23 February Shipbuilding News. Hyundai returns to No1. Keen competition among Asian yards. Ultra-boxships dominate market

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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. 23 February 2011 Shipbuilding News Hyundai returns to No1 Korea's Hyundai Heavy Industries has taken the world's first place again in six months in terms of orderbook. When it comes to nations, China is steadily increasing order backlog, but still behind Korea in the aspect of business competition. According to the Clarkson Research Services, Hyundai, including its Ulsan and Gunsan shipyards, put itself on the first place in orderbook by holding 221 ships of 8,047,000 CGT by January 2011, beating Samsung Heavy Industries holding 190 ships of 7,945,000 CGT in the nick. Daewoo Shipbuilding & Marine Engineering was ranked the third with 166 ships of 6,888,000 CGT, STX Offshore & Shipbuilding with 160 ships of 4,504,000 CGT, Hyundai Mipo Dockyard with 200 ships of 3,758,000 CGT, and Hyundai Samho Heavy Industries with 99 ships of 3,397,000 CGT. As seen above, Korean shipyards took the top six places, and if Sundong Shipbuilding & Marine Engineering, which was ranked 10th with 81 ships of 2,211,000 CGT, is considered, the top 10 places are taken by seven Korean yards. The rest of the top 10 include China's Jiangsu Rongsheng Heavy Industries, DSIC and Japan's Oshima Shipbuilding. Keen competition among Asian yards Most of world' shipowners have not been able to place newbuilding orders over the last two years due to the global financial crisis, putting shipbuilders into new order drought. Also, as the global shipowners are increasing their expectation for fuel-efficient and eco-friendly ships, new order competition among shipyards is growing acute. The world's shipbuilding powerhouse, Korea, had to yield the top position to China last year, but, according to major analysts, Korea is likely to regain the first position this year since it gets ahead of China in terms of designing new ship types and technical advancement. Meanwhile, Japanese shipbuilders are widely recognized for guaranteeing a certain product quality, but the steadily increasing yen is placing them into a difficult situation. Ultra-boxships dominate market Ultra-large containerships are expected to lead the newbuilding market for some time as Korea's Daewoo Shipbuilding & Marine Engineering has recently won 10 containerships of 18,000 TEU worth KRW 2trn ($1.8bn) from the world's largest liner, Denmark's Maersk. However, the current prices of new boxships are still remain at the 70% to 80% level of the booming season's between 2007 and This is because global major shipowners seem to be continuously placing newbuilding orders in terms of upfront investment before the prices go up with the general world's economy taking a favorable tone. Plus, as the world's largest liner, Maersk, has recently ordered a bulk of ultra-large boxships, the other rivals would place newbuilding orders as well. The signs of this change also appeared when Evergreen ordered 10 boxships of 8,000 TEU at Korea's Samsung Heavy Industries in last July and another 10 ships in last September. Daewoo, at the same time, was awarded 10 boxships of 84,000 TEU in last July and another four of 10,700 TEU in last August from European shipowners. In a raw, Hyundai Heavy Industries obtained four boxships of 13,100 TEU plus six optional vessels in late 2010 and another six boxships of 8,800 TEU plus four optional units in February this year. STX Offshore & Shipbuilding received four ships of 13,000 TEU plus six optional units in last October. Taking this trend, Sungdong Shipbuilding & Marine Engineering has won six ships of 8,800 TEU plus four optional ships from MSC. One of the soon-to-be placed orders worldwide is for maximum 40 boxships of 10,000 TEU from Canada's Seaspan, which has singed a LOI and entered into the final step of negotiation with a Chinese yard. Besides, Korea's Hanjin Shipping is considering ordering 8,000-teu new boxships, and Hyundai Merchant Marine also seems to soon announce its plan to place newbuilding orders. In addition, Abu Dhabi's state-run oil company, ADNOC, is believed to be progressing negotiation to order maximum 15 ships of 2,500-teu. To sum up, 2011 is likely to see a large scale of newbuilding orders following the last booming season between 2007 and 2008 due to recently increasing traffic of liners.

