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May 29, 2012

REGIONAL MALAYSIA SINGAPORE INDONESIA THAILAND PHILIPPINES CHINA, HONG KONG

SHIPPING MONITOR

SHORT TERM (3 MTH)

LONG TERM

WEEKLY REVIEW

CIMB Analyst

The capesize vs. VLCC chasm


Capesize rates sank 27.8% wow back to below cash-breakeven levels as demand for iron ore and coal weakened in an environment of declining steel and commodity prices. But Far Eastern demand for long-haul crude oil shipments continued to keep VLCC rates profitable.
Figure 1: Vessel profitability

Raymond Yap Kok Hoe CFA


T (60) 3 20849769 E raymond.yap@cimb.com
Ship type Current TCE Operating cost Cash earnings Interest cost Depreciation cost Daily profit/(loss)

TANKERS DRY BULK VLCC Suezmax Aframax MR product Capesize Panamax Handymax Handysize 42,923 28,489 14,216 6,132 6,426 8,633 11,694 9,703 -12,807 -11,436 -10,245 -8,185 -7,500 -6,500 -6,000 -5,000 30,116 17,053 3,971 -2,053 -1,074 2,133 5,694 4,703 -7,441 -4,526 -3,951 -2,570 -3,605 -2,148 -1,956 -1,726 -9,567 -5,819 -5,079 -3,304 -4,636 -2,762 -2,515 -2,219 13,108 6,708 -5,059 -7,927 -9,315 -2,777 1,223 758

SOURCES: CIMB, CLARKSON RESEARCH SERVICES

Highlighted Companies Orient Overseas (International) Ltd


Neutral, target: HK$44.20. OOIL has one of the lowest gearing levels among the long-haul carriers and does not swing between profits and losses as frequently as its peers. The carrier exercises cargo selection to maximise yield.

Neptune Orient Lines Ltd


Neutral, target: S$1.15. NOL is finally joining the league of 10,000+ teu ship operators on the AE trade that will help it lower unit costs over the next three years. Its heavy exposure to the US trade will help it benefit from strong TP volumes.

In the bulk trades, the smaller supramax and handysize segments remain the most profitable while in the tanker trades, the largest VLCC class is the most lucrative. We are Neutral on container shipping and Underweight on bulk/tanker with our preferred picks being OOIL and Pacific Basin. Unfortunately, MISC is not a major VLCC player.

cargoes. Current capesize rates are once again below cash-breakeven levels. Chinese steel, iron ore and coal prices continued falling, a clear sign of demand weakness. On the other hand, supramax and handysize rates rose slightly last week. The tanker sector saw average VLCC rates edge lower but rates are likely to hold steady as charterers progress to the second-half June loading programme. The Venezuelan oil-for-loan deal, South Koreas purchase of oil from the North Sea and Japans energy deficit are likely to hold VLCC rates at reasonably high levels, barring a pause in Chinas restocking activities. Aframax rates, though slightly higher on average last week, were still too weak to cover capital costs.

China Shipping Container Lines Ltd


Trading Sell, target: HK$1.85. CSCL has the highest operating leverage in our coverage and its stock has a high beta. Exposure to the spot market is large, at up to 90% of its Asia-Europe volumes.

Market review
Container freight rates weakened for a third consecutive week, although the rate of decline has slowed. Rates from China to Europe fell 1.4-1.8% while rates to the US remained largely unchanged. Peak season demand during June-August could keep rates relatively stable but downside risks remain for the 4Q. Slot utilisation rates to Europe and the US have declined to 80% and 85%, respectively, down from 100% in January as new capacity is introduced, making it more difficult to pull through the June rate hikes. On the bulk side, the capesize sector saw rates fall 27.8% wow on slower growth in China, resulting in cancelled iron ore and thermal coal

SITC International Holdings Company Ltd


Neutral, target: HK$2.35. SITC is unlikely to benefit from a sharp spot rate recovery in the long-haul east-west trades but should do better in the quarters ahead as it expands fleet capacity and passes through higher bunker costs.

Pacific Basin Shipping Ltd


Neutral, target: HK$4.62. Pacific Basin is well-positioned to buy more secondhand ships as prices are now considered cheap. But it cannot escape the negative earnings impact of a weaker-than-expected spot market.

Our take
Our bearish stock idea is STX Pan Ocean, which remains significantly overvalued relative to the expected secondhand value of its fleet. We also have a Trading Sell on CSCL as it is the most exposed to a reversal of the positive spot rate momentum.

STX Pan Ocean Ltd


Underperform, target: S$1.45. STXPO is the most heavily geared and has a substantial portfolio of vessels acquired at high pre-GFC prices. We expect it to incur losses on its dry bulk, container and tanker shipping divisions.

MISC Bhd

Neutral, TP: RM4.25. While MISCs decision to exit the liner division will reduce its container losses, this is partly offset by rising losses from the tanker and chemical divisions. Rising bunker costs are putting more pressure on low rates.

IMPORTANT DISCLOSURES. INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
Designed by Eight, Powered by EFA

SHIPPING MONITOR
May 29, 2012

Figure 2: Sector Comparisons


Company Malaysian Bulk Carriers Pacific Basin Shipping Precious Shipping STX Pan Ocean Thoresen Thai China COSCO China Shipping Devt Sinotrans Shipping Sincere Navigation U-Ming Marine Dry bulk group China Shipping Container Neptune Orient Lines Orient Overseas Intl Ltd SITC International Evergreen Wan Hai Yang Ming AP Moller-Maersk Container group MISC Bhd Teekay Corp Frontline Tsakos Energy Overseas Shipholding Teekay Tankers Odfjell Stolt-Nielsen Teekay LNG Golar LNG Tanker group Kawasaki Kisen Kaisha Mitsui OSK Lines Nippon Yusen KK Hyundai Merchant Marine Diversified group Average (all) Bloomberg Ticker MBC MK 2343 HK PSL TB STX SP TTA TB 1919 HK 1138 HK 368 HK 2605 TT 2606 TT Recom. Underperform Neutral Neutral Underperform Not Rated Not Rated Not Rated Not Rated Not Rated Not Rated Price (local curr) RM1.63 HK$3.40 THB14.90 S$5.10 THB17.10 HK$3.50 HK$4.08 HK$1.72 TWD28.00 TWD45.00 Target Price (local curr) RM1.65 HK$4.62 THB14.85 S$1.45 Market Cap (US$ m) 517 848 489 820 383 7,164 2,644 885 537 1,304 Core P/E (x) CY2012 CY2013 23.5 26.0 26.8 19.8 35.4 20.4 na na na 27.5 na 19.6 15.9 8.5 9.7 8.0 8.4 9.6 18.0 16.3 na 15.9 19.0 21.8 16.4 9.7 28.8 21.5 na 8.1 6.0 23.5 na na na na 45.0 -28.1 12.7 18.2 15.4 67.2 na na na na na 27.7 na na 20.6 9.3 9.0 12.3 12.8 7.2 6.6 14.5 302.4 na na na 18.8 9.3 7.4 16.3 11.3 19.9 14.4 23.2 16.9 35.2 21.0 10.5 3-year EPS CAGR (%) 0.5% -29.3% 28.3% na 20.3% na -16.2% 5.4% -6.0% 1.2% na na na 16.3% 9.6% na 45.3% na -7.7% 45.3% 66.2% na na na na na -32.9% 25.0% 20.4% 83.5% na -26.9% -19.1% -19.0% na -12.5% 49.5% P/BV (x) CY2012 CY2013 0.92 0.90 0.57 0.56 0.90 0.88 0.47 0.55 0.42 0.40 0.8 0.8 0.5 0.5 0.40 0.38 1.05 1.01 1.48 1.42 0.80 0.78 0.68 0.78 0.74 1.00 0.82 0.93 1.13 0.7 0.70 0.85 1.54 1.79 0.33 0.25 0.5 0.5 0.62 2.4 3.48 1.18 0.44 0.51 0.65 2.28 0.67 0.79 0.69 0.82 0.72 0.94 0.75 0.96 1.00 0.7 0.66 0.82 1.55 5.30 0.32 0.26 0.6 0.4 0.56 2.5 3.01 1.17 0.42 0.50 0.54 2.19 0.62 0.75 Recurring ROE (%) CY2012 CY2013 CY2014 3.9% 3.5% 4.5% 2.1% 2.8% 4.3% 2.6% 4.4% 5.7% -18.4% -15.0% -12.2% 0.0% 1.5% 3.3% -4.0% 2.7% 7.4% 2.5% 4.8% 7.0% 4.2% 4.8% 5.6% 13.1% 10.7% 9.9% 7.8% 8.9% 9.5% -1.4% 2.4% 5.3% 3.6% 3.7% 4.6% 10.7% 2.8% 4.5% -8.3% 10.7% 8.4% 3.5% -2.4% -9.4% -4.7% -10.7% 4.7% -1.3% 5.0% 12.1% 23.4% 1.7% -18.0% -4.6% -11.9% -12.4% -10.1% 2.0% -2.1% -5.0% 3.6% 10.5% 8.7% 7.7% 8.3% 9.3% 7.2% 5.7% 0.5% -22.7% -0.7% -4.5% -82.0% 6.4% 8.0% 13.0% 28.5% 5.9% 3.0% 2.2% 3.5% 6.4% 3.1% 5.4% 3.7% 16.3% 4.4% 12.5% 9.4% 10.6% 12.0% 10.0% 9.5% 7.0% -0.1% -7.0% 4.2% -7.2% -53.8% 10.1% 10.4% 18.5% 49.2% 9.7% 4.9% 4.3% 5.7% 7.1% 5.1% 7.9% EV/EBITDA (x) Dividend Yield (%) CY2012 CY2013 CY2012 CY2013 7.1 9.0 1.8% 1.8% 6.9 6.1 1.9% 2.5% 13.1 11.8 2.0% 2.2% na 1172.9 1.1% 1.1% 7.1 5.9 1.7% 2.4% 49.0 14.1 0.2% 1.1% 18.7 13.0 2.1% 3.8% 0.1 -0.2 3.6% 4.1% 5.0 4.6 5.8% 5.4% 11.4 10.4 4.7% 4.8% 24.8 13.4 1.2% 1.5% 9.2 8.2 7.1 4.8 12.2 4.7 17.8 3.1 3.9 31.1 9.5 9.7 13.8 24.8 12.6 9.3 7.8 14.8 11.7 12.9 87.7 18.2 14.4 24.3 19.8 7.8 22.9 13.2 8.5 4.0 7.2 3.5 8.3 2.9 3.8 24.6 8.7 9.9 10.2 14.0 8.9 6.3 6.2 14.3 10.9 10.9 9.6 10.6 8.2 15.3 9.9 6.6 0.0% 0.9% 1.5% 3.6% 0.4% 2.2% 0.0% 0.0% 0.3% 2.4% 4.4% 0.0% 10.4% 0.0% 10.9% 1.1% 6.1% 7.0% 3.9% 4.4% 0.0% 1.5% 1.7% 0.2% 1.1% 1.2% 0.0% 0.0% 1.2% 3.8% 1.6% 2.0% 1.0% 0.0% 0.3% 2.5% 4.4% 0.1% 8.8% 0.0% 15.1% 2.0% 6.7% 7.3% 4.2% 4.7% 1.2% 1.6% 1.9% 0.3% 1.3% 1.4%

