Dry-Bulk Deep Dive

BI Marine Shipping, Global Dashboard

John Mathai Lee A Klaskow

Former BI Analyst BI Senior Industry Analyst

1. Dry-Bulk Shipping Remains Challenged Even With Rate Recovery

09/29/16

(Bloomberg Intelligence) -- Dry-bulk shipping this year may remain challenged even Table of Contents
after Baltic Dry index surged 224% as of Sept. 26 from its record low in February. Topics
Much of the jump was due to supply discipline, as scrapping accelerated and vessel
Demand Outlook NEW

ordering came to a halt. Demand from China, the biggest consumer of dry bulk, has Supply Outlook
picked up, though overall trade may only grow 1% this year. A slowdown in the global Rates Rising NEW
economy may pressure freight rates that have recovered sufficiently to cover the
operational costs of vessels.

Companies Impacted: D/S Norden, Scorpio Bulkers, K-Line, Pan Ocean, Mitsui OSK., Star Bulk and China Cosco
are some of the largest public dry-bulk companies by capacity and revenue. Examining supply-demand dynamics
can help determine the financial health of dry-bulk carriers and the industry they serve.

Key Points:
Demand Outlook: Could Be the Best of Times or the Worst of Times
for Dry Bulk
Supply Outlook: Ship Owners Pare Dry-Bulk Vessel Orders on
Freight-Rate Decline
Supply Outlook: Scrapping May Continue to Rise Even as Dry-Bulk
Rates Recover

Topics

Demand Outlook

2. Could Be the Best of Times or the Worst of Times for Dry Bulk
03/21/17
The combination of low freight rates and low commodity prices should ideally stimulate demand for dry-bulk
commodities and increase ton-miles. Both the Bloomberg Commodity Index and the Baltic Dry Index remain
depressed. Low freight rates mean commodities can be sourced from farther and more diverse locations. Lower
commodity prices might prompt binge buying or stockpiling similar to the 12.6% growth in dry-bulk iron ore trade
in 2014. Grains and iron ore demand may grow 4% in 2017, according to Clarksons.

Increased demand and a rational order book is key for improved profitability for dry-bulk carriers. Nippon Yusen,
K-Line, Pan Ocean, MOL, Pacific Basin and Navios Maritime are some of the largest dry-bulk operators and
should see profitability gains from improving supply-demand dynamics.

This report may not be modified or altered in any way. The BLOOMBERG PROFESSIONAL service and BLOOMBERG Data are owned and distributed locally by Bloomberg Finance LP
("BFLP") and its subsidiariesin all jurisdictions other than Argentina, Bermuda, China, India, Japan and Korea (the ("BFLP Countries"). BFLP is a wholly-owned subsidiary of Bloomberg LP
("BLP"). BLP provides BFLP with all the global marketingand operational support and service for the Services and distributes the Services either directly or through a non-BFLP subsidiary in the
BLP Countries. BFLP, BLP and their affiliates do not provide investment advice,and nothing herein shall constitute an offer of financial instruments by BFLP, BLP or their affiliates.
 Bloomberg Commodity, Baltic Dry Indexes

3. Dry-Bulk Demand Growth Set to Outpace Supply Expansion This Year

03/21/17
The dry-bulk orderbook as a percentage of the fleet's deadweight tons stood at 9.3% as of March 17, well below
its February 2009 high of 73%. Typically, about 40% of orders are either canceled or have delivery dates that
have been pushed back by years. Net fleet growth in 2017 may be about 1.9%, a deceleration from 16% in 2010,
yet slightly less than 2% expected demand growth, according to Clarksons. Carriers must continue to remain
disciplined in managing capacity for dry bulk rates to have a long-term recovery.

Companies Impacted: Managing capacity will continue to be key for long-term rate recovery and profitability for
dry-bulk carriers including Star Bulk, Golden Ocean, Diana Shipping and Scorpio Bulkers.

Bulk Orderbook as % of Deadweight Tons

4. Dry-Bulk Demand May Grow 2% in 2017 Amid Chinese Uncertainty

03/21/17
Demand for dry-bulk shipping will be driven by iron ore and coal, which account for slightly more than half of
seaborne volume. Dry-bulk trade demand may grow 2% in 2017, according to Clarksons, with iron-ore trade
growth of 4% expected to outpace relatively flat coal trade. Grain trade may grow 4%, while minor bulk volumes
may grow 1%. Uncertainty about China's policy changes regarding coal output and domestic steel capacity could
be the biggest risk to dry-bulk demand, especially for major bulk trades.

