SSY

OECD Steel Conference

Shipping Market Outlook

SSYMay 2006

SSY

capesize iron ore spot rates to Europe

0

5

10

15

20

25

30

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

$/

W.AustraliaBrazil

May 2006

Paris 2005

SSY

The freight market 2005/06: two powerful opposing forces

CARGO DEMAND• new peaks for seaborne trade, which grew by over

6% for the 3rd consecutive year in 2005

May 2006

SSY

major dry bulk export cargoes

310

320

330

340

350

360

370

380

390

400

410

Mt

May 2006

SSY

The freight market 2005/06: two powerful opposing forces

CARGO DEMAND• new peaks for seaborne trade, which grew by over

6% for the 3rd consecutive year in 2005• China’s buying patterns, port congestion, cargo

availability all helped maintain freight rate volatility

May 2006

SSY

China’s iron ore imports

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

26,000

28,000

30,000

00

0 t

on

ne

s

May 2006

SSY

average Australian coal & ore port delays

0

2

4

6

8

10

12Ja

n-0

4

Fe

b-0

4

Ma

r-0

4

Ap

r-0

4

Ma

y-0

4

Jun

-04

Jul-

04

Au

g-0

4

Se

p-0

4

Oct

-04

No

v-0

4

De

c-0

4

Jan

-05

Fe

b-0

5

Ma

r-0

5

Ap

r-0

5

Ma

y-0

5

Jun

-05

Jul-

05

Au

g-0

5

Se

p-0

5

Oct

-05

No

v-0

5

De

c-0

5

Jan

-06

Fe

b-0

6

Ma

r-0

6

Ap

r-0

6

Cu

rre

nt

We

igh

ted

De

lay

s (

da

ys

)

* Monthly figures based on mid-month situation

May 2006

SSY

The freight market 2005/06: two powerful opposing forces

CARGO DEMAND• new peaks for seaborne trade, which grew by over

6% for the 3rd consecutive year in 2005• port congestion, cargo availability, China’s buying

patterns all helped maintain freight rate volatility

FLEET SUPPLY• biggest annual increase in fleet capacity (+160

Mtpa approx) in 2005

May 2006

SSY

dry bulk carrier net fleet changes

2.6

7.3 7.4

18.3

22.1

7.6

12.3

-15

-10

-5

0

5

10

15

20

25

1999 2000 2001 2002 2003 2004 2005

Mill

ion

Dw

t

Additions Deletions Net Change

May 2006

SSY

The freight market 2005/06: two powerful opposing forces

CARGO DEMAND• new peaks for seaborne trade, which grew by over

6% for the 3rd consecutive year in 2005• port congestion, cargo availability, China’s buying

patterns all helped maintain freight rate volatility

FLEET SUPPLY• biggest annual increase in fleet capacity (+160

Mtpa approx) in 2005• 1q06 sees record quarterly net fleet increase

May 2006

SSY

net fleet change by quarter

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

1Q

01

3Q

01

1Q

02

3Q

02

1Q

03

3Q

03

1Q

04

3Q

04

1q05

3q05

1q06

M D

wt

May 2006

SSY

approximate change in carrying capacity (mt/year)

Cape Panamax Handymax Handy

2002 +15 +19 +32 -11

2003 +31 +9 +25 -12

2004 +51 +44 +31 +10

2005 +60 +53 +41 +12

2006 +62 +52 +39 -1

May 2006

SSY

demand outlook - still positive

• high economic growth

• China’s iron ore imports are continuing to rise • broad-based rise in steel prices to support higher

global output • historically firm steam coal prices • positive tonne-mile implications as Chinese coal

export surpluses squeezed

May 2006

SSY

contributions to seaborne dry bulk trade growth

-10-505

10152025303540455055606570

2003 2004 2005 2006

Mil

lio

n T

on

nes

Iron Ore Coal

Grain Other

May 2006

SSY

-3

-2

-1

0

1

2

3

4

5

6

7

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

%

Tonne-Miles Fleet Supply

bulk carrier supply & demand growth: SSY base case

May 2006

SSY

conclusions - short term

• freight rates fell in 2005 in spite of a 130+ Mt rise in dry bulk trade as fleet supply grew faster than demand for the first time in 4 years

• with newbuilding deliveries set to reach a new all-time high and scrapping yet to revive this pattern is set to continue in 2006, so creating negative pressure on annual average earnings

• large scale scrapping unlikely before 2007 unless hard landing in rates from their current levels as fleet utilization still at an historically high rate

May 2006

SSY

return to past patterns or fundamental change?

• China has raised the underlying growth in seaborne dry bulk trade and

• India to be another source of trend growth • the age profile of the existing fleet represents

another fundamental difference to past cycles• but expanding shipyard capacity does threaten

future market balances

May 2006

SSY

China effect: 3 year growth in seaborne iron ore, coal & grain trade

May 2006

-40

0

40

80

120

160

200

240

280

320

19

75

19

77

19

79

19

81

19

83

19

85

19

87

19

89

19

91

19

93

19

95

19

97

19

99

20

01

20

03

20

05

Mil

lio

n t

on

nes Average growth 1975-99 = 69 Mt

Average growth 2000-06 = 216 Mt

SSY

Chinese iron ore imports

0

50

100

150

200

250

300

350

400

450

500

Mt

+130 Capes approx

+180 Capes approx

May 2006

SSY

India: moving up a gearsteam & coking coal imports

0

10

20

30

40

50

60

70

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

F

20

08

F

20

10

F

Mill

ion

to

nn

es

SOURCE: SSY

May 2006

SSY

20+ year old dry bulk carrier fleet

0

10

20

30

40

50

60

70

80

90

100

110

Md

wt

0

5

10

15

20

25

30

%

Capacity Share of fleet

May 2006

SSY

bulk carriers on order vs 20+ year fleet

5.4

12.5

18.9

28.0

46.4

16.5

21.9 20.924

4.37.2

5.1

0

4

8

12

16

20

24

28

32

36

40

44

48

Handysize Handymax Panamax Capesize

Mill

ion

Dw

t

Orderbook

20 years & over

25 years & over

May 2006

SSY

conclusions - medium term

• dry bulk freight markets to remain cyclical • Chinese iron ore imports have raised underlying

rate of ship demand growth with the country’s coal and grain trades offering upside potential

• together with deferred scrapping of older tonnage, this decreases the likelihood of a return to the protracted periods of weak freight markets experienced in the 1990s and 1980s

May 2006

SSY

OECD Steel Conference

Shipping Market Outlook

SSYMay 2006