2866 HK NOL SP 316 HK 1308 HK 2603 TT 2615 TT 2609 TT MAERSKA DC

Trading Sell Neutral Neutral Neutral Not Rated Not Rated Not Rated Not Rated

HK$1.91 S$1.04 HK$40.90 HK$2.08 TWD15.00 TWD13.60 TWD11.80 DKK34,980

HK$1.85 S$1.15 HK$44.20 HK$2.35 -

4,585 2,100 3,297 694 1,759 1,019 1,123 26,704

MISC MK TK US FRO US TNP US OSG US TNK US ODF NO SNI NO TGP US GLNG US

Neutral Not Rated Not Rated Not Rated Not Rated Not Rated Not Rated Not Rated Not Rated Not Rated

RM4.11 US$28.84 US$5.38 US$5.25 US$11.75 US$4.23 Nok33.60 Nok99.00 US$38.43 US$34.43

RM4.25 -

5,818 2,071 419 295 362 335 482 1,061 2,776 2,753

9107 JP 9104 JP 9101 JP 011200 KS

Not Not Not Not

Rated Rated Rated Rated

139 269 203 Won25,550

1,341 4,089 4,350 3,120

SOURCES: CIMB, COMPANY REPORTS

Calculations are performed using EFA Monthly Interpolated Annualisation and Aggregation algorithms to December year ends

SHIPPING MONITOR
May 29, 2012

Share price performance


Figure 3: Share price performance
Bloomberg ticker Diversified group Mitsui OSK Lines Nippon Yusen KK Kawasaki Kisen Kaisha Hyundai Merchant Marine Tanker group MISC Teekay Corp Frontline Tsakos Energy Overseas Shipholding Teekay Tankers Berlian Laju Tanker Odfjell Stolt-Nielsen Eitzen Chemical Teekay LNG Golar LNG Teekay Offshore Dry bulk group STX Pan Ocean Pacific Basin Thoresen Thai Precious Shipping Malaysian Bulk China COSCO China Shipping Devt Sinotrans Shipping Sincere Navigation U-Ming Marine Container group NOL OOIL CSCL Evergreen Wan Hai Yang Ming Hanjin Shipping AP Moller-Maersk Shipbuilding group Cosco Corp Yangzijiang Daewoo Shipbuilding Hanjin Heavy Industries Hyundai Mipo Dockyard Kawasaki Heavy Industries Mitsubishi Heavy Industries Keppel Corp SembCorp Marine Shipowners group Rickmers Maritime Trust Pacific Shipping Trust First Ship Lease Trust Danaos Corp Seaspan Corp 9104 JP 9101 JP 9107 JP 011200 KS 28-May-12 21-May-12 WoW chg % 262 198 132 Won24,850 2.7% 3.0% 6.8% 2.8% 28-Apr-12 1-mth chg % 312 238 170 Won28,300 -13.8% -14.3% -17.1% -9.7% 27-Nov-11 6-mth chg % 224 158 123 Won22,300 20.1% 29.1% 14.6% 14.6% 29-May-11 1-year chg % 427 294 271 Won32,650 -37.0% -30.6% -48.0% -21.7%

269 204 141 Won25,550

MISC MK TK US FRO US TNP US OSG US TNK US BLTA IJ ODF NO SNI NO ECHEM NO TGP US GLNG US TOO US

RM4.30 US$28.84 US$4.69 US$5.25 US$11.75 US$4.26 Rp196.00 Nok33.60 Nok99.00 Nok0.05 US$38.43 US$34.43 US$28.14

RM4.30 US$29.33 US$4.69 US$5.11 US$10.32 US$4.26 Rp196.00 Nok32.50 Nok102.00 Nok0.07 US$37.78 US$34.02 US$26.99

0.0% -1.7% 0.0% 2.7% 13.9% 0.0% 0.0% 3.4% -2.9% -28.6% 1.7% 1.2% 4.3%

RM4.86 US$36.10 US$6.44 US$6.19 US$11.85 US$5.40 Rp196.00 Nok34.50 Nok100.50 Nok0.07 US$40.86 US$37.08 US$29.26

-11.5% -20.1% -27.2% -15.1% -0.8% -21.1% 0.0% -2.6% -1.5% -28.6% -5.9% -7.1% -3.8%

RM5.80 US$25.89 US$2.76 US$4.70 US$9.79 US$3.55 Rp178.00 Nok29.10 Nok95.73 Nok0.15 US$29.88 US$38.19 US$25.64

-25.9% 11.4% 69.9% 11.7% 20.0% 19.9% 10.1% 15.5% 3.4% -66.7% 28.6% -9.9% 9.8%

RM6.69 US$31.64 US$17.58 US$9.25 US$25.96 US$8.17 Rp375.00 Nok42.89 Nok114.44 Nok0.74 US$32.69 US$31.27 US$27.07

-35.7% -8.8% -73.3% -43.2% -54.7% -47.9% -47.7% -21.7% -13.5% -93.2% 17.5% 10.1% 4.0%

STX SP 2343 HK TTA TB PSL TB MBC MK 1919 HK 1138 HK 368 HK 2605 TT 2606 TT

S$5.30 HK$3.34 THB17.10 THB14.70 RM1.57 HK$3.48 HK$4.07 HK$1.68 TWD28.00 TWD44.90

S$5.10 HK$3.55 THB17.10 THB14.91 RM1.57 HK$3.38 HK$4.22 HK$1.70 TWD29.05 TWD46.95

3.9% -5.9% 0.0% -1.4% 0.0% 3.0% -3.5% -1.2% -3.6% -4.4%

S$7.02 HK$4.00 THB19.10 THB15.90 RM1.60 HK$4.50 HK$4.87 HK$1.84 TWD28.95 TWD49.55

-24.5% -16.5% -10.5% -7.5% -1.9% -22.7% -16.5% -8.5% -3.3% -9.4%

S$6.36 HK$3.25 THB16.56 THB14.69 RM1.57 HK$3.27 HK$4.20 HK$1.86 TWD25.15 TWD42.85

-16.7% 2.8% 3.3% 0.1% 0.0% 6.4% -3.1% -9.5% 11.3% 4.8%

S$8.90 HK$4.45 THB21.04 THB17.44 RM2.35 HK$6.96 HK$7.65 HK$2.28 TWD30.48 TWD55.69

-40.4% -24.9% -18.7% -15.7% -33.2% -50.0% -46.8% -26.4% -8.1% -19.4%

NOL SP 316 HK 2866 HK 2603 TT 2615 TT 2609 TT 000700 KS MAERSKA DC

S$1.03 HK$41.15 HK$1.88 TWD14.90 TWD13.40 TWD11.75 Won5,820 DKK34,980

S$1.05 HK$42.05 HK$1.98 TWD15.60 TWD13.40 TWD11.60 Won5,820 DKK36,100

-1.9% -2.1% -5.1% -4.5% 0.0% 1.3% 0.0% -3.1%

S$1.21 HK$53.00 HK$2.44 TWD17.20 TWD14.80 TWD12.50 Won7,000 DKK41,560

-14.5% -22.4% -23.0% -13.4% -9.5% -6.0% -16.9% -15.8%

S$1.01 HK$34.50 HK$1.27 TWD14.85 TWD12.85 TWD11.20 Won6,900 DKK30,525

2.5% 19.3% 48.0% 0.3% 4.3% 4.9% -15.7% 14.6%

S$1.82 HK$58.26 HK$2.91 TWD22.19 TWD18.60 TWD20.41 Won12,800 DKK47,046

-43.4% -29.4% -35.4% -32.9% -28.0% -42.4% -54.5% -25.6%

COS SP S$0.92 S$0.90 YZJ SP S$0.95 S$0.95 042660 KS Won25,800 Won26,750 097230 KS Won14,650 Won14,600 010620 KS Won113,000 Won105,500 7012 JP 205 201 7011 JP 321 321 KEP SP S$10.04 S$10.00 SMM SP S$4.44 S$4.48

2.2% 0.0% -3.6% 0.3% 7.1% 2.0% 0.0% 0.4% -0.9%

S$1.04 S$1.14 Won30,300 Won16,550 Won121,000 242 364 S$11.01 S$5.10

-11.1% -16.9% -14.9% -11.5% -6.6% -15.3% -11.8% -8.8% -12.9%

S$0.81 S$0.82 Won26,212 Won18,050 Won98,238 181 317 S$8.70 S$3.51

13.4% 16.0% -1.6% -18.8% 15.0% 13.3% 1.3% 15.3% 26.5%

S$1.89 S$1.54 Won42,037 Won33,100 Won167,987 286 374 S$10.89 S$5.07

-51.2% -38.4% -38.6% -55.7% -32.7% -28.3% -14.2% -7.8% -12.4%

RMT SP PST SP FSLT SP DAC US SSW US

S$0.31 US$0.42 S$0.17 US$4.06 US$16.59

S$0.32 US$0.42 S$0.17 US$3.75 US$15.75

-1.6% 0.0% -1.2% 8.3% 5.3%

S$0.31 US$0.42 S$0.20 US$3.69 US$16.84

0.7% 0.0% -14.2% 10.0% -1.5%

S$0.31 US$0.42 S$0.29 US$3.33 US$10.32

0.1% 0.0% -41.4% 21.9% 60.7%

S$0.37 US$0.34 S$0.35 US$6.65 US$16.26

-17.2% 23.1% -51.4% -38.9% 2.1%

SOURCES: CIMB, COMPANY REPORTS

SHIPPING MONITOR
May 29, 2012

Figure 4: Share price performance

Overseas Shipholding Danaos Corp Hyundai Mipo Dockyard Kawasaki Kisen Kaisha Seaspan Corp Teekay Offshore STX Pan Ocean Odfjell Nippon Yusen KK China COSCO Hyundai Merchant Marine Tsakos Energy Mitsui OSK Lines Cosco Corp Kawasaki Heavy Industries Teekay LNG Yang Ming Golar LNG Keppel Corp Hanjin Heavy Industries Pacific Shipping Trust Mitsubishi Heavy Yangzijiang Hanjin Shipping Wan Hai Malaysian Bulk Thoresen Thai Berlian Laju Tanker Teekay Tankers Frontline MISC SembCorp Marine Sinotrans Shipping First Ship Lease Trust Precious Shipping Rickmers Maritime Trust Teekay Corp NOL OOIL Stolt-Nielsen AP Moller-Maersk China Shipping Devt Daewoo Shipbuilding Sincere Navigation U-Ming Marine Evergreen CSCL Pacific Basin Eitzen Chemical
-32% -30% -28% -26% -24% -22% -20% -18% -16% -14% -12% -10% -8% -6% -4% -2% 0% 2% 4% 6% 8% 10% 12% 14% 16%