Companies Impacted: D/S Norden, Safe Bulkers, Nippon Yusen, K-Line, Pan Ocean and MOL are some of the
largest publicly traded dry-bulk companies in terms of capacity and revenue.

This report may not be modified or altered in any way. The BLOOMBERG PROFESSIONAL service and BLOOMBERG Data are owned and distributed locally by Bloomberg Finance LP
("BFLP") and its subsidiariesin all jurisdictions other than Argentina, Bermuda, China, India, Japan and Korea (the ("BFLP Countries"). BFLP is a wholly-owned subsidiary of Bloomberg LP
("BLP"). BLP provides BFLP with all the global marketingand operational support and service for the Services and distributes the Services either directly or through a non-BFLP subsidiary in the
BLP Countries. BFLP, BLP and their affiliates do not provide investment advice,and nothing herein shall constitute an offer of financial instruments by BFLP, BLP or their affiliates.
 Dry-Bulk Trade Volumes % Share

5. Brazilian Soybeans Aid Panamax Vessel Demand in Atlantic Basin

09/29/16
Rising exports of Brazilian soybeans, with April shipments reaching a record 10 million tons, have boosted
Panamax rates. Rates from Brazil to China, the largest importer, rose 43% in 1H from a record low at the start of
the year. Panamax rates have also been helped by an 8.2% increase in Chinese coal imports in the period and
increased fleet demolitions. Panamax demolitions may exceed the 8.7 million DWT scrapped in 2012, according
to Clarksons.

Disclaimer: Rate changes affect profitability of BI dry-bulk peer group members such as DryShips, K-Line, Nippon
Yusen, MOL, Hyundai Merchant, Scorpio Bulkers and China Cosco Shipping.

Brazil Soybean Exports & Panamax Rates

6. More Brazilian Iron-Ore Exports Would Be Better for Dry Bulkers

03/27/17
China's growing dependence on imported iron ore helps dry-bulk shipping as local miners struggle to compete on
costs. The country consumes more than 70% of the world's seaborne iron ore and imports, which rose 7.5% in
2016. Australia accounted for 62% of inbound shipments, while Brazil was about 21%. Increased imports from
Brazil have a more meaningful effect on bulker demand because average voyage times are about three times
longer than from Australia to China.

Companies Impacted: NYK, MOL, Pan Ocean, Navios Maritime, D/S Norden and Pacific Basin are major dry-bulk
operators. Shipping dynamics of the seaborne iron-ore trade, one of the biggest dry-bulk commodities, affect the
revenue of these companies.

This report may not be modified or altered in any way. The BLOOMBERG PROFESSIONAL service and BLOOMBERG Data are owned and distributed locally by Bloomberg Finance LP
("BFLP") and its subsidiariesin all jurisdictions other than Argentina, Bermuda, China, India, Japan and Korea (the ("BFLP Countries"). BFLP is a wholly-owned subsidiary of Bloomberg LP
("BLP"). BLP provides BFLP with all the global marketingand operational support and service for the Services and distributes the Services either directly or through a non-BFLP subsidiary in the
BLP Countries. BFLP, BLP and their affiliates do not provide investment advice,and nothing herein shall constitute an offer of financial instruments by BFLP, BLP or their affiliates.
 Australian Iron Ore Exports to China

7. India's Falling Imports of Thermal Coal Dull Dry-Bulk Demand

09/28/16
Contributing Analysts Andrew Cosgrove (Energy)

India, the world's leading coal importer, may not be an additional source of ton-miles for dry-bulk carriers due to
rising domestic supply. Indian imports of thermal coal may have peaked in 2015, if domestic output keeps rising.
Waning Indian imports have been replaced by better-than-expected demand from China. India mostly imports
sub-bituminous grades from Indonesia to blend with higher-grade coals from Australia and South Africa,
supporting Supramax and Panamax demand.

Companies Impacted: Fewer coal shipments reduce tonnage for bulker operators such as D/S Norden, Scorpio
Bulkers, Nippon Yusen and K-Line. Shipping Corp. of India and Great Eastern are India-based shipping
companies that own dry-bulk ships.

India Seaborne Thermal Coal Demand

Supply Outlook

8. Ship Owners Pare Dry-Bulk Vessel Orders on Freight-Rate Decline

09/28/16
Vessel owners cut back on orders to yards for new dry-bulk ships due to low freight rates, which may eventually
reduce overcapacity. That led to the bulker orderbook falling 17% at the start of August from the beginning of the
year, according to Clarksons, even as bulker values fell 5% over the same period. The bulker orderbook is the
weakest in thirteen years, Clarksons said. Owners have opted for discounted second-hand vessels rather than tie
up liquidity ordering new builds.

