expansions
2217
11 8
100% 75% 50% 35%
Capa
city
Utili
satio
n
Nau
tical
Mile
s sc
enar
ios 10,000 10,000 10,000 10,000
8,000 8,000 8,000 8,0006,000 6,000 6,000 6,000
50%100% 75% 35%
Billi
on
Tonn
e M
iles
176
100% 50%75%
165221
35%
132 13246
99 110 88 66 77 62
2018
To
nne
Mile
s
FY 2018 Tonne miles
980
vs
x x x x
= = = =
The new organic production capacity is expected to support strong tonne-mile demand for chemical tankers in 2019 and 2020
Total chemical tanker trade vs new organic chemical plant capacity
66
67
Product Drivers DevelopmentSeaborne trade,
MT mill 2019-2021 direction
• Global GDP, emerging markets• US/China trade war• Substitution for soy and sunflower
• Strong production growth• Reduced import/export taxes• Weak domestic production in China
Soybean Oil
Sunflower Oil
4952
Palm Oil
• Global GDP, emerging markets• US/China trade war• Substitution for palm and sunflower
• Weak harvesting in South America• Replacing US soybean exports• Lower palm oil prices
• Global GDP, emerging markets • Non- GMO demand• Substitution for soy and palm
• Reduced market share to Palm• Global shortage, too high prices
Source: Odfjell
Organics Inorganics & vegoils Supply & IMO 20202018 Long-term outlook
Ethanol
Sulphuricacid
Causticsoda
Phosphoricacid
• GDP, Phosphate fertilizers and metals• Stable demand growth from Agri• Volatile demand from metal industry
• Global supply shortage• New capacity due to IMO2020?• Strong demand from Chile
• GDP, pulp and paper and alumina• Paper demand rebounding?• Global shortage of capacity
• Global supply shortage• Reduced Brazil & Australia demand• Substitute for plastic waste?
• GDP growth• Fertilizer industry consume 90%• Food additive demand is stable
• Stable GDP driven demand
Seaborne trade, Bn. Tonne-miles
187167
1110
6163
109
3633
1415 47
38
1112 54
50
55 26
26
98
4535• Global Bio fuel demand
• Politically driven• Chemical feedstock
• MTBE substitute in China• EU imposed ban as bio fuel (2021)• Import taxes
2017 2018
Vegoil, inorganics and ethanol outlook
Source: Odfjell
Organics Inorganics & vegoils Supply & IMO 20202018 Long-term outlook
0%5%
10%15%20%25%30%35%40%45%50%55%60%65%70%75%80%85%90%95%
100%
jan-17
jan-16
jan-18
jan-19
May-19
-1.0%
Trading chemicals Trading CPP/Crude
• 25% of coated MR’s were trading chemicals/Vegoils during the summer of2018
• Appears like incremental supply from Swing tonnage has bottomed out and reversing
• Declining rate of MR newbuilds will lower competition for vegoil cargoes normallyused for MRs maiden voyage
• MR’s would prefer to trade CPP and should CPP markets improve….
• …A sustainable reversal of swing tonnageis expected to materialise
Comment
Chemical tankers had a supply problem in recent years and further supply pressure has been felt by high share of swing tonnage
68
69
Chemical Tanker Back-haulChemical Tanker Front-haul
Europe - USA
Asia – Europe & USA
0
5,000
10,000
15,000
20,000
0
2
4
6
8
10
2014 2015 2016 2017 2018
Odfjell CPP share (%)CPP rates EUR-USA
Reverse swing-tonnage: We will opportunistically take advantage of strong CPP and Veg oil ratesKnock-on effect: Chemical tanker rates improves due to less supply pressure
0
5,000
10,000
15,000
20,000
25,000
30,000
0
1
2
3
4
5
6
2014 201720162015 2018
Vegoil rates Odfjell Palm Oil share (%)*
* 2018 growth is trade specific and not due to opportunistic trade into Palm Oil
Key CPP and Vegoil tradelanes typically corresponds with chemical back-haul routes – Stronger CPP and Vegoil rates therefore improves our flexibility
Organics Inorganics & vegoils Supply & IMO 20202018 Long-term outlook
Source: Clarksons Platou, Odfjell
7,4%
17,0%
Orderbook ratio
Scrapping potential
SlowsteamingSwing tonnage
6,0%5,0%
Orderbook/trading fleetPotential fleet reduction factors
Corechemical tankers
builtbetween
1995-2000
Potential reduced
supply from swing
tonnage
Lower supplypotential if
owners reducesailing speed
Fleet growth is declining for both core and swing/other segment after several years of high fleet growth following orders placed in 2014-2015 Limited new orders the last 18 months and appears like appetite for new orders are low Orderbook ratio at 7%, which implies average supply growth of 2.4% p.a by 2021before adjusting for
- Scrapping- Removal of swing tonnage (IMO 2020)- Slowsteaming in the event of elevated bunker prices (IMO 2020)- New orders
0.7
0.0
0.1
0.2
0.5
0.4
0.3
0.6
1Q-20e
1Q-18
1Q-16
1Q-17
1Q-19
4Q-20e
Organics Inorganics & vegoils Supply & IMO 20202018 Long-term outlook
DeliveriesNewbuildings
0.0
0.7
0.1
0.2
0.6
0.3
0.4
0.5
jan-2002
jan-2005
jan-2008
jan-2011
jan-2014
jan-2017
IMO 2020 is a disruptive event that could lead to reduced swing tonnage, accelerated scrapping and slowsteaming while orderbook is at multi-year lowCore chemical tanker newbuilding delivery schedule, Mill dwt
12-month rolling core chemical tanker newbuilding orders, Mill dwt
Chemical tanker orderbook of 7% before adjusting for several variable factors
70
Source: Odfjell
Organics Inorganics & vegoils Supply & IMO 20202018 Long-term outlook
Most humans on the planet are in contact with products that were once transported on our vessels
71
Source: IEA, Odfjell
Organics Inorganics & vegoils Supply & IMO 20202018 Long-term outlook
0
100
200
300
400
500
600
700
800
900
1,000
1,100
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Aluminium AmmoniaSteel PlasticCement GDP
90
100
110
120
130
140
150
160
170
180
190
200
210
2010 2015 2020 2025 2030 2035 2040
Chemicals Natural GasCrude OilRefined products
CAGR:2.5%
CAGR:1.8%
CAGR:0.6%
CAGR:0.5%
CAGR:4.4%
CAGR:3.7%
CAGR:2.9%
CAGR:5.5%
CAGR:2.9%
Plastic is the fastest growing bulk material – The “world is dependent on chemicals” and this supports sustainable demand growth…
Plastic has been the world’s fastest growing bulk material since 1970... ...And is forecasted to grow faster than fossil fuels used as feedstock...
