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Dry bulk freight rates and trends in clinker & cement trading: Joel Grau Lara, Marmedsa Chartering (Spain)

Filmed at Cemtech Asia 2015, 21-24 June, Grand Hyatt, Bangkok, Thailand

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Thank you, Keith, for interaction, Tom, the Cemtech family, thanks very much for the invitation. It's usual a pleasure to join, and to participate. Delegates, colleagues, I can see some friendly faces also here. So we'll move straight forward because apparently we are really, really on a rush. So I will not go through each of every single slide, but probably just go for the third part of the presentation you will see. We have three parts on presentation. One is the presentation of the holding of the group which is Marmedsa Noatum Maritime. Afterward just very briefly explain on what Marmedsa Chatering is, and afterwhich we'll go to the topic of the presentation itself. So the first and the second part of the presentation will just go very, very, very quickly. If any other information later, you can check it out on the presentation itself on the Cemtech website which will be published all of them together.

Marmedsa Noatum Maritime is the largest logistics Spanish group involved in the ship agency, in the stevedoring, in the offshore terminals, in the warehousing. We use to have also a track fleet company. We have a project, big and very successful desk, and these are some of the numbers, and involved in on the terminals and the ports, the number of the employees above 4000 people, and the number of the offices etc.

A bit more of information, on the group, these are the locations, basically of the group is a Iberia Peninsula which is Spain, Portugal, France, North Africa, and some presence also in South America. These are the companies under the umbrella of the holding, which are basically very Maritime services, logistics, and port services. A bit more of info.

The figures for 2014 with just below 10, 000 calls of ship attended for all the offices, about 700, 000 tonnes handled by our stevedoring companies, the cars, the TEUs move etc. Marmedsa Chartering is really new company in the holding. You will see it was already established in the 2011-2015 strategic plan for the holding to create such kind of services because there was a lack of a proper chart, and service provided by the group. So this is why I'm here, and I came from the previous background that gave mention. So the company's new, but the people involved in the company, obviously we have been in the business for a while already with different positions, and large companies, ship broking companies.

Marmedsa Chartering basically acts as a shipbroking house, in-house shipbroking house for the holding, for the Marmedsa Noatum Maritime, and obviously trying to collaborate with a party business, and companies that we have been doing business for the last 10-15 years, not only the group, but also myself obviously as the managing director of the company. OK. So basically the third part of the presentation is about the topic itself, Dry Bulk Freight Rates and Trends in Clinker and Cement Trading. As I mentioned we are very, very in a rush. So we will go through some of the slides itself, and then we'll go straight to some of the conclusions which I think is the most important for you guys.

I understand that there are not many ship owners attending, that's good because we can be openly minded here, but basically we are, as you may know most of you, we are in a cargo interest market from the point of view of shipping and chartering obviously. This is the BDI for the last six months which by itself doesn't explain anything. The BDI is the Baltic Dry Index which is basically the index follow or the projected index published everyday, 1400 London time, which is a result of mainly sourcing of information for the different types of size of vessels, Capesize, Panamax, Supermax, Handy for, on the different rates, and true in trades, and is provided by the panel brokers to the Baltic, and is index produced on daily basis to show what is the trend on the market on index base. This's the BDI last year which we already can see some more information here, but we'll go to the five last years BDI when you can see clearly. I know, where is the point mark here?

The pointer, Yeah, sorry, yeah. I mean it's very clear in graph here. We can see here the drop on 2008 obviously, mainly basically August 2008 with a huge drop on the index, and then we have seen very much volatility on the market itself during the second half of Q3-Q4, 2008, till the 11, but as you can see the trend is a low trend. We have some recovery 2013, but again the trend, and the current trend as we speak now is a pretty low trend, but I'm not much concerned for you to understand the graphic because it's, it talks by itself, but the reason why we are here. Again, on a BDI perspective the trend obviously is in the low side. OK. Here we say exactly, this is one of the reasons, I mean, there're many reasons to explain or to try to explain why we are in a low trend shipping market or freight market on the dry bulk cement. Here we are talking about the dry bulk cement. I'm not referring to the tanker segment. Obviously there are a lot of things here that is very important for you to understand. The cement related products itself on the shipping world's, on the world wide seaborne trade market is a pretty small, pretty, we'll see that afterwards. It is pretty small factual let's say. Out of the 100% of the seaborne world trade, which we'll see, is about 4.5-4.8 billion tonnes of products, commodities worldwide moved by sea in dry bulk, in bulk carry, sorry. The cement related products which, well, I refer to cement related products, I'm referring to the cement bulk and back obviously clinker, slags, fly ash. The coal related to the same industry, and the Egyptian also related to same industry, OK?