2 Hanjin resells boxship Korea's Hanjin Heavy Industries & Construction announced yesterday that it canceled the newbuilding contract for one containership received on 3rd March 2005 because of shipowners' fail to pay deposit. And the yard resold the canceled ship to a third party two days ago. Terminated contract value comes to KRW 114bn ($101m). It is likely that Hanjin has only now found a home for one of three 6,500-teu boxships ordered by Greek owner Danaos Corp for $99m a piece but axed last May. Clarksons currently lists Hanjin as building only six container vessels: a pair of 3,450-teu units for CMA CGM, two more same-sized ships for an unknown owner, a 3,400-teu vessel for Danaos and one 6,600-teu ship for Greece s Technomar. Hyundai-Gunsan storms upward Korea's Hyundai Heavy Industries-owned Gunsan shipyard, which had undergone difficulties in new order intake in the wake of the global financial crisis, has begun to regain vitality. The yard has obtained 14 ships so far this year while won only three ships in 2009 and nine ships in With an annual building capacity of 24 ships of 100,000- dwt class, the yard has succeeded in obtaining 320,000- dwt VLCCs this year for the first time since its launching. However, the yard is now operating at only 60% capacity, so seems to need more time to recover in full scale. Also the yard will increase its current staff scale of 3,700 workers up to 6,500 when more than 20 ships are awarded annually at the yard, which can create job opportunities in the region. Clear contrast in newbuild While newbuilding orders for bulkers and tankers stayed depressed during January this year, both containerships and LNG carriers led the newbuilding market. According to the Clarkson Research Services, the total of newbuilding orders placed worldwide during January 2011 came to 64 ships of 4.2m DWT, 2.8m GT and 1.5m CGT, dramatically decreasing by 59% compared with the same period of the previous year. When it comes to bulkers, overall 31 ships of 2.8m DWT were ordered, occupying 66% of the total in terms of tonnages, but this is its lowest since September 2009 with 24 ships. The new bulker orders included seven capesizes, nine panamaxs, 13 handymaxs and two handysizes, dropping sharply by 56% in DWT terms versus the same month of the previous year. For tankers, only five ships over 10,000 DWT in scale were newly ordered without any VLCC and aframax newbuilding orders. Among the newly ordered tankers during the period, there were one suezmax, one panamax, one product tanker and two chemical tankers, totaling 300,000 DWT, which is even a 91% drop year-on-year. On the contrary, the total of new LNG ship orders during the same period came to five ships, showing a dramatic increase of 938% year-on-year. Containerships also indicated an year-on-year 106% growth with six ships of over 8,000 TEU and four ships of less than 3,000 TEU ordered. Meanwhile, the total of newbuilding order values during the period stood at only $2.7bn, which is only the half of $5.5bn from December Of the total values of $2.7bn, Bulkers accounted for $800m, tankers for $300m, LNG carriers for $700m, containerships for $600m and cruiseships for $200m. Amid the depressed new ship orders, the Clarkson newbuilding price index at the end of January stayed in 142p, declining slightly from 142.4p at the end of last year. In particular, almost all types of tankers showed a downturn against the previous month in the benchmark newbuilding price. And the order backlog of aframaxs and VLCCs occupied more than 30% respectively compared to existing tonnages. A long-term outlook on tanker market situations is also quite negative, which leads in a slowdown in new orders. The benchmark newbuilding price of a VLCC represented $104m, suezmax for $66m, aframax for $55m, capesize bulker for $55.5m, panamax for $34.5m and handymax for $31m. New Century: Final run for IPO! As one of China s largest private shipyards, New Century Shipbuilding would leave for Hong Kong on this Thursday, for IPO hearing. As is reported, the issue scale would hit $800m. led and dominated by BOC International (China) Limited and Deutsche Bank. It was the third time for New Century to trigger IPO plan. The previous two attempts both failed due to changes of international economic environment. As early as 2006, New Century splashed out CNY1.2bn ($180m), to establish joint-stock New Times Shipyard with Singaporean partner. Meanwhile, New Century prepared for IPO in Singapore then and cooperated with UBS in In 2008, the IPO plan was approved by government but the financial crisis severely hit the market. As a result, New Century had to cancel IPO intention. On May 7th, New Century announced through UBS that it gave up the second attempt for IPO. Five days ago, the group announced the plan was re-started. An insider

