Idfc Sski Maritime Check - Shipping Monthly - Oct09

IDFC-SSKI Shipping Monthly

November 2009

Maritime check:

INDIA RESEARCH

Shipping - Monthly update (Oct 2009)

INDUSTRY HIGHLIGHTS Tanker market - continues to maintain ‘strength’: VLCC rates (Oct-09) reported a 281.7% increase mom and a 80% decline yoy. The upsurge in tankers rates post the holiday season in the east has seemed to hold on; the worst seems to be over. Dry Bulk Market - BDI at a 14 month high! : As on 19th November, BDI (Baltic Dry Index) reported a 69% growth mom and a 467% growth yoy at 4643 (a 14 month high). Currently the Capesize spot rate is firm at ~$75,000/day. There has been surge in import of food grains and iron ore by China. Asset prices remain under pressure: New build VLCC is at $112mn (29.6% decline yoy); second hand VLCC (5yr old builds) is at $80m (50% decline yoy). New build Capesize at $60mn (37.5% decline yoy); second hand Capesize (5yr old builds) at $51.8m (18.3% decline yoy). Another leg down in asset prices is expected by the market.

Vessel rates/index

Relative price performance Oct-09 mom(%)

yoy(%)

3yr (av)*

5yr(av)*

140

105

GE Shipping

Crude

Baltic Index

Sensex Index

Tankers USD/day VLCC

12,261

281.7

(77.9)

47,026

51,857

Suezmax

9,705

47.7

(76.7)

37,395

41,739

Aframax

3,742

53.8

(85.9)

23,901

26,171

109

(64.8)

(99.4)

14,868

17,131

Baltic Dry Index

2,746

16.8

51.9

14,868

4,715

Baltic Capesize Index

4,163

28.8

67.2

5,462

6,603

Clean Bulkers (Index)

Baltic Panamax Index 2,770 10.6 95.5 5,282 4,527 Source: Company, IDFC-SSKI Research; *3 yr average (FY07-FY09), 5 yrs average (FY05-FY09)

Tanker Asset prices $m

70

35

0

Sep-08

Nov-08

Jan-09

Mar-09

May-09

Jul-09

Sep-09

Nov-09

Dry Bulker Asset prices

Latest Mnth Ago

mom Year Ago

yoy%

New Build

$m

Latest Mnth Ago

mom Year Ago

yoy% (32.4)

New Build Price

Panamax

36.0

39.0

(7.7)

52.0

(30.8)

Handysize

25.0

26.0

(3.8)

37.0

Suzemax

55.0

61.0

(9.8)

77.0

(28.6)

Handymax

31.0

31.0

0.0

48.0

(35.4)

Aframax

67.0

72.0

(6.9)

96.0

(30.2)

Panamax

34.0

34.0

0.0

52.0

(34.6)

112.0

122.0

(8.2)

159.0

(29.6)

Capesize

60.0

62.0

(3.2)

96.0

(37.5) (16.0)

VLCC 5yr old

5yr old

Panamax

26.0

27.5

(5.5)

52.5

(50.5)

Handysize

21.0

21.0

0.0

25.0

Suzemax

39.0

39.5

(1.3)

77.0

(49.4)

Handymax

26.5

28.5

(7.0)

35.0

(24.3)

Aframax VLCC

56.0 80.0

56.0 81.5

0.0 (1.8)

96.0 160.0

(41.7) (50.0)

Panamax Capesize

31.5 51.8

34.0 53.0

(7.4) (2.4)

37.1 63.4

(15.1) (18.3)

Source: Bloomberg, IDFC-SSKI Research

Supply – Slippages in orders

Scrapping – Uptick in tanker scrapping

Current fleet

Increase in dwt (%)

Scrapping (m dwt)

(m dwt)

2009

2010

2011

Crude

307.7

4.5

12

11.7

Product

124.6

6.6

10.6

6.5

Bulk

444.7

8.7

22.5

14.2

CY08

H1CY09

Crude

1.3

0.7

Till Sep09 3.0

Product

1.5

1.3

1.5

Bulk

3.6

7.5

8.4

Source: Company, IDFC-SSKI Research; *includes only new building from yards; 15% of world fleet tanker fleet is single hull

