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. 24 January 2012 Shipbuilding News S&M in serious trouble South Korea's small-and-medium size shipbuilders, particularly those in South Kyong Sang province, fell down to severe new order trouble, facing with stagnant shipbuilding market. Small-and-medium size yards in Tongyoung are going through management difficulty, for instance, putting a stop to part of operations, etc., because of preference over larger and high-value vessels. 21st Century Shipbuilding would complete construction of its last newbuilding by the first half 2012, having only three 34,000-dwt bulkers left. Samho Shipbuilding's Tongyoung yard has stopped operation since November 2011 and only Geojae yard is now operating. ShinaSB Yard, rather a large medium sized yard, has won no new order since late ShinaSB is under construction of seven vessels at present, however, it concerns that operation would cease after September 2012, if there is no additional new order. Moreover, small sized shipbuilders are complaining of management difficulty. Seko Heavy Industries has tentatively closed the yard and Sekwang Shipbuilding is currently under a fast-track program with its creditor group. Sungdong Shipbuilding & Marine Engineering and SPP Shipbuilding, which are in better situations, however, are troubled as well. Tong Young's largest medium sized yard, Sungdong would get finance totalling KRW 1.25trn ($1.1bn) by 2013 and is now under a restructuring with its creditor group. SPP is also proceeding a heavy restructuring and would concentrate on shipbuilding. STX wins MR sextet? John Fredriksen is being linked to a large products tanker newbuilding order in South Korea. Talk that the Norwegian shipping tycoon has penned six MRs at STX Offshore & Shipbuilding's Jinhae yard to a private account was gaining traction among brokers Monday. According to several brokers weekly reports, one of Mr Fredriksen s shipping companies has signed a deal for six MR newbuildings at a price between $30m and $33.5m apiece at STX Jinhae in South Korea, for delivery in the next year. Shipbroker Galbraith s was the only broker to report that the deal included options for two further pairs of MR tankers. A price of around $32.5m per ship has also been circulating, which is considered very cheap. It would be a step down in price from orders last year at around $36m, said one broker who had picked up the thread. The last reported newbuilding order in this category was conducted last month, when the Tomasos Brothers ordered four 37,500 dwt tankers at Guangzhou Shipyard International in China for $36m apiece. He suggests the dip shows how keen yards are to secure new orders today. While Fredriksen is perhaps best known for his investments in crude tankers via listed vehicle Frontline, observers say the owner and his camp like the look of the products sector right now. Lunar New Year holiday South Korean shipbuilders have a long Lunar New Year holiday: up to six consecutive days. Hyundai Heavy Industries and Daewoo Shipbuilding & Marine Engineering take a vacation till 25 January (from 21 Jan.), while Samsung HI, STX Offshore & Shipbuilding, Hyundai Mipo Dockyard and Hyundai Samho HI until 26 Jan. Meanwhile, Hyundai and Hyundai Mipo would pay 50% of bonus (on monthly salary) and coming home expense of KRW 500,000 ($440), Hyundai Samho additionally provide presents, totalling KRW 200,000. Daewoo also offers 50% of bonus and KRW 100,000 of presents, which include gift certificate, home appliance, etc. Samsung pays 100% of basic pay as a bonus. Japanese lose edge? Overall Japanese shipbuilders now face stagnant new order by decreased competitiveness. Japan Ship Exporter s Association (JSEA) reported that Japanese shipbuilders' export ship contract in 2011 plummeted to 8.96m gt, down by 19.6%.