3 revealed the Greek financial crisis might be the reason for IPO cancellation. As is introduced, New Century delivered 28 ships of 3.57m dwt in The revenue reached CNY16.6bn while profit tax hit CNY3.5bn. The orderbook was extended to the first half of Chairman Yuan Kaifei said in next five years New Century would consider purchasing some yards and shipping companies and invested on offshore platform technology conversion. The LPG and LNG carriers were also included in strategy. Diversified development would become the main stream. Basing on No.3 of output volume in China, New Century would try to enter global shipbuilding top5 club in Shipping & Business News Boxship oversupply fear continues Excess containership capacity rather than growth in demand remains a significant threat for the shipping industry in the short term. SeaAxis Macro's quarterly report predicts stronger conditions for the shipping industry by mid Paris-based author Philippe Hoehlinger states: The shipping industry is currently midway through a weak sixmonth period, caused mainly by the traditional seasonal downturn, and partly by the redeployment of idle tonnage. Whilst the intra Asia cargo traffic, representing close to one-third of all trade, continues to hold steady, all other east-west cargo traffic and other intra-regional trade is expected to be weak for the next three month period, but should then show signs of recovery. Looking at the balance between container vessel capacity and shipper demand, Mr Hoehlinger says: Cargo trade growth - ie demand - is not a threat these days, as it is strongly correlated to real GDP growth, and real GDP growth forecasts are strong, to a revised rate of 4.4% and 4.5% on a global basis for 2011 and 2012 respectively. This is primarily driven by so-called emerging countries, of which BRIC countries are the main contributors. The current level of real GDP growth historically translates into cargo trade growth of around 11% per year. He adds that the main threat remains the growth in available vessel capacity, highlighting four key areas: Capacity to be delivered is likely to increase after an unusually weak capacity delivery pace in the last three months, while slow steaming seems to have reached a plateau. Cancellations and postponements of vessel orders have stopped, while the lay up of vessels has started decreasing. He continues: All trends remaining constant, the vessel capacity oversupply situation will reach its peak at the end of the first quarter of 2011 and will then gradually recover but not entirely until the end of There are significant uncertainties that remain and could further worsen the oversupply situation, such as pace of vessel container capacity and laying up of vessels. Container shipping moves up China's foreign trade is recovering as the global economy is taking a favorable tone. There was a noticeable increase in container traffic last month with the shipping costs of containers stopping to drop. The market situations of international freight had stayed sluggish due to bad weather, unbalance between demand and supply and a drop in demand, causing a dramatic decrease in shipping costs. Considering those situations, the container freight market can be seen to have got out of the crisis to recover since the January of According to a report released by SHANGHAI SHIPPING EXCHANGE on 28th January, the total shipping index of China's export containers stayed in 1060, the similar level of the previous month's, but this is a 11% increase yearon-year, and the total export and import during January increased by 43.9% year-on-year. Thanks to a relatively favorable mood of foreign trade, traffic volume started to increase at the beginning of January and hit the peak at the end of the month. As a result of this, the container freight index, which had shown a downturn for four consecutive months, has begun to see an upturn after it touched the bottom. The container freight market is expected to be the only one to take a growing tone in the depressed shipping market this year. However, the shipping costs of international dry cargo, and crude oil and coastal shipping market are likely to decrease sharply, even some forecasting they will hit the lowest ever. Thanks to these conditions, most shipowners face troubles, but there is still a possibility for market situations to rebound since traffic volume shows a stability since February and the international dry cargo market steadily recovers. VLCC turning to super-slow steaming Maersk Tankers is saving $22,000 daily in fuel costs for each of its very large crude carriers by almost halving vessel speeds for the ballast leg of the voyages.

