Korean Shipping messenger

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1 Korean Shipping messenger A collection of articles and daily news for the shipping industry with focus on the Korean shipping and shipbuilding markets. 09 February 2012 Shipbuilding News Newbuild price keeps dropping Along with depressed new order placement for commercial ships, January 2012 saw continued decline in newbuilding prices. According to Clarksons, newbuilding price of VLCC decreased to $98m, down by $1m month-on-month, suezmax tanker and aframax both dropped by $0.5m each to $60m and $52m, as of early February. In case of bulkers, capesize, panamax and handymax all saw $0.5m lowered newbuilding price in January. Newbuilding price of 4,800-teu and 3,500-teu boxships declined to $58.5m and $49m, both down by $0.5m. STX Dalian wins PC South Korea's STX Offshore & Shipbuilding yard in Dalian, China, has won an order for two 51,000 dwt medium-range product tankers with options for two more from a new Pistiolis family shipping venture Central Shipping that has established itself in Monaco. The two ships were contracted at about $33m each for delivery in In recent days there was some market talk of such vessels being contracted by Top Ships, the Nasdaq-listed company led by Evangelos Pistiolis, but this was not the case. Mr Pistiolis said the company was interested primarily in developing a fleet of new technology eco-ships and would be highly selective. CSIC 2011 profit jumps China Shipbuilding Industry Co.(CSIC) announced in its regulatory filing on 6 February that CSIC's net profit in 2011 increased to CNY 1.599bn ($253m), up by 190% year-on-year, while earnings per share stood at CNY It turned out that CSIC has seen gain on profit in 2011 by disposal of shares and large-scale M&A. VLCC monthly highest delivery Highest monthly VLCC influx into global fleet in January 2012 since 1970s tanker boom. More new very large crude carriers were delivered into the global fleet in January than during any month in the last 36 years. According to Clarksons, 10 newbuilding VLCCs joined the global fleet during the last month last saw this number entered service, when the industry underwent an earlier shipbuilding boom and had an oversupplied tanker market. Meanwhile, the latest additions bring the number of VLCCs in the global fleet to 586. Some 121 vessels are on order at Asian yards, Clarksons data shows. Of these, 61 are to be delivered this year, 46 next year, 13 in 2014 and one vessel in CSSC 2011 delivery up China's leading shipbuilder China State Shipbuilding Corporation (CSSC) was rewarded with good fruits in 2011, having delivery, production value, etc., grown. CSSC's newbuilding delivery in 2011 increased to 18.64m dwt, up by 13.1% year-on-year. Total production value for the completed vessel and profits rose to CNY 103.7bn ($16.42bn) and CNY 7.8bn, up by 8.5% and 18% each. CSSC has been making investment to secure technology for high-value vessel and already established new record in offshore sector. CSSC targets World 1st shipbuilding group by 2015, meanwhile, it now stands at the second place. Drydocks may sell yards Dubai s state-owned Drydocks World is being linked to a sale of its Asian shipyard operations. The group is considering offloading the shipbuilding and repair operations as it tries to restructure its $2.2bn debt, banking sources told the Wall Street Journal. Auditors have conducted an analysis of the south-east Asian assets and are currently reviewing a wide range of candidates interested in purchasing some or all of the operations, sources said. Drydocks has four shipyards in Singapore and Indonesia. Korea patents skyrocketing South Korean shipbuilders would face turmoil by continued global economic depression, however, rapidly increased patent applications of Big 3 shipbuilders in 2011 is a ray of sunshine for future Korean shipbuilding industry.

