Pacific Basin Shipping Limited

Welcome to today's Pacific Basin 2024 third quarter trading update conference call. I am pleased to present Chief Executive Officer Martin Feuergaard for the first part of the call. All participants will be in listen-only mode and afterwards there will be a question and answer session. Mr Feuergaard, please begin.

Yeah, thank you, and welcome, ladies and gentlemen, and thank you for attending Pacific Basin's third quarter trading update call. We assume you have already reviewed the presentation, so I will take a moment to briefly highlight some of its key points before moving on to the Q&A session. Please turn to slide three. During the third quarter of 2024, Handicise and Supermax freight rates increased We're again above historical average for this time of the year. Despite uncertainties associated with global trade and economic growth, elevated interest rates and conflict in Ukraine and the Middle East, increased demand for grains, minor bulk and iron ore has reported market freight rates, which have shown limited seasonal volatility due to fleet inefficiencies from disruption in the Suez and Panama canals. Market spot rates for handy size and supermax vessels averaged 11,700 and 13,820 net per day, respectively, representing an increase of 53% and 45% respectively compared to the same period in 2023. As of October 11th, the Baltic Exchange Forward Trade Agreements indicate handy size rates for the fourth quarter of 2024 at 11,390 net per day, while supermax rates are 13,040 net per day. Looking ahead to the first quarter of 2025, handy size rates are, according to the Baltic Global exchange projected to be 9,510 net per day and supermax rates will be 11,080 net per day. Please turn to slide four. Global miner bulk loadings were approximately 2% higher in the third quarter of 2024 compared to the same period last year. loadings of bauxite, acrybol and fertilizer increased by 19, 11 and 2% respectively, while ores and concentrates and aggregates were the largest detractors, falling by 8 and 7% respectively. In the third quarter of 2024, global iron ore loadings increased by 1% year on year, mainly due to record loadings from Brazil on long haul voyages to China. Brazilian loadings rose by 3% compared to last year, thanks to better operational efficiency, reopening of new capacities and new projects. China's domestic steel consumption is low due to reduced domestic property sector demand. The surplus steel is being exported in record volumes, mainly using supermax vessels to Southeast Asian destinations. In the first eight months of 2024, Chinese steel production declined by 3%, while exports increased by 21% in the first nine months and by 16% in the third quarter. In the third quarter of 2024, global coal loadings remained flat year on year. This was due to a 9% increase in Indonesian loadings, supported by favorable weather and a higher production quota. China's coal demand stayed high despite high domestic production and improved hydroelectric output. Coal loadings to India rose by 3%, driven by strong economic growth and high electricity demand. Finally, global grain loadings in the third quarter of 2024 were 6% higher than the same period in 2023, with Argentina and the United States increasing their loadings by 51% and 33% respectively. Brazilian loadings fell by 8% due to delay in corn loadings caused by low water levels in the Amazon River. Ukraine grain loadings surged by an impressive 367% compared to the same period in 2023, though they were still 24% lower than in 2021 before the military conflict began. Please turn to slide five. In the third quarter of 2024, our core business generated average Hattie size and Supermax daily time charter equivalent earnings of 13,740 and 12,220 net per day, respectively. This represents a year-on-year increase of 35% and 6% for handy size and supermax, respectively. For the fourth quarter of 2024, we have covered 74% and 84% of our core committed vessel days at 12,570 and 12,190 per day for handy size and supermax, respectively. In the fourth quarter of 2024, we anticipate reversing the provision made in relation to prior period freight tax. These reversals are expected to positively influence Hedgesize and Supermax TCE earnings for the fourth quarter of 2024. While the reversal of the provision is subject to certain conditions and adjustments, it is expected to be a lower amount than the reversal made to the TCE earnings for the same period in 2023. We are focusing on optimizing short-term earnings while increasing our overall 2025 coverage. For the first quarter of 2025, we have covered 19 and 29% of our core vessel days at 10,170 and 12,590 per day for heavy size and supermax, respectively. This period is usually softer due to the Northern Hemisphere winter and Lunar New Year celebrations. We have many open days for 2025, enabling us to benefit from stable market spot rates. Limited transit of dry bulk vessels to the Suez Canal should support on mile demand and freight rates. Additionally, Chinese fiscal stimulus is expected to support commodity demand, further supporting the market. Our own fleet with substantial fixed cost is the main driver of our profitability, with an approximately cash break-even level, excluding general and administrative overhead, and excluding dry docking costs for handy-sized supermax vessels of 4,620 and 5,120 per day, respectively, in the first half of 2024. We continue to generate healthy cashflow at current rate levels. Please turn to slide six. In the first quarter of 2024, we outperformed the handy-sized spot market index by 2,040 per day, but underperformed the supermax spot market index by 1,600 per day. Our supermax underperformance was due to the higher cost of chartering short-term for vessels needed for our higher near-term cargo coverage in the Pacific, as we couldn't optimize our fleet balance between the Atlantic and Pacific basins. In the third quarter of 