IDFC - SSKI Securities Ltd. 701-702 Tulsiani Chambers, 7th Floor (East Wing), Nariman Point, Mumbai 400 021. Tel: 9122-6638 3300 Fax: 9122-2204 0282

“For Private Circulation only” and “Important disclosures appear at the end of this report”

IDFC - SSKI INDIA

GLOBAL VALUATIONS Mkt Cap (US$ m)

PE (x)

PB (x)

EV/EBITDA (x)

2009Y 2010Y 2009Y 2010Y

RoA (%)

RoE (%)

Dividend yield%

2009Y 2010Y 2009Y 2010Y 2009Y 2010Y

2009Y

2010Y 3.8

Tankers Overseas Shipholding

1,111

(30.8)

(88.5)

0.6

0.7

11.75

10.48

0.4

(1.1)

(2.1)

(1.6)

4.1

General Maritime

453

12.8

75.2

1.0

1.1

9.10

10.15

2.2

(0.1)

7.0

(0.9)

16.0

5.9

Tsakos Energy

617

14.9

18.2

0.7

0.7

9.72

9.82

6.8

1.5

5.7

3.6

3.7

2.7 12.3

Knightsbridge

230

11.1

6.4

1.0

0.9

8.98

5.68

5.8

8.6

8.8

13.1

4.0

Frontline

2,192

21.9

20.5

3.0

3.0

10.41

10.01

2.5

2.4

14.2

12.9

3.1

3.9

Nordic American

1,364

212.6

44.9

1.4

1.5

20.92

13.05

0.6

2.7

0.4

3.8

5.5

7.4

272

8.4

11.1

1.2

1.3

8.29

8.66

5.6

6.5

16.3

14.6

19.9

14.7

1,736

(49.2)

33.8

0.9

0.9

11.13

9.39

(0.0)

0.9

5.6

4.5

5.3

5.3

Teekay Tankers Teekay Corp Bulkers Dry Ships

1,812

8.4

7.8

0.8

0.7

8.34

7.14

1.0

4.3

5.2

8.7

0.0

0.0

Diana Shipping

1,463

11.7

12.4

1.4

1.3

8.53

8.60

9.0

8.0

13.2

10.2

0.0

0.4

Genco Shipping

896

6.2

9.1

1.0

0.9

6.80

7.59

6.6

4.0

18.0

9.4

0.0

0.0

TBS International

262

(4.0)

(8.6)

N.A.

N.A.

11.84

5.11

N.A.

N.A.

N.A.

N.A.

N.A.

N.A.

Paragon Shipping

260

3.6

9.1

0.6

0.5

4.19

6.23

N.A.

N.A.

16.3

4.7

3.7

3.7

Eagle Bulk Shipping

419

10.2

31.3

0.6

0.7

10.49

10.05

2.0

0.3

5.7

0.5

0.0

0.0

Excel Maritime

670

15.0

85.7

0.4

0.4

6.84

8.20

10.3

7.0

10.9

2.4

0.0

0.0

China COSCO

21,629

(20.3)

(74.5)

2.6

2.7

-67.69

59.71

(5.7)

(1.5)

(12.5)

(6.0)

0.03

0.25 3.8

Precious Shipping STX Pan Ocean Malaysian Bulk

592

6.8

9.9

1.1

1.1

4.39

5.87

13.5

8.2

18.0

10.4

6.7

2,160

(19.7)

23.2

1.0

1.0

225.08

13.44

N.A.

N.A.