This report may not be modified or altered in any way. The BLOOMBERG PROFESSIONAL service and BLOOMBERG Data are owned and distributed locally by Bloomberg Finance LP
("BFLP") and its subsidiariesin all jurisdictions other than Argentina, Bermuda, China, India, Japan and Korea (the ("BFLP Countries"). BFLP is a wholly-owned subsidiary of Bloomberg LP
("BLP"). BLP provides BFLP with all the global marketingand operational support and service for the Services and distributes the Services either directly or through a non-BFLP subsidiary in the
BLP Countries. BFLP, BLP and their affiliates do not provide investment advice,and nothing herein shall constitute an offer of financial instruments by BFLP, BLP or their affiliates.
 Dry-Bulk Orderbook Vs Deliveries

9. Scrapping May Continue to Rise Even as Dry-Bulk Rates Recover

09/28/16
Scrapping of dry-bulk ships rose even as scrap rates fell faster than freight rates. Tonnage demolitions increased
5% in 1H despite scrap values of bulkers plunging 31% on average and reducing incentives for owners to scrap
their ships. Freight rates declined 22% on average, even after rising from record lows in February. Scrapping
levels may end up higher than last year, which could stabilize freight rates by curtailing fleet supply.

Securities Impacted: The rate of scrapping can affect supply-demand dynamics and profitability for dry-bulk
shipping. Some of the largest publicly traded dry-bulk carriers by revenue and capacity are DryShips, K-Line,
Nippon Yusen, MOL, Hyundai Merchant and China Cosco.

Dry-Bulk Scrapping Economics

Rates Rising

10. Light Dry-Bulk Orderbook Drives Optimism for Higher 2017 Rates
03/20/17
Contributing Analysts Talon Custer (Transportation)

Dry-bulk rates may jump 30% in 2017 after falling 6% last year, according to a Bloomberg survey. Handymax
vessels are expected to fare the best (up 42%), followed by Supramax (up 32%). Longer-term optimism has been
driven by decelerating supply of new dry bulk vessels hitting the water and the light order book in 2018. Dry-bulk
demand may grow 2%, vs. a 1.9% expected supply increase 2017, according to Clarksons. China may resume its
policy that limits coal-mine operating days in 2Q, which could aid coal demand.

Iron ore demand may rise 4% in 2017, which should propel overall dry-bulk demand growth of 2%, with mostly flat

This report may not be modified or altered in any way. The BLOOMBERG PROFESSIONAL service and BLOOMBERG Data are owned and distributed locally by Bloomberg Finance LP
("BFLP") and its subsidiariesin all jurisdictions other than Argentina, Bermuda, China, India, Japan and Korea (the ("BFLP Countries"). BFLP is a wholly-owned subsidiary of Bloomberg LP
("BLP"). BLP provides BFLP with all the global marketingand operational support and service for the Services and distributes the Services either directly or through a non-BFLP subsidiary in the
BLP Countries. BFLP, BLP and their affiliates do not provide investment advice,and nothing herein shall constitute an offer of financial instruments by BFLP, BLP or their affiliates.
 seaborne coal volume, based on Clarksons data. K-Line, Mitsui OSK, Star Bulk, Hyundai, Scorpio, Pacific Basin
and D/S Norden are among the largest dry-bulk carriers.

Dry-Bulk Time Charter Forecasts

11. Cape Rates Are Up About 467% This Year on Better Fundamentals
03/20/17
Contributing Analysts Talon Custer (Transportation)

Dry-bulk rates are being led higher by Capesize vessels, which are up about 467% on average this year through
March 16, compared with the same period a year earlier. Increased scrapping, fewer orders and higher Chinese
demand have pushed rates up. The order book-to-total Capesize capacity has reached a low of 11.3%, which
should help rationalize capacity. The fleet is expected to grow 1.9% net of scrapping, according to Clarksons
Research. Increased iron ore and grain demand should bode well for rates in 2017.

Companies Impacted: Navios Maritime, Kawasaki Kisen, Diana Shipping, Pan Ocean, Star Bulk and Scorpio
Bulkers are some of the largest global dry-bulk carriers by revenue. Rate volatility for various bulker vessels
affects major dry-bulk carriers.

