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Freight market. 3rd Annual Conference Coal market in India 2013. Rahul | Lead research analyst Drewry Maritime Services. 2 7 - 28 August 201 3 , New Delhi. Drewry .
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Freight market 3rd Annual Conference Coal market in India 2013 Rahul| Lead research analystDrewryMaritime Services 27-28August 2013, New Delhi
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Dry Bulk Shipping Market Baltic Dry Index Equity prices of dry bulk vessel operators Source : Baltic Exchange, Bloomberg • Baltic Dry Index on Feb 3, 2012 at a 25 year low. • Market corrected sharply after Lehman crisisand have since been low but volatile, mainly due to influx of new building vessels ordered during the boom times. • Equity prices of listed dry bulk companies have followed generally the same pattern.
Demand Outlook: Iron Ore will continue to drive the dry bulk market World iron ore imports World steel outlook Steel consumption: CAGR (2006-2012): 3.6% CAGR (2012-2018): 6.0% China import: CAGR (2006-12): 14.7% CAGR (2012-18): 8.2% Source: Drewry Maritime Research Source: Drewry Maritime Research Trade 2005:717 mt Trade 2012:1,180 mt Trade 2018: 1,749 mt • On demand side – China is expected to continue to dominate. Iron ore imports are expected to grow at a CAGR of 8.2% during 2012-18. • On supply side, Australia and Brazil would continue to dominate. Whilst some Iron ore expansion plans are being reviewed in the current demand downturn, many of the major miners continue with their expansion plans. • India, a major iron ore exporter, is expected to decrease its exports and increase steel production. • South Africa is likely to become the third largest exporter, replacing India. Longer distances will increase the tonne-miles. Source: Drewry Maritime Research
Demand Outlook: Thermal Coal driven by electricity demand Chinese exports CAGR (2006-12) :-33.6% US exports CAGR (2006-12) :41.6% 2005 trade 468mt 2012trade 784mt 2018trade 1204mt Source: Drewry Maritime Research Source: Drewry Maritime Research • Rising electricity demand in developing Asia is expected to be the main driver of growth in thermal coal imports. • Import demand is projected to be relatively weak in developed economies, as a result of comparatively weaker economic growth and greater access to natural gas. • Thermal coal exports : Indonesia and Australia continue to dominate. • Colombian exports are expected to increase, which reflects the relatively low cost of production, high energy and low sulphur content of Colombian coal. • South African exports are forecast to increase as the expansion of rail infrastructure supports increased capacity at the Richards Bay Coal Terminal. • Mozambique has slowly started exporting coal and will become a significant coal exporter in the long term.. Botswana a long way to go before becomes a significant coal exporter but very likely to become one.
Demand Outlook: Coking Coal driven by steel production Source: Drewry Maritime Research • Global coking coal trade expected to grow at a CAGR of 3% • The primary driver will be an increase in steel production in China, Coking coal import of China is expected to witness a CAGR of 16.1% between 2012-2018. • EU-27 and Japan to grow at a moderate rate of 3.3% and 1.8% in the next five years. • With the investment of Vale, Rio Tinto and many other producers, Mozambique is anticipated to play an important role in Coking coal export. • As Shale gas becomes an influential factor in the US energy mix, the US will become an important coal exporter.
Supply Outlook: Dry bulk fleet age profile No. of vessels Million dwt Source: Drewry Maritime Research • At the bginning of this yearthe average age of overall dry bulk fleet is 11.1 years • The Post-Panamax vessel segment is the youngest with just 3.8 years of average age • Handysize is the oldest in dry bulk fleet with 15.1 years of average age, which is expected to decline with increased numbers of demolitions in 2012 • Despite lower average age, demolitions in Capesize and VLOC segment is expected to be high in the coming couple of years in view of low freight market
Supply Outlook: Fleet growth continues unabated Capesize VLOC Panamax Post Panamax Source: Drewry Maritime Research
Supply Outlook: Fleet growth continues unabated … Handysize Handymax Total Fleet Source: Drewry Maritime Research
Location of some of the upcoming power projects Most of the imported coal based power projects are located in coastal states. Source: Power Producer’s website, Drewry Maritime Advisors
Location of cement plants of India Most of the cement plants located in Gujarat, Gulbarga, Nalgonda, Chandrapur and Yeraguntla cluster rely on imported coal due to receding coal linkage. As the coal requirement is relatively small they tend to rely on coal traders. Source: Cement Manufacturer Association of India
Sectoral coal demand Non-coking coal demand grew at a CAGR of 9% in the past six years compared to coking coal demand CAGR of 6.7%. Sector-wise coal demand: India (in million tonnes) India’s power sector drives the coal demand in India. In 2011-12, Indian power utilities generated non-coking coal demand of 460 million tonnes, 14% more than that in 2010-11. In the year 2011-12, demand for total raw coal in India was close to 696.0 million tonnes. On the contrary, total coal production reported 532.8 million tonnes with a gap of about 163.2 million tonnes. Overall, non-coking coal demand has been growing at a CAGR of 9% since 2006-07 compared to 6.7% CAGR of coking coal. It is reflective of the fact that thermal power generation has grown at a much faster rate compared to steel production capacity growth in India. Source: Ministry of Coal, Annual Report