(4.9)

3.3

2.4

1.8

958

21.5

21.0

1.8

1.7

25.25

33.98

6.2

6.8

7.2

6.7

4.3

3.2

U Ming

1,821

10.8

14.3

2.2

2.0

6.93

8.56

15.7

17.4

20.4

14.8

5.0

3.6

Pacific Basin

1,710

13.2

20.6

1.2

1.2

7.98

10.14

5.5

4.2

9.2

6.2

0.3

0.3

Sinotrans Shipping

2,112

18.9

20.3

1.0

1.0

6.82

6.37

5.2

5.1

5.5

4.6

0.2

0.2 1.6

Asian Shipping Mitsui

7,064

48.5

14.7

0.9

0.9

12.8

8.9

0.7

3.0

1.3

4.7

0.9

Nippon

4,085

-20.7

24.8

0.7

0.7

14.6

8.9

(0.9)

1.4

(3.9)

2.2

1.2

1.5

Kawasaki

1,964

-2.3

(17.6)

0.6

0.6

(37.5)

12.9

(6.5)

(0.5)

(22.8)

(4.2)

0.0

0.7

China Shipping

6,787

30.7

20.3

2.0

1.8

17.8

12.3

4.3

5.9

6.1

8.8

0.8

1.2

Neptune Orient

2,992

-3.8

(12.7)

1.0

1.1

(11.5)

30.8

(11.3)

(3.3)

(23.6)

(9.5)

0.0

0.1

Varun Shipping

195

23.1

11.0

1.1

1.1

9.0

7.5

N.A.

N.A.

4.2

8.6

8.3

7.0

Mercator Lines

320

11.0

7.1

0.7

0.6

7.3

6.4

N.A.

N.A.

6.4

9.6

1.5

1.5

Great Eastern

938

7.6

5.0

0.7

0.7

6.2

4.3

6.4

7.5

10.2

13.5

2.6

2.6

Offshore Transocean Pride International Noble ENSCO Diamond Offshore

28,033

7.4

8.2

1.3

1.1

6.14

6.36

11.9

10.9

17.7

14.7

0.0

(0.2)

5,749

14.7

16.6

1.3

1.2

9.15

9.61

6.7

6.5

9.0

7.7

0.0

0.0

11,567

7.0

8.0

1.7

1.4

4.81

5.34

24.2

19.6

26.5

18.7

0.4

0.4

6,725

8.8

11.6

1.2

1.1

5.26

6.28

14.2

11.9

14.4

10.7

0.2

0.2

14,343

10.2

10.6

3.9

3.5

6.75

6.70

25.5

26.0

39.8

35.6

7.3

7.2

Rowan

3,059

8.8

13.3

1.0

0.9

4.77

6.01

7.6

6.0

12.2

7.7

0.0

0.3

Pride International

5,749

14.7

16.6

1.3

1.2

9.15

9.61

6.7

6.5

9.0

7.7

0.0

0.0

376

(12.2)

(11.3)

0.8

0.9

8.45

8.00

(3.6)

(5.0)

(6.3)

(8.1)

0.0

0.0

Nabors Industries

6,303

18.5

21.2

1.2

1.1

7.12

6.91

3.3

4.3

6.8

5.3

0.0

0.0

Aban Offshore

1,127

9.1

5.0

2.5

1.7

9.71

7.51

4.3

6.7

29.3

38.9

0.3

0.3

Great Offshore

438

9.4

8.1

1.9

1.7

7.58

6.86

9.9

9.3

21.7

21.4

0.4

0.4

2,456

(70.4)

(78.8)

1.2

1.2

10.11

9.50

(1.8)

(2.7)

(1.8)

(2.3)

1.3

1.2

2.2

9.74

8.21

9.9

9.7

31.0

28.6

0.5

1.2

Pioneer Drilling

Patterson

Seadrill 9,865 9.2 8.5 2.5 Source: Bloomberg; ^ represents companies with FY (2009Y stands for FY10)

2

IDFC - SSKI INDIA

TANKER MARKET – WORST SEEMS TO BE OVER Tanker rates (US$/day)

VLCC

Suezmax

Aframax

Clean

Tankers USD/day

150,000

Oct-09

120,000

mom

yoy

3 year

12,261

281.7

(77.9)

47,026

51,857

47.7

(76.7)

37,395

41,739

$/day

90,000

5 year

average* average*

60,000

VLCC

30,000

Suezmax

9,705

Aframax

3,742

53.8

(85.9)

23,901

26,171

109

(64.8)

(99.4)

14,868

17,131

0

Clean Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09

-30,000

Source: Company; Broker estimates; IDFC-SSKI Research; *3 yr average (FY07-FY09), 5 yrs average (FY05-FY09)

