Freight market: development
forecasts, influence factors & Butterfly
effectNikos
Marmatsouris. FICS Maritime Days
Odessa, May 2013
2
Cyprus Czech Republic Denmark France Greece Italy Kazakhstan Lebanon The Netherlands Argentina
Brazil Chile Colombia Ecuador Mexico Panama Peru Trinidad & Tobago USA Uruguay Venezuela
Bangladesh India Pakistan Sri Lanka
Australia Cambodia China Hong Kong Indonesia Japan Korea Malaysia Philippines Singapore Taiwan Thailand
Bahrain Iraq Jordan Kuwait
Europe, Med & Black Sea
Asia PacificMiddle
East
Americas
Africa
Indian Subcontinent
Norway Poland Russia Spain Sweden Turkey Turkmenistan UK Ukraine
Oman Qatar Saudi Arabia United Arab Emirates Yemen
GAC Global Network
Algeria Angola Benin Cameroon Congo Democratic Rep. of Congo Egypt Gabon Guinea Ivory Coast Kenya Mauritania Mozambique Nigeria Senegal South Africa Tanzania Togo
Who can tell us - what’s next?
A brief market summary
• Deepening financial market problems cause an exaggerated effect on shipping.
• Dry cargo shipping sector – quite severely hit due to excess over supply.
• China business downturn playes a major role on world shipping as China accounts for almost 45% of total world trade. •Commodity prices severe fluctuation not a factor for freight stability.
•BDI is way ahead from recovering it’s May 2008 peak of 11700 points, which now seems like ..science fiction!
•The “Butterfly Effect”
Grains business – a stress story?
Source: AGResource Company
World Major Crop Production
North America South America European Union
Former Soviet Union Africa
Asia Australia
165,891
53,095
29,113
39,650
32,235
2012: 1,475,719 MMTs
2002: 1,150,320 MMTs
2002-2012 Change in Primary Grain Production - Up 325.4 MMTs
Source: AGResource Company
= Central US drought has been the worse since 1956. An approx. 100 MMTs of corn have been been lost.
2012 World Droughts & Floods
= Russian crop losses amount to 27-29 MMTs with wheat production to be below the 2010 export ban level, at 38 MMTs.
= N.America seems to be the leading supplier of world grain importers during ’13.
= It is feared that extreme world weather conditions will persist during 2013 thus adding to lack of world crop cushions!
The Dire ‘12 Russian Drought
50
45
40
35
30
25
20
15
10 5 0
Grains OilseedMMTs
FSU 12 Grain and OilseedStocks; Lowest since 2007
Source: AGResource Company
Wheat Corn Barley 70
MMTs
60
50
40
30
20
10
0
FSU-12 Corn/Wheat/Barley Export; Down 23 MMTs!
Source: AGResource Company
Russia is an Less reliable Grain Exporter Because of Weather (Although Area Fluctuates, Changes in Russian Grain Production
Largely A Function of Yield)MT/HA
2.452.30
2.15 2.00 1.85
1.55
1.25
0.95
1.70
1.40
1.10
0.80
Mil MT & HA 120 112 104 96 88 80 72 64 56 48 40 32 24 16 8 0
Yield (MT/HA)Grains Production (Mil MT)
Harvested Area (Mil Ha)
Source: AGResource Company
FSU a Reliable Grain Supplier? Weather twice as variable comparing to US!
Source: AGResource Company
2012/13 World Grain Stocks Drop a Record 41 MMTs
100
80
60
40
20
-20
-40
-60
MMT
Source: AGResource Company
World Corn/Wheat Trade; Down a Record 45 MMTs!
Corn Wheat Soybeans 180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
1,000 MT
2013 Wheat forecasts
= Ukraine and Russian Wheat exports exhausted based on diminished crop yield (drought). EU wheat export sales are on the rise. = The US/Canada will be the benefactors and are setting world price direction in 2013.
= The world wheat stocks are in decline and market prices should naturally be on the rise. Adverse new crop weather in the US and Europe adds to upside potential = The Black Sea exported 14 MMTs in the Nov-May period of 11/12, while S. Hemisphere wheat exports down 17 MMTs. There is a 31 MMTs of import potential that has to be filled by US/Canada/Australia and India.
= Can expect very unstable & rising prices if US/EU/Russian crops are affected by any reason within 2013, as there are very little other supply alternatives.
2013 Wheat forecasts
Argentina Australia Canada EU-27 FSU-12
World Wheat Trade by Origin
MMTs 45
40
35
25
20
15
10
5 0
30
Source: AGResource Company
Shipping to the future
Dry Bulk Deliveries + Orderbook by Size (only units over 20,000 dwt, in mln dwt)
Source: Banchero Costa
- A significant number of new buildings has been delivered over the last five years. - Actual deliveries in 2013 expected to be less than the total for 2012.
Total Dry Bulk Fleet Growth only units over 20,000 dwt, in mln dwt)
The excessive number of new building deliveries resulted in strong growth in shipping cargo capacity over the last few years. However, a combination of fewer deliveries over the next few years and strong demolition activity is expected to reduce overcapacity and help rebalance the supply - demand environment.
Source: Banchero Costa
Freight: Paranagua to Qingdao Bunkers as percentage of freight
1501401301201101009080706050403020100
Typical Panamax bunker cost on the grain route from Paranagua to Qingdao
Bunker costs constitute a large % of the freight cost
75%70%65%60%55%50%45%40%35%30%25%20%15%10%5%0%
Source: Clarksons
Source: Clarksons
Capesize Panamax Handymax Handysize
Ratio of gross annual earnings to scrap value 7
6
5
4
3
2
1
Drybulk demolition activity
2009 2010 2011 2012e
550
500
450
400
350
300
250 520
200 392
150 2 78
100
50
0
141
Scrapping set new records due to weak freight market
The older ships which are smaller get scrapped
Handymax average scrapping size
50,500 50,000 49,500 49,000 48,500 48,000 47,500 47,000 46,500 46,000 45,500 45,000
1991- 1996- 2001- 2006- 2011-1995 2000 2005 2010 2012
No of ships scrappedAverage scrapping size
140 72,500 49,812 130
120 110 100 90 80
47,336 70 47,274 60
50 40
45,939 30 20 10 0
49,935 72,000 71,500 71,000 70,792
70,500 70,000 69,500 69,000 68,500 68,000 67,500
71,948
68,796
67,776 67,473
1991- 1996- 2001- 2006- 2011-1995 2000 2005 2010 2012
No of ships scrappedAverage scrapping size
160
140
120
100
80 60
40 20
0
180
Panamax average scrapping size
Source: Clarksons
Conclusions
• World economic activity and therefore demand for shipping has slowed down last year, but things are improving for 2013 and outlook is not necessarily as bad as it seems, especially for the smaller size vessel operators. • Freight to remain volatile and on the low side due to excessive world fleet growth, with dry cargo fleet still expanding significantly in 2013.
• This is rather good news for grain traders however not so good for ship operators who will have to sustain another year of consolidation.
• Smaller vessel operators may get luckier in relative future freight terms due to minimal renewal of this type of tonnage.
Positive for better days ahead…