Coal Production in India Coal production has not grown since 2009-2010. Production is targeted to increase by 8% in 2012-13. Production and demand of coal: India (in million tonnes) The Coal production all over India during the period 2011-12 was 532.8 million tonnes as compared to the production of 532.7 million tonnes the year before. In 2012-13, however, production of 574.4 million tonnes of coal is targeted. Since 2005-06, production has grown at a CAGR of 4.6% compared to 7.6% growth in demand. Consequently, the demand and supply gap in India has been continuously widening. In 2012-13, as per Government of India estimates, the demand and supply gap is estimated to be very close to 200 million tonnes. With marginal growth in 2012-13, coal import is expected to increase in coming years. Production of coal: India (in million tonnes) Note: Others include other PSU, TISCO, and Captive Mining & Meghalaya Source: Ministry of Coal, Annual Report 2012-13
Coal price and freight rate had a nose dive in 2009 Source: Drewry Maritime Research Source: Drewry Maritime Research • We would argue that the co-relationship that existed between thermal coal price and freight rates and coal impots became more prominent asnewly designed Eco- Vessels with fuel efficient engines are introduced , which give significantly better voyage economics. • Next slide shows a sound relationship between price/rates and coal imports to India
High co-relationship between cost of imports and import volume Source: Drewry Maritime Research Source: Drewry Maritime Research • In terms of pure distance, when coal is imported at the west coast of India, there is hardly any difference between importing from Indonesia or South Africa • When coal is imported at the East coast of India, there is signifcant difference in distance between South African cargo and Indonesian cargo
Bigger vessels have started coming to India recently Source: Drewry Maritime Research Source: Drewry Maritime Research • Freight rates plunged in 2009 giving rise to a sharp decline in cost involved in shipping coal to India • Though rates are expected to improve from next year, they might remain low for next few years making imports a good alternative to domestically sourced coal
Assessment of shipping options Charterers can secure freight services on two bases – for a specified cargo between ports, or for a specified period • There are a number of shipping options which can be chosen for securing freight. The options can vary from spot charter to time charter or vessel ownership depending on the scope of requirements, financial capacity, market conditions etc. • Essentially, charterers can secure freight services on one of two bases. They can either fix vessels to carry a specified cargo (or cargoes) between one or more loading port and one or more discharge port, or they can hire ships for a specified period of time. This choice of charter type influences the division of legal and operational responsibilities and, consequently, financial liabilities between the owner and the charterer. In this context, the term “owner” also includes a disponent owner (i.e., a person or company which has commercial control over a vessel's operation without owning the ship as in a bareboat charter). There are effectively four shipping options: • Voyage Charter • Single (or Spot) Charter • Multiple (or COA) Charter • Both offer good scheduling flexibility to the charterer, but spot charter rates are dependent on spot markets and therefore can be very volatile. COA on the other hand, would ensure stable costs through length of COA, but could be variable over duration of project. • Time Charter • Single Trip Charter • Period Charter • Chartering ships on period time charter basis allows the ship owner to calculate the forward cash flow situation more accurately than with the majority of other chartering options. Variable on port and fuel costs • Bareboat Charter • Bareboat charter is similar to period time charter with the added cost of providing for vessel’s operating expenses. • Vessel Ownership • Newbuilding • Secondhand • Vessel ownership would provide a hedge against freight volatility, but it requires a considerable capital outlay as well as ship management capabilities. Vessel ownership for longer-haul voyages would require extensive commercial operations to maximise utilisation of the vessel by securing backhauls and potential triangulation voyages. Vessels can be bought and given to vessel management companies to operate it.
Vessel chartering options There are mainly two bases of fixtures – CFR and FOB basis Summary of various charter types • Fixtures can be primarily be done on two basis: • CFR basis (cost and freight) , that is method of selling cargo where seller pays for loading costs and ocean freight. • FOBbasis (free on board) method of selling cargo excluding ocean freight and insurance, but including loading costs. Source: Drewry Maritime Advisors
Summary of chartering options, risk management and operational requirements Following table shows SWOT analysis
Rahul– Lead Research Analyst rahul@drewry.co.uk+91-9868461589
