Overview of Operations
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Overview of Operations BULKSHIPS Dry Bulkers MASAFUMI YASUOKA The Capesize bulker BAOSTEEL EMOTION Senior Managing Executive Officer (Port Walcott, Australia) Fiscal 2011 in Review Looking at the world iron ore seaborne vessels after deducting the 67 scrapped In fiscal 2011, we secured stable profits trade in 2011, imports to Japan and Europe vessels. As a result, the number of vessels from long-term carriage contracts of iron stagnated. Overall, however, there was a at the end of 2011 was 1,354, 16% higher ore, coal, wood chips and other cargoes. 6.7% year-on-year increase, driven by year on year. This deterioration in the However, four types of vessel*1 on spot emerging markets. Even China, where a supply-demand balance is the underlying contracts, including Capesize bulkers, slowing growth rate has attracted attention, factor for the lackluster freight rates since posted lackluster performances due to imported 11% more iron ore year on year, last year. persistently low rates since the latter half of or 690 million tons. But the increase in the MOL operates more than 100 Capesize fiscal 2010. As a result, our earnings supply of vessels exceeded transportation bulkers. Of these, 70% operate on dropped sharply from fiscal 2010 and we demand. In 2011, 256 Capesize bulkers medium- to long-term contracts, while the recorded a loss. were built, resulting in a net increase of 189 remaining 30% operate on the spot *1 Please refer to the Dry Bulker Fleet Table regarding types of dry bulker. Dry Bulker Fleet Table n Coal and Iron Ore Carriers (1,000 DWT) (As of March 31, 2012) (Capesize) Standard No. of Vessel Type Use and Features Capesize bulkers are the largest of the dry DWT Vessels Capesize 170 107 Steel raw materials (iron ore, coking coal) bulkers and transport mainly steel raw Panamax 72 48 Iron ore, coking coal, steaming coal, grains, etc. materials. In 2011, freight rates for Cape- Handymax 55 60 Steaming coal, grains, salt, cement, size bulkers were initially soft because of steel products, etc. disruptions to shipments of iron ore from Small Handy-size 28 34 Steel products, cement, grains, ores, etc. Steaming coal carriers 93 37 Steaming coal Brazil following heavy rains there. The daily Wood chip carriers 50 53 Wood chips, soybean meal, etc. charter rate for Capesize bulkers dropped Other (Heavy lifters, coastal vessels) 12 53 – well below US$10,000. Thereafter, a Total 392 sudden rise in imports of iron ore by China drove the daily charter rate back up over Consolidated Revenues Breakdown US$30,000 from September 2011. How- (Results in FY2011) ever, freight rates dropped at the beginning Subsidiary (Mitsui O.S.K. Kinkai, Ltd.) Iron Ore and Coking Coal of 2012 due again to a precipitous fall in 6% 49% iron ore shipments from Brazil because of Steaming Coal bad weather. There has been no apparent 13% recovery since then, with the daily charter Wood Chip rate remaining below US$10,000 midway 12% through 2012. General Bulk 20% 34 RISING ABOVE ADVERSITY Mitsui O.S.K. Lines Cargo (Iron Ore) The Capesize bulker MAIZURU DAIKOKU Cargo (Coal) (Newcastle, Australia) market. In fiscal 2011, medium- to long- MOL operates approximately 120 bulk- n Specialized Vessels (Steaming term contract vessels provided highly ers, including Panamax class and other Coal Carriers/Wood Chip Carriers) stable profits as expected. However, spot small and medium-sized vessels. These Steaming coal carriers transport coal for vessels operated at a loss, prompting us bulkers transport a variety of cargo from power generation mainly to power compa- to scrap and sell 4 vessels and take other coal and grains to so-called minor dry bulk nies in Japan and operate on long-term actions to limit the number of vessels on cargoes such as steel products, cement, contracts. For these reasons, they continue spot contracts. and fertilizer. Approximately 70% of these to contribute highly stable profits. bulkers operate on spot contracts, meaning Likewise, wood chip carriers earn highly n General Cargo Bulkers we found it tough in fiscal 2011 as our stable profits based on long-term agree- (Panamax/Handymax/Small operations were hard hit by the impact of ments with paper manufacturing companies. Handy-size Bulkers) soft freight rates. However, vessels operating on spot Panamax bulkers saw demand rise, particu- larly for transporting coal. However, freight rates were soft as the supply of vessels Import/Export Areawise World Iron Ore Seaborne Trade exceeded this demand growth. In 2011, (million tons) 1,200 2006–2011 2011 283 new Panamax bulkers were delivered (Import) (Export) China Others and 71 were scrapped, for a 212 net 1,000 Others Sweden increase. This resulted in a 12% rise to Taiwan Canada 800 Korea South Africa 2,035 vessels at the end of the year. How- Japan India ever, because the types of cargo trans- 600 Brazil Australia ported and routes are more diverse for this 400 type of bulker than Capesize bulkers, 200 demand was comparatively stable and the Source: Clarkson, Tex Report 0 drop in charter rates was smaller. 