2 Since 1999, this is the first time to go under 10m gt, excluding 2009, right after Lehman Shock. Strong yen and worsening economic depression caused Japanese yards' new order slump, if it continues for a while, there would turn up several builders with no work by In terms of vessel number, new order slowed down to 218 vessels, down by 53 vessels y-o-y, among which bulker took 90%. However, LNG carrier, which gains increasing global demand, won no new order. Most of export ship was contracted dollar-denominated, at the rate of over 80 yen to the U.S dollar. Japan lost its new order competitive edge amid strong yen, however, South Korean builders are now increasing new order with weak won. Although Japanese builders, including Mitsubishi Heavy Industries, etc., push ahead with overseas procurement of main raw materials, such as steel, however, they face limited cost reduction, as main equipment, such as marine engine, etc., is made in Japan. Moreover, Japanese builders' new order placement is in decrease by global economic troubles, for instance, Sumitomo Heavy Industries, which specializes in mediumsized tanker, inked no order in Also, Japanese shipowners would restrain new order placement amid fleet over supply, Kawasaki Kisen Kaisha would put off newbuilding investment for a while, for example. Meanwhile, several Japanese yards would have no work by To overcome the problem, Japanese government promote yard expansion, JFE Holdings and IHI-affiliated shipbuilding company's merger is currently under final adjustment, with a goal to reach an agreement by the end of March. (8.9% share) and ship repair and scrapping rose by 14.9% to CNY 3.3bn (6.9%). Meanwhile, China's ship exports during January-November period in 2011 stood at $39.78bn, up by 8% on the same period Vessels were exported to about 175 nations and regions. Asia and Europe were China's major markets, as Asia took about 50.1% of overseas market, having exported $19.93bn of vessels there, while China exported $8.81bn of vessels to Europe, making up 22.1%. Yard-Steel makers seek coexistence South Korea's shipbuilders and steel makers, currently under a thick-plate price negotiation, are to go into a partnership. On 31 January, shipbuilders and steel manufacturers' associations would have a meeting to find ways for coexistence. Those in charge of thick-plate sales department from POSCO, Dongkuk Steel and Hyundai-Steel of the Korea Iron & Steel Association and those responsible for purchase from a total of five builders, Hyundai Heavy Industries, Samsung HI, Daewoo Shipbuilding & Marine Engineering, STX Offshore & Shipbuilding and Hanjin HI & Construction of the Korea Shipbuilders' Association would participate the meeting. Senior official from steel industry said, "Officials in charge of purchae and sales would look for coexistence, as both parties agreed that buyer and supplier should understand each other's difficulties and respect them." Besides, Japanese builders would compete with China and South Korea in high-value ship sector, by developing energy-efficient vessel and entering into offshore plant sector. Japanese yards are stuck in a difficult situation to choose between expanding their overseas yards and losing job creation in Japan and concentrating on their domestic yard. China(1): Earnings Rise China's shipbuilding-related companies over a certain size increased overall operating revenue to CNY 622.1bn ($98.2bn) in the first 11 months in 2011, up by 24.9% on the same period Shipbuilders' operating revenue jumped 25.6% to CNY 473.2bn, marine equipment makers rose by 25.6% to CNY 76.1bn and ship repairers and scrappers grew by 16.3% to CNY 66.3bn. During the same period, total profit increased to CNY 48.1bn, up by 25.5%, among which shipbuilding industry went up by 28.4% to CNY 40.2bn, taking 83.6% of overall profit. Marine equipment jumped by 16.5% to CNY 4.3bn

3 Shipping & Business News Lloyds to sell ship loan book in parcels - sources * Lloyds failed to sell $10 bln shipping book in one go * Shipping sector woes seen worsening in 2012 * RBS looking to cut "non-core" ship book Lloyds Banking Group is unlikely to sell its $10 billion portfolio of shipping loans to a single buyer and aims to parcel up loans for sale as European banks continue to retreat from the maritime sector, industry sources say. Lloyds, 41 percent owned by the UK government, has held talks in the past year to sell its shipping finance book but not reached any deal. A single deal is now unlikely, but the bank is looking to sell blocks of the loans to single buyers, ship industry and banking sources told Reuters. "They are trying to parcel it off and sell it in bits," a senior ship industry source said. Shipping companies, especially in the oil tanker and dry bulk sectors, hit by weak earnings and an oversupply of vessels ordered in the good times, are facing a growing funding squeeze as banks pull back from heavy industry sectors as the euro zone debt crisis deepens. Lloyds' loan book has been reduced by individual asset sales and the agreed repayment of loans by borrowers and that will continue, a source familiar with the matter said. A spokesman