07 January Shipbuilding News. Korean continue order rally. STX develops ice-class ships. Tycoon returns to Daewoo

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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. 07 January 2010 Shipbuilding News Korean continue order rally In this New Year 2010, South Korean shipbuilders are likely to continue to land newbuilding contracts from foreign shipowners. Daewoo Shipbuilding & Marine Engineering and Sungdong Shipbuilding & Marine Engineering, which won noticeably many new orders at the end of last year, are said to be in the final stage of negotiations with overseas shipowners for newbuildings. Daewoo is said to be in talks for a numerous newbuilding projects and it is expected to score its first order intake for 2010 as early as next week. An official from the shipbuilder said, We are in final stage of negotiations with shipowners for newbuilding orders. We will soon be delivering happy news again following outstanding performance last month. Daewoo clinched 17-ship orders in December alone including two drillships. In the entire 2009, it secured orders for 29 vessels worth $3.7bn, ranking first in terms of new orders in the world. Foreseeable new orders for Daewoo include Russia s LNG carrier newbuilding project, Brunei LNG s outstanding option for additional LNG carrier orders and capesize and VLCC orders from Greece. If these projects are all materialized, Daewoo will be able to achieve its order target of $10bn without difficulties this year. Midsize shipbuilding stalwart Sungdong is also said to be in the final stage of talks with a number of European owners to build capesize bulkers. A source from Sungdong said, We have been negotiating with European shipowners on newbuilding orders since last year. We will soon report good news. Meanwhile, Hyundai Heavy Industries, Samsung Heavy Industries and STX Offshore & Shipbuilding have all set their order targets high for 2010 and they are expected to secure more orders this year than last year. A shipbuilding player said, Newbuilding orders will remarkably increase this year from 2009 when they hit rock bottom. Especially, orders for offshore plants and specialized vessels will pick up rather than commercial ships. Last year South Korea s listed six shipbuilders combined order intakes stood at $10.659bn, just 18% of 2008 orders worth $60.882bn. The six yards include Hyundai, Samsung, Daewoo, STX, Hyundai Mipo Dockyard and Hanjin Heavy Industries & Construction. STX develops ice-class ships South Korea's STX Business Group said Thursday that STX Offshore & Shipbuilding and STX Europe jointly developed arctic ice breaking shuttle LNG carrier and large ice-class container vessel. The newly-developed ice-breaking shuttle LNG carrier can break through ice up to 1.5 meter thick in both bow and stern directions with the Double Acting System (DAS). As Russia s Yamal LNG project is expected to require many ice-class vessels going forward, STX has been promoting R&D activities for many years to build new-type ships appropriate for Russia s resources development projects. STX also has developed a large-scale ice-class containership targeting the arctic route which is emerging as Asia-Europe course. This new-type boxship is fitted with hybrid propulsion system (HPS) as well as DAS. The HPS utilizes both pod propulsion and traditional propeller propulsion systems flexibly in response to navigation environment. STX O&S and STX Europe unit Aker Arctic Research Center have been jointly conducting the ice-class R&D projects since the beginning of 2008, and finally completed the ship design work and test. An official from STX said, We have been developing 22,000-teu ultra-large containership, 400,000-dwt very large ore carrier in addition to the recently-developed iceclass LNG carrier and boxship. We will continue to develop new high value-added ship types in order to preoccupy the future market. Tycoon returns to Daewoo Greece s largest shipowner Angelicoussis Shipping Group may be poised for a return to ordering newbuildings, signaling life is at last returning to the newbuilding market. The shipping group, which includes a dry bulk division under Anangel Maritime Services and a tanker arm Maran Tankers Management, is in talks with South Korea s Daewoo Shipbuilding & Marine Engineering for three large vessels.