4 The Copenhagen-based company said it is using lessons learned about super-slow steaming within the containership sector during the market crisis of Gripped by loss-making freight rates and an overcapacity crisis, containerships on major trading routes cut speed times from early 2009 from as fast as 24 knots to under 12 knots to successfully stretch voyage times, boost vessel employment and reduce costs. The benefits were so significant that the practice of slow steaming is now firmly entrenched among container lines. Maersk s fleet of 11 VLCCs are travelling at speeds as slow as 8.5 knots when transiting without cargo to the next load port, compared to industry-standard slow steaming speeds of around 13 knots, the company said. Frontline also disclosed that its 27-VLCC fleet was also super-slow steaming, at a speed of 9-10 knots on ballast legs. Maersk open to bigger ships AP Moller-Maersk, which just inked ten 18,000-teu containerships at South Korean shipyard DSME plus 20 optional vessels for $190 apiece, is open to the idea of building even bigger boxships. The Dane also claimed funding for the potential $5.7bn, 30-ship splash at Daewoo Shipbuilding & Marine Engineering (DSME) is secure as it committed the 18,000-teu monsters to the Asia-Europe trade. The owner was unusually candid about the size of the newbuildings as it had previously tried to keep the true capacity of its previous standard bearer, the 15,550-teu Emma Maersk (built 2006), a closely-guarded secret. There is no such attempt at circumspection this time, however, with Maersk Line chief executive Eivind Kolding saying that 18,000-teu is the definite limit for the new ships. This will probably be the largest ship you will see for quite some time, Kolding told a packed audience at a Canary Wharf press conference on Monday. Intriguingly, however, he teased that it could not be discounted that the owner returns with orders for even larger ships in the future. A few other South Korean yards, which Kolding did not identify, had also tendered for the mammoth job but Chinese builders were not considered as, the CEO commented, the country s yards are not there yet when it comes to such large boxships. The Triple-E class ships denoting energy efficiency, environmental performance and economies of scale are set to be thrown into the Asia to Europe trade with Kolding envisaging ports of call in China, Hong Kong, Malaysia, possibly Port Said and Algeciras and Western Europe, most probably Rotterdam, Felixstowe and Bremerhaven. Defending the reliance on the one route, Kolding said the owner spies some interesting markets in the 'Europe' region, namely Russia, Turkey and North Africa. The new ships will reduce the cost of shipping a single box from Asia to Europe by around 26%, Maersk Line claims, with a new U-shaped hull design meaning the vessels will be able to carry 23 rows of boxes across instead of 22 on the Emma Maersk which is only four metres shorter. Although abandoning the more conventional V-shaped hull will create more drag, the new ships aim for an operational speed of just 19 knots and a top speed of 23, as against 23 and 25 for the Emma Maersk. Fuel consumption is also set to be 50% lower than the industry average and 20% lower than benchmarks, which are also in Maersk s fleet. Kolding justified the per-ship contract price of $190m by saying some $30m of this related to energy efficiency technologies which, it is expected, will return revenues. Financing is not a problem, the CEO claimed, saying it is secure, although there is an option for secure financing in Korea should the need arise for optional vessels. Frontline tips tanker values holding Frontline forecast asset prices for modern crude tankers to hold firm despite a disappointing market in recent months. Both newbuilding and modern second-hand values will not decline greatly, says CEO Jens Martin Jensen. Jensen, speaking on a conference call after Frontline revealed a fourth quarter loss, said: Newbuilding prices today for a decent spec VLCC are around $100m and for suezmaxes around $65m to $66m. We do not see any reason why newbuilding prices should fall very much from these levels in the near term. He added: I think that the values for modern ships will not fall so much. The older ships of more than 15-years-old are coming under pressure and the values will fall quite a lot on those. He adds the tanker owner is still looking to grow its fleet rather than sell assets to generate cash. We need to and we want to expand our fleet with modern ships, Jensen said. It could be via further newbuildings, although that is not preferred, or it could be a block of modern second-hand ships and we could also charter in more." Meantime, Frontline reported a worse than expected loss of $11.8m in the final three months of However, despite acknowledging the significant newbuilding orderbook overhanging the sector, he believes the imbalance between supply and demand will not be as bad as many fear. Frontline tips around 55 VLCCs to be delivered in 2011, with slippage levels of between 20% and 25%. Jensen explained: I m not saying we will have a shortage of VLCCs over the next years. But [given] further delays and even cancellations to the orderbook, and quite a healthy ton mile increase, we could see a better balanced tonnage situation than feared for the next one to two years. Jensen added: I think the gap between demand and vessel supply could be narrower than expected.