SOURCES: CIMB, COMPANY REPORTS

SHIPPING MONITOR
May 29, 2012

Container shipping
Container freight rates stayed on its weakening trend last week, the third consecutive weekly decline since long-haul east-west rates peaked in early-March. The rate of decline has, however, slowed. Rates from China to North Europe fell US$31/teu (-1.8%) while Mediterranean rates fell US$26/teu (-1.4%) last week. Rates from China to the USWC and USEC remained largely unchanged. DHL Global Forwarding said that freight rates should remain largely stable during the traditional June-August peak season but that the risks remain on the downside in the 4Q, especially as so many new ships are still scheduled for delivery. We believe that the carriers may obtain some of the GRI/PSS targeted for June but this should be relatively short-lived. Recent slot utilisation rates to Europe have declined to 80% while utilisation has fallen to 85% on the USWC, down from 100% in January, as new capacity is introduced. Compared to the end-March position, some 12-13% capacity will be added by carriers into the Asia-North Europe trade by end-July while 6.7% additional capacity will be added to the Asia-USWC trade by end-May. These announced capacity increases and possible capacity additions may act to cap the potential for carriers to enjoy a strong and lengthy peak season.
Figure 5: Container freight rates
Last week 25-May-12 Overall indices Composite CCFI Index Comprehensive SCFI Index Asia-Europe CCFI: North Europe SCFI: North Europe (US$/TEU) CCFI: Mediterranean SCFI: Mediterranean (US$/TEU) Transpacific CCFI: West Coast USA SCFI: West Coast USA (US$/FEU) CCFI: East Coast USA SCFI: East Coast USA (US$/FEU) Intra-Asia (US$/TEU) SCFI: East Japan SCFI: Singapore SCFI: Hong Kong SCFI: Pusan, Korea SCFI: Kaohsiung, Taiwan 1,331 1,409 18-May-12 1,336 1,426 WoW (%) -0.3% -1.2% Qtr-to-date 2Q12 1,253 1,443 1Q12 972 1,071 4Q11 930 904 3Q11 987 1,026 Yr-to-date 2012 1,071 1,201 2011 993 1,008 2010 1,132 1,373

1,888 1,711 2,100 1,846

1,901 1,742 2,045 1,872

-0.7% -1.8% +2.7% -1.4%

1,747 1,801 1,876 1,870

1,072 1,010 1,186 1,034

962 594 1,176 794

1,099 808 1,295 1,013

1,308 1,287 1,427 1,327

1,174 875 1,294 969

1,731 1,784 1,822 1,736

1,049 2,333 1,300 3,481

1,063 2,330 1,302 3,490

-1.3% +0.1% -0.1% -0.3%

1,017 2,325 1,239 3,492

925 1,850 1,131 2,998

862 1,484 1,116 2,733

926 1,640 1,203 3,173

958 2,017 1,169 3,171

939 1,664 1,172 3,010

1,060 2,335 1,279 3,536

354 274 132 156 279

354 282 135 160 292

+0.0% -2.8% -2.2% -2.5% -4.5%

351 268 144 172 251

334 231 153 170 263

333 227 158 194 193

333 231 163 219 157

340 244 150 171 259

338 211 155 199 195

316 318 119 191 257

SOURCES: CIMB, COMPANY REPORTS

Figure 6: General Rate Increases / Peak Season Surcharges since late-2011


Asia-Europe US$/teu 200 775 300 400 400-450 250-400 400 500 PSS 600 Transpacific US$/feu 400

Late-Dec 2011 Mid-Jan 2012 1 Mar 2012 15 Mar 2012 1 Apr 2012 15 Apr 2012 1 May 2012 1 Jun 2012 10 Jun 2012

SOURCES: CIMB, COMPANY REPORTS

SHIPPING MONITOR
May 29, 2012

Figure 7: SCFI: Shanghai-USWC (US$/feu)


60% 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% -50% JF M A M J J A S O N D J F M A M J J A S O N D J F M A M 10 11 12 0 500 1,000 2,000 2,500 Yoy (%) - LHS SCFI: Shanghai-USWC (US$/feu) 3,000

Figure 8: SCFI: Shanghai-USEC (US$/feu)


25% 20% 15% 10% 5% 0% 1,500 -5% -10% -15% 1,000 -20% -25% -30% JF M A M J J A S O N D J F M A M J J A S O N D J F M A M 10 11 12 500 0 2,000 1,500 3,000 2,500

Title: Source:

Yoy (%) - LHS SCFI: Shanghai-USEC (US$/feu)

4,500 4,000

Please fill in the values above to have them entered in your report
3,500

SOURCES: SHANGHAI SHIPPING EXCHANGE

SOURCES: SHANGHAI SHIPPING EXCHANGE

Figure 9: SCFI: Shanghai-North Europe (US$/teu)


120% 100% 80% 60% 40% 20% 0% -20% -40% -60% -80% JF M A M J J A S O N D J F M A M J J A S O N D J F M A M 10 11 12 0 500 1,000 1,500 Yoy (%) - LHS SCFI: Shanghai-North Europe (US$/teu) 2,500

Figure 10: SCFI: Shanghai-Mediterranean (US$/teu)


140% 120% 2,000 100% 80% 60% 40% 20% 0% -20% -40% -60% JF M A M J J A S O N D J F M A M J J A S O N D J F M A M 10 11 12 0 500 1,000 1,500

Title: Source: Yoy (%) - LHS

2,500

SCFI: Shanghai-Mediterranean (US$/teu)

Please fill in the values above to have them entered in your report 2,000

SOURCES: SHANGHAI SHIPPING EXCHANGE

SOURCES: SHANGHAI SHIPPING EXCHANGE

Figure 11: SCFI: Shanghai-South Korea (US$/teu)


40% 30% 200 20% Yoy (%) - LHS SCFI: Shanghai-South Korea (US$/teu) 250

Figure 12: SCFI: Shanghai-Southeast Asia (US$/teu)


60%

Title: Yoy (%) - LHS Source: Shanghai-Southeast Asia (US$/teu) SCFI:

500 450

40%

Please fill in the values above to have them entered 400your report in
350 300

20% 10% 0% -10% -20% 50 -30% -40% JF M A M J J A S O N D J F M A M J J A S O N D J F M A M 10 11 12 0 -60% JF M A M J J A S O N D J F M A M J J A S O N D J F M A M 10 11 12 -40% 100 -20% 150 0%

250 200 150 100 50 0

SOURCES: SHANGHAI SHIPPING EXCHANGE

SOURCES: SHANGHAI SHIPPING EXCHANGE

SHIPPING MONITOR
May 29, 2012

Figure 13: SCFI: Shanghai-Mid East (US$/teu)


120% 100% 80% 60% 1,000 40% 800 20% 0% -20% -40% JF M A M J J A S O N D J F M A M J J A S O N D J F M A M 10 11 12 600 400 Yoy (%) - LHS SCFI: Shanghai-Mid East (US$/teu) 1,800 1,600

Figure 14: SCFI: Shanghai-ANZ (US$/teu)


60%

Title:
Yoy (%) - LHS Source: SCFI: Shanghai-ANZ (US$/teu)

1,800 1,600 1,400 1,200 1,000

40% 1,400 1,200 20%

Please fill in the values above to have them entered in your report

0% 800 -20% 600 400 -40% 200 0 -60% JF M A M J J A S O N D J F M A M J J A S O N D J F M A M 10 11 12 200 0

SOURCES: SHANGHAI SHIPPING EXCHANGE

SOURCES: SHANGHAI SHIPPING EXCHANGE

Figure 15: Slot utilisation rate on transpacific (%)


Slot utilisation rate on transpacific (%) 100% 95% 90% 85% 80% 75% 70% 65% 60% SO N D J F M A M J J A S O N D J F MA M J J A SO N D J F MA M J J A S O N D J F M A M 08 09 10 11 12 4 per. Mov. Avg. (Slot utilisation rate on transpacific (%))

SOURCES: CIMB, SHANGHAI SHIPPING EXCHANGE

Figure 16: Slot utilisation rate on Asia-North Europe (%)


100% 95% 90% 85% 80% 75% 70% 65% 60% 55% 50% SO N D J F M A M J J A S O N D J F MA M J J A SO N D J F MA M J J A S O N D J F M A M 08 09 10 11 12 Slot utilisation rate on Asia-North Europe (%) 4 per. Mov. Avg. (Slot utilisation rate on Asia-North Europe (%))

SOURCES: CIMB, SHANGHAI SHIPPING EXCHANGE

SHIPPING MONITOR
May 29, 2012

Figure 17: Idle capacity down to 3.5% of the global fleet as at 21 May 2012 (from a peak of 5.8% on 12 March)
1,600,000 Idle capacity (nominal teu) 1,400,000 1,200,000 1,000,000 8.0% 800,000 6.0% 600,000 400,000 200,000 0 J 09 F M A M J J A S O N D J 10 F M A M J J A S O N D J F 11 M A M J J A S O N D J F 12 M A M 4.0% Idle capacity as a % of fleet - RHS 12.0% 14.0%

10.0%

2.0%

0.0%

SOURCES: ALPHALINER

Spot rates on the westbound Asia-Europe trade fell for the third consecutive week, indicating vessel overcapacity on the route and weak European import demand are eroding the general rate increases ocean carriers put into effect on May 1. Carriers have been able to hold onto most of the four large GRIs they put into effect since the beginning of the year, because they have kept vessel capacity relatively tight. But spot rates now are beginning to ease from recent highs as idle capacity returns to the trade and carries deploy newly delivered ships. This will make it more difficult for carriers to collect peak-season surcharges of US$250-400/teu they are seeking in June. (JOC) David Goldberg, senior VP for ocean freight Asia Pacific at DHL Global Forwarding, said there was a strong risk of rates coming down later in the year after as peak season demand subsided. While rates should remain relatively stable during the peak shipping season, current levels might prove unsustainable during the fourth quarter when volumes usually dip and new ships are due to be delivered. On the Asia-Europe trade Goldberg predicted a traditional June-August peak and said that so far volumes had remained mostly unaffected by the Euro crisis. It seems more of a sovereign debt issue, he added. Its not really rolling into the corporate and private sector. On the trans-Pacific trade he said there would be a cargo build-up in the next three to four months with a more normal peak season of restocking pre-Christmas than witnessed in 2010 or 2011. But I wonder about the fourth quarter. Were already seeing a return of some of the laid up capacity with some carriers restoring routes, so with rates at more than sustainable levels I wonder how long the remainder of ships will stay laid up. Also, there are more new ships to be delivered and new entrants can easily come in and add capacity which would push rates down. (JOC)