2 Under discussion are a pair of capesize bulk carriers of 180,000 dwt and one very large crude oil carrier, an industry source confirmed. Following delivery of a final panamax bulker scheduled for this month, the dry division still has an orderbook comprising a dozen more capesizes and six minicapes of 114,500 dwt, on order from various shipbuilders for delivery during this year and It is understood that the group is keen to average down the cost of its newbuilding program now that prices have slumped. Greek owners appear to be among the owners returning to newbuilding deals after a freeze of more than a year. Centrofin Management recently ordered three suezmax tankers from Samsung Heavy Industries, and just before Christmas Almi Tankers ordered 10 suezmaxes in a $650m deal with Daewoo. Cape orders on the rise New orders for Capesize bulkers, which are giving cause for concern for the possible supply pressure in days ahead, are slowly increasing. Despite concern over a market crash due to large completion volumes and difficulties in procuring capital caused by repercussions of the financial crisis, orders for the ships have been on a rising trend since the latter half of last year. Most recently, shipowners from Greece and Hong Kong have placed orders with South Korean shipyards. According to statistics from U.K.-based Clarkson PLC, orders for Capesizes of 100,000-dwt and above represented 481 ships in 2007 and 240 ships in These orders marked the largest ever seen, coming in at a time when the then existing Capesize fleet numbered around 800 ships. However, these numbers dropped drastically in 2009 due to difficulties in procuring funds and the crashing of the drybulk market after the Lehman shock, with orders for only 40 ships being placed between January and October. However, Japanese shipping officials have commented on this number, stating that there is already a bloated order backlog, and given the uncertainty of the future, such as increasing supply pressure, 40 ships strikes them as unexpectedly high. There has also been an increasing trend of orders being placed mostly with S. Korean yards since November. Prices for 180,000-dwt bulkers have reached the affordable level of about $60 million, and with the current drybulk market transitioning relatively healthily, shipowners with financial muscle have sprung into gear. According to overseas information, Hong Kong's Teh-Hu Cargocean Management recently placed an order with S. Korea's Sungdong Shipbuilding & Marine Engineering for one 180,000-dwt ship plus one on option. Delivery is slated between 2011 and Greece's Polembros Shipping is also reported to have ordered two similar vessels from Sungdong for delivery in According to some information sources, construction prices of these ships are below $60 million apiece. In addition to the recent new orders, many large containerships and VLCCs on firm order have been the target of changes and switched to Capesizes, adding to the piling up of Capesize newbuilding orders. Hanjin adds compulsory layoffs Hanjin Heavy Industries & Construction, one of South Korea s large shipbuilders, embarks on additional workforce restructuring after voluntary layoff program fell short of its target. An official from the shipbuilder s labor union said Wednesday, About 350 workers have applied for voluntary retirement since the management launched the layoff scheme. Hanjin began to receive application for retirement from about 2,500 employees in shipbuilding division from the end of last year. Most of the workers who applied for the program were office workers including ship designers. There were also some site workers whose retirement age-limit was nearing. However, Hanjin s voluntary workforce-reduction program fell short greatly as it had aimed to cut 30% of shipbuilding workforce, equaling to about 750 workers. Accordingly, the company reportedly plans to embark on an additional compulsory redundancy program. It intends to finalize the program by the end of this month. Union members claim the company is only reducing workforce without providing any vision or hope and strategy to secure new orders. An official from the union said, We will keep on fighting to the end to stop illegal layoffs and secure workers rights. Close with zero orders An outstanding option at Daewoo for Brunei LNG looks very unlikely to bring the total above the line. Daewoo Shipbuilding & Marine Engineering (DSME) could be poised to scoop an order for an LNG carrier early in the year but 2009 to close with no newbuildings ordered. Informed sources reveal that DSME has an option outstanding for a 147,000-cbm LNG newbuilding for existing producer Brunei LNG. Some say the option period on the 147,000-cbm ship expires at the end of last month but there may be more flexibility on this and that DSME remains in discussions for the ship. Yard managers refuse to discuss details of the potential order and Brunei LNG officials did not respond to calls. But market players suggest the vessel could be confirmed early in the year. Brunei LNG ordered a pair of LNG carriers at DSME in early 2008 in a contract worth $492.5m, with delivery at the end of Both were contracted as replacement tonnage for the 7million-tonne-per-annum (mtpa), five-train LNG producer,

3 which is looking to replace and upgrade its fleet of seven 1970s-built ships. The project's sales contracts with its Asian utilities come up for renewal in 2013 and the contract buyers are expected to insist on the use of larger and more efficient vessels in a bid to improve the economics of their cargo transport as part of the renewal process. News Brunei LNG or an outstanding LNG newbuilding for China will not be contracted last year means that 2009 are closed without any LNG ships being ordered - a first since the 1980s. Six vessels were ordered in 2008 but even this represented a significant slowdown on those contracted in the period from 2000 to With such a dearth of new business, it has been impossible to establish how newbuilding prices now stand for LNG carriers. A new order - even an option which have contracted the lion's share of the LNG carriers built in the past decade, will be eagerly scrutinised by those