Market And Industry Scenario

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M.B.A-Tech (Finance + Manufacturing)

Market and Industry Scenario

The company presently caters the energy transportation segment with majority of the companys revenues are derived from international transportation between Domestic and International ports. Company also provides Complete Logistics Solutions.

Tanker: All the segments of the tanker market were very stable for most part of the year. In the last quarter of the financial year, a sudden spurt in the tanker demand sent the VLCC freight rates soaring. The Suezmax segment also enjoyed a boost in their earnings, as charterers made efforts to control the VLCC rates by splitting the parcel sizes. The demand was created by the flurry of cargos fixed by the charterers before the Christmas holidays. However, the Aframax segment did not see any increase in demand with the year ending on a soft note. The last quarter ended very well, giving the much required boost to the tanker earnings, which ensured that tanker owners continued being bullish about this segment in medium to even long term.

With 27% and 9% of the total worlds seaborne trade accounted for by crude oil and refined oils respectively, the tankers are an important segment of the Shipping industry. As on January 1, 2008, the world tanker fleet stood at 381.3 Mn DWT. The demand-supply drivers of the tanker market are indicated below.

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NARSEE MONJEE INSTITUTE OF MANAGEMENT STUDIES

M.B.A-Tech (Finance + Manufacturing)

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NARSEE MONJEE INSTITUTE OF MANAGEMENT STUDIES

M.B.A-Tech (Finance + Manufacturing)

Tanker Freight Market

Global Scenario The demand for tanker market is soft due to low demand and over supply of tankers. The slow down in US economy and OPEC production cuts for maintenance reduced the demand. The growth rate for the market is around 1.9%. With average of tanker around 10 years and tanker fleet growing at around 4.7% annually in medium term demand would not be enough to absorb the additional capacity.

Indian context The demand for crude oil is increasing due to increasing domestic demand and refineries importing crude oil and re-exporting refined products downstream. The refining capacity increased from 63.14 MMTPA (million metric tones per annum) FY1997 tones to 149.47 MMTPA in FY2007.

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M.B.A-Tech (Finance + Manufacturing)

The demand for petroleum products to grow at 3.5% up to 2010 and refining capacity to grow at a CAGR of 13.1% till FY 2012.

The continuing conversion of single hull tankers to ore carriers would have a positive impact on the supply and demand scenario. The phasing out of the single hull carriers and the addition of new tonnage in the market is also well balanced. The availability of tonnage is also closely matched with the requirement which should keep the rates at steady to firm levels. This should keep the demand growing for tankers in Indian market. DRY BULK: The term dry bulk refers to those commodities, which are amenable to shipment loose and in bulk as full loads of homogenous cargo (as distinguished from cargoes transported in less than full shiploads, usually as lines or parcel cargo or in small-bagged consignments. Bulk cargoes such as iron ore, coal, grain, bauxite/alumina and phosphate rock account for over 60% of the dry bulk trade. Other dry bulk cargo comprises a range of agribulks, fertilizer, ores, minerals, forest products, iron and steel. MLL proposes to cater mainly into the energy transportation i.e. transport coal into India and iron ore out of India. There are two types of markets for the Dry bulk vessels to be employed; spot and the period time charter markets. The spot market refers to contracts for one or more voyages that can last up to a few months. Period time charters can range from several months to several years; such charters can be fixed in terms of day rates or a fixed quantity to be lifted at pre fixed rates. In general, spot rates tend to be higher than period rates. While strong spot rates can generate higher earnings in good markets, period charters provide for a steadier income stream over a longer period of time and reduce short-term market volatility. The mix between spot and period employment varies by company depending on its interpretation of market trends and its overall corporate strategy.

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M.B.A-Tech (Finance + Manufacturing)

Dry Bulk Index

BDI- Baltic Dry Index Panamax Index BSISource Baltic Index

BCI- Baltic Capesize Index BPI- Baltic Baltic Supramax Index

Average Dry Bulk Index BDI Mar 2008 Feb 2008 Jan 2008 2007 2006 2005 2004 8,063 6,874 7,170 7,102 3,186 3,398 4,515 BCI 11,252 9,780 9,669 9,997 4,285 4,628 6,036 BPI 8,144 6,743 6,954 7,049 3,031 3,155 4,329 BSI 5,168 4,437 4,852 4,530 2,253

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M.B.A-Tech (Finance + Manufacturing)

Year 2007 has been an excellent year for the dry bulk freight market. The dry bulk index grew by more than 122% in 2007 over 2006. The main reasons for this phenomenal increase in the index in 2007 were

1) Strong Chinese iron ore and steel trade 2) Congestion at the Australian ports Majority of trade consists of export of iron ore to china and import of coal. China imports of iron ore grew 17.4 % with Chinese steel production growing at 15.7% it is estimated to grow like this till 2012. India imports coal mainly to meet power generation requirements, Steel production & cement production. India t o double its electricity production from 135,000 to 250,000 megawatt by 2015.and it will need to import 220 million tones of coal. India domestic steel production to grow 120mn tonnes that would need coal imports from 432 -670 mn tonnes of coal in FY2012at a CAGR of 7.6%. Indian cement industry grows at a CAGR of 10 % for next 5 years that would further increase demand for coal. Dredging: All major Indian ports are presently working to 100% capacity, whereas India further expects an 8 to 9% growth rate. This would translate the present seaborne trade of about 400mn tons to 900mn tones by 2013. To cope up with this new demand, the Indian Government plans to develop new ports, as well as, deepen the existing ports to absorb the requirements. Further, the Sethusamduram project undertaken by the Government of India would require about 96 million cubic capacity dredging. The dredging industry is passing through a good phase as the development of various ports the world over are offering opportunities for the deployment of dredgers. Many 20

