Pacific Basin Shipping Limited ($2343)

Welcome to today's Pacific Basin 2026 First Quarter Trading Update Conference Call. I am pleased to present Chief Executive Officer, Mr. Martin Fruergaard; and Chief Financial Officer, Mr. Jimmy Ing. [Operator Instructions] Mr. Fruergaard, please begin.

Yes. Thank you. Welcome, and thank you for attending Pacific Basin's 2026 first quarter trading update call. We will highlight a few key points in the published presentation before we proceed to Q&A. Please turn to Slide 2. Despite ongoing geopolitical disruptions and operational inefficiencies, including the outbreak of war in the Arabian Gulf in early March, our dry bulk freight markets have strengthened year-on-year. As a result, we delivered improved TC earnings and strong market outperformance in the first quarter. Our Handysize and Supramax fleets recorded average net daily TCE earnings of $12,130 and $13,970 respectively, making year-on-year increases of 11% and 14%. These results reflect significant outperformance with Q1 earnings in the relevant indices by 1,030 per day for Handysize and 2,050 per day for Supramax. Looking ahead to the second quarter of 2026, we have covered 70% of our committed vessel days for heady size and 90% for Supramax at 14, and 17,080 per day, respectively. For the second half of the year, coverage stands at 22% for Handysize and 35% for Supramax at 10,430 and 13,840 per day, respectively. In addition to our strong performance, we have taken steps to further enhance and modernize our fleet. Today, we converted our existing order for 4 dual fuel Ultramax newbuildings announced in 2024 to 4 conventionally fueled Ultramax newbuildings, with an option to acquire 2 dual fuel Ultramax newbuildings, all to be constructed in Japan. Separately, we increased our newbuilding orders, order with GNS in China from 4 to 6 handysize vessels. Now I will hand over to Jimmy for a quick overview of the first quarter performance and market review.

Thank you, Martin. Good evening, ladies and gentlemen. I will share with you some observations on the market and a snapshot of our operational performance for the period. Please turn to Slide 4. Freight rates increased in the early part of the first quarter of 2026, supported by strong dry bulk commodity flows. Market conditions remained volatile during the quarter, driven by the wall in the Arabian Gulf as well as route disruptions and bunker fuel price fluctuations. During the period, market spot rates for Handysize at an average of approximately USD 11,000 per day was 39% higher year-on-year. and the rate for Supramax at an average rate of around $11,920 per day was 51% higher year-on-year. Overall, despite ongoing volatility and elevated geopolitical risk, freight market conditions across both segments remained healthy during the first quarter of 2026. Rates for the remainder of 2026 also points to a positive outlook. Please turn to Slide 5. Now this page provides an overview of dry bulk trade developments for the period from January to March 2026. Beginning with minor bulk, total loadings declined by about 3% year-on-year. Volumes were led by -- were lower by aggregates cement and steel-related cargoes, driven in part by disruptions in the Arabian Gulf and new licensing rules for Chinese exporters. This was partially offset by continued growth in bauxite and minor metals as China's fast industrial sector continued to attract ever greater imports. Fertilizer volumes soften in the period with prices increased, signaling a more cautious outlook for green-related trade later in the year. Now turning to green. Loadings increased by about 15% year-on-year. Export performance was strong across most major growing regions supported by large harfits, particularly in East Coast South America. Export volumes from Ukraine and Russia, however, declined, continuing the trend observed in recent months. On the import side, China led demand growth supported by a stronger renminbi despite the escalation of geopolitical conflicts since late February. In coal, volumes declined by 5% year-on-year in addition to the long-term structural downtrend. Indonesia shipments declined due to tighter export quotas, while Chinese and India coal imports also softened. However, coal prices increased following a spike in LNG prices across Asia, which provided temporary support for power-related demand. prospects for cottage for the remainder of 2026 have improved, notwithstanding long-term trends to face our code usage. Now finally, on the rightmost column, you would see iron ore loadings increased by about 7% year-on-year. Chinese steel mills continue to demonstrate strong appetite for iron ore imports and stock building aided by a strong renminbi. Economic indicators also suggest that property-related steel demand in Asia and China, in particular, may be stabilizing. Australia and Brazilian export volumes performed strongly recovering from a first weather in the same period last year, pelletizing plants in Oman and Bahrain however, led losses in the period. Now in summary, although trade volumes were resilient in the first quarter of 2026, the evolving geopolitical landscape, particularly the Iran war is expected to continue to reshape global shape floats and drive dislocations across dry bulk markets. These would add additional support to freight rates. Please turn to Slide 6, in the first quarter of 2026, as Martin mentioned earlier, our daily average TCE earnings of USD 12,130 for Handysize and $13,970 for Supramax represented an increase of 11% and 14% as compared to the same period in 2025, respectively. Our TCEs continued to outperform average spot market rates by USD 1,030 per day for Handysize and $2,050 per day for Supramax. For the second quarter of we have currently covered 70% and 90% of our committed vessel days for our Handysize and Supramax core fleet at $14,000 17,080 per day, respectively. Now complementing our core business, our operating activity generated a daily average margin of $340 per day over 6,240 operating days in the first quarter. I will now hand you back to Martin to run you through market dynamics and outlook.