for Lloyds, which is being advised by Goldman Sachs, said a strategic review by its new Chief Executive Antonio Horta-Osorio last June identified that shipping finance "would no longer be a core activity... and we are continuing to reduce the size of our shipping exposure". "They want to get rid of it and appears there are banks interested," another ship industry source said. "With Basel III coming now, these organisations have no choice but to get rid of these books." Banks are particularly keen to shed dollar-denominated assets, such as shipping and trade finance loans. Royal Bank of Scotland has a shipping loan book almost twice the size of Lloyds. About 35 percent of RBS's shipping loans, or some $6.9 billion, has been put in its "non-core" portfolio, which are up for sale or will be run down, a source familiar with the matter said. CREDIT SQUEEZE The remaining $12.8 billion of RBS's shipping finance has been kept in its core banking business, typically because the bank has a relationship with the borrower. Shipping sources said they were aware that RBS was looking at shrinking their shipping loan book. RBS, 83 percent owned by British taxpayers, has aggressively cut the size of its balance sheet and continues to do so. In its 2010 annual report the bank said 2.8 billion pounds of its shipping loans were subject to a "heightened level of monitoring", though it said there had been no material impairments charges to date. Tightening credit lines are hitting the shipping sector at a time when it struggles with a worsening world economic crisis. Danish shipping company Torm A/S said this month its banks had agreed to extend a deferral of installments on its $1.8 billion of debt and hoped to reach a comprehensive financing solution to secure its future. In December the world's biggest independent oil tanker operator Frontline issued a restructuring plan. Separately, in November General Maritime Corp filed for bankruptcy protection. "Credit is expected to be very constrained this year and as European banks have been quite significant in shipping, it's going to be a problem," a ship industry source said. "European banks are retreating from shipping and the sector is being reclassified as risky along with aviation." France's second-biggest listed bank Societe Generale has decided to exit or strongly reduce property, shipping and aircraft financing activities, a memo seen by Reuters this month showed. Separately, France's biggest listed bank BNP Paribas is also aiming to exit or reduce non-core activities such as shipping. Similar moves are being examined by smaller French rival Natixis, bank memos showed. Analysis: Shipping signal gnaws at market optimism A nightmare on world freight markets, where shipping prices have been decimated over the past four years, is gnawing at New Year optimism about a stabilizing world economy and shows how adept investors can be at tuning out 'inconvenient' information. Global markets have staged an impressive start to 2012 after a dire second half to last year when economists talked openly of global depression, euro zone collapse and systemic shocks. World equities, commodities and even Italian government debt have all rallied to return between five and 10 percent so far this month. And there's plenty of supporting news to back that up -- a wave of more positive business surveys across developed economies, improving labor markets and consumer credit in the United States, huge and cheap long-term bank financing from the European Central Bank and some benign Chinese growth numbers. The world economy is not in freefall after all, it seems, and overpessimistic markets have re-adjusted to reflect that. Yet, one market has so far refused to play ball. The Baltic Exchange's main sea freight index.badi, which measures the cost of shipping dry commodities and is seen by many as a lead indicator of global trade activity, has shed more than 50 percent in just one month and is plumbing threeyear lows.

4 BUM STEER? For many, it's tempting to dismiss the signal as a bum steer from a market that experts say faces a glut of new vessels due to over-optimism about demand a couple of years back. Given the long lead time it takes to build new ships, the resultant excess capacity is kicking in now and overwhelming subdued demand. What's more, a slowing Chinese economy -- whose sudden emergence as the world's second largest has been responsible for some of the most dramatic movements in the index over the past decade -- and demand for iron ore - - which accounts for almost a third of the volumes on larger cargo ships -- are major factors. Yet, if you subscribe to its predictive nature, then it's difficult to ignore that as equity markets tumbled through late summer and autumn of last year, shipping prices were more sanguine and jumped 70 percent between August and October, which may well have heralded the stream of good economic news. Defenders of its leading signal status also point to the fact that the rigidities related to market capacity reduce the speculative element that creates so much short-term noise in other financial markets and make it less prone to the ebb and