2 According to data by the Korean Intellectual Property Office (KIPO), the nation's patent application (including patent on a new device) in 2011 just remained 183,762, up by 4.3%, while Big3 shipbuilders' patent applications saw a massive increase to 4,315, up by 65% year-on-year. Those in charge of patent from Hyundai, Samsung and Daewoo analyzed, "Growing patent application shows that Korean major builders are making utmost efforts to obtain dominant position under the strenuous conditions of China's rapid chase and intense technical competitions." Meanwhile, Hyundai Heavy Industries said that increasing and diversifying reward for invention as well as the management's high interests in technology development and patent application had boosted its patent application in 2011, which skyrocketed by 242% on Hyundai applied for a total of 2,048 patents in 2011 from 846 in 2010, while Samsung HI applied for 1,237 from 1,100 and Daewoo Shipbuilding & Marine Engineering 1,030 from 667 in the same time frame. All of Big3 exceeded 1,000 patent applications each last year. As for applied patents by country, Korea made a big jump from 1,256 in 2008 to 1,848 in During the same years, China rose from 540 to 758, the US from 1,158 to 1,173, while Japan and Europe slightly decreased from 854 to 808 and from 614 to 552 each, according to KIPO. Big3 to sweep offshore? Order for massive offshore production plant scheduled to be placed in the first half this year, market forecast that South Korean Big three would be able to sweep most of contracts, if the biddings go well. Sources said that Inpex of Japan would place order for Ichthys FPSO, valued at $2bn-2.5bn, during as early as the end of February. Big three builders are now having a cut-throat competition for the project, while Daewoo Shipbuilding & Marine Engineering seems most likely to win the order, market expected. Russian state-owned Gazprom is also expected to announce result of tender for FPU, which will be operated in Shtokman field, in this month. Samsung Heavy Industries and Daewoo are competing for the project totalling about $3bn. Also, Nigerian Egina FPSO ordered by Total of France is waiting for the result. Hyundai HI and Samsung are fighting for the about $2bn contract. The US' oil major Chevron plans to contract for gas platform and FSO, which are to operate in Block B field in Vietnam, during H The total amount of the project is around $4.3bn and Samsung and Daewoo are known to participate the tender. Besides, Nigerian Brass LNG plant ($6bn), Australian Browse field platform ($700m), etc., would see order placement in 2012, market prospected. Meanwhile, market player said, "2012 would see Korean shipbuilders' efforts for 'post-shipbuilding'. Contracts for offshore plant would have an influence on yards' order, profits, ranking, etc." Shipping & Business News BDI rebound goes on The dry bulk market has slowly started to forge a recovery this week, after falling to a near three-decade low. On Wednesday, the industry s benchmark, the Baltic Dry Index posted a third straight rise, this time by 2.42% to reach 676 points. These level of rates, however, are still among the lowest ever recorded in the market, forcing owners to speed up demolitions of older bulkers and even laying up their vessels. The driver of this resurgence has been the Panamax market, leading the gains with a distance. But it was also the segment that has suffered the most losses, so it s only reasonable to bounce back. Iron-Ore Shipping Rates May Rise Fourfold This Quarter, DNB Says Rents for iron-ore carrying Capesize (BCAVRT) ships may rise almost fourfold this quarter as slower speeds and strengthening demand buoy vessel usage, according to DNB Markets, a unit of DNB Bank ASA, Norway s biggest bank. Earnings for the vessels may advance to as high as $20,000 a day, DNB shipping analyst Nicolay Dyvik wrote in a report today. The vessels are making $5,233, according to the London- based Baltic Exchange. Samudera to spend on ships Samudera Indonesia builds up INR800bn ($89m) to expand its business and acquire more ships this year. The Indonesia-based company also intends to improve support facilities at seaports, according to finance director Anwarsyah Batubara. Samudera will use 25% of its capital expenditure to purchase three secondhand cargo ships this year, while the bulk of the investment money will be used to upgrade its support facilities and offices at various ports across Indonesia, Batubara said. Essar Shipping Plans to Buy Vessels Essar Shipping Ltd. plans to spend $300 million to $350 million for buying vessels over two years starting April 1, as it looks to expand operations and sign new overseas contracts. "This [amount] will be spent on 10 new ships and two jackup rigs," Managing Director A.R. Ramakrishnan said late Wednesday. "We have already tied up funds required for the expenditure."