Thank you, Jimmy. Please turn to Slide 8. Global dry bulk nip Fleet growth is forecasted to increase from 3% in 2025 to about 3.6% in 2026 driven by higher scheduled newbuilding deliveries across the sector. By comparison, Handysize and Supramax net fleet growth is expected to moderate to about 3.8% in 2026 as newbuilding activity remains more concentrated in larger vessel classes. Around 15% of Handysize and Supramax capacity is now more than 20 years old and about 13% of total dry bone capacity falls into this age category. The fleet age profile highlights both the ongoing fleet renewal needs and a growing number of older vessels that eventually will be scrapping candidates. Please turn to Slide 9. As I mentioned at the start, we have finalized agreement to replace our existing order at Imabari in Japan for 4 dual fuel ultra newbuildings with 4 conventionally fueled Ultramax newbuildings, featuring the latest fuel-efficient design. This adjustment significantly reduces unnecessary near-term capital expenditure and reflects a financially prudent approach in light of renewed uncertainty surrounding the timing and final form of the global maritime green fuel transition regulations. Especially after the failure to adopt IMO's net framework in October 2025 due to political divisions among member states. To maintain flexibility, these new agreements include an option to acquire 2 dual fuel methanol Ultramax newbuildings, allowing us to reenter the low-emission vessel market if regulatory clarity improves within 2026. We Beyond this, we have also reached an agreement with GNS to order another true Heavyside newbuildings, which will be built to the same latest generation fuel efficient open hatch and lock fitted design, as the 4 vessels we ordered in December last year. With these transactions, our current order book consists of 6 handysize and for Ultramax newbuildings, plus an option for 2 additional dual-fuel Ultramax newbuildings. We also hold purchase options that we can exercise between 2026 and 2031 and for 15 long-term chartered-in vessels, 12 of which are already operating in the Pacific Basin fleet today with the remaining fee schedule for delivery in the second half of 2026 and into 2021. These strategic moves helps to position us well to adapt to regulatory developments, manage capital prudently and maintain fleet flexibility for the future. Please turn to Slide 10. The war has significantly disrupted trade flows leading to a tighter supply of available vessels. In the short term, we are seeing around 2% of the sub Capesize fleet currently trapped in the Arabian Gulf, which further restricts vessel supply. Meanwhile, global dry ball cargo volumes have shifted noticeably. Before the conflict volumes were growing at about 1.4% year-on-year. But since the outbreak, we've seen a sharp decline of roughly 6.6% year-on-year. This drop reflects a fear fixing in the market as stakeholders remain cautious amid ongoing fluctuations in commodity prices, freight rates and fuel prices. However, as the market begin to adapt to the new price levels at end users look to restock inventories we anticipate that pent-up demand will be released. Additionally, power utilities across Asia and Europe are expected to switch increasingly from LNG to coal which should add further demand to the dry bulk sector. Looking to the future, if the war in the Arabian Gulf continues and energy prices remain high, we may see higher inflation and ultimately slower global economic growth. So far, the impact on Pacific Basin has been limited. We currently have 1 chartered vessel in the Arabian Gulf, and we are maintaining ongoing dialogue with both the owner and our charters. So our exposure remains limited. We also received solid support from our fuel suppliers and have covered most of our fuel price exposure through hedging and pass-through mechanisms. On the operational side, we are able to capitalize on our investments in energy-saving devices, silicon applications and voyage performance optimization through digitalization, all focused on improving vessel speed and consumption profile. Moreover, our relatively high number of open days in the second half of 2026 allow us the flexibility to maximize earnings as freight rates continues to rise. Please turn to Slide 11, as we look ahead to the rest of 2026, it's clear that we will be navigating another year marked by substantial market disruptions. From a broader macroeconomic perspective, economic growth is likely to slow down largely as a result of the aftermath of the RAN role. The IMF have already revised their growth forecast downwards, but the ultimate trajectory will depend on ongoing discussions between Iran and the U.S. as well as the timing of the reopening of the straight much. In the dry bulk sector, we anticipate that supply growth both from both for minor bulk and total dry bulk will outpace demand growth in the near term. This is primarily due to increased new building deliveries and limited scrapping activities, despite these challenges, market disruptions and inefficiencies are likely to provide ongoing support to dry bulk market conditions. Notably, freight forward agreements are holding at elevated levels for the rest of the year. with FFA averages for 2026 suggesting rates of around 14,080 per day for Handysize vessels and 16,230 per day for Supramax vessels. Of course, volatility is expected to persist, given slower economic growth, multiple ongoing disruptors and heightened geopolitical uncertainty, political uncertainty, silence of our operating model. This is underpinned by a fleet that is both growing and modernizing our proactive fleet management and our sector-leading cost efficiency. Coupled with our robust balance sheet and disciplined approach to growth. These strengths position in Pacific Basin exceptionally well to manage near-term uncertainty and to see an exceptionally well to manage near-term uncertainty and to seize opportunities as they are presentation by thanking our Pacific Basin colleagues at sea and ashore for their contribution to our result. I will now hand over the call to the operators for Q&A. Thank you.