Operational economics at current rates Spot rate $/day*

Opex cost**

Operating income $/day

yoy

(Oct 09)

(Oct 08)

$/day

(Sep 09)

(Sep 08)

(%)

12,261

55,475

8,000

4,261

47,475

(91.0)

Suezmax

9,705

41,667

7,000

2,705

34,667

(92.2)

Aframax

3,742

26,597

6,000

(2,258)

20,597

(111.0)

VLCC

Clean 109 19,084 5,500 (5,391) 13,584 (139.7) Source: Company, IDFC-SSKI Research; * Net of bunker (fuel) costs, canal dues and port charges,**does not include financing cost and corporate overheads,^ Crude @ $70/bb

The upsurge in tankers rates post the holiday season in the east has seemed to hold on; the worst seems to be over Tanker Supply Current

Growth

No of vessels

DWT('000)

M-o-M

Crude Oil

2,070

315989

(1.5)

Oil Product

1,435

49791

(0.6)

LNG

321

24956

2.7

LPG

503

12916

(0.4)

On Y-oY

Under

Order Book

Order

Construction

#Launched

AS DWT %

5.1

411

85

28

32.3

8.7

236

57

30

34.2

19.3

31

9

25

18.7

3.9

62

Tankers

Chemical 351 6227 (0.3) (10.9) 97 Source: Bloomberg, IDFC-SSKI Research; # launched – No of vessels ready to be launched into the system

14

11

13.5

31

22

48.6

Key moniterables –Crude oil inventory in the US Crude Inventory (mn barrels - LHS) 400 346 300

294

312

320

351

375

359

yoy % (RHS) 20.0 366

350

350

343

319

338

336 12.5

200

5.0

100

-2.5

0

-10.0 Sep-08

Oct-08

Nov-08

Dec-08

Jan-09

Feb-09

Mar-09

Apr-09

May-09

Jun-09

Jul-09

Source: Bloomberg, IDFC-SSKI Research

Demand for crude and bi-products remains a key moniterble. 3

Aug-09

Sep-09

Oct-09

IDFC - SSKI INDIA

Asset values Tankers

Latest

Mnth Ago

mom

Year Ago

yoy%

Panamax

35.0

36.0

(2.8)

52.0

(32.7)

Aframax

53.0

55.0

(3.6)

75.0

(29.3)

Suzemax

65.0

67.0

(3.0)

94.0

(30.9)

112.0

112.0

-

154.0

(27.3)

Panamax

25.0

26.0

(3.8)

47.6

(47.5)

Aframax

38.4

39.0

(1.5)

69.8

(45.0)

Suzemax

56.0

56.0

-

91.8

(39.0)

VLCC

78.0

80.0

(2.5)

138.0

(43.5)

Panamax

18.0

19.5

(7.7)

39.7

(54.6)

Aframax

27.5

27.5

-

55.3

(50.2)

Suzemax

41.0

41.0

-

74.5

(45.0)

VLCC

61.0

61.0

-

105.3

(42.0)

Panamax

7.0

7.0

-

14.8

(52.5)

Aframax

8.0

8.5

(5.9)

20.0

(60.0)

Suzemax

10.0

10.0

-

29.5

(66.1)

VLCC

14.0

14.0

-

39.5

(64.6)

Panamax

13.0

13.0

-

26.0

(50.0)

Aframax

15.0

16.5

(9.1)

38.5

(61.0)

Suzemax

23.0

27.0

(14.8)

53.3

(56.8)

VLCC Source: Bloomberg, IDFC-SSKI Research

43.0

45.0

(4.4)

87.5

(50.9)

New Build

VLCC 5yr old

10 yr old

15 yr old single hull

15 yr old double hull

New build VLCC at$112mn (27.3% decline yoy); second hand VLCC (5yr old builds) at $78m (43.5% decline yoy) Imarex Tanker FFA (Forward freight rates) – Key Routes US$ / Day Prices

Dirty Tanker Arabian Gulf to

Clean Tanker

West Africa to US

North Sea to

UK/Continent to

Arabian Gulf to

Japan (VLCC) Atlantic Coast (Suezmax)

