Pacific Basin Shipping Limited

Welcome to today's Pacific Basin 2024 First Quarter Trading Update conference call. I'm pleased to present Chief Executive Officer, Mr. Martin Frueghardt and Chief Financial Officer, Mr. Michael Jorgensen. For the first part of this call, all participants will be in listen-only mode and afterwards there will be a question and answer session. Mr. Frueghardt, please begin.

Yeah, thank you very much. And welcome, ladies and gentlemen, and thank you for attending Pacific Basin's First Quarter Trading Update call. As said, my name is Martin Forgo, CEO of Pacific Basin, and I'm pleased to have our CFO, Michael Jorgensen, with me today. Assuming that you have already gone through the presentation, I will briefly highlight some of the key points discussed in it before we proceed with the Q&A session. Please turn to slide three. We are delighted to commence our call, highlighting our recent announcement that Pacific Basin is ready to initiate its first ever share buyback program based on approval of our share buyback mandate by our shareholders at the upcoming 2024 Annual General Meeting, which will take place tomorrow. This program with an allocation of up to 40 million US dollar is scheduled to run from the 25th of April until the 31st of December, 2024. We intend to cancel all shares that we repurchase, thereby improving the value of our remaining shareholders. The board's decision demonstrates confidence held in the company's future and the long-term prospects of dry bulk demand. The share buyback should also demonstrate our alignment with shareholders in our belief that our current share price does not fully reflect the intrinsic value of the company. The share buyback is another way that we continue to reward shareholders alongside our track record of returning cash to shareholders through dividends. We continue to generate healthy cash flows at current freight rate levels, which we are committed to returning to shareholders as part of our distribution policy. Our distribution policy is to pay out at least 50% of our annual net profits in dividends with any additional distribution in the form of special dividends and or share buybacks. A reminder that our ex-dividend date is 25th of April, 2024, with payment of our final dividend for the 2023 annual result being on 9th of May, 2024. Please turn to slide four. During the first quarter of 2024, credit size and supermax market freight rates were above historical average for this time of the year, excluding exceptional years of 2021 and 2022. This was due to manageable fleet growth, higher dry bulk loadings, and the ongoing disruptions in the Red Sea and Panama Canal, which are causing reduced fleet efficiency and longer voyages. Markets spot rates for heavy-sized and supermax vessels averaged 10,510 and 12,310 net per day, respectively, representing an increase of 26% and 27%, respectively, compared to the same period in 2023. Current forward freight agreements, commonly referred to as FFAs, for the second half of the year continue to be at a premium to current spot freight rates across all dry bulk segments, reflecting market expectation of stronger demand fundamentals. As of 12th of April, rates quoted by the Baltic Exchange for Q3 2024 and Q4 2024 are 12,050 and 11,760 net per day, and 14,340 and 13,950 net per day for Hattie size and Supermax respectively. Please turn to slide five. Global minor bulk loadings were approximately 3% higher in the first quarter due to increased loadings of bauxite and salt, while cement and clinkers, ores and concentrate, and also fertilizers were all largest detractors. We anticipate vital bulk demands to benefit from increased seasonal demand, while improvement in economic activity within the United States, coupled with China's supportive policies aimed at bolstering manufacturing infrastructure investment, in particular in residential housing construction, signals promising growth potential. In the first quarter, global iron ore loading saw a 2% rise, largely attributed to a record first quarter of iron ore loadings from Brazil, which experienced a 50% increase compared to the same period last year. This significant growth was the result of efforts to reduce the effects of rainfall on the extraction, processing, and transportation of iron ore. Despite lower domestic housing construction, China's steel industry remained robust, fueled by varied demand from sectors including motor vehicles, manufacturing, shipbuilding, infrastructure development, and also power generation. Excess steel not used domestically is mainly exported by supermax vessels to Southeast Asia. Chinese steel production saw a 22% decrease, yet export surged by 31% in the first quarter of 2024 compared to the previous year. A 1% decrease in global coal loadings in the first quarter of 2024 is attributed to the reduced loadings from Russia due to import levies aimed at protecting Chinese domestic producers. And from Indonesia, with producers facing additional tariffs on coal shipments. China's demand for imported coal remained robust, driven by limited hydro-electrical power generation and energy security concerns, even with high domestic coal production. Meanwhile, India's Coal import rose by 5% year-on-year, fueled by strong economic growth and rising electricity needs. In the first quarter of 2024, global grain loadings increased by 1% compared to the same period in 2023. This decrease can be attributed to increased loadings of grains from Argentina, Ukraine, and the United States. Strong global grain production in 2023, along with optimistic forecasts for 2024 grain harvest in countries including Argentina, Australia, and Russia, is expected to result in surplus grain availability. The grain export season in South America which began in March, is expected to result in significant grain loading volumes from Brazil in the second quarter, with Argentina also expected to recover from its 2023 drought-induced low outputs. Meanwhile, Ukraine has seen a 33% increase in grain shipments compared to 2023, thanks to improved export capabilities. Despite this growth, current Ukraine grain loading volume still lags 7% behind the pre-conflict levels of 2021. Please turn to slide six. Our core business generate average handy size and supermax daily TC earnings of 11,050 and 13,610 per day, respectively, in the first quarter of 2024. This represents a year and year decrease of 18% for handy size and no change for supermax. For the second quarter of 2024, we have covered 84% and 96% of our core committed vessel days at 12,219 and 14,610 per day for handy size and supermax respectively. For the second half 2024, we have covered 36 and 47% of our core vessel days at 9,280 and 11,840 per day for heavy size and supermax respectively. Cargo cover rates exclude scrubber benefits and operating activity. Current value of scrubber benefits are approximately $70 and $1,500 