looking for a new hook to benchmark newbuilding prices. Daewoo wins four 177K LNG carriers Gazprom has reportedly ordered four tankers at South Korea s Daewoo Shipbuilding & Marine Engineering. The Russian owner will take delivery of the quartet, which will be deployed on the Shtokman project, in 2015 and 2016, said deputy chief Aleksandr Ananenkov last week. He told local media that Gazprom will pay $2bn in total for the ships. Based on the value of the contract it seems that the vessels are 177,000-cbm ice-classed LNG carriers. Gazprom is also looking to splash a further RUB 2bn ($66.98m) on two supply ships for the Shtokman project, Ananenkov says. Meanwhile, Gazprom confirms that the Shtokman project will face delays. Russian First Deputy Prime Minister and Head of Gazprom s Board of Directors Viktor Zubkov in a meeting late December said that the Shtokman project start-up will be delayed. He did not, however, specify any new time for the project launch. Hyundai focuses on plant orders South Korea s Hyundai Heavy Industries is focusing on securing orders for onshore plants from the Middle East by setting 2010 management key words as Innovation & Challenge. The world s largest shipbuilder plans to enhance company operation efficiency, differentiate itself from rival companies and strengthen its core capacities through selection and concentration strategy. Hyundai attained revenue of KRW 4.986trn ($4.349bn), operating profit of KRW 531.7bn and net profit of KRW 533.9bn for the third quarter 2009, up 2.9%, 54.6% and 83% year-on-year. Although shipbuilding division has been faced with market downturn, on/offshore plants, electro electric systems divisions posted improved performance. While difficulties in management environment go on, Hyundai intends to maximize synergy effects among its business divisions and bump up non-shipbuilding orders. With its 10th dock H Dock, the world s first FPSOdedicated dock, having been put into operation in April last year, it expects to win more orders for high value-added FPSO units this year. Moreover, it will give all of its strength to win onshore plant orders from the Middle East where electricity demand is exploding due to economic growth and increase in population. More dark days for shipbuilders in 2010 The year 2010 began with widespread economic optimism, with most of the nation's major industrial sectors expecting continued improvement in business conditions. Korea's shipyards, however, are bracing for another year of hardship as overcapacity continues to plague the global shipbuilding industry, with new orders scarce and ship financing still difficult, experts and industry officials said yesterday. "The economy is set to continue recovering in 2010, but the shipbuilding sector is likely to be in a slump for a considerable time, stemming from global overcapacity and weakness in the shipbuilding financing market," Min Kehsik, vice chairman & CEO of Hyundai Heavy Industries Co. said in his New Year address on Monday. "It will be another challenging year," he said. The world's largest shipbuilder had suffered a 96 percent drop in new shipbuilding orders in It received orders for 10 vessels, worth $440 million, which is a sharp contrast to the previous year's 109 vessels, and a combined value of $13.6 billion. Total orders received in 2009, including offshore platforms and other products, amounted to $10.6, the company said on a Dec. 31 filing. The Ulsan-based firm has set a 2010 target at $17.7 billion in total orders. Daewoo Shipbuilding & Marine Engineering Co., the world's third-largest shipbuilder, said that it aims to win $10 billion worth of orders this year. Nam Sang-tae, the company's CEO, stressed a focus on developing a new revenue source, as the market for container ships continues to be in a slump. "In order to survive, we need to develop new, high-value products that combine technologies for offshore platforms and conventional vessels," he said.

4 Korea's three shipbuilding giants -- Hyundai Heavy, Samsung Heavy Industries Co. and Daewoo Shipbuilding - - may be in better shape, compared to smaller players. Thanks to past efforts to diversify revenue sources, the trio has relatively bigger presence in areas that are less affected by the slump, such as offshore platforms, analysts said. The market for bulk carriers, oil tankers and container ships is in a sharp downturn with major shipping lines such as CMA CGM SA and China Ocean Shipping Group Co. canceling orders and seeking delays in delivery, after global economic recession cut maritime trade. In an indication of the challenge facing smaller yards, Hanjin Heavy Industries and Construction Co., the nation's fifth largest shipbuilder, said that it will slash its shipbuilding labor force by at least 30 percent. The Korea Institute for Industrial Economics & Trade forecast in its recent report that the country's shipbuilding volume this year will drop 10.7 percent in 2010, from a year earlier. "Exports (of ships) will likely drop 6.2 percent to be valued at $46 billion," the institute said. As of Dec. 1, order backlogs at Korean yards stood at million CGT, or compensated gross tons, according to Clarkson, the world's largest ship broker. That accounted for 34.3 percent of the global market. Home to seven out of the world's top 10 shipbuilders, Korea once dominated the global market. But, China wrestled the title of the world's No. 1 shipbuilding nation from Korea last year. Chinese yards have a combined order backlog of million CGT and a market share of 34.9 percent, the Clarkson data showed. Shipping & Business News Resales soften orderbook cut An unexpectedly low number of bulker newbuildings were cancelled in 2009 as resale deals softened a much anticipated order cull, foreign media reports. Only 10% of the bulker orderbook was ditched by owners in the past 12 months despite the specter of huge overcapacity hanging over many of the key markets, according to figures from a top Greek shipbroker. Piraeus-based N Cotzias Shipping says only 434 dry-cargo newbuildings have been deleted from the orderbook since the beginning of December The ships, measuring 27 million tons, account for just one tenth of the present 4,266 