04 May Shipbuilding News. 'Bottom Fishing' Era Passed. Samsung Q1 results leaping. Korea ship exports hit $4.23bn

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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. 04 May 2010 Shipbuilding News 'Bottom Fishing' Era Passed Far Eastern shipyards are calling time on a run of price discounting in response to a significant upturn in steel costs. It now seems that shipowners looking to pick up cheap newbuildings from reputable yards have missed the boat. South Korean mills Pohang Iron & Steel Co (Posco) and Hyundai Steel have announced they will be raising the price of shipbuilding steel plate by KRW 80,000 ($72) per tonne to KRW 900,000 from May. Chinese mills have steadily increased the price of steel plate since late last year and it is now selling at around CNY 6,000 per tonne, an increase of close to 30%. Japanese mills are also threatening a rise. Newbuilding players in Shanghai say the inflationary pressures have given shipyards good reason to stay firm on price. There is no sign that newbuilding prices will be coming down. In fact, they will be moving in the opposite direction, said one newbuilding broker. Shipyards are very concerned about their costs and yards that have decent order backlogs prefer to wait and see. Yangzijiang Shipbuilding executive chairman Ren Yuanlin confirms his yard is now paying more for its steel. The cost of steel plate has gone up by 20% to 30% during the past year, although it is still 20% cheaper than the peak price of 2008 when it reached more than CNY 8,000 per tonne, he said. Ren adds that there is little chance that yards will be lowering newbuilding prices in the short term. But he does not expect them to hike prices either as demand remains weak. In Korea, brokers say first-tier shipbuilders such as Samsung Heavy Industries are seeking a newbuildingprice increase of around 10%. Samsung inked a few suezmax-tanker deals early this year for as low as $60m per ship but it is now asking close to $70m for the same type of vessel, one broker said. The source adds that shipbuilders such as Samsung still have a considerable backlog and are in a position to raise prices. Some second and third-tier yards that are facing cash-flow problems may not increase their newbuilding prices as they need the down payments from new orders to help them get over the financial problems, said the broker. At a Tokyo press conference, Shipbuilders Association of Japan chairman Takao Motoyama called for steel mills to cut rather than increase prices. In response to indications from domestic mills that they will increase prices because of a rise in iron-ore costs, he is quoted as saying: Prices of products are determined by supply and demand. Demand for shipbuilding steel plate has been declining. Demand in the Asian region will further slacken in view of the start-up of new steel mills. In light of the slackening supply-demand gap, I think steel prices should be reduced. Yards that are building ships contracted more than two years ago will not be badly hit by the new steel-plate cost as the vessels were booked at higher prices. However, order contracts agreed last year and early this year will be problematic as they were at a 30% to 40% discount and will now have to use more expensive steel. When a shipyard agreed on a capesize-bulker newbuilding for as low as $50m, the deal can hardly break even with a 10% hike in the steel price, one yard manager said. Samsung Q1 results leaping Samsung Heavy Industries reported much improved business results for the first quarter of the year. The Korean major shipbuilder announced on Tuesday in a regulatory filing that it has achieved revenue of KRW trn ($1.989bn) and operating profit of KRW215bn for Q1, up 20.0% and 38.6% respectively compared to the same period of last year. Quarter-on-quarter, revenue fell 4% but operating profit jumped 51.5%. Q1 net profit came up to KRW 200.3bn, rising 3.4% onquarter and skyrocketing 96.8% on-year. It appears ships and offshore plants booked in the past boom years at higher prices were rolled out in the period, pushing up operating margin greatly. Korea ship exports hit $4.23bn The Ministry of Knowledge Economy of Korea said Monday that the nation's exports in April jumped by 31.5% year-on-year to $39.88bn while imports soared by 42.6% to $35.47bn.