5 We have seen right now a break in the ordering of VLCCs and suezmaxes and yard space is being taken up by other tonnage types. All this will influence the market positively in the years ahead. We need consolidation in the business and we hope we can participate in that in this and the coming years. Ko-Exim guarantees active support Korea Eximbank promises active support for the shipbuilding industry. Kim Young-hwan, president of Korea Eximbank, said yesterday, while visiting Hyundai Heavy Industries and Hyundai Mipo Dcokyard both in Ulsan city, Korea, "Korea's shipbuilding industry, which has got out of recession since the global financial crisis, needs to enhance international competitiveness over high value-added ships, such as ultra-large boxships, drillships or FPSOs, to prepare for Chinese rivals' chase. Korea Eximbank will, therefore, be supportive." Aframax resale at $48.5m Polembros Shipping is reportedly behind the purchase of a pair of Cido Shipping aframax tanker newbuildings. The Greek shipowner is said to be paying $48.5m for each of the two 104,208-dwt newbuildings which are due for delivery in February. Both ships, the Pacific Ivy and the Pacific Poppy, are under construction at Japan s Sumitomo Heavy Industries. Current average prices for aframaxes are around $55m. The two Cido ships were reportedly ordered in December Cosco boosts profit with $2.1bn orders China's shipbuilder and bulker owner Cosco Corp (Singapore) managed to significantly boost net profit on the back of increased sales and cost cutting but its dry-bulk division suffered in a weak market. Such continued weakness was also one of the reasons for caution as the yard group wrote in Tuesday s announcement to the Singapore Stock Exchange: Any rebound in [Baltic Dry Index] may remain subdued in view of the abundant supply of new ships inundating the global market. Much of Cosco s caution, however, stems from a sense that the world economy remains fragile and recovery uneven. Fears that the Chinese property market may be over-heated and that labour costs and shortages could hit operations have also spooked the yard group. For the time being, however, Cosco reported a huge rise in full-year net profit from SGD m ($107.61m) to SGD m. This was mainly due to higher turnover in the shipbuilding and marine engineering businesses which pushed total revenues from SGD 2.9bn to SGD 3.86bn. The company said that new orders in 2010 amounted to $2.1bn, and included 31 bulk carriers and one deepwater drillship, a deepwater DP3 semi-submersible Sevan drilling rig, a wind turbine installation vessel and two deck barges. The total orderbook stood at $6.1bn with deliveries out to The company added significantly to the global dry bulk fleet in 2010, by delivering 32 bulk carriers. These included eight by its subsidiary Cosco Guangdong shipyard, 12 by Cosco Dalian shipyard and 12 by Cosco Zhoushan shipyard. Its Cosco Nantong shipyard delivered a jack-up rig, while the Dalian yard delivered three multipurpose heavylift vessels. The company also has a small fleet of bulker which reported a 3.2% dive in turnover as freight rates remained depressed for the second half of the year. The company managed to minimize the impact of the dire market, however, by cutting costs in the segment. Maersk recovers with record $5bn full-year profit Denmark s AP Møller-Maersk, operator of the world s largest container ship fleet, on Wednesday announced record $5bn net profits for 2010 a year after announcing the only full-year loss in its 107-year history. However, the shipping and oil conglomerate warned that 2011 results were likely to be worse than those for 2010, as the growth of the world container ship fleet outpaced demand and the company s oil and gas production declined. The record results came two days after Maersk Line, the group s container shipping line, illustrated its confidence in the market s future by announcing an order for at least 10 huge container ships, which will be the world s largest ships when delivered. The company attributed its rebound to a recovery in world trade from 2009, the worst year in container shipping s history, and improved cost competitiveness. Our people have done a truly great job, Nils Andersen, chief executive, said. We have become more competitive and our improved service across the group has led to continued increases in customer satisfaction. At the heart of the turnround was the return to profitability at the container activities division mostly made up of Maersk Line where net profits were $2.64bn against a $2.13bn loss for 2009 on revenue up 31 per cent to $26bn. The average rate per container shipped increased by 29 per cent to $3.064 per forty-foot container, after a 28 per cent fall in The company admitted it had lost market share over the year, increasing volumes by only 5 per cent against market growth of 13 per cent. The company had lacked capacity to cope with the unexpected rebound of demand and had prioritised improving profitability over market share, it said. However, its market share had started to improve in the last quarter. Oil and gas net profits improved 43 per cent to $1.66bn on revenue up 14 per cent to $10.3bn.

6 Net profits at APM Terminals, the container terminal operator, improved 61 per cent to $793m on revenue up $11m to $4.25bn. However, Maersk s forecasts for the present year had been among the most keenly-anticipated features of the results, given the uncertain outlook for the world container shipping market. The company said it expected world container trade to grow at 6-to-8 per cent, but for container ship supply to grow faster. The group s container activities expect a satisfactory result, but below the 2010 result, it said. Maersk Oil expected to conduct more exploration in 2011 than in 2010 but to produce only 125m barrels, against 138m in Maersk Oil s result for 2011 is expected to be lower than in 2010 based on an average oil price around $90 per barrel, it said. The company nevertheless forecast that, although its results would remain weak, its tanker division, the world s largest operator of oil product tankers, would do better than in Maersk Tankers lost $118m for 2010, an improvement from the $255m lost in 2009, on revenue up 5 per cent to $1.22bn. The 2010 net profit beats Maersk s previous net profit record of $4.69bn, recorded in 2004 at the height of the last decade s shipping boom. The 2010 figure which compares with a $1.02bn loss for 2009 was struck on revenue up 15 per cent to $56.1bn. The company s B Shares the most widely-traded rose DKr500 in Copenhagen to DKr52,300. 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.