Pacific Basin Shipping Limited

Welcome to today's Pacific Basin 2025 First Quarter Trading Update conference call. I am pleased to present Chief Executive Officer, Mr. Martin Frugard. 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. Frugard, please begin. Thank you very much.

Welcome, ladies and gentlemen, and thank you for attending Pacific Basin's First Quarter Trading Update call. My name is Martin Forgoff, CEO of Pacific Basin. I trust you have received our presentation, which I will now run through to highlight key points before moving on to the Q&A session. Please turn to slide three. In the first quarter of 2025, head-sized and supermax market freight rates followed their seasonal patterns, and market activity reduced leading up to the Lunar New Year at the end of January, after which trade rates rebounded as activity picked up in February. Market spot rates for Hedgesize and Supermax vessels averaged 8,000 and 7,900 net per day, respectively, representing a decrease of 24% and 36% compared to the same period in 2024. The Baltic Exchange Forward Freight Agreement average head-to-size rate for the remainder of 2025 is 9,120 NIT per day, and the average supermax FFA rate is 9,860 NIT per day. Please turn to slide four. In the first quarter of 2025, the global minor bulk loadings were approximately 2% higher compared to the same period last year. This growth was driven by notable increases in the loading of bauxite, cement, and clinker. Imports of bauxite from Guinea into China continued to be strong, and China's steel production export increased in the first quarter. In the same period, global grain loadings decreased by 16% year-on-year, impacted by reduced Chinese demand following an increase in domestic supply of corn and wheat amid rising trade frictions. Harvest delay in Brazil slowed its grain exports, but the country is projected to achieve a record crop in 2025 with significant increase in soybean production. On the other hand, United States saw an 11% year-on-year increase in grain loadings as the anticipated tariff triggered a rush to import more soybean from the U.S. Global coal loadings dropped 5% year-on-year in the first quarter. This reduction was driven by an 11% drop in seaborne coal volumes to China, owing to large stockpiles and increased supply from domestic sources and from Mongolia. Similar coal volumes to India reduced by 6% due to slower manufacturing activity and increased domestic coal production. However, the decline was partly offset by increased coal imports into other Asian countries such as Vietnam, Malaysia, the Philippines, and Bangladesh. Global iron ore loadings in the period declined by 7% year-on-year, primarily due to reduced Australian iron ore loadings caused by disruptions from consecutive cyclones in January and February. Iron ore loadings for China declined by 9%, reflecting weak domestic demand for steel and mounting trade tensions. However, we saw iron ore volumes increase in March, and we expect support from post-disruption catch-up in Australia and potential stimulus from China to address the impact of tariffs. Please turn to slide five. In the first quarter of 2025, our core business achieved average handy size and supermax daily time chart equivalent earnings, of 10,940 and 12,210 per day respectively. This represents a year and year decrease of 1% and 10% respectively. For the second quarter of 2025, we have covered 77% and 95% of committed vessel stays for our Hattie-sized and Supermax core fleet at 11,390 and 12,400 per day, respectively. These rates are currently higher than market spot rates and Baltic Exchange FFA rates, which stands at 9,110 and 9,870 net per day. Our cash break-even level for owned, handy-sized, and supermax vessels are 5,780 and 6,200, respectively, which includes G&A, finance, cost, and OPEX. These levels ensure our ability to generate a positive cash flow going forward. For the second half of the year, we have covered 25% and 37% of committed vessel stays for our handy-sized and supermax core fleet at 10,150 and 12,090 per day, respectively. Please turn to slide six. In the first quarter of 2025, we outperformed the handy size and supermax spot market indices by 2,940 and 4,380 per day, respectively, as we covered the period in anticipation of seasonal weaknesses, especially around Lunar New Year, when freight rates typically soften. Our operating activity generated a daily average margin of $830 per day over 6,950 operating days in the first quarter, representing increase of 63% and 4% year-on-year, respectively. Please turn to slide eight. The near-term bulk market demand outlook is clouded by uncertainties from increasing trade and geopolitical tensions. However, ongoing disruption in the Red Sea and potential shifts in the trade flows could provide some support to ton-mile demand. Miter ball continues to see broad-based increases in projected volumes driven by manganese ore, bauxite, and fertilizers. However, demand for construction materials such as cement and steel products remain weak, hinging on global economic development, which is expected to remain uncertain in the near term. I know demand is projected to be under pressure due to reduce Chinese domestic demand and increased trade frictions, which have prompted plans to again curb steel output, although we have recently seen an increase in Chinese steel export. Coal demand in major importing countries such as China and India is expected to decline due to increased supply from domestic production and Mongolia overland, while the transition towards renewable energy in Europe and some Asian countries continues to impact global coal demand. We expect some support to come from ASEAN countries such as Vietnam and Malaysia, while anticipate stimulus in China, to counteract the impact of tariffs could potentially boost demand for coal. Brazil is projected to achieve a record grain crop yield in 2025, and China is expected to shift its grain import from the US to Brazil due to intensified trade tensions, which translate into more ton mile. Please turn to slide nine. In 2025, global net fleet growth is projected to outpace demand growth. Global dry bulk and minor bulk fleets are estimated to grow 3% and 4.5% in 2025, respectively. This growth is driven by an increase in new building deliveries, particularly in the handy-sized and supermax segment, which is estimated to account for around 5% of combined fleet growth in 2025, while minor bulk fleet scrapping is forecasted to be only 0.5% of the fleet. However, the long-term supply fundamentals remain favorable, with the total dry bulk order book and the combined handy size and supermax order book both currently standing at around 10% only, while new building ordering activity recorded a 90% year-on-year decrease in the first quarter. New orders continue to be constrained by limited yacht capacity and uncertainties around decarbonization and the proposed U.S. port fees on Chinese-built ships. Meanwhile, the scrapping pool continued