Dry Bulk Market Report - Sep 2008

India LPG Update - Aug 2008

India is all set to grow close to 8% in the 2008-09 and 7.5% in 2009-10 fiscal years as per the latest figures, despite the high inflation (12.4%....has started to come of the peaks as per some experts….!!) and RBI targeting inflation as opposed to growth. Of course, this will further depend upon the other three most important points, price of oil, health of the US economy (Indian exports greatly depend upon the US economy) and the result of the forthcoming parliamentary elections.

The deregulation and opening up of the Indian economy after the BOP crisis of early 90’s had helped the fuels sector to grow at almost 10% per annum. This growth rate has been maintained to date because of further divestment in PSU’s and opening up of the fuels sector to private investors. However, the energy sector in India is still going through a cycle of public and private ownership. FDI up to 100% is now allowed in most industrial projects. The Indian Govt has taken significant steps (PSC’s, NELP…etc) to open up the economy to FDI and private players.

LPG in India is one of the basic fuels used for cooking. The three sources of supply are crude oil refineries, fractionation of gas and imports. The demand for LPG has grown from 2, 00,000 mt in 1970 to over 12 mill tonnes in 2008. Total LPG prod in India for 2007-08 stands at around 8.79 mill tonnes of which 6.73 mill tonnes (76%) comes from crude oil and the remaining 2.06 mill tones or 24% from Natural Gas. The imports will probably stand close to 3 mill tonnes in 2008 on account of increased demand and RIL converting its Jamnagar refinery as an EOU thereby refusing to sell LPG to PSU's at import parity pricing.

LPG consumption has grown at the rate of roughly 9.7% since 1990 with largest leap of around 20% per annum seen between 1990 and 2002. Since then an average growth rate of around 10% has been recorded. The customer base of the PSU’s increased from 17 million in 1990 to 99.6 million in 2007-08, an average growth of around 10.5% per annum. The PSU’s are adding around 6.5 million customers every year. The bottling capacity has shown a healthy rate of around 6.5% since the 1990’s keeping up with the demand.

Although the demand is increasing at a blistering pace owing to the rapid development in India, the infrastructure is lagging behind in a number of sectors including the fuels sector. There is an urgent need to develop more refinery capacity, LPG receiving terminals, storage, pipeline and bottling facilities. A number of private and foreign players have entered the market with independent and JV’s with PSU’s in the recent past.
IOC is building an import terminal at Ennore with a capacity of 60,000 mt.
IOC’s Paradip refinery is slated for expansion –planned 1 mill tones of LPG capacity.
CalTex has a planned terminal coming up in S. India.
Shell Gas is coming up with a 90,000 MTPA terminal at Pipava Port in Gujrat in W. India.
Total Fina and HPCL are building the largest underground storage terminal in Vizag (East coast) with capacity of 60,000 mt and will be able to handle 40,000 dwt vessels.
BP plc has plans in Haldia for LPG storage.
SSLPG has a storage terminal in Kakinada.

LPG has managed to make some inroads in the auto sector owing to the pain of high gasoline prices. However, its share of market is quite low at the moment as the priority for LPG in India is to provide for the cooking fuel first and thus makes it a very politically sensitive subject as well. CNG has over taken LPG in the auto sector and its use is gaining favour in major cities like New Delhi, Mumbai where the infrastructure exists to pipe the gas to filling stations. The other issue with using LPG in the auto sector relates to adulteration thereby defeating the very purpose of environment protection!!!... and economics.

In our opinion, the present economic and political environment is very conducive to investment in the Indian fuels sector, especially storage. A storage facility close to deepwater ports on the upper west coast (Pipavav, Mundra, Kandla, Mumbai) and along the east coast of India (Paradip, Vizag, Krishnapatnam), that are well connected to the inland transportation infrastructure will be highly sought after.

Tanker Market Report - Jul 2008

Despite the slow market observed in the first two weeks of August, July was a spectacular month for the tanker market. The VLCC TCE has averaged $120k since May’08. There might be some pressure on the rates because of the routine maintenance season for the refineries till September. However, we feel that the rates will remain range bound at these levels as the global oil prices have softened and Asian economies especially India and China are set to maintain decent growth rates through the end of 2008 and 1st half of 2009. In the coming weeks, the Suezmax and especially the Aframax markets seem prone to weakness due to dearth of requirements and ample available tonnage.