Far East to Europe container traffic is set to fall a further 15% prior to a rebound in 2013, but will then take five years to return to 2011 volumes, according to UK-based consultancy Maritime Traffic Forecasts, and covers the period between now and the end of 2030. MTF predicts that in the period under consideration, the number of loaded teus moved between Asia and Europe will

SHIPPING MONITOR
May 29, 2012

increase by an average of 3.8% per annum westbound and by 6.7% eastbound, reflecting the relative strength of the Asian economies. (Lloyds List) Hapag-Lloyd will implement a general rate increase on its services from India to Europe and the Mediterranean. The planned increase, starting June 1, will be US$200/teu. The German carrier said the GRI will apply to all westbound shipments from Indias west coast ports of Nhava Sheva (Jawaharlal Nehru) and Mundra to destinations in North Europe, East/West Mediterranean, Black Sea and North Africa. Separately, Hapag-Lloyd said it will impose an emergency fuel surcharge on India-North Europe-Mediterranean trade lanes to cover rising bunker costs, also effective June 1. The proposed surcharge on both dry and refrigerated cargo will be US$150/teu. The carrier said the surcharge will be revised on a monthly basis in line with the Hapag-Lloyd bunker charge. (JOC) OOCL will put a general rate increase into effect on cargo moving in both directions on the trans-Atlantic trade as of July 1. Ocean freight rates continue to be below the required level to cover basic operating costs or transportation costs on our Trans-Atlantic Trade, it said. This is the second time OOCL has posted a trans-Atlantic GRI this year. It raised rates April 1 on all westbound cargo moving between Europe, Canada, and the U.S. via Canadian ports. OOCLs newest trans-Atlantic rate increases are: US$450/teu and US$600/feu for both westbound and eastbound and applicable to dry and reefer cargo on all the routes and services between Europe, Canada and the U.S. via Canadian ports. US$400/teu and US$500/feu for both westbound and eastbound and applicable to dry and reefer cargo on all the routes and service between Europe and the U.S. US$200/teu and US$300/feu for both westbound and eastbound and applicable to dry and reefer cargo on all the routes and services between Europe and Mexico. (JOC)

The idle containership fleet has fallen further in the two weeks to 21 May to 559,500 teu, or 3.5% of the total fleet. A total of 237 units of above 500 teu are without employment. Since mid-March when the idle fleet reached its last peak of 913,000 teu, the unemployed fleet has dropped by 39%, due to the reactivation of services for the summer season. Most of the reactivations involved ships of over 5,000 teu, with the number of idle units dropping from 50 units in March to 16 units currently. Most of the remaining ships of above 5,000 teu are expected to be reactivated in the next two months, as carriers continue to optimise their networks using their largest ships. However, the number of idle units in the smaller sizes has remained stubbornly high despite the scrapping of over 70 units so far this year all of which are below 4,500 teu. (Alphaliner) MSC is upgrading a second transpacific string with ships of 11,600 teu. MSC is planning to send in July the 11,660 teu MSC IVANA on the Transpacific VSA Loop 2 jointly operated by Maersk, MSC and CMA CGM, replacing the 9,200 teu MSC INES. The service currently deploys two ships of 9,200 teu from MSC and four ships of 8,100-8,500 teu from CMA CGM. The move follows MSCs decision to send 11,600-13,000 teu ships on the transpacific 'Pearl River Express' service (PRX) since February this year. The PRX is operated jointly with CMA CGM, who deploys three smaller ships of 9,400-9,600 teu alongside the three MSC units - the 13,092 teu MSC ALTAIR and the 11,660 teu duo MSC LUCIANO and MSC FRANCESCA. The MSC ships are the only vessels of above 10,000 teu deployed on transpacific routes. MSC currently operates 42 ships of
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May 29, 2012

above 13,000 teu, together with an additional seven units of between 11,600 and 12,500. (Alphaliner) China Shipping Container Lines plans to borrow US$100m from China Development Bank to replenish its working capital amid continued heavy losses. CSCL has suffered hefty losses since last year due to low rates, high bunker costs and overcapacity in the box shipping markets. Despite several seemingly successful rate hikes since March, CSCL said in its annual report that it would face challenging market conditions in 1H12 due to overcapacity. Earlier this month, the company scrapped its options to buy four 10,000 teu boxships from China Shipbuilding Industry and China State Shipbuilding, to avoid increasing its financial burden. (Lloyds List) Panama Canal tolls are set to be increased by up to 15% from the start of July, in a move designed to align Canal toll charges with the value the route provides, the Panama Canal Authority (ACP) said in a statement. In the letter dated May 17, the Japanese Shipowners Association told the ACP: Amid the current downturn the shipping industry is facing, we are deeply disappointed at learning of your last-minute proposal to increase the canal tolls effective from both July of 2012 and 2013. The International Chamber of Shipping has sent a strongly worded letter to the Panama Canal Authority describing the plans as simply unacceptable. ICS calls for the plans to be withdrawn and for future increases to offer at least six months notice so that shipping companies can plan properly and assess the impact of proposed changes. The canal is in the middle of a $5.3bn extension plan that will see the construction of new sets of locks on both its Pacific and Atlantic sides. (Lloyds List)

Ocean carriers and shipowners are set to scrap container ships totaling more than 200,000 teu capacity in 2012, more than twice the capacity sent to breakers yards last year. But this will be dwarfed by new vessel deliveries, which are expected to hit 1.4m teu in 2012, Alphaliner said. So far this year 69 ships totaling 124,000 teu have been scrapped, compared to just 85,000 teu for the whole of 2011. By contrast, deliveries of new ships have already reached 621,000 teu. Scrapping is expected to accelerate through the year, driven by low earnings and a weak outlook for older, less efficient vessels. The sharply higher demolition rate will make 2012 the second highest year of scrapping behind the record-breaking 379,000 teu broken up in 2009, according to Alphaliner. The average age of scrapped container ships has dropped to 26 years compared with 28 years in the past decade. (JOC)

A 13-year-old boxship has been sold for scrap, making it the youngest merchant vessel to be demolished since the global financial downturn took hold in late 2008. It marks the extreme of a growing trend for ever-younger vessels to head for recycling yards, as huge overcapacity has taken hold in chartering markets due to record levels of newbuilding deliveries over the last three years. The 1999-built, 1,733 teu feeder vessel Ocean Producer is underway to an Indian breaking yard, and beats the youngest tanker sold for scrap this year, which was 1997-built, and a 1996-built capesize bulk carrier. Ocean Producer had been moored off Singapore since December 2010, implying it had been in layup for more than a year and struggling to find employment. (Lloyds List)

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Dry bulk shipping


The capesize sector saw rates fall 27.8% from the previous week. Over the past 1-2 weeks, capesize rates have remained range-bound but with news of slower growth in China and steel mills returning or cancelling cargoes, vessel owners have become very nervous. Current capesize rates have once again fallen below cash-breakeven levels. In the panamax market, Fearnleys reported low activity and a growing list of available ships in the Atlantic, which caused rates to weaken. In the Pacific, rates to ship coal to China have also tumbled on negative sentiment from the capesize segment. Supramax rates increased slightly, by 0.9% wow, but rates on the Atlantic and Pacific have diverged further, according to brokers. While supramax rates in the Pacific continue to suffer from the weakening Indonesian coal trade and the struggling Indian iron ore trade, rates in the Atlantic have been rising strongly. This can be attributed to pet coke and scrap cargoes from the US Gulf, which lifted markets, as did strong grain and sugar exports from Brazil. Handysize rates also increased 1.4% wow. Metal Bulletin reported that more than 600 Indonesian mineral exporters have gained the first of three approvals required before they can export again. However, future exports may be levied a proposed 20% flat tax rate. Chinese buyers have apparently resisted Aneka Tambangs attempt to pass through the new tax on its nickel ore exports, raising the possibility that even if exports of ore are subsequently allowed, the volumes will not match previous levels.
Figure 18: Dry bulk freight rates
Last week Qtr-to-date 25-May-12 18-May-12 WoW (%) 2Q12 1Q12 1,034 1,141 -9.4% 1,067 881 1,424 1,633 -12.8% 1,541 1,618 1,083 1,274 -15.0% 1,319 1,010 1,118 1,108 +0.9% 1,054 833 651 639 +1.9% 591 465 6,426 20,061 -931 7,045 13,826 1,928 8,633 5,905 -1,425 11,694 9,702 8,905 23,037 3,197 7,825 15,120 3,122 10,159 10,412 -1,574 11,588 9,571 -27.8% -12.9% -129.1% -10.0% -8.6% -38.2% -15.0% -43.3% -9.5% +0.9% +1.4% 7,264 22,323 -612 5,315 13,515 1,483 10,605 9,600 -1,508 11,063 8,934 6,554 19,998 -845 4,266 9,176 2,791 7,913 6,453 -1,772 8,658 6,958 4Q11 1,914 3,305 1,823 1,389 690 28,553 46,176 30,392 29,184 26,601 25,493 14,555 12,949 1,737 14,397 9,788 3Q11 1,528 2,368 1,608 1,337 679 17,289 29,512 13,836 16,508 15,683 11,120 12,906 9,471 2,499 14,055 10,085 Yr-to-date 2012 954 1,586 1,130 920 514 6,824 20,884 -756 4,665 10,829 2,293 8,938 7,652 -1,671 9,574 7,711 2011 1,550 2,247 1,743 1,375 717 15,836 29,572 12,746 14,808 15,588 10,963 13,940 11,951 2,766 14,351 10,505 2010 2,753 3,473 3,108 2,145 1,124 32,875 47,932 32,667 29,611 28,070 26,584 24,858 23,686 13,330 22,359 16,384

Baltic Baltic Baltic Baltic Baltic

Dry Index Capesize Index Panamax Index Supramax Index Handysize Index

Capesize average TCE (US$/day) Iron ore Tubarao-Beilun, 165k dwt Tubarao-Rotterdam, 165k dwt Western Australia-Beilun, 165k dwt Goa-Beilun, 145k dwt Coal Queensland-Japan, 145k dwt Panamax average TCE (US$/day) Coal Newcastle-Japan, 70k dwt Richards Bay-Rotterdam, 70k dwt Supramax average TCE (US$/day) Handysize average TCE (US$/day) Capesize spot rates (US$/tonne) Iron ore Tubarao-Beilun, 165k dwt Tubarao-Rotterdam, 165k dwt Western Australia-Beilun, 165k dwt Goa-Beilun, 145k dwt Coal Queensland-Japan, 150k dwt Panamax spot rates (US$/tonne) Coal Newcastle-Japan, 70k dwt Richards Bay-Rotterdam, 70k dwt