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M.B.A-Tech (Finance + Manufacturing)

ports in the East Coast of India are being developed including Ganagavaram, Krishnapatnam and Dhamra Ports. Extensive dredging works of deepening and reclaiming are required in the preparation of ports. The Cargo handling capacity to grow from 383.7 to 615.7 million tons at a compounded growth rate of 7.7% by 2012. The availability of dredgers or the supply side has been a real concern in recent past; with new opportunities on the anvil; the charter hire rates are getting firmer rather quickly. As per 10th year plan port expansion programs would require a total capital dredging requirement of about 144 million cubic meters while the current capacity is around 80 millions cu mts only. In addition to the development of new ports Requirement of extensive maintenance dredging works in the Hugli River, Kandla, Mangalore and Cochin Port also presenting decent opportunities to the owners. Two separate cargo terminals are to be developed at Vizag for liquid and bulk cargo. An international cruise terminal at Kochi, a multi-purpose cargo berth at Kandla and a bulk cargo berth at Goa are also on the cards. At Tuticorn, berth number 8 will be converted into a container terminal. the US $2 billion Vizhinjam International Container Port in the state of Kerala Rs1, 300 crore container terminal project at the Ennore port in Tamil Nadu. $600 million South Harbour project a new outer deepwater harbour being developed next to the Port of Colombo

In view of the above, the market outlook is very much promising and the earnings in this sector are expected to remain strong. Further developments in various ports around the world such as extensive dredging and reclamation works in Singapore, China, Vietnam and Taiwan would offer good opportunities to this segment.

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M.B.A-Tech (Finance + Manufacturing)

Offshore: Continuous rise in oil prices has resulted into an environment that has never been witnessed before and therefore, one that was almost unpredictable in the past is beginning to happen. The trends presented here, clearly show while growth in consumption has been rather consistent; the price of oil has been moving up rather exponentially: This increased prices and the steady rising demand gave impetus to exploration activities, resulting in greater demand for offshore services like Seismic, Drilling Rigs etc. To bridge the increasing 'demand - supply' gap, there is an increased thrust on the 'Development and Production' from the existing fields which further increases demand for 'versatile' and 'improved' technology based Jack-Up Rigs. Also Oil companies revised their basis for exploration & production cost from a level of USD 45 to an amount in excess of USD 65-70 per barrel thereby becoming a driver for increased drilling activity backed by an increased demand and improved remunerative rates for service providers. Consequently the offshore segment shall continue to remain bullish over medium to even long term. Oil prices USD 120 way above hurdle rate of USD 52. Worldwide rig utilization is above 90%. The global market has acute shortage of drilling rigs approx 50. Global spare production is at 3 decades low at 2.5 % of global consumption. Expected total investments of USD 5.5 trillion in upstream activities over 200530 to sustained E&P spend. The drill rigs of 1981-85 build cycle needs to be replaced and current supply of rigs is just going to be a replacement for existing rigs.

OPPURTUNITIES Indias prognosticated (not proven) reserves are 30 billion tons of oil and oil equivalent & only 18 per cent of that has been explored. To increase private participation the government initiated NELP turned out to be a huge success. In six rounds 1999-2006 a total of 165 production sharing contracts, 62% of which are in offshore segment. 22

NARSEE MONJEE INSTITUTE OF MANAGEMENT STUDIES

M.B.A-Tech (Finance + Manufacturing)

60 successful discoveries in India including KG Basin by reliance, KG deep water by Cairn energy.

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M.B.A-Tech (Finance + Manufacturing)

Complete Logistics Solutions: Mercator has successfully commenced providing complete logistics activities / solutions for coal i.e. transportation of coal from the foreign load port till the domestic discharge port and from thereon to the actual usage place. The Logistics activities refers to activities such as stevedoring on mother vessels, lighterage by barges/tugs, transportation of cargo through road / rail to the stockyard and from thereon to the final usage place. Most of the activities have been carried out by chartered vessels / equipments. Company presently has a major contract from Tata Power. For the financial year 2007 08, this segment accounted for 1.5% of Mercators gross operating revenues of Rs. 22 Cr. as against 1 % of its gross revenues of Rs. 15 Cr in the financial year 2006 07

Port loading with geared vessels

Ship voyage

Port unloading with geared Vessels

Jetty
Barges

Trucks / Rail

Stock Yard

Trucks / Rail

User Site

Other competitors

Our Company Mercator Solution

Coal As a backward integration process, the Company has forayed into coal mines through its network of subsidiaries and has acquired economic interest in 2 coal licenses in Indonesia and 1 license in Mozambique. The coal resources in Indonesia are about 15 Mn. tonnes and in Mozambique are about 3 Bn tonnes. The work in Indonesia is in an advanced stage and the operating revenues would be generated in the financial year 2008-09.

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NARSEE MONJEE INSTITUTE OF MANAGEMENT STUDIES

M.B.A-Tech (Finance + Manufacturing)