So we're not talking about only cement, but all the cement related products, and all the cement related products represents about below just 3% of the whole seaborne commodity trade moved by sea. So in order to understand or to try to explain what is the situation of the shipping market, we have to have an overall view. We have to see what are the other main commodities are doing on the market, which are mainly three commodities mainly driving the market, which is the iron ore, the coal and the grains.

These three commodities are the drivers of the market, and mainly the iron ore, which represent about three quarters of the whole commodity move worldwide by sea. Here we have some interesting data. We have here that, as I said there is an imbalance, and this is for, very easy to understand for everybody, because we can see that also that there is some imbalance on the cement market sum. Well, some of the experts here mentioned between demand and supply offer, and we have the same situation on the shipping market.

It's always happening the same. In the good years 2002, three, four, five, six, seven, we saw the ship owners, and the owners interest basically all the investors when the market was picking up, and where they're making some good money. 2008 the market collapsed, but this is the shipping market, as a cement industry market is medium, long process let's say market.

What I'm saying is that because when you order a vessel, you order a vessel for 2-3 years delivery time. So your decisions will be affecting the market in the three years time. Similar to what happened in the cement industry. Right? You always and in planning, take some time to be delivered, and to be enforced. So this is exactly the same. So when we see the market 2007, the owners having a very good, the party was there, they were taking decisions at, for 2009-2010.

We're having this best author on the book at sea. Therefore it's been over supply of vessels. We still have some imbalance to be taken, even though we have seen till, from, sorry, from 2008 the decisions to be taken obviously because the market was already heated. We're still, and we will see in some of the slides, that there is still some imbalance. So one of the reasons is there's a balance between supply and demand on vessels, obviously if you have more tonnage at sea, you have more supply or more offer of tonnage or a space to be provided to carry, then you have a problem there because it puts pressure on the rates. Also part of that we see, and this is the third point there, you see that in the BIMCO which is a major institution, shipping institution creates a lot of reproach, a lot of information is given.

Is something similar to the, to Tom, and Keith and Cement family for it's ministry. Basically here, the most important thing is that probably you know about the Capesize is the largest type of vessels. It's not the largest now because we've the ULCCs, but I wouldn't have mentioned that, and even the Capesize are not involved on the cement business, but the Capesize, Panamax, Supermax, Handysize, they have been already predicted by the BIMCO that the TC which is the Time Charter rate, which is the money that the owner is getting on a daily basis when the vessel is hired by any cargo interest, or an operator or whatever, it will be below $10, 000.

This by itself, if you don't know what is daily running cost of a vessel, doesn't mean much, but, for example, I'm telling you that the Capesize average 2010 built vessel , daily run, the running cost, and when I'm talking about running cost, I'm talking about fuel, I'm talking about finance cost, I'm talking about crew cost. I try to basically to have the vessel at sea, ready to perform, and we are talking basically something in the low-mid $20, 000.

Obviously you will see that there is an imbalance of $13, 000, $14, 000, $15,000. Right? This means that you are lost. You are lost already just every day that the sun rises, just an example. So, we say that, we say not the Charter's market, CNF, CFR buyers market exactly. I mean, with this, and we can have a very long discussion on this, and I'm just popping-in, in this Lambeth because I think there are many things to say about that, but I was hearing some of the experts here, and there are many things similar between the cement industry and the shipping industry, and this is one of the things that really amaze me. We have a problem here in the shipping tree in terms of demands. There is no much problem of supply. We can see that there is a lot of sources of material. There is no much problems of shortage of production, but there is a problem on demand, which basically when we are talking about demand in the shipping industry, we have to take in account obviously the Chinese market. What's happening with China which is a question mark, and we have seen already on some of the numbers that China is slowing down. We have to discuss, also we have to talk about India.