Maritime Market report - Week 27 2008

Tanker Market: Firm
The Vlcc market has seen some strength in the past couple of weeks owing to a steady stream of cargoes in the MEG. The average ws rate on the MEG-USG route picked up 10 ws points to 150 ws. These rates are still below the high's of 175 ws achieved earlier in the year, but substantially better than the low's of 65ws for 2008 to date. The market saw some correction for the WAF-West market, but is still holding ws 180-190 level. Aframax rates saw the biggest correction in the past week due to limited stems and greater tonnage availability. Rates in the N.Sea declined from 315ws to 170ws in 2 weeks. te upcoast market in the caribs saw a correction of 120ws points this week.
The product market witnessed less activity in the western hemisphere, although the market is still holding to pretty strong levels. LR's for US disch are still maintaining 260-270ws levels owing to lack of quality tonnage. The east of Suez market is also holding good levels with LR2's at ws250-255 lvl, LR1's at ws 300 lvl and the UKC market at 3 million basis 65,000 mt. The market is expected to hold this level in the coming week.
Following vessels were sold this week ending July 02, 2008 [Fearnleys]

Vessel Size Built Buyer Price Comments
Astro Capricorn 320,000 2008 Chinese 203.0 Coiled DH
Nordic Bay 114,945 2008 Neda Maritime 91.0
Nordic Lisbeth 72,714 2006 UnDiscld 68.0 D/Hull
GSI resale 50,500 2009 Greeks 57.5 Dely 3Q/2009

Dry Bulk Market : Slow
The Baltic Dry Index fell from 14000 to 9140 level over the last 2 weeks resulting in a lackluster dry bulk market with declines in most segments. Handy's on voyages to the US are now fetching around usd 37,000/day. The India to China market is still strong despite the monsoon in full force with rates in the high 50,000's/day. The M/V Sinina British Marine relet was reported at usd 59,000 dely Chennai for tct China [www.fearnleys.com]. Supramaxes for Indo/India coal with del S.China are fetching low/mid 60,000s depending on the size. The Panamax market was down around usd 3000 this week with the BPI standing at roughly usd 74,000. The front haul business improved a bit to around with vsl's concluded at usd 93,000 lvl's. Pacific rv's stood at around usd 70,000, whilst the backhaul rate dropped to usd 60,000 towards the end of the week. The capesize spot market dropped to usd 152,000 for this week. The Brazil/China route stood at usd 86.50/mt and the fronthaul tc fetched around 200k/day. Little period activity was witnessed in the capesize market. The year to date avg for capesize vsl's across major routes now stand at usd 130,560 as per Platou [www.platou.com]
Following vessels were sold this week ending July 02, 2008 [Fearnleys]
Vessel Size Built Buyer Price Comments
Paragon 71,259 1995 Chinese 60.0 del feb/09
Mandarin Sea 57,000 2008 Turkish 75.0

Gas Market: Low
The Blatic VLGC index showed some positive movement this week with it's lvl at usd 65,643/mt. lack of tonnage in July and long positions in August will result in some more strengthening in rates. The Sonatrch FOB prices are attractive for cargoes to to move from MEG to west destinations.

New Building Market : Stable
The current market conditions for both tankers and dry bulkers are resulting in a strong interest from owners to opt for new tonnage well into 2012. Rizao steel has placed orders for 8 capesize bulkers at SWS and DSW. Atlanska Plovidba placed an order of four 80,000 tonners bulk carriers at Jiangsu Eastern.