Continent (Aframax)

USAC Clean (MR)

Japan Clean (LR1)

Front Month

21,229

26,720

8,968

865

12,284

Front Month +1

36,202

30,274

12,364

2,811

17,214

Front Month +2

29,639

24,084

9,585

3,707

15,944

Front Month +3

28,596

24,084

8,995

3,953

14,795

Front Month +4

27,553

24,084

8,405

4,200

14,335

Front Month +5

25,988

23,025

7,521

4,446

13,876

Front Quarter

28,596

24,084

8,995

3,953

15,025

Front Quarter +1

25,988

23,025

7,521

4,692

13,876

Front Quarter +2

23,902

24,614

7,816

5,266

14,795

Front Quarter +3

31,725

25,674

9,290

6,168

15,255

Front Quarter +4

20,774

19,316

6,636

3,133

11,232

Front Quarter +5

20,774

19,316

6,636

3,133

11,232

Front Year

27,553

24,349

8,405

5,020

14,737

Front Year+1 20,774 19,316 6,636 3,133 11,232 Source: Bloomberg, IDFC-SSKI Research; Front month - Contract period is July09, Front Quarter - Contract period is July-Sept 09; Front Quarter +1 – Contract period is OctDec09

4

IDFC - SSKI INDIA

BULKER MARKET– CONTINUES AN UPSURGE Dry Bulk Index - BDI reports a 14 month high in Nov-09 (US$/day) 18,000

Dry Index

Capesize Index

Supramax Index

Handysize Index

Panamax Index

Bulkers Index Oct-09

9,000

4,500

yoy

3 year

5 year

$/day

(%)

(%)

2,746

16.8

51.9

average* average* 14,868

4,715

Capesize Index

4,163

28.8

67.2

5,462

6,603

Panamax Index

2,770

10.6

95.5

5,282

4,527

Supramax Index

1,849

(4.5)

32.5

Handysize Index

939

2.1

23.4

Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09

0

mom

Dry Index

13,500

Source: Company; Broker estimates; IDFC-SSKI Research; *3 yr average (FY07-FY09), 5 yrs average (FY05-FY09)

Supply Current

Growth

On

Under

Order Book

#In Services

DWT('000)

M-o-M

Y-oY

Order

Construction

#Launched

Bulk

6289

395481

0.8

5.7

2549

344

110

61.0

Ore

105

24047

3.7

54.5

102

11

2

144.1

629

10521

0.9

(4.4)

143

36

19

31.4

4550

56358

0.6

(1.3)

549

311

89

26.7

Ro-RO 453 4920 (0.3) 0.9 26 21 Source: Bloomberg (Data as on 12th July 2009), IDFC-SSKI Research; # launched – No of vessels ready to be launched into the system

4

10.9

Vehicle Gen Cargo

AS DWT %

Post the boom in commodity prices, large order book has been built into the system.

‰ Key moniterables – Trade on key routes China Iron ore imports (mn tones) Key routes

Sep-09

Aug-09

mom

Sep-08

Brazil - China

16.8

12.8

31.6

9.8

71.5

Australia - China

26.0

22.0

18.0

19.4

34.2

3.6

3.1

17.9

1.1

228.7

South Africa - China

yoy%

India - China 8.4 4.8 76.7 4.9 71.4 Source: Bloomberg; IDFC-SSKI Research; Bulker trade globally is largely dependent on the trade of iron ore and coking coal (~60% of the global trade). The exports from Brazil (Brazil exports to China contributes to ~50% of the worlds iron ore trade)

China iron ore inventory data

68

60

60

58

59

67

69

71

70

Jun-09

China iron ore inventory

May-09

(m tonnes) 80 72

Apr-09

India - China

Mar-09

Australia - China

South Africa - China

Feb-09

32

Brazil - China

Jan-09

Iron ore imports to China

Dec-08

Iron ore import to China – key routes

75

75

74

70

24

40

16

20

8

5

Oct-09

Sep-09

Aug-09

Jul-09

Nov-08

Sep-09

Aug-09

Jul-09

Jun-09

May-09

Apr-09

Mar-09

Feb-09

Jan-09

Dec-08

Nov-08

Oct-08

Sep-08

Aug-08

Source: Bloomberg; IDFC-SSKI Research

Oct-08

0

0

IDFC - SSKI INDIA

Asset values Bulkers (USD)