flow of monetary liquidity and central bank policy. As a result, the doldrums in the Baltic Freight index may merely be a reality check for other markets and more accurately reflect a widespread investor view of sub-par global economic growth for years to come rather than any new signal per se. "The global economy is very likely to slow sharply this year. Quite how sharply it slows and why will define how risky assets will perform," said Richard Cookson, Global Chief Investment Officer at Citi Private Bank. The International Monetary Fund on Tuesday reinforced the slowdown thesis, cutting its 2012 world growth forecast to a sub-trend 3.3 percent from as high as 4 percent last September. If the shipping market divergence is then simply to do with perspective and length of horizon, it's revealing how market behavior and its often weekly bipolar swings between pessimism and optimism -- or "risk on" and "risk off" in market parlance -- is adept at choosing information to suit its prevailing mood. HARDWIRED Societe Generale strategist Dylan Grice, who along with long-term market bear Albert Edwards advocate the bank's "Alternative View" of a looming economic Ice Age, cites several studies showing how people are always biased toward believing information that reinforces their existing view and markets were little different in this respect. "We're hardwired to think we're right more often than we are right," Grice told clients this week. "The problem isn't that we have an optimistic disposition per se. It's that we're impervious to evidence telling us we're wrong, and are steadfast in our refusal to incorporate such evidence." Bullish or bearish then, the best strategy may be a refusal to get caught in either prevailing short-term narrative and an attempt to see through another likely volatile year by sticking with tried and tested blue chip equities and top quality bonds. Delivery peak passed Clarksons counts 2,489 vessels of a combined million dwt hitting the water in 2011, against the 3,002 ships of million dwt entering the shipping market in the previous year. This suggests that 2011 is likely to have been the peak of the current shipbuilding cycle in terms of dwt (and GT) output, Clarksons said. It added: Looking forward, a large orderbook for 2012 delivery (scheduled million dwt) suggests that there should still be considerable yard output in However, slippage and cancellation remain a significant threat to the 2012 orderbook and deliveries for 2012 are currently forecast at million dwt. The global orderbook is now at the lowest point since January 2006 following a slump in new ordering activity of 48% last year. It counts 5,896 newbuildings still on the books at yards around the world, down by one quarter on 12 months ago. Clarksons says 1,217 new ships were ordered in 2011, with contract numbers falling off sharply in the second half due to weak markets and struggles in the Eurozone. Lay-up increase The number and capacity of containerships in lay-up has surged by almost 30% in little more than a month. There are now 268 boxships of 676,000-teu laid up as of last week, according to the latest data from Alphaliner. This compares with 210 ships of 526,000-teu as of the 5 December, increases of 27.6% and 28.5% respectively. The average size of idle containerships has also been increasing steadily since June last year, from 1,250-teu to 2,500-teu. The number of idle ships has increased across all size segments, driven by service withdrawals in the winter season and newbuilding deliveries, says Alphaliner. Major investment boom expected in LNG, gas shipping: conference A major demand-driven investment boom in LNG is likely toward the end of this decade, estimated at some $263 billion, Graham Hartnell, manager of LNG and gas consulting at consultants Poten & Partners, said Tuesday. Hartnell was speaking at the European Gas Conference in Vienna, organized by The Energy Exchange.

5 He said that given the changes in the financial world, "this will require higher prices for gas." Predicting fewer sources of financing, he said the investments would involve "mainly project financing with greater participation by the principals involved." Meanwhile, most of the new LNG capacities coming on line will focus on projects being completed in Australia, mainly to serve growing Asian markets, he said. Dramatic expansion of transportation facilities will be needed to move gas to market, with the available shipping fleet to double within the coming 15 years, Hartnell said. Speakers at the conference noted the current lack of transportation as one of the key factors limiting LNG expansion, although Ane de Arino Ochoa, strategic planning and control director at Repsol Gas Natural LNG, said the problem is the market, not supply. In Spain, she said, renewable energy is partly pushing out generation anticipated from gas. Tim Gould, senior energy analyst at the International energy Agency, said LNG growth would be influenced by politicians. He said "the prospects are more dependent on governments and policies than on the markets," an example being the role of renewables as a replacement for fossil fuels. Guy