2 Korean economy's April trade surplus stood at $4.41bn, which is higher than the trade surplus of $3.3bn in the first quarter of Korean shipbuilders' ship export volume in April increased by $1.42bn against March to reach $4.23bn. But the figure was lower than $4.73bn worth of ship exports recorded in April Korea's April import volume increased by large due to the rise in raw material and capital goods imports. HHI joins KSP acquisition bid Korea's and world's largest shipbuilder Hyundai Heavy Industries is reportedly planning to acquire KSP, compatriot ship engine valve manufacturer. KSP had announced on April 26th that it would launch a competitive open bid for its paid-in capital increase for a third party. Letter of intent to buy the stake in the marine engine valve specialist is to be received by Samil PricewaterhouseCoopers, a sale advisory firm, by May 20th. KSP said after receiving M&A LOIs, due diligence is scheduled between June 7th and 18th for qualified investors. DSME-HHI vie for $1.5bn FPSO Angola's state oil company Sonangol has rejected Total's recommended contractors for the giant Clov project, including a coveted award to build a $1.5 billion floater that now looks set to go to Daewoo Shipbuilding & Marine Engineering (DSME) of Korea. Italian contractor Saipem, along with consortium partner Hyundai Heavy Industries, had submitted a lower bid and was Total s pick but fell out of favour with Sonangol because of local content issues. No final contract has yet been signed but DSME is now firmly in the driving seat to finalise an award. Industry sources said that local content decisions lie at the heart of Sonangol s decision on the floating production, storage and offloading vessel, although other factors were not discounted. A Hyundai source confirmed that Sonangol has preferred DSME because of local content. Saipem, which recently decided to work solely with Hyundai after earlier courting Chinese and Singaporean partners, submitted the lowest bid for the Clov FPSO of about $1.4 billion, said sources, with DSME s offer apparently closer to $1.5 billion. Project watchers said Total gave all bidders guidelines for local content with respect to fabrication, assembly and integration activities. However, behind the scenes Sonangol was said to be pushing Total to increase local content. Both the Italian-South Korean partnership and DSME, working with KBR, fulfilled Total s guidelines with one source suggesting that DSME s initial local content proposal bettered that of its rival, which called for a significant 8000 to 9000 tonnes of topsides hardware to be built in Angola. What appears to have turned the tide for the South Korean player was DSME s submission of an alternative local content case, which involved more work being carried out domestically. Details are sketchy but one element in DSME s proposal involves it taking a 30% stake in a new yard being built by equal partners SBM Offshore and Sonangol at Porto Amboim where quayside construction has just been completed. A market source said DSME is talking with Sonangol to invest in the yard, which SBM decided to help build to support its aim of securing a leased FPSO contract for the second development in BP s Block 31 asset. Total, which declined to comment, was said to be unhappy about having its arm twisted because the choice of DSME will have a cost and schedule impact on Clov. There were also said to be concerns about the potential impact on future projects in light of Sonangol s tougher stance on the local content issue. The exact impact on Clov is unclear, partly because the cost of using Porto Amboim is ill-defined but also because DSME s strategy may involve using other yards. The Clov FPSO, to be installed in Block 17, is expected to have an oil production capacity of about 160,000 barrels per day with the ability to store 1.6 million barrels of crude. The CLOV project is an integrated development of a fourfield cluster on the northwest sector of Angola's offshore Block 17. Consisting of the oil fields Cravo, Lirio, Orquidea and Violeta discovered over a five-year time period, the CLOV project will be the fourth upstream project undertaken on the license. Total's Angolan subsidiary, Total E&P Angola, is the operator of Angolan Block 17 with a 40% interest. Partners in the license include Statoil with a 23.33% interest, Esso Exploration Angola with a 20% interest and BP Exploration Angola with a 16.67% interest.

3 Shipping & Business News STX wins Indian coal deal Korean bulker owner STX Pan Ocean has clinched an Indian coal-carrying contract. The company said it will transport 10m tons a year for Indian Coal & Oil Co. It will carry the coal from Indonesia, it added, without revealing a contract price. STX Pan Ocean also said it plans to secure an 80,000-dwt bulker to service the deal. Dry bulk JV to order newbuilds A joint venture forged by Western Bulk and Alterna Capital is eyeing acquisitions in the dry bulk sector. The Connecticut-based private equity outfit says the alliance is hunting at least four bulkers between 30,000 and 60,000 dwt. "We have a minimum of $62.5m to work with, that is the minimum," Alterna's managing director Jim Furnivall said Monday. He also said that Western Bulk "contributed a big chunk of money" to the initial capital injection, but Alterna invested the majority stake. The Oslo-based shipowner will be the managing partner of the joint venture