19.00 7.95 7.60 10.90 8.50 14.00 12.10

20.70 9.25 7.75 11.30 8.85 16.50 12.30

-8.2% -14.1% -1.9% -3.5% -4.0% -15.2% -1.6%

20.82 8.65 7.70 11.28 8.83 16.56 12.86

20.41 8.87 7.78 10.27 9.35 15.76 13.17

28.69 15.09 11.93 15.05 13.62 17.90 14.33

22.75 11.62 9.35 11.47 10.52 16.23 14.79

20.56 8.78 7.75 10.65 9.15 16.06 13.05

22.53 11.15 9.06 11.49 10.38 17.12 14.62

26.19 13.66 10.35 13.69 11.87 20.68 17.72

SOURCES: CIMB, COMPANY REPORTS

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SHIPPING MONITOR
May 29, 2012

Figure 19: Baltic capesize and panamax TCE/day (US$/day)


80,000 Baltic Capesize TCE/day 70,000 60,000 Baltic Panamax TCE/day

Figure 20: Baltic supramax and handysize TCE/day (US$/day)


30,000

Title: Source:

Baltic Supramax TCE/day Baltic Handysize TCE/day

25,000

Please fill in the values above to have them entered in your report

20,000 50,000 40,000 30,000 10,000 20,000 5,000 10,000 0 J F MA M J J A S O ND J F MA M J J A S O ND J F MA M J J A S O ND J F M A M 09 10 11 12 0 J F MA M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J FMA M 09 10 11 12 15,000

SOURCES: CIMB, CLARKSON RESEARCH SERVICES

SOURCES: CIMB, CLARKSON RESEARCH SERVICES

Figure 21: Bulk vessel profit/loss (US$/day)


Ship type Current TCE Operating cost Cash earnings Interest cost Depreciation cost Daily profit/(loss) Breakeven TCE Capesize 6,426 -7,500 -1,074 -3,605 -4,636 -9,315 15,741 Panamax 8,633 -6,500 2,133 -2,148 -2,762 -2,777 11,410 Handymax 11,694 -6,000 5,694 -1,956 -2,515 1,223 10,471 Handysize 9,703 -5,000 4,703 -1,726 -2,219 758 8,945

SOURCES: CIMB, MOORE STEPHENS, CLARKSON RESEARCH SERVICES

Capesize rates have fallen due to lower bunker prices and slackening demand as weak manufacturing data from China further dents positive market sentiment. Brokers in Hong Kong predict that the market will hold flat this week if bunker prices stay low. Belief in a stronger end to the year seems to be waning, but its worth noting that the market did not begin to really push last year until August, wrote broker Braemar. Early results for manufacturers purchasing in China indicate that industrial output is still slowing. The HSBC Flash Purchasing Managers Index, a preliminary release of the PMI, retreated to 48.7 in May from a final reading of 49.3 for April. (Lloyds List) Chinese iron ore import prices have fallen to their lowest levels in six months as reports continue to circulate that steel mills are redelivering cargo to traders. For the capesize bulk carrier market, which relies on iron ore as its main cargo, the news will do little to support an improvement in vessel earnings. Chinese steel mills have been postponing shipments of iron ore as steel demand is slowing down. The last time mills delayed iron ore deliveries was back in October and it led to a counter-intuitive effect on demand for imported ore. Greater volumes are pushed onto the spot market, which in turn reduces the price. Prices fell so low that mills then began to restock. Clarksons said that the high steel production and low import levels suggested that Chinese steel mills are continuing to source an increasing volume of iron ore from existing stocks or domestic sources rather than boosting purchases of high-cost iron ore from the tight seaborne market. (Lloyds List)

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Traders in Asia say that buyers from China have cancelled orders for thermal coal, supporting reports that emerged last week of steel mills delaying deliveries of iron ore shipments. The defaults and delays come as commodity prices tumble, amid concerns that Chinas economy is slowing more abruptly than expected. At least six thermal coal cargoes have been re-offered on discount, including shipments from the US, Colombia and South Africa, according to Reuters. An international trader estimated that Chinese traders buying a cargo for a capesize vessel could lose as much as US$1.5m. Benchmark thermal coal prices have fallen to a two-year low. Chinas utilities are well stocked with coal, having bought the commodity in anticipation of higher second-quarter demand. However, growth figures for China in April were well below economists forecasts, taking the government by surprise. The figures suggest that the economy of the worlds greatest consumer of both thermal coal and iron ore is slowing sharply. (Lloyds List)

The panamax bulk carrier market is in a stand off as owners attempt to prevent rates from falling any further and charterers hold back on fixing ships against cargoes on the expectation of more vessels becoming available for loading dates in the second half of June, but owners are still sticking with higher prices. Unfortunately, the slow down in activity levels has led to rates being chipped away. Following reports over the last few days about Chinese mills and traders redelivering or deferring iron ore and thermal coal cargoes due to lower than anticipated demand, the dry bulk market has become nervous. This is particularly notable for the panamax sector, which has been enjoying increased employment opportunities from both the Atlantic and Pacific markets shipping coal to China due to expectations of another northern hemisphere summer season creating drought and limiting hydroelectric production. (Lloyds List)

The worlds two largest supramax markets diverged further this week, as weak commodity markets dragged down the Pacific trade. One Singapore-based broker said the fall in Pacific rates could largely be attributed to the weak commodities market, particularly for iron ore, which this week saw prices drop to the lowest level in five months. Coal prices also fell this week. The markets affected the Indonesian coal trade and the Indian iron ore trade are two of the largest supramax trades in the region. Brokers also noted that Indonesian coal cargoes were commonly getting fixed again on an arrival pilot station basis, meaning shipowners have to pay to get to the loading port, further reducing their already meagre profit margins. We reckon in mid-June well be coming up again, the broker said, pointing out that the delayed cargoes could not be put off indefinitely. These great expectations will no doubt be greeted with enthusiasm in the Atlantic, where the Pacific market crash is stirring fears that shipowners will soon start ballasting over in large numbers. For now, though, in the Atlantic, rates went up as fast as they went down in the Pacific. Pet coke and scrap cargoes from the US Gulf lifted markets, as did strong grain and sugar exports from Brazil. (Lloyds List)

Vale is considering launching another floating storage centre outside China to bypass the ban on its 400,000 dwt vessels entering Chinese harbours. Vales global marketing director Claudio Alves told reporters that South Korea was among the locations that Vale was considering. Vale has used a converted very large crude carrier to store ore for transhipment in the Philippines.
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Rongsheng, Chinas largest non-state shipbuilder has said that it is on track to deliver 10 of 14 outstanding orders of VLOCs that it had at the beginning of the year. In April, Rongsheng delivered Vale Dongjiakou and Vale Dalian. (Lloyds List)

Vale plans to build a second floating iron ore transshipment unit, to be located with the first one at Subic Bay in the Philippines. The first station was put into operation in February this year, enabling ore on Valemax ships to be reloaded onto smaller vessels for further regional distribution. Together with our distribution centers in Oman (already operating) and Malaysia (being built), these transfer stations will absorb the entire capacity of our fleet of 35 Valemax ships, which can transport approximately 60m metric tons of cargo per year, Vale said. (Metal Bulletin) Vale has denied claims from China that it has shunned business with the countrys shipowners and says it has chartered seven Cosco ships this year. Cosco chief executive Ma claimed that Vale had spurned business with Coscos vessels, retaliating against the ban against on the mining giants valemax vessels entering Chinas ports. Mr Ma said that a boycott by Vale had hurt Coscos business and described this as an irrational reaction to the governments ban. (Lloyds List) Dry weather in eastern Australia is threatening the local grain harvest even before it is fully planted. GrainCorp, one of Australias biggest agricultural firms, put out guidance figures for future production warning that the current drought could pose a threat to next years harvest, which is currently being seeded. Australian government estimates released in March already forecast a 1.1m tonnes drop in wheat exports to 19.9m tonnes total for next year, meaning a poor crop could put a substantial dent in exports. This would hurt the Pacific supramax trade, already one of the worst-performing dry bulk shipping subsectors of this year in terms of average charter rates. (Lloyds List) China will begin to lift its ban on imports of Virginia's hardwood and softwood logs under a six-month pilot project, Virginia Gov. Bob McDonnell said Wednesday. Although technical details are being finalized, Virginia logs will be allowed to re-enter China beginning on June 1 in certain designated ports and with enhanced pest treatment and testing protocols under the terms of the pilot project. China banned hardwood and softwood log exports from Virginia and South Carolina in April 2011, citing pest interceptions on logs exported from the U.S. Chinas ban on log imports from Virginia depressed throughput at the Port of Virginia last year. Total volume through the Virginia ports rose by just 1.2 percent year-over-year, half the growth rates at other East Coast ports. The value of Virginia's 2011 global log exports was estimated at nearly $57 million, down $10 million from 2010. Prior to the ban, Virginia was a major East Coast log supplier to China, the world's largest log importer. (JOC)

Rio Tinto could expand its global iron ore capacity to 450m tonnes per annum by 2016. The target capacity includes Rios operation in Canada and its new project in Guinea. Rio is pressing ahead with expansion in iron ore, unlike rival BHP Billiton, which has recently decided to curb its US$80bn spending plan. (Metal Bulletin)

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May 29, 2012

More than 600 Indonesian mineral exporters have gained the first of three approvals which are required before they can export again. We have announced the names of the 608 companies that have been given clearance to export. Hundreds more are still being processed, an official at the ministry of energy and resources said. The recommendation from this ministry has to be followed by registration with the trade ministry and final approval from Indonesias finance ministry. Aneka Tambang (Antam), Indonesias second largest nickel producer, is one among the 608. Antams president director Alwin Syah Loebis said, Weve not been informed how long it needs to take to get approval from the ministry. It may take two weeks. It may take longer. The introduction of a proposed 20% flat tax rate on minerals has not been confirmed, so even after registering as exporters, miners may still need to wait for the finance ministry to issue the regulations on the tax to be levied on ore exports. (Metal Bulletin)

At least one Indonesian exporter, nickel producer PT Aneka Tambang (Antam), has begun offering material for export again after the government confirmed a flat-rate 20% tax on minerals exports. Antam has been negotiating with its buyers to share the 20% tax burden, Alwin Syah Loebis, Antam's president director said. Our buyers are very understanding. They know that none of the additional 20% tax goes into Antams pocket, he said. Some buyers have actually agreed to bear all of the tax costs, while some others are willing to share part of the costs. But Chinese buyers have said they are not willing to pay higher prices for Antam's ores. Antam has started offering nickel ore at 1.8% nickel grade at $73-75 cif Chinese ports this week, up $6 from its last offers before the export ban. Freight charges to China are about $18 per tonne, market participants said. "This price is obviously too high and no one has accepted it," a source at a Chinese stainless steel mill said. "Do you think buyers will accept the higher prices? Of course not, demand [in China] is weak," an official at a trading company in China said. "Miners [such as Antam] have made a lot of money in the past several years. They are able to afford the taxes," another official at a trading company in China said. (Metal Bulletin)