[Operator Instructions]. Our first question comes from Nathan Gee.

Maybe 2 questions from me. Firstly, bulk shipping. And maybe I missed the first 10 minutes of the presentation, so apologies about that. But I just want to confirm, has the war -- do you see it as having played as more of a positive or a negative for dry bulk market so far? So that's the first question. Second question is just in terms of fuel availability. Your ships go into smaller ports. Are you seeing any evidence of fuel shortages anywhere and any risks over the next few months around that? .

Yes. Thank you, Nathan, and thank you for asking a question. I was getting a little bit nervous. First of all, about the war and the impact on the market and I think it's important to remember that we had the start of the year as we normally do in where the market goes down before the Chinese New Year and then it starts going up, but that's also what happened this year. And then the war starts -- and we actually had -- so at that time, we were actually -- the market was actually on the way up. And when the war started we actually had a month where rates actually came down a little bit for the Handysize and the Ultramaxes. And I think the reason for that was actually that all this uncertainty, everybody was stepping back sort of trying to figure out what was going on. And of course, fuel prices were peaking immediately. So I think everybody was stepping back, waiting a little bit to see with all this volatility, waiting a little bit to see if things will settle down or or when -- if the war would end soon or if it was only a short duration. But then the work continued. And after a while, I think people are stepping in again and having to replenish and get the cargoes moving. So we're actually now seeing an increase in the market, and we also see the FFA actually looking quite active. It's, of course, a super change of commodities moving around, before the war, there was nearly about -- I think, about 30 million tonnes of fertilizers going out of the Arabian Gulf that has to be replenished somewhere else, probably can't replenish at all but you see a lot of changes in the trading patterns and these are getting these disruptors that drives our market going forward. So as we say, we still have quite a bit of ships delivering, but all this disruption actually changes the trading pattern has been very helpful for us, and the market looks very positive at the moment. And on top of that, you can say if coal has to be gas and so on. There's actually some upside. I think that's a space to watch going forward, what's happening on the coal front. And then about fuel availability, clearly, in the beginning, lots of concerns about fuel availability. It seems now that things have settled down a little bit. We haven't had any issues with delivery of fuel because we have challenges with the price of the fuel. It went up quite a lot during March. Things have settled down. And I think that maybe also brings the customers a little bit back in the market. The Bongerprice is still high, but they're settling a little bit compared to -- and actually prices now are about, I think, $350 below the highest price we had in March. We don't see an issue with availability for our fleet. And I think we have had many of our loyal suppliers have actually been quite loyal to us during this period. I think that the challenge sometimes it's probably more with the refined products. So it's probably more the gas oil more the jet fuel for the planes and these things where the refineries are having some challenges. But we also see that the gas oil, which is a refined product, the prices are very high still, and availability is tight. But so far, so good.