Broggi, head of LNG supply at Total Gas & Power, sees the North American market as becoming increasingly self-sufficient and isolated from global considerations. Participants were in agreement that while substantial cutbacks of nuclear generating capacity in Japan and Germany could boost gas demand, this was not a critical factor in projecting market growth for LNG. Shigeki Terada, senior manager for natural gas and upstream project development at Mitsubishi Corporation International Europe, pointed to a broad range in public estimates of the size of the global LNG market by At the end of the day speakers were in general agreement that demand would certainly increase as would prices for gas and that new players would appear on the scene. Japanese shipping rises on US coal hopes Japanese shipping companies made strong gains on Wednesday, led by Daiichi Chou Kisen Kaisha after the company said it was targeting a boom in coal exports from the US. The Tokyo-based company said it was hoping to take advantage of an expected rise in coal exports as ultra cheap gas prices in the US have dented demand for the bulk commodity. Saburo Koide, president of the company, said it had already received several enquiries and said Daiichi Chou planned to expand its fleet by 85 vessels to 280 by 2016 and said he expected more bulk ships to the US to transport coal to markets such as China and India, and increasingly Brazil. Shares in Daiichi Chou jumped 19.5 per cent to Y135 and buoyed the rest of the sector in their wake. Mitsui OSK Lines, the world s largest merchant fleet and a shareholder in Daiichi Chou, bounced 7.6 per cent to Y298, while Kawasaki Kisen Kaisha gained 6.3 per cent to Y151. Tokyo s Nikkei 225 Average climbed 1.1 per cent to 8,883.69, helping the FTSE Asia Pacific index rise 0.7 per cent to a four-month high of Technology stocks across the region were lifted after an impressive set of results from Apple in the US. The maker of iphones and ipads reported fourth-quarter profits of $13bn, well in advance of market expectations. Suppliers of components to Apple climbed, with South Korea s Hynix Semiconductor up 1.9 per cent to Won27,450, while Japan s Murata Manufacturing, which supplies capacitors, added 3.1 per cent to Y4,290. Apple rivals were also boosted, with Samsung Electronics up 0.8 per cent to Won1,114,000. LG Electronics jumped 4.1 per cent to Won77,100. Seoul s Kospi Composite gained 0.1 per cent to 1, In Australia, rare earths miner Lynas Corp gained 5.1 per cent to A$1.35 after selling a convertible bond. Sydney s S&P/ASX 200 gained 1.1 per cent to 4, Vale Set to Bypass China s Ban on Ore Ships With Transfer Vessel Vale SA, the world s largest iron- ore producer, is set to take delivery of a ship that will help the company bypass the exclusion from Chinese ports of its biggest vessels hauling the commodity. The Ore Fabrica, a raw-materials carrier that s been converted to a so-called transshipment vessel, will be delivered today, according to Redhill, England-based IHS Fairplay. The ship will be the largest global floating transfer station, Robert Willmington, a spokesman for the provider of shipping data, said by . China is excluding Vale s five largest ships, the world s biggest carriers of dry-bulk commodities, because they lack port-entry permits, Jose Carlos Martins, head of iron ore and strategy, said in December. The Rio de Janeirobased company planned to transfer ore to smaller ships from the so-called valemax vessels for delivery elsewhere, he said. Vale is spending more than $8 billion to operate a fleet of 35 valemaxes in an effort to gain more control of freight costs to its fastest-growing market in Asia. Chinese shipowners opposed the vessels introduction on concern it would worsen a capacity glut and plunging rates. China is the biggest global user of iron ore, a steelmaking ingredient. Subic Bay The transshipment operations would be based at Subic Bay in the Philippines, Martins said. The Ore Fabrica is destined for the port along with the ore carriers Vale Brasil and Vale China, ship-tracking data compiled by Bloomberg show. The vessels are scheduled to arrive on Feb. 2, Feb. 12 and Feb. 22, respectively, according to the data. The Ore Fabrica s conversion started in August, according to a note on the website of Jiangsu Xinrong Shipyard Co.

6 That was six weeks after Vale Brasil, Vale s first valemax, diverted to Italy on its maiden voyage from the original destination of Dalian in China. The conversion was the second for the Ore Fabrica, which was previously altered by Vale to an ore carrier from a tanker, IHS Fairplay data show. The three Chinese ports that Vale has said can accommodate the valemaxes have so far failed to handle any of the ships. The vessels, each able to carry 400,000 metric tons of iron ore, are about twice the size of the capesize ships generally used to haul cargoes to Asia from Brazil, the second-largest global exporter of the commodity after Australia. The ships exclusion from Chinese ports is a technical issue and has no connection to political influence, Vale s Martins said last month. 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.