Week 2 2016 - lorstem.com

1 1 Prepare and prevent, Don t repair and repent! HIGHLIGHTS VLGC: Baltic Index re-bounding Ammonia: Prices un-der pressure Handy: Rates remain firm, although more ships are becoming open Coaster: Tight in NW Europe, less activity in the Mediterranean It has been another active week in the VLGC segment with fixtures concluded both East and West of the Suez. The Baltic VLGC Index strengthened throughout the week adding US$ compared to last Friday. Charterers are starting to shift focus towards February and the first half of the month is looking relatively tight. The question is however obviously the amount of relets we will see in the market , which could quickly halt the climbing rates. In the Indian market IOC fixed two spot vessels for end January dates while HPCL have one requirement uncovered, which looks like it has been withdrawn. West of the Suez rates have eased for voyages out of the US Gulf and fixtures have been concluded at a discount to the Baltic.

2 The decrease in the West to East arbitrage is putting pressure on freight rates and the falling oil price is not helping the situation. In the period market it has been reported that IOC fixed two BW LPG vessels on 1 year time charter plus options at slightly below US$ 50,000 per day. There have also been discussions in the market of one vintage and one modern VLGC having been sold, however details remain foggy at the time of writing. The international ammonia market is impacted by a bearish sentiment and prices are still under pressure as buyers are pushing hard for further reductions. There is still no news about the February Tampa settlement, but a bearish undertone in the US market could well bring prices lower as there appears to be a lack of support in the global market . The Yuzhnyy line up for January stands at 235,000 tons, a would be rollover from December.

3 In the Middle East Gulf the line-up for January stands at 258,000 tons, up from the 217,000 tons recorded for December. The Western Handy market saw some requirements this week, but little has been concluded at time of writing. There is more than a handful of workable ships on both sides of the Atlantic and spot freight rates should see some downward pressure in the short term. As it looks, in order for owners to keep their ships employed they will have to show competitive numbers in line with the arbitrage opportunities present in the spot market . However, we argue that the Handy market is still looking rather firm. It will therefore take more than a couple of weeks of slow activity before we can expect any significant fall in time charter rates. This week started off with a good amount of cargos quoted in the North West European market . The list of available tonnage for January remains short with only a couple of prompt vessels with the majority open end January.

4 Fixtures have been concluded both for intra North West Europe trades as well as for cargos bound for Southern Europe and Morocco. This together with slower activity in the Mediterranean Sea has resulted in more ships coming open around the Gibraltar area. Some of which are expected to go back to North, West Europe which eventually could help balance out the shortage of ships. That being said North West Europe is looking very tight, especially on the 5,000cbm ships which is currently trading spot at large premiums versus last concluded on 1 year Time Charter. COASTER HANDY NH3 VLGC Week 2 2016 Weekly Gas Report -Shipbrokers and consultants since 1919- 0300,000600,000900,0001,200,0001,500,000 1,800,0002,100,0002,400,0002,700,0003,00 0,0003,300,0003,600,0003,900,0004,200,00 04,500,000135791113151719212325272931333 53739414345474951US$/monthWeek noVLGC Timecharter Equivalent (TCE)5 YR HIGH5 YR LOW5 YR AVG2016ytd2 -Shipbrokers and consultants since 1919- We have had another record year in LPG shipping!

5 LPG Trade Seaborne trade totaled mil-lion tonnes, up million tonnes or from 2014 and the sec-ond strongest annual growth ever recorded in the history of LPG shipping. (Waterborne LPG) All major exporting regions rec-orded gains, with the exception of West Africa where exports declined by million tonnes to million tonnes. US exports increased to million tonnes, up from million tonnes in 2014. Western Europe including Russian volumes from the Baltic increased to million tonnes, up million tonnes from 2014. Exports from North Africa, mainly Algeria increased to million tonnes up from million tonnes in 2014 as production capacity continued ramping up. LPG ex-ports from the Middle East Gulf totalled million tonnes in 2015, up from the year be-fore, mainly due to higher exports from the Emirates, Iran, Kuwait and Saudi Arabia. Exports from Qatar declined due to higher domestic consumption in the petrochemical sector.