per day across our core handy size and supermax fleet, respectively. We currently have a significant percentage of open days for the reminder of the year. We expect to benefit from higher market spot rates as seasonality improves commodity demand following the end of the first quarter of 2024. Additionally, the limited transit of dry ball vessels through the Suez and the Panama Canal should support ton mile demand and in turn freight rates. Our core business with substantially fixed costs is the main driver of our profitability. We don't approximately cash break even level, including general and administrative overheads for heavy size and supermax vessels of 5,960 and 6,120 per day, respectively in 2023. Please turn to slide seven. Our heavy size and Supermax TCE earnings outperformed the spot market indices by 540 per day and 1,300 per day respectively in the first quarter. Our performance in the first quarter of 2024 was negatively impacted by our proactive strategy to take cover Historically, we have been proactive in taking short-term cover for the first quarter, which is typically a softer market during the northern hemisphere winter and lunar new year periods. Our outperformance continues to benefit from the scrubber installed across our core fleet of handy-sized and supermax vessels, which have contributed $30 and $940 per day, respectively to our outperformance over the first quarter 2024. Our operating activity also contributed positively, generating a margin of $510 per day over 6,660 operating days in the first quarter of 2024, a decrease of 53% and an increase of 32% year-on-year respectively. We currently operate approximately 169 short-term chartered vessels with a focus to increase operating days and margins on a year-on-year basis. Our operating activities compliment our core business by matching our customer spot cargos with short-term charter vessels, making a margin and contributing to our result regardless of whether the market is weak or strong. Please turn to slide 12. We're actively monitoring the complex situation in the Red Sea and Gulf of Edain, which are concerns for maritime operations. Additionally, restrictions in the Panama Canal have forced us to reroute dry bulk vessels on longer journeys, increasing demand for ton mile. To protect our crew and ships in the Red Sea, we are opting for the much longer route around Africa. Although the Panama Canal water level have improved, vessel transit restrictions are likely until the latter part of 2024, impacting supply and supporting freight rates. Please turn to slide 14. In 2023, we took delivery of three out of 11 new buildings that are part of our long-term time charter commitments with the remaining eight vessels scheduled for delivery between now and the first quarter of 2026. We expect the delivery of the first of four chartered 40,000 deadweight handy sized new buildings in May, 2024. And we await the arrival of a chartered 64,000 deadweight ultra max new building in the fourth quarter of 2024. Our fleet is expanding with the addition of these larger and more efficient handy size and supermax new building vessels. These long-term time chartered vessels have an earning capacity approximately 20% higher than our current average core handy size and supermax fleet. Each of these time charters comes with an option to extend the charter agreement at a fixed rate. And we have the option to purchase the vessels at a fixed price. which further expands our optionality. Our collaboration with Nihon Shipyard and Mitsui has progressed well in designing an efficient dual-fuel vessel capable of running on fuel oil as well as sustainable methanol. However, we remain cautious in our approach to invest in new buildings due to current historically high new building prices. We will consider in 2024 whether we are ready to contract to build such a vessel with delivery well ahead of our original 2030 target. We anticipate ordering activities for such midsize, dual-fuel, dry-bulk, low-emission vessels will be limited in 2024. Please turn to slide 15. We continue to be disciplined buyers of secondhand vessels, given current historically high prices, while still remaining committed to a long-term strategy to grow our own fleet of Supermax vessels by acquiring high-quality modern secondhand vessels, and to replace our older, less efficient handy-sized vessels with younger and larger handy-sized vessels. In the first quarter, we sold a 2004-built heavy-sized vessel, anticipating challenges and higher costs from stricter decarbonization regulation. We plan to gradually divest our leased efficient ships. With new and second-hand vessel prices expected to stay historically high due to rising new building costs and limited yard capacity, we will remain cautious in our investments in second-hand vessels. including all current agreed sales and purchases. Our core fleet today consists of 132 heavy-sized and SuperMAC vessels, and including short-term chartered vessels in our operating business, we currently have approximately 302 vessels underwater overall. Please turn to slide 18. In 2024, Freight rates began higher than in 2023, and it is encouraging to see the level of support for freight rates during the first quarter of 2024, which is historically a softer period for demand. We remain significantly exposed to spot freight rates due to a considerable number of uncontracted vessel stays in 2024, while maintaining this approach into 2025. We expect to benefit from higher spot rates as normal seasonality improves commodity demand following the end of the first quarter of 2024. Additionally, there will be an ongoing benefit to supply and turn mild demand from limited transits of drywall vessels through the Suez and Panama canals. We are pleased that we continue to grow our fleet through long-term time charter new buildings, And we continue to reward shareholders through the return of cash, through dividends, and now also share buybacks. We remain excited about the long-term prospects of drywall shipping, thanks to the positive demand for the commodities we ship. These are supported by favorable supply side for the mentors and the ongoing implementation of both existing and new decarbonization rules. Ladies and gentlemen, that concludes our first quarter trading update presentation. I will now hand over the call to the operator for Q&A. Thank you.

Thank you. We will now begin our question and answer session. If you have a question for today's speaker, please join the Zoom link via the blue ask a question button, press the raise hand button and you will enter a queue. After you are announced, please unmute yourself, state your name and company and ask your question. If you find that your question has been answered before it is your turn to speak, please press the lower hand button to leave the queue. You may also type your questions in the Q&A box. Okay, the next question is from Parasha.