The Chinese government is considering reserving cargoes of strategic commodities and energy products for national flag vessels, in an attempt to save ailing state-owned shipowners. A cargo reservation system would grant national flag vessels the right to carry certain proportions of the flag states international trades, which would often come at the expense of cargo owners and foreign shipping lines. However, such a system can take many forms depending on cargo types and enforcement, so it remains difficult to assess its real impact at this stage. (Lloyds List) The long decline in dry bulk asset values could finally be grinding to a halt, as secondhand modern ships were sold at better prices than in recent deals. Brokers reported the 2005-built, 52,489 dwt Treasure Island was sold for US$20m-20.5m. The price reportedly paid for Treasure Island is well above the ships current US$18.4m valuation by online appraiser VesselsValue and also an improvement over the last done deal: the sale of the 2006-built, 52,481 dwt Furness Hartlepool last month, selling for a reported US$20.5m. Asset values for smaller bulk vessels have performed better throughout the downturn because these sectors of the market are thought to be suffering from less severe overtonnaging. Consequently, it is no surprise that they are the first to show signs of recovery. However, there were also
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reports of a larger panamax bulk carrier being sold at a price level above the last done deal. (Lloyds List)

Tanker shipping
Average VLCC rates edged lower, mainly due to a 16.9% wow decline in rates on the Middle East-Far East trade as a result of an expanding tonnage list and as charterers held off from further fixing in order to bring VLCC rates down. In the coming weeks, rates are likely to hold steady as charterers progress to the second-half June loading programme. After the near-doubling of suezmax rates on the West Africa to US in the previous week, rates came down 29% as falling bunker prices are offering owners better returns. A more flexible tonnage list and softer VLCC rates also contributed to the decline in rates, according to Weber. The aframax markets performance was mixed with rates on the Caribbean declining 30% due to an oversupply of vessels. In the Mediterranean, availability was slightly tighter, which allowed aframax rates to increase 9.1% wow. Both Weber and Lloyds List highlighted the new oil-for-loan deal between Venezuela and China. Lloyds List reported that Venezuela has voted to double the amount of money repayable in oil that it borrows from China in a move that will boost long-haul tanker shipments on the Americas to Asia trade route. VLCCs will gain the most from Venezuela agreeing to increase its borrowing from US$4bn to US$8bn, experts said. Also benefitting the VLCC trade, South Korea has begun to import more crude from the North Sea area since a free trade agreement with the EU came into effect in December. Meanwhile, Japan, which is currently not generating any electricity from any of its nuclear plants, could suffer from electricity blackouts during what is expected to be a hotter-than-usual summer. Since Japans gas-fired power plants are running at close to capacity, further LNG imports may be limited and Japan may have to increase the import of Middle East oil cargoes on VLCCs for power generation purposes. Balancing this out is a potential plateau of Chinas total import volumes as inventories have reached the highest levels in seven months. All considered, the VLCC sector, currently enjoying the highest rates of return, should continue to see the most resilient earnings in the immediate future, barring a sharp slowdown in Chinas GDP growth, a pause in its restocking activities or an escalation of hostilities in the Middle East that could cut off Iranian crude completely from the market.
Figure 22: Tanker freight rates
Last week 25-May-12 733 609 42,923 35,686 16,301 51,030 28,489 33,369 25,799 14,216 14,803 7,914 11,938 23,324 12,551 18-May-12 765 616 45,618 42,958 16,352 52,890 36,131 43,399 36,392 12,926 21,064 6,681 10,947 16,220 11,690 WoW (%) -4.2% -1.1% -5.9% -16.9% -0.3% -3.5% -21.2% -23.1% -29.1% +10.0% -29.7% +18.5% +9.1% +43.8% +7.4% Qtr-to-date 2Q12 772 626 42,872 39,888 15,310 44,141 20,474 25,760 16,134 13,122 11,827 7,081 12,950 20,105 11,954 1Q12 814 688 36,114 31,916 3,959 42,176 25,113 32,305 20,329 15,180 15,672 7,941 15,430 19,334 14,130 4Q11 813 743 23,018 18,689 592 28,451 20,704 32,650 17,481 14,927 8,574 7,617 21,945 24,806 10,758 3Q11 708 677 11,372 8,160 -755 13,621 10,020 13,608 5,864 9,016 5,557 5,667 5,268 13,830 12,314 Yr-to-date 2012 797 664 38,688 34,953 8,283 42,924 23,346 29,812 18,731 14,396 14,207 7,613 14,485 19,627 13,301 2011 788 726 22,137 18,212 2,489 24,841 17,238 25,110 13,368 12,726 8,225 8,007 13,562 18,599 12,721 2010 898 731 42,638 41,615 20,944 43,466 29,593 36,301 26,217 18,155 17,032 14,652 19,820 24,220 15,711

Baltic Dirty Tanker Index Baltic Clean Tanker Index VLCC average TCE (US$/day) AG-FE Ras Tanura-Chiba AG-USG Ras Tanura-LOOP WA-USG Bonny-LOOP Suezmax average TCE (US$/day) MED-MED Sidi Kerir-Lavera WA-USAC Bonny-Philadelphia Aframax average TCE (US$/day) CARIB-USG Curacao-Texas SEA-FE Jakarta-Chiba MED-MED Sidi Kerir-Trieste UKC-UKC Sullum Voe-Wi'shaven AG-SEA Ras Tanura-Singapore Clean tanker average TCE (US$/day) LR1 tanker Ras Tanura-Chiba 75k Handysize Selected routes MR tanker Selected routes 25-55k

4,449 11,841 6,132

6,079 11,525 5,566

-26.8% +2.7% +10.2%

6,104 10,546 5,869

3,003 15,642 4,805

6,858 13,395 7,505

13,214 7,278 6,478

4,185 13,701 5,211

10,462 12,644 7,587

14,539 13,148 7,756

SOURCES: CIMB, COMPANY REPORTS

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Figure 23: Crude tanker TCE shipping rates (US$/day)


100,000 VLCC TCE (US$/day) 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 J F MA M J J A S O N D J F MA M J J A S O N D J F MA M J J A S O N D J F M A M 09 10 11 12 Suezmax TCE Aframax TCE

SOURCES: CIMB, CLARKSON RESEARCH SERVICES

Figure 24: Product tanker TCE shipping rates (US$/day)


35,400 LR1: Ras Tanura-China (clean) TCE (US$/day) 30,400 Handysize (clean) TCE Medium range (clean) TCE 25,400

20,400

15,400

10,400

5,400

400 J F M A M J J A S O N D J F M A M J J A S O N D J F MA M J J A S O N D J F M A M 09 10 11 12

SOURCES: CIMB, CLARKSON RESEARCH SERVICES

Figure 25: Tanker vessel profit/loss (US$/day)


Ship type Current TCE Operating cost Cash earnings Interest cost Depreciation cost Daily profit/(loss) Breakeven TCE VLCC 42,923 -12,807 30,116 -7,441 -9,567 13,108 29,815 Suezmax 28,489 -11,436 17,053 -4,526 -5,819 6,708 21,781 Aframax 14,216 -10,245 3,971 -3,951 -5,079 -5,059 19,275 MR product 6,132 -8,185 -2,053 -2,570 -3,304 -7,927 14,059

SOURCES: CIMB, MOORE STEPHENS, CLARKSON RESEARCH SERVICES

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Charterers have secured ships for most of their crude oil cargoes loading on VLCCs in the Middle East Gulf spot market in early June and are now holding back from fixing in order to bring freight rates down. Their tactics appear to be working, with brokers reporting that rates were falling. Singapore-based broker Marex Spectron highlighted the oversupply of ships available for the small number cargoes to come onto the market, saying in a report that nine cargoes were left for the 36 VLCCs available, or four ships for every cargo. Other brokers reported that delays at Chinese discharge ports were stopping rates from dropping even further. The Chinese were active in the market over the last week. Unipec booked six VLCCs for Middle East Gulf to China voyages. The Chinese were not just taking crude from the Middle East Gulf. Unipec took two VLCCs from West Africa, which commentators have previously said is part of Chinas strategy to diversify where it sources its oil from, amid concerns over supply from a Middle East region wrought with tension. (Lloyds List)

Chinese demand for crude oil showed anaemic growth in April and the countrys appetite for products even declined slightly, the first time it did so since February 2009. Data released by the National Bureau of Statistics shows the weakness in underlying demand in China. Crude demand grew by 0.1% month on month, and product demand declined by 0.3%. Latest official customs data showed a 1.3m tonne month-on-month decline in April with imports totalling 22.3m tonnes that month. This represents approximately four very large crude carrier loadings. Inventories in the country rose nonetheless, reaching their highest level in seven months, according to Chinese government data. Chinese imports for the year to date were still up by 9.3% compared to last year. However, for April, year-on-year growth amounted to only 3.3%, fuelling analysts fears of a slowdown. (Lloyds List) Venezuela has voted to double the amount of money repayable in oil that it borrows from China, in a move that will boost longhaul tanker shipments on the Americas to Asia trade route. VLCCs will gain most from Venezuela agreeing to increase its borrowing from US$4bn to US$8bn, experts said. Repayment in oil suits China, which is increasingly diversifying its sources of oil away from the troubled Middle East. The Americas to Asia oil trade has grown by 33% year on year and is at its highest level since 2007. This trade has made up around 18% of tonne-mile demand for VLCCs so far in 2012. A further increase in cargoes here will contribute to higher tonne-mile growth in VLCCs than for other crude tanker classes. (Lloyds List) A record 24m barrels of North Sea crude carried on 12 VLCCs has been exported to South Korea since December after a free trade agreement with the European Union opened up an arbitrage opportunity. The agreement, which started in July last year, reportedly gives South Korean refiners around a $3 per barrel discount compared with prices from other suppliers. The aim of the agreement was to enable an expansion of trade flows between the EU and South Korea, which in the case of North Sea oil appears to be working. The longhaul voyage also appears to be lucrative for shipowners plying the trade route. The rise in North Sea oil exports to South Korea comes as interest among energy majors in North Sea crude exploration and production is building. Recent tax breaks handed out by the UK coalition government are encouraging oil companies to invest in the North Sea and explore the last untapped part of the region in the deepwater west of Shetland. (Lloyds List)