6 Arbitrage LPG prices remained considerably higher in Europe and in Asia rela-tive to the US for most of 2015. However, price differentials de-clined towards the end of the year as high US LPG exports levels combined with sharp falls in oil and naphtha prices which de-pressed LPG prices in the im-porting regions. Cheap naphtha backed out LPG feedstock in the Asian petrochemical industry for most of 2015, but import require-ments still showed strong growth due to buoyant household sector demand. US exports to Asia in-creased to million tonnes up from million tonnes in 2014 while exports to Northern Europe totalled million tonnes, up million tonnes on 2014. North and West African exports to Asia totalled up from million tonnes in 2014. Operational aspects With the exception of a relatively weak early first quarter, record high freight rates and tumbling bunker prices rendered slow steaming unprofitable and speed optimisation less relevant.

7 The very tight supply of large LPG ships for much of the year made it necessary to steam at full speed up to meet tight loading sched-ules. An increasing number of ships were shuttling cargoes load-ing in the West, discharging in Asia and ballasting back to the West. Discharge times in Indian ports were at times up to three weeks or more. There were also incidents resulting in delays at US load ports. Long voyages and high port turnaround times added to the already very tight supply and demand conditions for large gas carriers. Floating Storage The number of VLGCs employed in floating storage was un-changed and numbered 15 units at the end of 2015, of which 4 units were employed in semi-storage in the East Mediterrane-an. LPG Fleet The total LPG fleet recorded a net growth of in 2014 as measured in cubic meter capaci-ty. The VLGC segment saw the fastest growth with a net expan-sion of , while the LGC and MGC segments expanded by and respectively.

8 The Handy segment showed a net growth of while the Small gas carrier segment of ships be-low 12,000 cbm cargo capacity showed a net expansion of The very strong market condi-tions for ships of Handy size up-wards led scrapping activity to a complete standstill. A total of 11 gas carriers were scrapped in 2015, all below 5,000 cbm capaci-ty. Ordering activity focused on the larger gas carrier segments, boosted by record high freight rates, attractive finance terms and a rush to beat the Tier III IMO regulation in the second half of the year. Newbuilding prices were mainly unchanged. We rec-orded orders of 25 VLGCs, 2 LGCs and 17 MGCs incl. 4 ships with combined ethylene/ethane ca-pacity. In the Handy gas segment 6 ships were contracted. Only two Small gas carriers were con-tracted reflecting lacklustre trad-ing conditions for this size seg-ment. At the end of the year the aggregate capacity of ships on order corresponded to of the existing fleet.

9 Freight Markets & Ship Values Freight rates started the year on a downwards trend, which is usual for the season. However, a recovery was evident already by late January, earlier than depict-ed in past seasonal patterns. The recovery was driven by a reduced number of ships available in the Middle East Gulf as an increasing number of ships were ballasting to the US Gulf to lift cargoes out of MarkWest s newly commis-sioned terminal in Netherlands, Texas. Freight rates continued upwards almost without abating, but for a slight easing in April. Rates peaked in July supported by a strong build-up in shipments from the US Gulf to Asia. The Baltic VLGC Index peaked at US$ 138pmt, with TC earnings of USD million per month in mid-July, while in the West TC earnings peaked at about US$ 4 million per month. The second half of the year saw freight rates trending lower as US exports had reached a plateau with no further growth until December while at the same time the pace of newbuilding deliveries accelerated.

10 Further-more, a sharp fall in crude oil and naphtha values depressed LPG prices in importing countries, making arbitrage both to Europe and Asia less attractive. The Baltic VLGC Index averaged US$ pmt while TC equivalent earnings were USD million per month for 2015, the highest annual aver-age level on record. Like in 2014, the LGC, MGC and Handy size segments continues to benefit from the spill-over effects of a very strong VLGC market . Trade in ammonia saw a disap-pointing development and sever-al ships switched to LPG during the year. Seaborne ammonia trade suffered from weak de-mand and outages and closures at number of export plants. The US, the largest importer of am-monia scaled back imports fol-lowing higher domestic produc-tion. Asian import demand, not least to India was weak for much of the year. Freight rates for Small gas carriers deteriorated throughout the year and a num-ber of ships migrated from Asia to the West were market conditions 2015 LPG SHIPPING market REVIEW 2015 (end)2015 (end)ShipsExistingOrderbookVLGC20176 LGC232 MGC8043 Handy (12-23kcbm)11640 Small (< 12kcbm)771243 -Shipbrokers and consultants since 1919- were less depressed.