Perfect. Maybe 1 quick follow-up, if I can. Just in terms of the buyback. Is there any update in terms of whether you've started that so far? And just general thoughts on buying back at current levels?

Yes. But I think it's also important, we haven't said so much in the presentation, but asset values are also going up. And actually, secondhand values are now probably the highest they've been, if you take out '22, it's actually the highest they've been since 2016. So it's actually the highest prices for 10 years. just taking out the -- well, it's actually probably higher than it was in '22. So secondhand values have are very high at the moment. And of course, so when we look at our share price and we compare it to the fair market value of our assets, we are trading again below that part of it. And we are evaluating all along if and when the right timing is to do the share buyback. We have $40 million as we also had the last couple of years, we also have announced $40 million this year. But this we have said up to $40 million. And of course, we follow a little bit the market to see if and when the right time is to go in and buy.

[Operator Instructions] So there are a couple of questions coming from the platform as written questions. So this question is about, are you concerned that demand destruction due to weak industrial activity from inflation, fuel availability risk could outweigh ton miles and coal demand uplift.

Yes. I'm always nervous about these things. But the world seems at the moment, at least quite recent we also just saw numbers from growth in China this morning of 5%. And which is quite impressive. But it's clear that if we -- if the -- for instance, the war in the Arabian Gulf continues for longer end and the straight of Homes is closed and the oil price stays high, that will definitely have a negative impact on the world economy in the longer run, and it will probably create some inflation in the market. That I don't think will be good for us. But on the other hand, in the short term, all this disruption, which is enormous actually is actually quite positive for the earnings and for the activity level for the dry cargo space. But it's, of course, true that in the longer run, we would prefer to have more growth -- global growth would be good, and the situation at the moment is probably not very supportive around the long-term growth if the situation continues for long.

Okay. Thank you, Martin. There's 1 more question from the platform. Do you expect any one-off loss related with the vessel in the Gulf.

Well, it all -- of course, that -- we are quite balanced on the contractual liability on that ship. But of course, if the situation continues for long, that there will, of course, be losses in that connection. But for us, considering our size and our contractual obligations in this contract, it is minimum on that side. The exposure we basically have in respect to the situation we have now and the higher oil price of these things and the situation ratings probably that that the lube oil prices will go up a little bit. And then of course, cost of flight tickets is up. And of course, we have a lot of crew members flying around the world. But in the biggest scope of it, it's minimal compared to the upside we see in the market.

Thank you, Martin. There's 1 more question from the platform. Could you elaborate on the CapEx reduction from the shift to conventional fuel powered new vessel orders?

Yes, we can. We announced the order for the dual fuel ships in '24 and the price we announced was $46.5 million per ship. And the new share we have acquired they are priced at $39.2 million. So the difference between that is $7.7 million for each of the 4 ships, it will not have an immediate. This 2026 impact on our cash flow because we have already paid the first installment on that. But as the ships are progressing on building and being delivered, that's a reduction in the CapEx on these 4 ships. So for Egypt, $7.7 million. .

[Operator Instructions] There are no further questions, we will now begin closing remarks. Please go ahead, Mr. Martin for regard.

Yes. Thank you very much for listening in to our Q1 trading update. Should you later have any questions after having started the material, then please feel free to call us and call our Investor Relations team. Thank you very much, and have a good evening. .

This concludes our conference call. Thank you all for attending.