72
Source: IEA, Shell, Odfjell
Organics Inorganics & vegoils Supply & IMO 20202018 Long-term outlook
14.0%
5.0%
56.0%
8.0%
12.0%
Chemicals
5.0%
Transport
Power
Other industryBuildings
Other
8.0%
15.0%
40.0%
21.0%
12.0%
Power
ChemicalsOther
Buildings
4.0%
Other industry
Transport
Oil
Gas
30.0%
2030 2050
55.0%
2030
36.0%
2050
22.0%
…as a consequence, chemicals share of oil and gas demand growth to grow in the future & mirror investments now impacting the chemical tanker marketOil and Natural gas demand by sector (2017)
Chemical share of demand growth in Oil and Gas
Chemicals therefore a natural area of growth for global downstream companies
73
Source: ICIS, Drewry, Odfjell
Organics Inorganics & vegoils Supply & IMO 20202018 Long-term outlook
20 %
6 %
5 %
25 %
Seaborne trade as share ofplant capacity
Share of plant capacity
ProductionPlant capacity
Seaborne trade
Trade
103
510
379
86Methanol
MTBE
Benzene
TolueneEthylene Glycol
Styrene
Ethylene DichlorideXylenes/incl Paraxylene
19 %
39 %
11 %
16 %
2016 2018
22 %
6 %
5 %
21 %
16 %
43 %
12 %
15 %
420
Seaborne trade
Trade
93
Production
564
110
Plant capacity
100% 74% 20% 17% 100% 74% 19% 16%2020->?
We rarely see investments in new plants without export opportunities – This could indicate higher share of future production being seaborne traded
Seaborne trade of top 8 organic chemicals (2016) Seaborne trade of top 8 organic chemicals (2018)
74
Source: IEA, Odfjell CMD 2018, Agilyx
Organics Inorganics & vegoils Supply & IMO 20202018 Long-term outlook
Proposed solutions:
• Large chains like McDonalds, Starbucks and others replacing paper straws
• Several countries and jurisdictions banning plastic bags
• Single-use plastics banned by EU parliament by 2021
This will mainly impact chemicals in solid form as PE and PP. Limited usage of liquid chemicals in the ‘’waste chain’’. However, the potential substitutions could impact chemical tanker demand.
• Plastic products replaced by paper products…• …Caustic Soda is an important input factor to the paper
and packaging industry• Also, recycling technologies are invented where waste
is brought back to its molecular form as liquids:
Mega trend: Part of the world’s plastic production relates to “waste products” now under public scrutiny – Could bring opportunities for chemical tankers
75
Organics Inorganics & vegoils Supply & IMO 20202018 Long-term outlook
• Standing at the cusp of the first wave of new liquid chemical plants ramping up exports from second half of 2019 and into first half of 2020Tonne-mile demand
• Orderbook at multi-year low and IMO 2020 might disrupt supply through reversed swing tonnage, increased scrapping and slowsteamingVessel supply
• Tonne-mile demand growth expected to surpass net fleet growth in 2019 and 2020 improving the chemical tanker market balance Long-term outlook
• Sustainable and strong demand outlook for seaborne trade of chemicalsMarket balance
+4%p.a. + tonne-mile effect
VS.
+2%p.a.
+/- Swing tonnage
Summary
76
Final remarks
• Fleet renewal concluded at attractive time of the cycle and we are attractively positioned for the future Fleet renewal
• The optimal capital structure to ensure financial flexibility and return to stakeholders throughout chemical tanker cyclesCapital Structure
• One of most efficient and flexible stainless-steel tanker fleets in the worldCompetitiveness
• Sustainable and strong demand outlook for seaborne trade of chemicals in the short and long termMarket balance
• We are well prepared operationally and we consider this as a potential opportunity from a market perspectiveIMO 2020
78