Baltic Dry Bulk Rates

12. Panamax Orderbooks Trimmed in Low Freight Rate Environment

03/21/17
The Panamax fleet has had new building-orderbook cancellations as demand growth remains tepid. The order
book as a percentage of deadweight tons (DWT) shrank about 11 percentage points in the past year, over twice
the rate for the entire bulk fleet. About 37% of Panamax tonnage is less than five years old, according to data
from IHS Global. Only 7% is 20 years or older and close to the end of its economic life. This may limit scrapping
opportunities. Oversupply should limit growth in the dry-bulk orderbook.

This report may not be modified or altered in any way. The BLOOMBERG PROFESSIONAL service and BLOOMBERG Data are owned and distributed locally by Bloomberg Finance LP
("BFLP") and its subsidiariesin all jurisdictions other than Argentina, Bermuda, China, India, Japan and Korea (the ("BFLP Countries"). BFLP is a wholly-owned subsidiary of Bloomberg LP
("BLP"). BLP provides BFLP with all the global marketingand operational support and service for the Services and distributes the Services either directly or through a non-BFLP subsidiary in the
BLP Countries. BFLP, BLP and their affiliates do not provide investment advice,and nothing herein shall constitute an offer of financial instruments by BFLP, BLP or their affiliates.
 Companies Impacted: IHS data include Ultramaxes (60-79,000 DWT) as part of the Panamax fleet. Changes in
supply-demand dynamics and rates for dry-bulk shipping affects carriers in the Bloomberg Intelligence dry-bulk
peer group, such as Dryships, K-Line, Nippon Yusen, MOL, Hyundai Merchant and Scorpio Bulkers.

Age Profile of Panamax Fleet

13. Ultramax Deliveries May Challenge Panamax and Supramax Rates

09/28/16
Dry-bulk vessels in the 60-80,000 DWT range are likely to see the most deliveries in the next two years, which
may pressure other vessel segments and lead to older vessels being retired. Around 29% of ships delivered in
1H, or 22% of tonnage, were Ultramax vessels. Ultramaxes challenge Panamaxes on coal trades and compete
with Supramaxes for both coal and minor bulk cargo. They are similarly equipped with on-board cranes, are more
fuel efficient and can handle draft-constrained ports in Asia.

Companies Impacted: Financial pressures on yards or owners may delay deliveries. Rates affect profitably of
carriers in the BI dry-bulk peer group such as Nippon Yusen, DryShips, K-Line, MOL, China Cosco, D/S Norden
and Genco Shipping.

Dry-Bulk Vessel Delivered by Deadweight Tons

14. Dry-Bulk Vessels Defined by Size, Capacity and Markets Served

03/21/17
Dry-bulk vessels are categorized based on their cargo-carrying capacity. Very large ore carriers are the largest
bulkers and carry iron ore from Brazil. Capesize vessels are the next biggest and are used in iron ore and coal
trading. Panamax vessels can pass through the Panama canal and dominate grain shipments. Handymaxes and
handysize are smaller vessels used for minor bulk trades. Their size and deck cranes allow them to service
smaller ports that lack infrastructure or have draft restrictions.

This report may not be modified or altered in any way. The BLOOMBERG PROFESSIONAL service and BLOOMBERG Data are owned and distributed locally by Bloomberg Finance LP
("BFLP") and its subsidiariesin all jurisdictions other than Argentina, Bermuda, China, India, Japan and Korea (the ("BFLP Countries"). BFLP is a wholly-owned subsidiary of Bloomberg LP
("BLP"). BLP provides BFLP with all the global marketingand operational support and service for the Services and distributes the Services either directly or through a non-BFLP subsidiary in the
BLP Countries. BFLP, BLP and their affiliates do not provide investment advice,and nothing herein shall constitute an offer of financial instruments by BFLP, BLP or their affiliates.
 Companies Impacted: Scorpio Bulkers, Pacific Basin, NYK, K-Line, Pan Ocean and MOL are some of the largest
public dry-bulk companies by market share, based on revenue and capacity.

Dry-Bulk Fleet

This report may not be modified or altered in any way. The BLOOMBERG PROFESSIONAL service and BLOOMBERG Data are owned and distributed locally by Bloomberg Finance LP
("BFLP") and its subsidiariesin all jurisdictions other than Argentina, Bermuda, China, India, Japan and Korea (the ("BFLP Countries"). BFLP is a wholly-owned subsidiary of Bloomberg LP
("BLP"). BLP provides BFLP with all the global marketingand operational support and service for the Services and distributes the Services either directly or through a non-BFLP subsidiary in the
BLP Countries. BFLP, BLP and their affiliates do not provide investment advice,and nothing herein shall constitute an offer of financial instruments by BFLP, BLP or their affiliates.