Latest

Mnth Ago

mom

Year Ago

yoy%

Handysize

25.0

26.0

(3.8)

37.0

(32.4)

Handymax

31.0

31.0

-

48.0

(35.4)

Panamax

34.0

34.0

-

52.0

(34.6)

Capesize

60.0

62.0

(3.2)

96.0

(37.5)

Handysize

21.0

21.0

-

25.0

(16.0)

Handymax

26.5

28.5

(7.0)

35.0

(24.3)

Panamax

31.5

34.0

(7.4)

37.1

(15.1)

Capesize

51.8

53.0

(2.4)

63.4

(18.3)

Handysize

15.5

15.5

-

20.0

(22.5)

Handymax

21.0

21.5

(2.3)

28.0

(25.0)

Panamax

26.5

26.8

(0.9)

36.8

(27.9)

Capesize

42.5

43.0

(1.2)

51.7

(17.7)

Handysize

11.8

11.8

-

15.5

(24.2)

Handymax

16.0

16.0

-

21.0

(23.8)

Panamax

19.0

19.0

-

29.5

(35.6)

Capesize Source: Bloomberg; IDFC-SSKI Research

30.0

30.0

-

39.3

(23.6)

New Build Price

5yr old

10yr old

15yr old

New build Capesize at $60mn (37.5% decline yoy); second hand Capesize (5yr old builds) at $51.3m (18.3.% decline yoy) Pls note - .Dry bulk asset prices started to correct sharply Oct-08 onwards Imarex Dry Bulk FFAs (Forward freight agreements) US$/Day

Capesize

Panamax

Front Month

75,813

34,270

Front Month +1

78,750

35,250

Front Month +2

55,094

30,290

Front Month +3

55,094

30,290

Front Month +4

34,203

17,795

Front Month +5

43,172

43,172

Front Month +6

40,094

40,094

Front Month +7

26,344

26,344

Front Month +8

22,438

22,438

Front Month +9

19,391

19,391

Front Quarter

55,094

30,290

Front Quarter +1

42,531

25,198

Front Quarter +2

35,369

20,188

Front Quarter +3

32,356

18,665

Front Year

41,338

23,585

Front Year+1

28,688

16,960

Front Year +2

27,325

16,308

Front Year +3

26,472

15,848

Front Year +4 26,094 15,538 Source: Bloomberg; IDFC-SSKI Research; Front month - Contract period is July09, Front Quarter - Contract period is July-Sept 09; Front Quarter +1 – Contract period is OctDec09

FFA (Forward Freight Agreement) rates represent some strength in the near term

6

IDFC - SSKI INDIA Analyst

E-mail

Tel. +91-22-6638 3300

Pathik Gandotra Shirish Rane Nikhil Vora Ramnath S Nitin Agarwal Chirag Shah Bhoomika Nair Hitesh Shah Bhushan Gajaria Ashish Shah Salil Desai Ritesh Shah Swati Nangalia Sameer Bhise Shweta Dewan Nikhil Salvi Rajeev Desai Chinmaya Garg Aniket Mhatre Probal Sen Saumil Mehta Rupesh Sonawale

Head of Research; Financials, Strategy Construction, Power, Cement FMCG, Media, Mid Caps, Education, Exchanges Automobiles, Auto ancillaries, Real Estate, Oil & Gas Pharmaceuticals Metals & Mining,Telecom, Pipes, Textiles Logistics, Engineering IT Services Retailing, FMCG, Media, Mid Caps Construction, Power, Cement, Telecom Construction, Power, Cement Pharmaceuticals, IT Services Mid Caps, Media, Exchanges Strategy, Financials Mid Caps, Education, FMCG Construction, Power, Cement Real Estate Financials Automobiles, Auto ancillaries Oil & Gas Metals, Pipes Database Analyst

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Technical Analyst

[email protected]

91-22-6638 3392

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Sector/Industry/Coverage

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