Shipping Industry and market

developments

2nd International meeting on ironmaking

1st International symposium on iron ore

Vitòria ES

12-15 September 2004

Market reached unprecedented peaks

Chinese iron ore imports

5,000

10,000

15,000

20,000

Jan-02 Jan-03 Jan-04

'000t

What caused the freight rise?

Bulk carrier Newbuildings

0%

2%

4%

6%

8%

10%deliveries as % fleet

forecast

Fleet growth

2003 deliveries lowest for 10 years

Australia coal port delays

24

39 40 43 4532

186 8 12

4

412

20 16

12

5

3

14 3

10

16

13

3 5

4

5

5

16 28

7

1

7 8 6

4

1

0

7

13

0

20

40

60

80

Dec-03 Feb-04 Apr-04 Jun-04 Aug-04

No

. s

hip

s w

ait

ing

Other

Dalrymple Bay

Gladstone

Newcastle

Dalrymple bay 28 vsls

26 due to arrive nxt 9 days

Port delays

US prices at all time highs

100

200

300

400

500

600

700

800

Jan-03 Jul-03 Jan-04 Jul-04

$/t

China HRC import price

USA Midwest HRC

…iron ore demand strong

Short term outlook: steel prices high…

USDA Soybean/meal export forecastsmt 2002/03 2003/04 2004/05USA 33.9 28.1 32.8 4.7 16.5%Brazil 33.9 34.4 40.7 6.3 18.3%Argentina 27.2 27.7 28.4 0.7 2.5%India 1.2 3.4 2.1 -1.3 -38.2%Paraguay 4.0 3.4 4.0 0.6 17.6%Other 4.0 4.5 5.0 0.5 12.2%Total: 104.2 101.5 113.0 11.5 11.3%

Forecast growth

Note: crop season runs Oct-Sept

Substantial soybean growth in 2004/05

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%Ja

n-95

Jan-

97

Jan-

99

Jan-

01

Jan-

03

Jan-

05

% y

r o

n y

r

-

5,000

10,000

15,000

20,000

25,000

30,000

$pd

Iron ore trade % change Capesize earnings

Forecast 30mt growth in 2005-06

Long term outlook: Cape market follows iron ore trade

Steam Coal FOB prices

20

40

60

80

Jan-03

Apr-03

Jul-03

Oct-03

Jan-04

Apr-04

Jul-04

$/t

Rbay FOB

Newcstle FOB

Price gap too narrow for long haul

Coal prices over the peak

Long haul trade takes off Long haul

trade disappears

Bulk carrier Newbuildings

0%

2%

4%

6%

8%

10%deliveries as % fleet

forecast

Newbuildings not excessive by historical standards

Bulk carrier fleet growth

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%1

98

0

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

3yr cumulative

but zero scrapping means fleet is growing fast

4 consecutive months of decline

Peak in Industrial production growth Jul/Aug

If continued,negative for freight market for end 2005 & 2006

OECD lead indicators decline

• Generally bullish for Q4 2004 and 1st half 2005

• Steel market very strong

• Chinese ore demand recovered after blip

• Growth in Soybean trade

• Nuclear power stations in Japan to shut down

• Port congestion increasing.

Conclusions

Risks for 2005

– OECD economic slowdown – Slower growth in Chinese ore imports– Fleet expanding fast due to lack of scrapping– Expect correction in freight market by mid 2005

Long term (1 to 5 years)

– Contract rates to stay well above historic averages

General comment

• The rules of the game seem to have permanently changed

• Is India the next China?

• As long as the chinese banking system does not collapse, their high pace of growth should be maintained.

Market reached unprecedented peaks

BCI Weekly change

-15,000

-10,000

-5,000

-

5,000

10,000

15,000

Jan-00 Jan-01 Jan-02 Jan-03 Jan-04

$pd

4TCs

Risks of freight exposure are now much greater

Freight volatility has increased

Traditional shipping industry

• Vessel’s cost lower then coa’s revenue

• Cargo combinations were the sole tool for improvement

• Derivatives market non existing or with very little liquidity.

• Limited volatility

The new shipping industry

• Shipping is traded as a commodity

• Very large use of derivatives for hedging and speculation.

• FFA market with extreme liquidity

• Very high exposure due to market fluctuations and counterparty risk.

• High critical mass and financially strong

• Defines clear medium to long term market views, and behaves accordingly.

• Plays the short term volatility by going short, or long, very quickly

• Provides top quality service and flexibility to its clients

The modern shipping company

The modern charterer

• Carefully select his counterparts.

• Reaches optimum operation management.

• Starts opening to FFA trade for hedging purposes.