Ship Chartering: CHARTERING TERMS DEFINITION

Ship Chartering: CHARTERING TERMS DEFINITION

Maritime Market Report - Week 11-08

Tanker Market: Stable

The VLCC market this week has seen some softening owing to limited demand and plenty of tonnage supply in the MEG. 78 VLCC's were available this week compared to 68 last week in the MEG. The Atlantic VLCC market was also lackluster. However, the WAF suezmax market showed a little more activity, but the rates started to drop by the end of the week to ws 142. Little change was also observed in the NSea Aframaxes. The Med/BSea Aframax market saw some firming with rates climbing to ws160. The upcoming Easter holiday season is already putting a damper on rates and we don't expect rates to rally anytime soon.
The east of suez LR market has been relatively quite this week. The MR's on S'pore/Jpn route 30,000 mt saw some firming to ws 200 lvl. Lumpsum rates for Med/UKC cargoes was stable around 2.1 million basis 65,000 mt [http://www.fearnleys.com/]. The transatlantic market was also soft with rates sliding to ws225 basis 37,000 m/t. Similar, weak market was visible in the NW Europe handies and the caribs basis 38,000 m/t. We don't see any significant improvement in the the market with the easter holidays coming up and wide availability of tonnage.
Following vessels were sold this week [Fearnleys]
Vessel Size Built Buyer Price Comments
Tohdoh 261200 1991 Undisc 42.5
Apollo Sun 259000 1985 Pvt
Piemonte 114000 1987 China 18 D/Sides
Emerald Isle 68300 1989 China 25 D/Sides

Dry Bulk Market : Active
The handysize average index rose more than usd 2000 this week with improvements in all areas. MV medi Dublin was said to fixed at a staggering usd 100000 for a ECIndia to China voyage. The short period employment was reported close to usd 64000 lvl.
The panamax market was relatively stable this week with the average for the 4 t/c routes up usd 3000. Atlantic rounds are now fixing about usd 70,000 daily and trip to Far East done today at usd 80,000 on LME type. An LME type fixed open Porto Vesme mid march at usd 77,000 for 11/13 months. Pacific rounds now concluded around usd 60,000 lvl, while low/mid usd 50,000 for backhaul.
In the capesize market the market seems to have peaked with slower trend evident. The t/c index average was reported up usd 5000 from lase week, but weakening because of lack of fresh cargoes. Brazil/China route was around usd 70 and Tubarao/Rdam reached usd 35 lvl. Major Japanese chtrs/ownrs reported securing NB capers for dely as far ahead as 2010, no confirmed details reported. The Baltic index was up 280 points to 8346 this week.

Gas Market: Low
No improvements in the gas markets observed this week. The gloom will persist in the market for the coming weeks with low LPG prices and the export cuts announced by mideast producers. The market might show some signs of improvement once the mid-east suppliers accept April liftings.

New Building Market : Strong
Steady activity was seen in new orders this week with dry bulkers ruling the roost again. Howevr, the demand is still below the 2007 level as reported by fearnleys. Stealth Gas contracted 2 LPG newbuildings 5000 & 7500 cbm at Kanrei Zosen delv 2010/11. Shanghai Puyuang also palced orders for 4 VLOC's at Guangzhou Longxue delv 2011/12.

LNG: Sailing into Uncharted Waters

A wave of both liquifaction and regasification capacities are going to come online in the next few years totalling roughly 82 mil tpy and 232 mil tpy respectively. However, following this wave are a number of factors that could obscure the future of world natural gas trade.

Most of the capacity additions are slated for this year with projects set in motion 3-5 years ago coming online. The 49.5 mil tpy additional liqufication capacity coming online this year, will be mostly in the middle east, especially with almost 39.5 mil tpy capacity attributed to new projects in Qatar [IEA, World LNG report, OGJ]. Other areas of the world like Russia's Sakhalin project, Nigeria, Australia, Yemen and Indonesia will see more production [http://www.ogj.com]


A record amount of regasification capacity is also slated to come online in the next few years to 2009. In the US alone 65 mil tpy is slated to come online this year, mostly on the US Gulf coast. Mexico and Canada will add another 25 mil tpy this year bringing North America capacity close to 90 mil tpy [IEA, World LNG report, OGJ]. Euopean capacity additions will also be similar [26 mil tpy] mostly in the UK and France. India, China and Korea are likely to add another 26 mil tpy this year. This would bring the world regasification capacity increase in 2008 to roughly 144 mil tpy.