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Even with more business being concluded in the cross-Mediterranean spot market this week, aframax rates failed to budge as an oversupply of ships immediately absorbed any cargoes coming onto the market. Still, brokers said the Mediterranean market was seeing more action in terms of trade than it had in recent days. Several cargoes coming to market on failed to make a dent in rates as more than half a dozen vessels came out to bid on the trips. Vessels are now commonly being fixed only a week before loading. Brokers active in the Mediterranean market said that it was likely that rates would trend downward somewhat over the coming days. (Lloyds List) P&I clubs have welcomed hints that the European Union could offer to suspend its threatened ban on P&I insurance of cargoes laden in Iran as a bargaining chip in new negotiations over Tehrans nuclear programme. The west is ready to make concessions, although it will stand firm on prohibiting the import of Iranian crude into the EU. The P&I restrictions, due to take effect on July 1, have been widely criticised by Asian countries, many of them major buyers of Iranian crude. Without cover, few shipowners are prepared to carry consignments, because of the risk of massive liability claims in the event of a serious spill. Indian and Chinese shipowners in particular have called on their governments to step into the breach by providing so-called sovereign cover. (Lloyds List) EU oil companies and their overseas units cannot buy, import into the EU or transport even tiny amounts of crude or refined oil of Iranian origin under rules coming into effect July 1. However, the way many oil transactions are carried out in Asia mean they could inadvertently break the rules, and even their best efforts to comply will be further undermined by a widespread industry practice of blending fuel oil from several sources. A major component of Iran's oil exports is fuel oil, used to power ship engines or in power stations. The EU embargo is causing difficulties for international shipping companies buying fuel for their vessels in Singaporethe world's largest bunkering, or ship refueling portas blending is deeply entrenched there. Singapore has no embargo against Iranian oil, and once Iranian oil lands in any of the Platts-designated onshore or offshore storage sites in Singapore or Malaysia, its onward sale in the window will have Singapore as the source of origin, and not Iran. It is unclear if buying Iranian-blended fuel in the window would be considered a less serious offense by Brussels given the buyer has no control or knowledge of the source of the cargo. Their insurance cover may be invalid if they buy Iran-blended bunker fuel, as most are insured by the London-based International Group of P&I Clubs, which has to comply with the ban. (WSJ)

Talks in Baghdad between Iran and six world powers have ended without any new progress, apart from an agreement from all parties to meet again in June. Delegates from Iran met their counterparts from the UK, China, France, Russia, the US and Germany for two days to try to convince Iran to suspend its nuclear weapons programme. The main focus of a package of proposals put to Iran aimed to persuade Tehran to shelve its enrichment of uranium to 20% purity. The offer did not include any plan to relax sanctions, as many had hoped. Some sources had expected the six powers to use the forthcoming insurance ban on tankers carrying Iranian oil as a bartering tool. The ban comes into force on July 1, making it difficult for tankers to secure adequate liability cover. However, the insurance ban was not discussed. (Lloyds List)

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As Iran continues to grapple with the West over its nuclear ambitions, experts say the nation could double its already sizable oil output if sanctions were lifted to allow foreign investment into its oil industry. Iran currently produces around 3.4m barrels of oil a day, according to the U.S. Energy Information Administration. That makes it the world's sixth-largest oil producer. If the current sanctions were lifted to allow foreign capital and knowledge into Iran, the country could boost oil production significantly. The discoveries there have been huge. Billions of barrels have been added in the last few years. At 137bnbarrels, Iran has the world's fourth largest supply of proven oil reserves -- more than twice the size of Russia's. Yet Russia produces around 10 million barrels a day, nearly three times as much as Iran. The problem with Iran is that much of its oil equipment is old, and drilling new wells has been slow, due to years of sanctions and underinvestment. They need international partners to bring money and know-how. Any of the big oil firms would jump at the chance to invest in Iran but the problem is western sanctions prevent these companies from investing in Iran. (CNNMoney)

The Seaway pipeline that connects Cushing, Oklahoma to the US Gulf Coast has reversed direction and the first oil will arrive in Houston early next month. Volumes are initially expected to reach 150,000 barrels per day, enough to fill a VLCC in two weeks. Pipeline owners Enbridge and Enterprise Products intend to increase capacity to 400,000 barrels per day by early 2013 and ultimately up to 850,000 barrels per day. Until recently, the pipeline was pumping oil in the opposite direction, creating a glut of oil in the American heartland. The reversal is part of a growing trend that could see the US reduce its dependence on Middle Eastern oil as the North American continent increases its own oil production. (Lloyds List) Eitzen Chemical put on a brave face yesterday by pointing to potential improvements to come this year, but suffered a US$16.8m loss in 1Q12. Oslo-headquartered Eitzen said it was in discussions with its banks over a financial restructuring. The companys time charter revenues increased by 10% in the first quarter compared with the previous quarter to $2.1m, averaging $10,640 per day. Eitzen is convinced that the supply of chemical tanker tonnage will be reduced over the next few years as owners hold back from ordering and scrapping continues. It said the 2012 outlook was more optimistic than for 2011. Meanwhile, Bergen-based chemical tanker owner Odfjell has warned of tough times in the first half of this year for chemical tanker owners after making a loss of $4m in the first quarter. Maritime consultancy Drewry has weighed in with its forecast, saying in a report last week that chemical tanker owners face insolvency unless freight rates pick up. (Lloyds List) Frontline 2012 , the tanker spin-off set up by John Fredriksen at the end of last year in response to Frontlines substantial losses, said yesterday it generated a net income of US$2.4m for the first quarter and will aggressively stamp its presence on the tanker market by ordering up to 24 new ships. The target within three years is to create a world-leading commodity shipping company comprised solely of modern ships. As such, Frontline 2012 is building its fleet and is in discussions to take over a total of 16 newbuilding contracts for crude and product tankers, with eight more optional contracts. In order to finance these contracts, valued at $578m, Frontline 2012 said it will raise around $200m in new equity. Frontline 2012s current newbuilding programme comprises five VLCC tankers, at a contractual cost of $525m. (Lloyds List)

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With Japans nuclear power now completely offline, experts argue that greater volumes of LNG will be shipped on vessels to Japan to meet the power requirement that keeps air conditioners running. The Japan Meteorological Agency has forecast higher than average temperatures this summer, particularly in western Japan, where the nations third largest city is located. However, other experts, including the International Energy Agency, have pointed out that Japans gas-fired power plants are already running at near full capacity, limiting the amount of extra LNG they can take. With nuclear power out of the picture and limits to LNG intake, there are real fears that the lights could go out across Japan this summer. With gas plants at capacity, Japan has been burning crude oil to generate power. This is evident from shipbrokers fixture lists, which show Japan has been busy booking VLCCs from major oil producers in the Middle East. (Lloyds List)
Figure 26: Japanese imports of various fuels and energy sources

SOURCES: WSJ

The United States energy system is just short of chaos and the United States could be a mere three years away from gas lines if something doesnt change, according to John Hofmeister, CEO of Citizens for Affordable Energy. Today, the United States consumes 18.5m barrels but produces only 7m barrels daily, Hofmeister said. As a result, customers will have paid more for gas in 2011 and 2012 than in any other year in living memory. A former president of Houston-based Shell Oil Co., Hofmeister noted that the United States has had a non-drilling policy on 85% of the U.S. coastlines outer shelf for the past 30 years. On land, half the drillable land is federally owned, yet no permits are being granted, he said. If such available oil reserves are opened up, it eliminates 3m barrels a day of imports," he added. (Metal Bulletin)

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Commodity prices and currencies


Oil prices stabilised last week with WTI crude declining 0.9% wow to US$90.66/barrel from US$105/barrel a month ago. Bunker prices inched up slightly by 0.2% wow, trading at US$664.50/tonne. For the coming week, the US May jobs report as well as the situation in Europe would most likely dictate the direction of oil prices. Chinese iron ore import prices continue to fall, dipping 1.4% wow to US$137.50/tonne as it was reported that steel mills are postponing purchases of iron ore and some even redelivering cargoes. Steel prices also weakened about 1% wow on concerns over Chinas slower growth. Early results for manufacturers purchasing in China indicate that industrial output is still slowing.
Figure 27: Economics & Commodities
Last week 25-May-12 18-May-12 90.66 91.48 664.50 663.00 137.50 168.29 4,052 4,191 5,076 4,076 142.27 105.45 US$1.25 79.68 Rmb6.34 HK$7.76 RM3.15 S$1.28 THB31.67 Rp9,454 0.47% 139.50 168.77 4,097 4,227 5,124 4,113 142.27 105.80 US$1.28 79.02 Rmb6.33 HK$7.77 RM3.13 S$1.28 THB31.41 Rp9,350 0.47% WoW (%) -0.9% +0.2% -1.4% -0.3% -1.1% -0.9% -0.9% -0.9% +0.0% -0.3% -2.1% -0.8% -0.3% +0.0% -0.6% -0.5% -0.8% -1.1% +0.00% Qtr-to-date 2Q12 99.35 710.17 145.75 170.30 4,225 4,321 5,173 4,249 143.54 108.87 US$1.30 80.53 Rmb6.31 HK$7.76 RM3.08 S$1.26 THB31.06 Rp9,228 0.51% 1Q12 102.84 744.78 147.12 173.12 4,238 4,265 5,214 4,259 143.66 121.63 US$1.31 79.39 Rmb6.31 HK$7.76 RM3.06 S$1.26 THB30.98 Rp9,079 0.51% 4Q11 93.90 690.46 147.85 183.20 4,347 4,297 5,339 4,496 153.60 127.56 US$1.35 77.33 Rmb6.36 HK$7.78 RM3.15 S$1.29 THB31.00 Rp8,983 0.48% 3Q11 89.56 668.91 183.57 204.85 4,926 4,802 5,510 4,981 149.52 131.13 US$1.41 77.73 Rmb6.42 HK$7.79 RM3.02 S$1.23 THB30.12 Rp8,608 0.30% Yr-to-date 2012 101.09 727.46 146.43 171.71 4,231 4,293 5,194 4,254 143.60 115.25 US$1.31 79.96 Rmb6.31 HK$7.76 RM3.07 S$1.26 THB31.02 Rp9,153 0.49% 2011 95.25 672.87 172.46 195.98 4,738 4,658 5,491 4,783 148.03 129.61 US$1.39 79.72 Rmb6.46 HK$7.78 RM3.06 S$1.26 THB30.48 Rp8,772 0.34% 2010 79.39 474.87 151.92 154.95 4,167 4,241 5,600 4,244 115.09 110.70 US$1.33 87.79 Rmb6.77 HK$7.77 RM3.22 S$1.36 THB31.72 Rp9,086 0.34%

WTI crude (US$/barrel) Sing bunker (US$/ton) China: Iron ore spot cfr imports (US$/ton) China: Domestic iron ore (US$/ton) China: China: China: China: Rebar (Rmb/ton) HRC (Rmb/ton) CRC (Rmb/ton) Wire rod (Rmb/ton)

Qinhuangdao 6800 kc coal FOB (US$/ton) Newcastle 6700 kc coal CFR (US$/ton) Euro Yen Renminbi HK$ Ringgit S$ Baht Rupiah US$ LIBOR - 3m (%)