111009080706 (estimated) 11 (estimated) (Import) (Export) Freight rates for Handymax bulkers and Small Handy-size bulkers at one time fell to China & India Import of Coal close to US$6,000 a day in February 2012. (million tons) The drop reflected regulations on iron ore 200 China exports in India, lower timber imports in India China due to financial restraint, a fall in steel 150 product transportation due to the flooding in Thailand, and the impact of the European 100 economic downturn, among other factors. Source: China Customs. MOL internal calculation based 50 Since then, the daily rate has returned to on statistics of 5 major export countries (Indonesia, Australia, around US$10,000. South Africa, USA, Russia) 0 08 09 10 11 Annual Report 2012 RISING ABOVE ADVERSITY 35 A Capesize bulker being loaded contracts for transporting soybean meal and Looking Ahead million tons recorded in 2011; coal imports other cargoes were hard hit by soft freight n Steadily Growing Transportation in the first 4 months of 2012 were 70 rates and saw their profitability worsen in Demand million tons, suggesting annual imports of fiscal 2011. To counter the soft market Dry bulk transportation demand continues around 210 million tons. rates, we scrapped 2 old ships in fiscal to increase from China and other emerging With its economy growing, India has 2011. Most of the wood chips we transport markets. While imports of iron ore to China moved to regulate exports of iron ore, giving are destined for Japan at present. But we are growing at a slower rate, absolute vol- priority to the national consumption of expect to expand our business as demand umes in the period from January to April domestically produced iron ore. However, grows in China for imported wood chips. 2012 were 245 million tons (735 million since Japan, China and other importing tons on an annualized basis). This is a pace countries cannot help but secure alternative that would exceed 2011 imports, as The sources from remote locations such as China Iron & Steel Association has forecast Australia and Brazil to make up for the imports of 720 million tons for 2012. Coal shortfall in supplies, this should lead to an imports as well look set to surpass the 183 increase in ton-miles. Furthermore, to World Dry Bulkers Age Profile Age No. of ships (as of March 2012) Portion Capesize 25+ Panamax 25+ (100,000dwt– 42 (60–99,000dwt 207 1,408 ships) 3% 2,095 ships) 10% 20–24 20–24 120 125 % 9 0–14 6% 0–14 1,034 1,487 15–19 15–19 212 73% 276 71% 15% 13% Handymax 25+ Smal Handysize (40–59,000dwt 274 (10–39,000dwt 25+ 2,525 ships) 3,047 ships) 11% 1,047 20–24 34% 111 20–24 4% 0–14 128 0–14 1,831 4% 1,544 15–19 73% 51% 309 15–19 328 % 12 11% Source: Clarkson 36 RISING ABOVE ADVERSITY Mitsui O.S.K. Lines The wood chip carrier STRELITZIA (Muroran, Hokkaido) satisfy rapidly increasing coal imports, these scrapped from 23 years to 15 years, and At present, approximately 70% of our countries are beginning to look at other have already decided to scrap 5 vessels by Capesize bulkers and approximately 30% of distant locations such as Colombia, Canada the end of March 2013. We will also con- our general cargo bulkers have medium- to and the U.S. to source coal. These trends sider scrapping additional vessels*2. long-term contracts, as mentioned earlier. should support freight rates going forward. *2 In order to control the market risk of spot vessels, we We aim to raise the proportion of these plan to scrap more vessels from all of the four types types of contracts slightly for Capesize of bulkers where the ship price is higher than the n Vessel Supply Outlook and market price, as well as return vessels to their owners bulkers and to 40% to 50% for general Countermeasures by terminating time charters. cargo bulkers as a way of reducing freight The main issue we are grappling with at rate fluctuation risk. That said, we will In 2012, a record 300 or more Panamax present in the dry bulkers business is that respond flexibly to meet customer needs no bulkers are expected to be delivered, sug- the supply of vessels continues to far matter what the length of contract as a way gesting market rates will soften further. exceed transportation demand. With Cape- of ultimately winning more advantageous However, there are close to 200 vessels on size bulkers, we do not expect a substantial long-term contracts.