A couple of new projects that had almost stalled showed some sign of life and will probably come to fruition. The Chevron and Angola LNG project has been approved for construction. Chevron owns 36.4% share in this project with Angola LNG Ltd with BP (13%), Total (13%) and Sonangol (36.4%) being other Angola LNG Ltd shareholders. It plans to move off-shore LNG to a reliquifaction plant in the Soyo region and will be able to handle 1 bcfd of associated gas and produce 5.2 mil tpy of LNG [OGJ]. It will also supply 125 MMbcfd to Sonangol for local consumption. First LNG is scheduled for 2012 and will be delivered to Gulf Energy's planned terminal on the Mississippi gulf coast.

In Autralia, the Woodside Energy's Pluto field project situated 100 kms of the coast of western Australia has also been approved for construction. The project involves developing the off-shore gas field with estimated reserves of over 3.5 tcf and a onshore liquifaction plant in the Pilbara region. The project will produce 5-7 mil tpy of LNG, with the first phase coming online with 4.8 mil tpy train by 2010.

We see from above that there is a growing gap between the liquifaction and regasification capacities around the world. This dearth of production capacity can be mainly attributed to a surge in raw materials cost in the past couple of years. Upstream capital costs of LNG projects have increased by almost 80% since 2002 [Cambridge Energy Associates]. The capital costs of annual capacity in an LNG project rose from $200/tonne in 2002 to $600/tonne in 2006 . The surging economies of China and India are mainly responsible for gobbling up the raw materials and labor in the last 5 years and causing the price of commodities to spike.

Other significant challenges exist to the global natural gas trade. Higher natural gas prices in countries like the US, have spurred investors to look at alternatives to natural gas like coal and considerable amount of money is flowing into new clean coal tecnologies [http://www.worldmaritimeconsultants.com]. The disfunctional pricing of natural gas in the major consuming markets has also led to uncertainty and reduced predictability for investors. Finally, the developing markets themselves are going to consume a larger share of their production, reducing the available capacity for global natural gas trade.

Dry Bulk Shipping - Setting Course for China

Extreamly volatile is how one can describe the dry bulk market of the present and the past few years. It started with a record year in 2004 when new building prices, sale and purchase prices, charter rates hit all time highs. After moderating a bit in 2005 they again rose strongly in 2006 and 2007. The most important driver behind this phenomenal rise has been the staggering import demand for commodities from China. Chinese dry bulk import volume nearly doubled from 2001 to 2004 accounting for roughly 94% growth in demand for dry bulk trade [Stopford, Martin, Dec. 7, 2005: “China in Transition: Its impact on shipping in the last decade and the next.” Clarkson Research Services Ltd.].

This demand was further supported by the lack of Chinese logistical infrastructure which lead to port congestion and long delays at Chinese ports, putting upward pressure on charter rates. The rates rose from $7/ton in the 1990's to $30/ton in 2004 and by mid 2007 Brazil/China route vessels were reported fixed for $60/ton [http://www.fearnleys.com].

The average earnings of a Handymax vessel in 2007 were over usd 48000/day while the historical earnings have been at around usd 15000/day over the last decade [http://www.worldmaritimeconsultants.com]. The Panamaxes in 2007 averaged around usd 55,000/day, while the Capesize's hit the bullseye commanding an average of over usd 1,00,000/day with a lot of vessel fixed over usd 150,000/day for a 1 yr T/C.

The year 2008, started with the scare of US recession and that has put a damper for the moment on the prospects of the future Chinese commodity demand and this fear has been reflected in the charter rates which have fallen by almost 20% across the board. The market is stabilizing a bit, however it can't seem to decide whether this is temporary or based on physical support. The market hasn't really absorbed the effects of the actions of the Fed, the impact of the global financial crunch and how the long term iron-ore contracts will turn up?

The dry bulk market has become more balanced in the last year owing to the new buildings being delivered that were ordered in 2004/05 and minimal scrapping. The existing order book now stands at almost 64 mn dwt, about 18% of the existing fleet [end 2006]. The balance is expected to weaken in the near term, although strong demand growth is expected to continue for 2008.

In the medium term fleet growth will be limited owing to more scrapping of the older vessels in 2008/09. The dark clouds of a US recession might scare away any future investment by the ship owners both for new buildings and conversions. Therefore, I feel in the medium term as demand continues to grow albeit at a slower pace, the balance will become tighter helped by constrained supply.