Obviously when we have the China market or slowing down, or is still a question mark for 2016, then we have to put a question mark on what will happen with the market, with the shipping market I mean. Sorry. Demolition. Since there is this imbalance between offer and demand, and obviously when the market collapses the first thing, the owners interest, and when I'm talking about the ship owners' interest, I'm talking about not only straight head donors or a ship owners in a strict point of view, but also as an operators which are basically the people involved in the shipping industry, checking and booking cargoes, and then operating the cargoes, meaning they go to the market, to the shipping market, and then they book vessels in order to perform their contracts. These type of owners, it's been really getting more, and more, and more important on the market because the traditional kind of ship owners which means to have an interest, or straight interest, or financial interest on a vessel, they are the ones which have been hit the most because they are the ones have been paying the bills to the ship yards etc.

So, when you have this kind of situation, the first thing that comes to your mind, as a ship owner, is to demolish vessels. So we have here a very clear situation. This is a, the blue is a Capsize which is the largest vessels, and part of the US, it says that, I will not mention. This a Panamax, the Handimax and the Handysize. These are the levels we have seen on demolition, OK, in millions of tonnes, millions of dead weight, dead weight capacity. 2015 so far it's been the largest year in shipping history data recorded in terms of demolition, but it still there's some kind of way to go.

One of the reasons why a part of the Panamax and the Handimax, one of the reasons why the Handysize is the second largest segment to be demolished, it's because initially it's the most average type of fleet size. So this is one of the reasons. Obviously when the market is good, you keep every vessel at sea because you can make some money, 70s, 80s bill to whatever. When the market is pretty bad, and you cannot get much money out of it, though you have the strong competitors with much economical, and optimize, and efficient methods, then you have to take the decision, and you have to demolish or to put them away. This is why it's been still some way to go on the Handysize fleets because of the average of the vessels. When we're talking about Handysize fleet, we're talking about vessels between 20-37/38,000 dead weights. It's not strict rule, what is a Handysize, what is a Mini Bulk, or what is a Supermax or Handymax, but is something this range 20-37/38. OK. So this is a Capesize rate of demolishment which is pretty significant as you can see. Right? So as I mentioned before, 2015 it's been the, I will try to speed up, the largest and busiest Capesize demolition this year.

This has happened even though some of the, because the lowest scrap, the scrap market obviously, I'm not a scrap trader or a steel trader, but obviously it's also been a volatile market on the lower side. So we cannot say that the scrap prices have promoted the owners to demolish, but they have to do that. Also there is nothing here which I think, but also some of the people will understand very easily, is that the shipping market is not only run by shipping people, but there has been some outsiders coming into the shipping market. I'm talking about hedge funds and financial institutions, that they are disturbing also the market. So there are few reasons to explain the situations above the imbalanced offer/demand, a part of the banker prices that we will not mention here, but also is something that it worth to just say. We have some hedge funds and financial investors, that they will put in a lot of money into the shipping market, all the embezzles. This is also disturbing the market itself, because even though the shipping people, on a difficult market situation, the first decision will be taken, to be taken is to demolish or to scrap as LIPAEdge vessels.

These institutions, they were taking decisions that they are putting more tonnage on the market, and this is also creating an imbalance.OK. The situation with the Panamax type of vessels, which are these vessels that I mentioned to you, let's say from 60, 63, 64, but now I will mention strictly on the Ultramaxs because it's something that we have to mention.

The 63-77/78, 000 dead weight is something which is pretty unique in terms that, the Panamaxes being the second largest type of vessel, not much involved on the cement industry, but with some presence sometimes, and we were hearing that, I was talking to someone just few minutes ago on the lunch break, on the coffee break, sorry, that we might see again Panamax to be loaded from China, from Ko Sichang, and from Binnum, we can see that in Shampa etc, but the Panamax in the same industry has been slowing down in the last few years obviously, but the situation with the Panamax is that they're very under pressure between the Capesize and the Ultramaxes. The Ultramaxes is a new type of vessel which range from 61-68, 000 dead weight, and they are putting a lot of pressure into the Panamax. They are vessels with self-gears and graps, so it gives a lot of flexibility. So this is one of the reasons also why the Panamax are really, are distressed. OK.