3 The Indian company, part of the diversified Essar group, may also buy some second-hand vessels as and when required, he said, but didn't elaborate. Essar's expansion come in spite of a slowdown in the Indian shipping industry which has forced others to cut down their vessel purchase plans. State-run Shipping Corp. of India, the country's biggest shipper by fleet size, said last year it would miss its target of buying 62 vessels until March 2012 due to weak demand. The local slowdown mirrors a global scenario in which companies have ordered too many ships that are now lying unused because of tepid demand. Essar Shipping has been partly insulated from the slowdown because it depends on long-term contracts, instead of spot orders, primarily with its own group companies, said Mr. Ramakrishnan. This and an oil field services deal with U.S. energy company ConocoPhillips helped it to post a 43% rise in consolidated net profit to million rupees for the October-December quarter. According to an investor presentation on Essar Shipping's website, the company expects total revenue of more than $6 billion from various contracts that range from one year to 25 years. Mr. Ramakrishnan said Essar is also in talks with overseas companies to sign contracts to transfer cargo in routes leading to Australia, China and Indonesia. Although Essar Shipping has historically catered to its group companies, the share of revenue from third parties increased to 30% in December and currently accounts for 35%. Mr. Ramakrishnan expects this chunk to grow to 40% in the next few months. Mr. Ramakrishnan said the company will also try to renew an 18-month contract with China's Baoshan Iron & Steel Co. that started October He also said that Essar Shipping plans to refinance part of its 56 billion rupees debt into dollar terms to cut interest costs. "We aim to reduce the quantum of debt as well as lessen the interest cost burden. We will look at various options to do it," he said. The company's consolidated interest costs jumped 39% to million rupees in the October-December quarter. Tanker demolition to double The prospect of expensive special surveys on old tankers in the current weak market should prompt more shipowners to scrap vessels. Norway s RS Platou Markets expects the industry to demolish 20m dwt this year and remove an additional 15m dwt from service in Demolition volumes were behind the curve in the tanker sector, RS Platou said in its Shipping Quarterly report. But even if this volume is reached, fleet growth should still hit 6% with around 33m dwt of tanker tonnage due to be delivered. This will keep utilisation levels and owners earnings low. According to London-headquartered shipbroker Clarksons database, demolition of tankers over 10,000 dwt last reached close to 20m dwt in 2003 at the end of a five-year period that saw levels above 14m dwt. The highest recorded tanker scrap volumes were in 1985 though, in the middle of the decade s shipping crisis, when 25.7m dwt were taken out of the fleet. Knightsbridge delays ship hunt John Fredriksen s Knightsbridge Tankers is keeping a lid of fleet expansion while asset values continue to slide. Knightsbridge said: The board believes it has been prudent to delay new investments, based on the decrease in vessel values. The company will seek to take advantage of the current weakness in the market to develop new projects. The John Fredriksen-controlled company said it had delayed investments in fleet renewal and expansion due to the fall in secondhand vessel values. Expansion plans for the Nasdaq-listed company are supported by available funds and access to finance. KB Financial swings to profit but misses estimates KB Financial Group Inc. Thursday reported a worse-thanexpected fourth-quarter net profit due to significant writedowns related to bad loans arising from Sungdong Shipbuilding & Marine Engineering. In the three months ended Dec. 31, KB Financial posted a net profit of KRW219.1 billion ($196.4 million), down from a net profit of KRW579.1 billion in the preceding quarter, but a sharp reversal from a KRW341 billion net loss in the same period a year earlier, the company said in a regulatory filing. The result lagged expectations for a net profit of KRW247.7 billion in a Dow Jones Newswires survey. The sharp increase in net profit stems from a lack of negative one-time factors such as aggressive loan-loss provisions and a sizeable early retirement program that dented its net profit in 2010, KB said in a separate statement. For the whole of 2011, KB Financial had KRW2.373 trillion in net profit and KRW361.6 trillion in total assets, up 28.1% from a year earlier. The 20m dwt figure is more than double the tanker tonnage sold for demolition last year and should help to alleviate overcapacity in the chartering markets as record numbers of newbuildings enter the global fleet.

4 Iran's seaborne trade suffers as sanctions mount Iran's seaborne trade is withering as sanctions are stepped up against the Islamic Republic, freezing bank finance and deterring many international trade and shipping companies from getting involved in deals, industry sources say. Much of Iran's imports, including food and consumer goods, are transported by sea via container and bulker ships. Oil tankers are used to ferry the country's vital crude oil exports. But U.S. financial sanctions imposed since the beginning of this year to punish Tehran over its nuclear program are playing havoc with Iran's ability to buy imports and receive payment for its oil exports. "Tougher sanctions are putting the squeeze on major Iranian commercial institutions," said Alan Fraser of security firm AKE. "The net is closing in, and companies will be forced to take ever more elaborate measures to evade scrutiny. Iran's national shipping fleet is coming under ever more pressure as many states attempt to monitor its cargoes, while the role of the central bank as a middle man is becoming increasingly redundant in business transactions," he