on order, the broker s year-end report says. John Cotzias, managing director of the company, says he tipped more contracts to be cancelled in the past year, but suggests a large amount of resale deals in 2009 saved many orders which would otherwise have failed. The report notes just 593 dry-cargo ships delivered in 2009, a number which is set to swell to a heavy 1,812 in the present year. It says the outlook for the five main sectors is gloomy with supramaxes likely to face the largest overcapacity issues, ahead of the capesize market. Around 900 supras remain on order for delivery between now and 2015, a huge million tons of fresh capacity. This compares with 868 ships of million tons in the present trading fleet, the report says. Looking at the capesize sector, 705 newbuildings of million tons are set to hit the water by 2015, adding to an existing fleet of 896 ships of million tons. Cotzias sees one positive, at least from a shipowner s perspective, as newbuilding orders dwindled in It notes 230 orders for 720 units last year, of which 250 were bulk carriers. In 2008 a total of 3,500 ships, including 1,473 dry-cargo vessels, were penned at yards around the globe. Shipping loan drops in 2009 A series of factors like newbuilding cancellations which eliminated bank commitments have led to a significant reduction of the global shipping loan portfolio, which is estimated to have ended 2009 at approximately $ billion, down from about $450 billion a year ago. Meanwhile, Hellenic ship lending (draw and undrawn) by the end of 2009 is expected to have fallen to approx. $65bn, from $73.2 billion at the end of 2008, according to a recent presentation by Petrofin Research in a conference by the Institute of Chartered Shipbrokers. Among the reasons for these reductions, is a marked slowdown in fresh lending, but also the fact that the utilization of the natural run off of the loan book via repayments, vessel sales, pre-payments. Petrofin cites more reasons like merger and acquisitions, which reduced the number of banks from 40 down to 35. In other remarks the company said that during 2009 banks have exploited client asset cover breaches and / or restructures and / or limited fresh lending to increase their loan portfolio yields. Bank losses and to a lesser extent loan provisions, have been minimized. Thus far, this conciliatory approach has been a winning strategy, but is still too early in the shipping cycle. Banks have been primarily occupied with their own capital adequacy and liquidity problems. Emphasis, thus far, has been to monitor shipping loan performance and assess loan provisions said Petrofin. Still, the dry bulk recovery in 2009, has supported banks conciliatory approach. However, the large fall in tanker

5 vessel values and earnings is of growing concern. Greek bank exposure to the container market is limited. Widespread belief in the shipping industry that banks attitude to waivers, restructures and non-performing loans shall harden in 2010 warns Petrofin. In other words, the banking sector is expected to play a more than crucial role in the future course that the shipping industry will chart. At the same, banks, especially those in Hellas, have been presented with a unique opportunity to further enhance their presence within the shipping market, which will provide them with increased profits in mid-term. Genco Shipping completes acquisition of 9 Capesize vessels Genco Shipping & Trading Limited announced that it has taken delivery of the Genco Claudius, a 169,025 DWT Capsize newbuilding. The Genco Claudius is the final vessel to be delivered to the company under Genco's previously announced agreement on July 18th 2007 to acquire nine Capsize vessels from companies within the Metrostar Management Corporation group. The Genco Claudius was delivered to its charterer, Cargill International SA, on January 4th 2010 to commence a time charter for 10.5 to 13.5 months at a rate of USD 36,000 per day, less a 5% third party brokerage commission. But shipping industry may experience tough time again in As single hull tankers quit market, superfluous transportation capacity will be put into demolition yards. That means the rising trend in scrap prices will not be sustainable. Reviews from Clarkson show that the price will dive again since more and more ships face demolition. At present nobody is sure how long the demolition price will keeping rising. But the shipbreaking enterprises from India, China and Bangladesh have terminated their transactions in the last few days of 2009 so that the price can be maintained at USD300 per ldt level. The blowout in scrap market shows demolition industry may come across flourishing future in Refer to the record of recent one year, transactions gained rapid rise among India, China and Bangladesh. It is clear that shipping industry is characterized with periodic changes. Anyway, what is sure is that demolition market will keep shining at the beginning of Currently, Genco has approximately 51% of its fleet's estimated available days secured on contracts for The company used its available cash to pay the remaining balance of USD 96 million for the Genco Claudius. China $3bn fund for gas carriers It appears that China is planning to set up a fund to support shipowners facing financial difficulty in acquiring large gas carriers, including LNG and LPG carriers. According to overseas media sources, the fund will operate on an initial capital of $3 billion (20 billion yuan). It appears that the first fund has already been approved by China's National Development and Reform Commission. Regarding the fund, Li Kejun, president of China Classification Society (CCS), has told local media that current ship prices have an extreme competitive edge, meaning that having financial support for gas carriers is extremely advantageous. Meanwhile, the China Association of the National Shipbuilding Industry (CANSI) has commented that even a fund of 200 billion yuan would not be sufficient. Demolition market prospering According to Clarkson Research Services statistics, the number of demolition orders climbed up to 918 ships in 2009, rising by over 200% against 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.