Should we say already on the scraping levels. OK. There's growing supply, and some demand weighed on freight rates which is basically a pretty, pretty understandable graph. We'll move on that. These some of the main commodities data. Sorry, because the conclusions below or the mentions below are very small. Sorry for that. We have the world trade is slowing down in terms of absolute numbers. While surprisingly is little growing. So we have a supply growing, but the steel demand is diminishing. So as I mentioned to you, it's not much a supply problem, but it's more a demand problem. So it's a demand issue. When we're talking here about, now we're talking about world wide trading commodities demand by seeing not only cement, of course, cement related products, sorry.

As I was mentioning to you in order to understand what is the shipping situation, and more specifically on the cement industry, on the cement related products industry, you have to have an overall review on these three major commodities which is iron ore, the coal and the grains. The cement industry represents just below three. Some of the numbers say just about 3%, but basically the conclusion here is that you know what's going on with the iron ore, and the coal, and the grains market, to understand what's going on, and to try to implement it to your decisions as a cement trader, or as a cement producer, or as an end receiver etc. Cement consumption growth in some of the areas in the world, where some of the experts already mentioned this, so I'm not going much to that. One of the things I wanted to mention, we usually mention, this is that cement industry related products are basically more impacted or have more impact on the smaller size of vessels. OK?

This obviously has explanation in terms of what are the markets where the cement is more demanded in terms of shipping trade to be carried, and also because of the flexibility of the smaller sizes of vessels, not only in terms of outward discharge or self discharge in vessels, and I'm not talking about the cement carriers which is a completely niche, and different market, and it follows a different fundamentals, but in terms of also finance. Obviously as less quantity of cargo is sold to the finances mathesia rather, and this is one of the reasons why also not only did the months but also the flexibility on the self-discharging of facilities of the vessels that it has itself, but also in financial. Sorry for that.

Next, Conclusions, OK. So already mentioned, the first conclusion, the cement trades, cement industry products is a very small part of the whole cake in trading, as a traded commodity. So we have to see what's happening with the other major commodities, iron ore, coal and grains, to see what's going on in the shipping market. Supply over-hang will continue into 2015, keeping freight rates under pressure. So this imbalance between, this imbalance that obviously, three years ago, it was a higher imbalance. So we are closing the gap, but we are still with some, I would say significant imbalance,

not in terms of percentage, but in terms of filling. This imbalance will continue for a while. When this will end, that's the one million dollar question because 2013, 2014 we were having the same discussions here. We were forecasting, the ones from the analyst were forecasting the market to be, as we speak today, better, but this is not the case.

So, it's not happening. So I prefer not to put a date on that because probably I will have to correct myself next year here. So, record number of bulk carriers the scrapped, I've already mentioned this. The strength of scrapping will continue obviously. We have a demand for dry bulk commodities expected to slow down. So we have to mention China, and anywhere, will happen with India.

We know already the numbers in China are worse than we expected. So this will have a huge impact, and it's having a huge impact already. If this continues like that, obviously China is a major iron ore importer. Iron ore is one of the major commodities. So we have to see what will happen with China, and depending on that, we will see how this overlaps, but the good thing is that we have a long term demand, remains robust. So we see that the data, at least the data on the paper as the analyst say, is that there're some long projects, the growth population, obviously in some parts of the world with big margins of improvement in terms of growth, there're still there. So we expect that in the long term at least, the demand will continue, and if this imbalance on the supply will be corrected which is what is happened in the last four years, then hopefully we'll have better times to come, but let's watch, and see what will happen.

These are my full contacts, in case of any doubt or question. We'll be very pleased to assist any of the traders or any of the people shipping, and with freight or chartering it. Thank you very much. Thank you very much, Joel. Thank you.

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