The New Sultan of the Sea: VLOC's

The absolutely sizzling dry bulk market and IMO 13 G regs have made the conversion of older single hull VLCC's into VLOC's a commonplace. Nearly 30 vessels are up for conversion as per the latest reports from the industry. China's growth and in turn it's appetite for commodoties has led to this fire in the dry bulk market, especially the iron ore demand. This has further led the big producers from Brazil [CVRD] and Australia [Rio, BHP] to concentrate on larger vessels to maximize economies of scale and decrease delivery cost of bulk product sold on CIF basis to China.

Shipyards in China are turning single hull VLCC's into VLOC's instead of refurbishing them as double-hull vessels. COSCO alone is looking at converting 10 vessels in the next 2 years [Li Jian Xiong, Cosco]. Mitsui OSK Lines is also considering converting some of their older single hull VLCC's. Shipyard capacity seems to be the deciding factor as to how many will eventually see new life a VLOC's in the coming years [http://www.worldmaritmeconsultants.com]

The economics of converting a VLCC into a VLOC's seems to make perfect sense at the present moment based on the following calculation [McQuilling Services];

Conversion Cost = 25 million USD

TCT Tubarao/Beliun = 60,700 USD/day [Average 2006 earnings based on 165k mt on this route]

Share of project Financed = 65% @ 8% per annum

The conversion cost based on the above assumptions would be paid of in 17 months [8 round trips] or at minimum monthly payments after 5 years of trading with a net cash flow after financing and operating costs of USD 40,700/day [http://www.mcqservices.com/]

These converted vessels are expected to trade for roughly 10 years after conversion, enough to more than recoup their cost of conversion and provide a lucrative alternative for dry bulk owners to sending their older VLCC's for scrap.

$100 Oil : A Reality!!

January 2nd 2008 12:09 p.m EST Nymex recorded the historic $100-a-barrel price [WSJ]. It was the price of a single floor trade of the benchmark February crude oil futures contract. The dizzy heights that the crude oil has climbed to from $10.72 a decade ago caught mostly everyone in the oil and financial industry off-guard. A number of factors came together in the last decade or so to catapult crude oil to its present levels and it seems as if they are here to stay and perhaps would push the oil prices even higher in the near future.

The most dominant of the factors seems to be the unsatiable demand from the emerging economies of asia and the middle east, mainly China and India. China especially since 2004 has been growing very fast and its oil demand is set to reach approx 9 mil bbls/day by 2011, growing at the rate of roughly 500 kbd/yr. The middle east economies awash with oil cash will see their demand rise to roughly 8.5 mbd in 2011 from 6.4 mbd at the end of 2006 [IEA]. The higher oil price might moderate the demand growth, however, the rapid economic growth in these regions will mitigate the effect of the higher price.

The other significant factor is the lack of new easily recoverable oil around the globe to keep up with this surge in oil demand. Most of the easily recoverable oil has now been tapped or is control of national oil companies that are slow to react to changes in demand. The western oil majors are now forced to go further off-shore into the deeper water or hard to reach areas to keep up with the oil demand. These projects take years to complete and are nowadays even slower owing to shortage of cranes, drilling equipment and trained labor.

The coming together of the OPEC players in the last decade as a more cohesive and disclipned group, has also helped to shore up the crude oil price. Cutting production and staying within their quotas kept a lid on excess supply and higher pressure on prices.
In the coming years, the noticeable slow down in the US and European economies might moderate oil demand to some extent, but the dramatic growth in asia and the middle east will keep upward pressure on oil prices. A weaker US economy will also put downward pressure on the dollar and therefore will have a net upward price effect on oil denominated in USD.

In the near term, with main crude oil benchmark trading round the clock on NYMEX and other new financial instruments being developed to make energy trading easier and more robust, the financial institutions will become the major players effecting the price of a barrel of oil. A flood of new money, especially from the hedge funds seeking to profit from the volatility, pension funds trying to diversify and other wall street commodity desks trading more frequently will have a significant effect on the price of oil. Already the number of oil futures bets outstanding on the NYMEX has quintupled since 2001 [http://www.wsj.com].

The surging economies of asia and the middle east creating significant oil demand growth, geopolitical tensions and the flow of money from the financial institutions chasing a slowly growing number of barrels will result in keeping upward pressure on oil as has been evident in the past few years.