to expand, giving limited scrapping and aging fleet with heavy size and supermax vessels over 20 years old, representing 14% and 12% of the existing fleet, which is larger than the current order book, pointed to a foundation for long-term structural supply shortage, which is likely to be accelerated by decarbonization regulation in shipping. In addition, about one third of the minor ball fleet was delivered between 2009 and 2012, and their replacement will be required in the next decade. Please turn to slide 10. The situation in the Red Sea remained volatile as earlier ceasefire attempts unraveled and disruptions in the region continued. This highlights just how fragile truces of geopolitical tensions can be and their continuous impact on shipping, which in this case has resulted in increased ton miles as shipping companies have been rerouting vessels around South Africa. We continue to monitor these situations closely. Although the dryball sector is less impacted compared to other shipping sectors, there could be further pressure on dryball ton miles demand if transit through the Suez Canal normalize, which remained uncertain at the moment. Please turn to slide 11. Growing protectionism and geopolitical conflicts around the world bring uncertainties for bulk shipping and the global economy, but they may also present opportunities depending on market and government responses. Global commodity demand is expected to remain steady in 2025. Broad base, minor bulk and grain volumes could potentially offset the impact of softening demand for iron ore and coal due to high stockpiles and the weak property market in China. Further, stimulus in China is expected to meet its economic growth target of around 5% amidst rising challenges and to counteract the potential impact of tariffs. While tariffs and other protectionism measures, such as the proposed U.S. port fees, could suppress trade volumes, drive up inflation, and hinder global economic growth, the versatility of the dry bulk trade could potentially lead to an increase in ton-mile demand as trade flows shift, resulting in longer voyages and increased congestion, providing some support to the dry bulk freight market. Uncertainties around trade, decarbonization, and U.S. policy has dampened the interest for new building orders, and this continues to support supply fundamentals in the longer term, despite near-term pressure from new deliveries pushing estimated minor bulk net fleet growth of 4.5% above estimated demand of 1% in 2025. However, the current total dry bulk order book of around 10% and limited new building orders Coupled with the expected mid-term decarbonization measures from the IMO, which are likely to result in speed reduction and increase in fleet inefficiencies and scrapping, provide the basis for favorable long-term supply fundamentals. We are cautious about the development and uncertainty in the global market, but we believe our experience and customer focused global organization, our financial strength and the versatility of our business position as well to navigate these uncertain times and take advantage of the rising opportunities. Please turn to slide 13. A core fleet in the major It's the beta contributor of our profit, and it consists of 123 handy-sized and supermassive vessels, of which over 70% are Japanese-built. Our strategy is to grow and renew our fleet. We maintain a disciplined approach, especially amidst uncertainties in the market and the prevailing vessel prices. In the first quarter of 2025, we continued to add larger and younger vessels to our own fleet by exercising purchase options for two long-term chartered Japanese-built handy-sized vessels. We also sold and delivered three older, smaller handy-sized vessels with an average age of 21 years as part of our renewal strategy. Since 2021, we have purchased 22 larger and younger second-hand vessels while selling 28 older, smaller vessels. This adds over 200,000 tons dead weight of new capacity to our fleet, equivalent to a 4% increase in total dead weight of the fleet. In November last year, we ordered four dual-fuel methanol LED new buildings in Japan for delivery in 28 and 29. which we believe are well-timed and will contribute positively to our future earnings. LEV new buildings provide Pacific Basin with additional optionality for growth and enable us to meet the industry target of net zero by 2050. Last week, IMO announced that agreement has been reached on its mid-term measures designed to force ships to adopt cleaner fuels from 2028. or face financial penalties. We are currently evaluating the measures and their expected impact. We support the efforts of IMO in respect to reduction of greenhouse gas emissions and believe the agreed measures are an important step forward for the shipping industry and that they will support our initial investments in fuel optimization as well as our dual fuel methanol LEV new buildings. We hope the rules will be adopted at the next MEPC session in October 25. More is obviously required to accelerate the transition, but if adopted, it will be an important milestone and the right step forward to begin decarbonizing the shipping industry. Please turn to slide 14. Long-term inward charter of vessels, particularly new buildings built in Japan, With latest design that maximizes fuel efficiency, enable us to expand our core fleet while maintaining maximum optionality as they come with options that allow us to extend the charter or to purchase the vessels at fixed prices. We currently have firm commitments for 20 long-term chartered vessels, four of which are due for delivery between 25 and 26, consisting of three 64,000 deadweight Ultramaxes and one 42,000 deadweight handy size. These new buildings are all built in Japan and will be equipped with scrubbers. During first quarter, we declare purchase option on two long-term chartered vessels, which will be delivered during the summer. In the second half of 2025, we can declare purchase option on additional two handy-sized vessels built in 2017 and 2020, and one Ultramax vessel built in 2017. All again from Japanese shipbuilders and attractively priced. In light of the uncertainties ahead, we remain close to our customers and are continuously optimizing our short-term cargo commitments to position ourselves optimally in what is expected to be a volatile market. At the same time, we have the financial strength to pursue growth opportunities that normally arise from increased market uncertainties, which will position us well for the next market upturn. Ladies and gentlemen, that concludes our 2025 first quarter trading update presentations. 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 raised hand button and you will enter a queue. After you're announced, please unmute yourself, state your name and company and ask your question. If you find that your question has been answered before it's 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. Our first question comes from Paris Jane. Please go ahead.