SOURCES: CIMB, COMPANY REPORTS

Chinese steelmakers reduced their export prices for hot rolled coil (HRC) on lower domestic prices and fewer overseas bookings. Steelmakers including Anshan Steel and Wuhan Steel have cut their June list prices since the previous week and also reduced export prices in response to the sluggish spot market. (Metal Bulletin) Chinas imported iron ore market continued its downward trend as buying interesting remained thin due to weak steel prices. Iron ore inventories at steel mills near powers are as low as one weeks worth, a Shanghai trader said, while stockpiles of finished steel products are well above normal levels. Slack domestic demand and a shaky external economic environment are still weighing on the market, and prices of 62% Fe fines are likely to sink below US$125 per tonne cfr, several traders said. (Metal Bulletin) US crude oil stocks have reached 382.5m barrels, their highest level since 1990, according to the latest American Department of Energy data. Bunker prices have plummeted in recent weeks as US crude oil stocks ballooned to their highest level in over two decades. With the US, the biggest single oil consumer, showing signs of crude oversupply, the price of oil took a tumble, dragging bunker fuel prices along with it. Continued uncertainty in Europe driven by the sovereign debt crisis shook confidence in an economic recovery there, depressing oil prices further. In a lot of places in the US it is the
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old-fashioned infrastructure that is keeping the prices up, a broker said. The recent reversal of the Seaway pipeline, which connects Houston to Oklahoma, has also reduced an oil glut in the American plains, while simultaneously drawing more crude towards Houston. (Lloyds List)

Figure 28: Singapore bunker fuel (US$/MT) and US WTI Crude (US$/bbl)
800 140

700

120

600

100

500

80

400 Singapore Bunker Fuel (US$/MT) - LHS US WTI Crude (US$/bbl) - RHS 200 J FMA M J J A SO ND J F MA M J J A SO ND J FMA M J J A SO ND J FMA M J J A SO ND J F MAM J J A SO ND J FMA M 07 08 09 10 11 12

60

300

40

20

SOURCES: CIMB, BLOOMBERG

Figure 29: China domestic iron ore prices versus spot prices in India
220 India imports 63.5% spot cfr (US$/MT) 200 180 160 140 120 100 80 60 40 J FMAM J JA SO NDJ FMAM J J ASO NDJ FMAMJ J ASONDJ FMAMJ J ASOND J FMA MJ JASO ND J FMAMJ J ASONDJ FMAM 06 07 08 09 10 11 12 China domestic 66% incl. 17% VAT

SOURCES: CIMB, BLOOMBERG

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Figure 30: Domestic Chinese coal price vs. Newcastle price (US$/tonne)
200 Qinhuangdao 6800 kc coal spot FOB price (US$/MT) 175 150 125 100 75 50 25 0 J FM AM J J A SON DJ F MAM J J A SO NDJ FMAM J J A SO NDJ FMA M J J A SO ND J FMA MJ J A S O ND J F MA M 07 08 09 10 11 12 New castle 6700 kc steam coal spot CFR price (US$/MT)

SOURCES: CIMB, BLOOMBERG

Figure 31: Domestic Chinese steel prices (Rmb/tonne)


8,000 China domestic rebar (Rmb/MT) 7,000 China domestic HR sheet China domestic CR sheet

6,000

5,000

4,000

3,000

2,000 J FMAMJ JA SONDJ FMAMJ JA SONDJ FMAMJ JASONDJ FMAMJ JA SONDJ FMAMJ JASONDJ FMAMJ JASONDJ FMAM 06 07 08 09 10 11 12

SOURCES: CIMB, BLOOMBERG

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This report shall not be considered as an offer to subscribe to, or used in connection with, any offer for subscription or sale or marketing or direct or indirect distribution of financial instruments and it is not intended as a solicitation for the purchase of any financial instrument. Hong Kong: This report is issued and distributed in Hong Kong by CIMB Securities (HK) Limited (CHK) which is licensed in Hong Kong by the Securities and Futures Commission for Type 1 (dealing in securities), Type 4 (advising on securities) and Type 6 (advising on corporate finance) activities. Any investors wishing to purchase or otherwise deal in the securities covered in this report should contact the Head of Sales at CIMB Securities (HK) Limited. The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CHK has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only to clients of CHK. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CHK. Unless permitted to do so by the securities laws of Hong Kong, no person may issue or have in its possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the securities covered in this report, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong). Indonesia: This report is issued and distributed by PT CIMB Securities Indonesia (CIMBI). The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBI has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only to clients of CIMBI. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMBI. Neither this report nor any copy hereof may be distributed in Indonesia or to any Indonesian citizens wherever they are domiciled or to Indonesia residents except in compliance with applicable Indonesian capital market laws and regulations. Malaysia: This report is issued and distributed by CIMB Investment Bank Berhad (CIMB). The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMB has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only to clients of CIMB. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMB. New Zealand: In New Zealand, this report is for distribution only to persons whose principal business is the investment of money or who, in the course of, and for the purposes of their

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business, habitually invest money pursuant to Section 3(2)(a)(ii) of the Securities Act 1978. Singapore: This report is issued and distributed by CIMB Research Pte Ltd (CIMBR). Recipients of this report are to contact CIMBR in Singapore in respect of any matters arising from, or in connection with, this report. The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBR has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only. If the recipient of this research report is not an accredited investor, expert investor or institutional investor, CIMBR accepts legal responsibility for the contents of the report without any disclaimer limiting or otherwise curtailing such legal responsibility. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMBR. As of May 28, 2012, CIMB Research Pte Ltd does not have a proprietary position in the recommended securities in this report. Sweden: This report contains only marketing information and has not been approved by the Swedish Financial Supervisory Authority. The distribution of this report is not an offer to sell to any person in Sweden or a solicitation to any person in Sweden to buy any instruments described herein and may not be forwarded to the public in Sweden. Taiwan: This research report is not an offer or marketing of foreign securities in Taiwan. The securities as referred to in this research report have not been and will not be registered with the Financial Supervisory Commission of the Republic of China pursuant to relevant securities laws and regulations and may not be offered or sold within the Republic of China through a public offering or in circumstances which constitutes an offer within the meaning of the Securities and Exchange Law of the Republic of China that requires a registration or approval of the Financial Supervisory Commission of the Republic of China. Thailand: This report is issued and distributed by CIMB Securities (Thailand) Company Limited (CIMBS). The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBS has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only to clients of CIMBS. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMBS. Corporate Governance Report: The disclosure of the survey result of the Thai Institute of Directors Association (IOD) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information. The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. CIMBS does not confirm nor certify the accuracy of such survey result. Score Range 90 100 80 89 70 79 Below 70 or No Survey Result Description Excellent Very Good Good N/A United Arab Emirates: The distributor of this report has not been approved or licensed by the UAE Central Bank or any other relevant licensing authorities or governmental agencies in the United Arab Emirates. This report is strictly private and confidential and has not been reviewed by, deposited or registered with UAE Central Bank or any other licensing authority or governmental agencies in the United Arab Emirates. This report is being issued outside the United Arab Emirates to a limited number of institutional investors and must not be provided to any person other than the original recipient and may not be reproduced or used for any other purpose. Further, the information contained in this report is not intended to lead to the sale of investments under any subscription agreement or the conclusion of any other contract of whatsoever nature within the territory of the United Arab Emirates. United Kingdom: This report is being distributed by CIMB Securities (UK) Limited only to, and is directed at selected persons on the basis that those persons are (a) persons falling within Article 19 of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (the Order) who have professional experience in investments of this type or (b) high net worth entities, and other persons to whom it may otherwise lawfully be communicated, falling within Article 49(1) of the Order, (all such persons together being referred to as relevant persons). A high net worth entity includes a body corporate which has (or is a member of a group which has) a called-up share capital or net assets of not less than (a) if it has (or is a subsidiary of an undertaking which has) more than 20 members, 500,000, (b) otherwise, 5 million, the trustee of a high value trust or an unincorporated association or partnership with assets of no less than 5 million. Directors, officers and employees of such entities are also included provided their responsibilities regarding those entities involve engaging in investment activity. Persons who do not have professional experience relating to investments should not rely on this document. 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For further information or to place an order in any of the above-mentioned securities please contact a registered representative of CIMB Securities (USA) Inc. Other jurisdictions: In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is only for distribution to professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

Recommendation Framework #1 *

Stock
OUTPERFORM: The stock's total return is expected to exceed a benchmark's total return by 5% or more over the next 12 months. NEUTRAL: The stock's total return is expected to be within +/-5% of a benchmark's total return. UNDERPERFORM: The stock's total return is expected to be below a benchmark's total return by 5% or more over the next 12 months. TRADING BUY: The stock's total return is expected to exceed a benchmark's total return by 5% or more over the next 3 months. TRADING SELL: The stock's total return is expected to be below a benchmark's total return by 5% or more over the next 3 months. relevant relevant relevant relevant relevant

Sector
OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index over the next 12 months. TRADING BUY: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index over the next 3 months. TRADING SELL: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index over the next 3 months.

* This framework only applies to stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand and Jakarta Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons. CIMB Research Pte Ltd (Co. Reg. No. 198701620M)

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Recommendation Framework #2 **

Stock
OUTPERFORM: Expected positive total returns of 15% or more over the next 12 months. NEUTRAL: Expected total returns of between -15% and +15% over the next 12 months. UNDERPERFORM: Expected negative total returns of 15% or more over the next 12 months. TRADING BUY: Expected positive total returns of 15% or more over the next 3 months. TRADING SELL: Expected negative total returns of 15% or more over the next 3 months.

Sector
OVERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of +15% or better over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, has either (i) an equal number of stocks that are expected to have total returns of +15% (or better) or -15% (or worse), or (ii) stocks that are predominantly expected to have total returns that will range from +15% to -15%; both over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of -15% or worse over the next 12 months. TRADING BUY: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of +15% or better over the next 3 months. TRADING SELL: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of -15% or worse over the next 3 months.

** This framework only applies to stocks listed on the Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2011.
ADVANC - Excellent, AMATA - Very Good, AOT - Excellent, AP - Very Good, BANPU - Excellent , BAY - Excellent , BBL - Excellent, BCP - Excellent, BEC - Very Good, BECL Very Good, BGH - not available, BH - Very Good, BIGC - Very Good, BTS - Very Good, CCET - Good, CK - Very Good, CPALL - Very Good, CPF - Very Good, CPN - Excellent, DELTA - Very Good, DTAC - Very Good, GLOBAL - not available, GLOW - Very Good, HANA - Very Good, HEMRAJ - Excellent, HMPRO - Very Good, ITD - Good, IVL - Very Good, KBANK - Excellent, KTB - Excellent, LH - Very Good, LPN - Excellent, MAJOR - Very Good, MCOT - Excellent, MINT - Very Good, PS - Excellent, PSL - Excellent, PTT Excellent, PTTGC - not available, PTTEP - Excellent, QH - Excellent, RATCH - Excellent, ROBINS - Excellent, SCB - Excellent, SCC - Excellent, SCCC - Very Good, SIRI - Very Good, SPALI - Very Good, STA - Very Good, STEC - Very Good, TCAP - Very Good, THAI - Very Good, TISCO - Excellent, TMB - Excellent, TOP - Excellent, TRUE - Very Good, TUF - Very Good:

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