that has already committed to buying two 58,000-dwt supramax newbuildings from Sino Pacific Dayang shipyard. While the companies did not reveal the price tag of the ships, the private equity player says the vessels will be delivered in March and November of next year. Western Bulk has been linked to a 58,000-dwt bulkerresale contract at Yangzhou Dayang Shipbuilding in China. Western's chief executive Jens Ismar reiterated his company's interest in expanding their fleet of owned ships. "This is a further and important step for Western Bulk in the company's efforts to build a fleet and exposure to steel at a time in the cycle we believe is interesting," he said in a statement. VLCC freight up 17% As is revealed earlier, VLCC freight rate of Middle East to Asia route has broken W100. Encouraged by this rumor, the VLCC long-term freight rate was increased by 17%. We are on extremely busy condition. It s crazy for crude oil tanker route, said a broker. Last Tuesday, the monthly freight rose to W98.5, namely $64,500 per day. It s raised by $9,300 against just one day ago. The strong demand comes from West African market. As is known, the surging of cargo demands in May triggered tension in Atlantic area. Some charters even released Suezmax tankers to replace VLCC. As a result, the charter fees finally surpassed $31,000 per day. An insider said even the price of $65,000 per day existed in Middle Eat to Asia route. But as common view, it s not typical. Daewoo VLCC pre-delivery resale Ghassan Ghandour-controlled Gulf Marine Management of Greece has sold three VLCCs for below their order price. Sources say Evangelos Marinakis s private company, Capital Ship Management, has taken the 319,000-dwt Atlantis Glory, which is due for delivery from Daewoo Shipbuilding & Marine Engineering in May. Brokers say it went for $111m. It was the third VLCC to go in a week. Frontline bought the other two, the 321,300-dwt Andromeda Glory and Callisto Glory (both built 2009), which are due for delivery in May and June, according to a company announcement. Frontline did not disclose the price, which brokers say is between $105m and $106m each. The sales signal a loss for Gulf Marine, given that all three were ordered in April 2006, when Daewoo was charging $130m apiece. Ghandour, however, is expected to return to the market to buy VLCCs at today s values and trade them at more profitable levels. Gulf Marine has another six 320,000-dwt tankers on order at Daewoo. Four are set for delivery in 2010, one for 2011 and the sixth has been pushed back to 2014 from its original delivery date of Even though Gulf Marine ordered the ships at the height of the market, for between $125 and $130m, it also took advantage of the peak with resale deals. Between January 2006 and mid-2007, the company sold five newbuildings prior to their delivery from Daewoo, logging an estimated total profit of $145.3m. Genco Shipping Falls Despite OK Quarter Genco Shipping & Trading, which completed the initial public offering of Baltic Trading during the just-ended quarter in one of the first shipping IPOs in years, posted results that were basically even with expectations after Monday's stock-market close. But although Genco impressed some observers with a shift in its chartering strategy and an improved balance sheet, that wasn't enough to withstand a broader market selloff, as investors reacted to another negative turn in Greece's ongoing debt drama. Shares of Genco were changing hands in recent trades Tuesday morning at $22.92, down $1.03, or 4.3%. In

4 recent quarters, the stock has shown a tendency to sell off after earnings reports. As for its chartering strategy, Genco had previously chosen to place a substantial portion of its fleet on the spot market relative to its publicly traded peers. But the company during the first quarter started fixing more of its ships on long-term charters. Over the last several months, Genco has increased its contract coverage for 2010 to 67% of its fleet, up from 58%. That includes two Capesize ships, the enormous vessels that mostly haul iron ore, which Genco hired out for a year at a daily rate of $36,000 to $39,000. The strategy, analysts say, has allowed Genco to both take advantage of a recent run-up in dry-bulk shipping rates and to heighten the transparency of its business for the rest of the year. Genco also strengthened its balance sheet during the quarter, improving its net debt to capital ratio to 39% from 50%, largely as a result of consolidating Baltic onto its balance sheet. Analysts expect Genco, which holds a stake in Baltic, to begin profiting from its offspring over the next few quarters as the new company puts its first ships to work. In a note to clients Tuesday morning, Omar Nokta, shipping analyst at Dahlman Rose, said he sees Baltic boosting Genco's bottom line by 4 cents a share in 2010 and 32 cents a share in Nokta rates Genco stock a buy with a 12- month price target of $30. (Baltic, which took delivery of its first vessel in early April, reported results in tandem with Genco, though Baltic in the quarter hadn't started operations.) Credit Suisse analyst Greg Lewis, however, noted in a post-earnings report Monday night that 16 of its ships will see their long-term charter agreements come to an end over the course of the next 12 months. Since Genco inked those charters when the shipping business was stronger than it is now, "we would expect these