2024, the scrubber installed on our 33 core Supermax vessels contributed $460 per day to our outperformance. Additionally, the scrubbers fitted on our four core handy-sized vessels added $40 per day to our outperformance. Our operating activity contributed positively with margins improving sequentially. In the third quarter of 2024, we achieved a margin of 1,300 per day over 6,950 operating days. We currently operate around 154 short-term chartered vessels, aiming to increase operating days and maintaining positive margins year-on-year. Our operating activity complements our core business by matching customers' spot cargos with short-term chartered vessels, making a margin and contributing to our result in both weak and strong markets. Please turn to slide 7. Since the commencement of our $40 million share buyback program in May 2024, we have repurchased approximately 105.8 million shares for a consideration of about $31.7 million U.S. dollars. During the first quarter of 2024, we repurchased approximately 54.9 million shares for a consideration of about $14.5 million, capitalizing on the weakness in our share price over the period. By proactively choosing to repurchase our own shares at a significant discount compared to the intrinsic value of our assets, we currently recognize it as a more advantageous strategy compared to acquiring second-hand vessels. We continue to finance the buyback of our share through our available cash flow and internal resources while maintaining sufficient financial resources for the continued growth of our operations. This share buyback program is intended to continue until 31st of December 2024. Please turn to slide 9. We are anticipating an ongoing disruption to Suez Canal transit which will impact fleet efficiency and increase ton-mile demand. On a positive note, there's a broad-based increase in demand for minor bulks, including cement and clinkers, metals and ores, agri-bulk, fertilizers and steel. We're also expecting a rise in bauxite production from Guinea, with most of the export heading to China. However, reduced Chinese domestic housing construction is likely to limit iron ore demand for steel production. The global shift towards renewable energy is expected to decrease overall coal demand, although there is still a robust demand driven by energy security concerns in China, India and Vietnam. Climate change is expected to continue affecting domestic crop output, which may lead to increased grain trade volumes. Additionally, the rising global demand for diversified diets and protein will continue to stimulate import demand for feed grains and soybeans. Please turn to slide 12. We continue to monitor developments in the Red Sea and the Gulf of Aden, which remain complex and a safety concern for shipping. This has added to ton-mile demand as vessels are being rerouted on longer voyages to avoid this key transit route. To minimize the risk to our seafarers and vessels, we will continue to take the much longer routes around Africa. Meanwhile, the Panama Canal has experienced increased rainfall in recent months, boosting water levels and leading to an increase in transit and normalized vessel waiting time. Please turn to slide 14. Due to the rise in vessel prices and our goal to further decarbonize, we have been selling our older vessels. Since 2021, we have sold 24 older vessels, including 22 handy sizes, one Supermax and one Ultramax, all at attractive prices. During the first quarter, we sold two of our older handy-sized vessels, taking advantage of historically high prices of second-hand vessels. Our fleet is expanding with the addition of larger and more efficient handy size and super max new building vessels. Since 2021, we have purchased 20 modern second hand vessels, compromising six handy size and 14 super ultra max. This year, we also declared our intention to exercise a purchase option on 158 deadweight Japanese built super max vessel built in 2016. We continue to maintain discipline in our approach to acquire high quality modern secondhand vessels to renew our fleet. We believe there's financial benefits in investing in dual fuel low emission vessels, which will offer market leading operational efficiency to our fleet while enabling us to gradually decarbonize. In 2024, we will assess our readiness to commit to ordering such a designed ensuring delivery well in advance of our initial 2030 targets. This strategy move not only align with our sustainability goals, but also position us at the forefront of innovation in the industry, enhancing our competitive edge and demonstrating our commitment to environmental responsibility. Please turn to slide 15. In addition to acquiring vessels from the second-hand market, we can grow our core fleet through long-term inwards charter of vessels that showcase the latest Japanese design, provide maximum fuel efficiency, and in some cases are equipped with scrubbers. Long-term chartered vessels offer options to extend the charter agreement period at fixed rates and or purchase the vessels at a predetermined price. Extension and purchase options provide optionality as markets develop allowing us to exercise if we see value. In the third quarter of 2024, we took delivery of a long-term chartered 40,000 deadweight anti-size vessel, a new building from Japan. We await the arrival of the first of four long-term chartered 64,000 deadweight Ultramax new buildings and the third of four long-term chartered 40,000 deadweight anti-size new buildings for delivery in the fourth quarter of 2024. In 2025, we have the opportunity to exercise purchase options on four Japanese-built handy-sized vessels, allowing us to acquire these vessels at prices below the current market value for these type of second-hand vessels. Ladies and gentlemen, that concludes our third quarter trading update presentation. I will now hand over the call to our operator for Q&A. Thank you.

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