added. Ship industry players say the move last month by the European Union to embargo imports of Iranian oil was already having an effect on shipping flows. European oil companies will be forced to sever all dealings in Iran crude by July. "The objective of current and likely sanctions is very simple: to raise the cost of having anything to do with the purchase or shipping of Iranian petroleum to such an extent that even such potential partners who are formally beyond the legal jurisdiction of the United States or its allies will nonetheless shun doing business with Tehran," said J. Peter Pham, with the Atlantic Council, a U.S. thinktank. A.P. Moller-Maersk told Reuters this week the Danish shipping and oil company had suspended new oil tanker deals with Iran due to the EU measures. "The further EU sanctions on Iran contain an unprecedented package of prohibitions on the import, purchase and transport of Iranian oil that will affect our members' trading patterns," said Michele White, general counsel with INTERTANKO, whose members own the majority of the world's tanker fleet. "With an ever increasing number of sanctioned entities who are subject to an asset freeze, we advise any of our members who might seek to continue to lift oil from Iran to exercise extreme caution." Last year the U.S. blacklisted major Iranian port operator Tidewater Middle East Co, which operates seven terminals in Iran including Bandar Abbas. The EU followed suit last month, which industry sources expect will complicate ship container trades. "Bandar Abbas is the only Iranian container port that is connected to the world's big line container ships or international carriers," said Jan Tiedemann, a shipping analyst with consultancy Alphaliner. The world's largest container firm suspended operations last year at several Tidewater-controlled ports. Maersk line, a unit of A.P. Moller-Maersk, said it continued to operate a weekly feeder service calling at the smaller port of Bandar Bushehr to and from Jebel Ali in the United Arab Emirates. The port, some 900 km north of Bandar Abbas, is not managed by Tidewater. "We do business in Iran in compliance with relevant foreign trade controls and sanctions," a Maersk Line spokesman said. German container shipping group Hapag-Lloyd said on Thursday it no longer offered limited services to Iran. It had already ended consignments last year to Tidewater-run ports. "Hapag-Lloyd doesn't accept any shipments to Iran anymore at the moment. This includes the feeder connection via the port of Bushehr - those were only very few boxes," a spokesman said, citing "the overall situation and development of sanctions." IRAN's FLEET Iran faces an even bigger challenge if measures being considered by U.S. lawmakers get passed. If approved, Iran's biggest tanker group, the privately run National Iranian Tanker Company (NITC), as well as state owned National Iranian Oil Company would face sanctions. "The measure... would amount to de facto oil and shipping embargos," the Atlantic Council's Pham said. "The mere taint would also have a net negative effect on Iran, driving those fearful of the reach of sanctions to decide not to go through with transactions while giving Iran's remaining partners - one thinks, for example, of Chinese firms - the leverage to drive the price they pay down." A senior ship industry source said a blacklist for NITC, which has a fleet of 40 oil tankers, would hit the group's crude transportation operations. "Their ships will probably increasingly be used for floating storage in the Gulf, and people will probably not want to take delivery of Iranian oil on NITC ships." NITC told Reuters last month it was a legitimate company and did not expect to be sanctioned, adding that while it had lost its insurance cover in Europe last year, the group's insurers mainly in Asia and Iran provided "good coverage. The Islamic Republic of Iran Shipping Lines (IRISL) has been targeted since IRISL has said it is not state owned and denied it is engaged in any illegal activity. "The names of ships have been altered to remove the Iranian-sounding names and allay suspicion; however it is unlikely that Iran's shipping trade will escape unaffected," AKE's Fraser said. "The new sanctions may make it easier for individual ships to be tracked, making it harder for them to enter international ports without being flagged."

5 The growing restrictions are unlikely to force trade to stop, although making deals more complicated and expensive. U.S. agribusiness giant Cargill told Reuters this week it planned to continue grain shipments to Iran. "I sense that many international shipping companies are challenged beyond what they find can be justified when looking at the potential earnings of trading with Iran," said Jakob Larsen, a maritime security officer with BIMCO, the world's largest private shipowners' association. "Having said that, I think there are still some who are able to carry on their business in a way that does not breach sanctions and yet ensures a decent return on investment." Analysts said Asian countries, especially China and India, would continue to buy Iranian crude oil. "For those countries not bothered by the prospect of Iran's alleged program to acquire nuclear weapons, continued consumption of Iran's oil - perhaps even at distressed prices -may even increase," said brokerage Poten & Partners. Korean Shipping Messenger Daily News Report is released and distributed freely by Mutualmar. The information in this report is derived from a variety of sources, public and private and Mutualmar explicitly does not claim it is the source of this information. While Mutualmar has used reasonable efforts to include accurate and up-to-date information in this report, makes no warranties or representations as to the accuracy of any information contained herein or accuracy or reasonableness of conclusions drawn there from. Mutualmar assumes no liabilities or responsibility for any errors or omissions in the content of this report.