vessels to be rechartered at lower levels," Lewis wrote. He has a neutral rating on the stock, with a $25 price target. For the first quarter, Genco reported earnings of $33.5 million, or $1.06 a share, better than the consensus Wall Street target of $1.03, but below the $41 million, or $1.32 a share, it earned in first quarter of Revenue came to $94.7 million, down 2% from the yearago period. Though spot rates were collapsing in the first quarter of 2009 because of the financial crisis, Genco, like many of its peers, had enough of its fleet fixed on charters inked before the crash at elevated rates that its results stood up. Other dry-bulk stocks were declining Tuesday, with DryShips(DRYS) shedding 4% to $5.84, Diana Shipping(DSX) falling 1.3% to $15.40, and Excel Maritime(EXM) giving up 3.4% to $7.22. Paragon Shipping Inc. Reports First Quarter 2010 Results Paragon Shipping Inc. a global shipping transportation company specializing in drybulk cargoes, announced today its results for the three months ended March 31, Commenting on the results, Michael Bodouroglou, Chairman and Chief Executive Officer of Paragon Shipping, stated, "We are pleased to announce the results for the first quarter of 2010, our eleventh consecutive profitable quarter since becoming a public company. The fact that we have been able to sustain profitability during this period demonstrates that our business model works in both good and challenging markets." Mr. Bodouroglou concluded, "The first quarter of 2010 has been a particularly active quarter for us. We have purchased the 2009-built Panamax drybulk carrier "Dream Seas", which is scheduled to be delivered to us between June and July In addition, we have entered into shipbuilding contracts for the construction of two Chinesebuilt, drybulk Handysize class vessels of approximately 37,200 deadweight tons and two Kamsarmax class vessels of approximately 82,000 deadweight tons. These vessels are scheduled to be delivered during the fourth quarter 2011 for the Handysize class vessels and second and third quarters 2012 for the Kamsarmax class vessels. Furthermore, the Company has the option to build an additional two Handysize and two Kamsarmax drybulk carriers for delivery in the third and fourth quarter 2012, respectively. We have approached our growth strategy with caution and deliberation. We have continued with our policy for providing cash flow visibility by fixing "Dream Seas" on a three year period charter, while expanding the sectors within which we operate by contracting to acquire vessels in the Kamsarmax and Handysize sectors. We continue our search for acquisition candidates to further expand our fleet and provide long-term shareholder value." First Quarter 2010 Financial Results: Time charter revenue for the first quarter of 2010 was $31.4 million, compared to $41.6 million for the first quarter of The Company reported net income of $9.2 million, or $0.18 per basic and diluted share for the first quarter of 2010, calculated on 49,481,525 weighted average number of basic and diluted shares outstanding for the period and reflecting the impact of the non-cash items discussed below. For the first quarter of 2009, the Company reported net income of $19.2 million, or $0.71 per basic and diluted share, calculated on 27,077,348 weighted average number of basic and diluted shares. Excluding all non-cash items described below, adjusted net income for the first quarter of 2010 was $8.1 million, or $0.16 per basic and diluted share. This compares to adjusted net income of $14.7 million, or $0.54 per basic and diluted share for the first quarter of Please refer to the table at the back of this press release for reconciliations of GAAP net income to non-gaap adjusted net income and GAAP earnings per share to non-gaap adjusted earnings per share. EBITDA was $19.6 million for the first quarter of 2010, compared to $31.8 million for the first quarter of This was calculated by adding to net income of $9.2 million for the first quarter of 2010, net interest expense and

5 depreciation that in the aggregate amounted to $10.4 million for the first quarter of Adjusted EBITDA, excluding all non-cash items described below, was $17.8 million for the first quarter of 2010, compared to $26.7 million for the first quarter of Please see the table at the back of this release for a reconciliation of EBITDA and Adjusted EBITDA to net income. The Company operated an average of 11.2 vessels during the first quarter of 2010, earning an average time charter equivalent rate, or TCE rate, of $29,882 per day, compared to an average of 12 vessels during the first quarter of 2009, earning an average TCE rate of $37,179 per day. Please see the table at the back of this release for a reconciliation of TCE rates to time charter revenue. Total adjusted operating expenses for the first quarter of 2010 were $6.9 million, or approximately $6,883 per day, including vessel operating expenses, management fees, general and administrative expenses and drydocking costs, but excluding $2.4 million of share-based compensation for the period. For the first quarter of 2009, total adjusted operating expenses were $7.1 million, or approximately $6,567 per day, including vessel operating expenses, management fees, general and administrative expenses and drydocking costs, but excluding $0.2 million of sharebased compensation. 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.