Pacific Basin Shipping Limited (2343) Earnings Call Transcript & Summary

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

Thank you. Yes. Welcome, and thank you for attending Pacific Basin's 2026 First Quarter Trading Update. We will usually highlight the key points in the published presentation before we proceed to Q&A. Please turn to Slide 2. Dryball market conditions further strengthened during the third quarter of 2026. Geopolitical uncertainty, disruptions and weather-related events continue to affect several key shipping routes, supporting ton mile demand. Freight rates further strengthened with BHSI and BSI increased by more than 25% year-on-year. In the third quarter, our heavy size and Supramax fleet recorded average net daily TCE earnings of $16,020 and $17,990, respectively, marking strong year-on-year increases of 37% and 34%. For the first 9 months of the year, we continue to outperform the respective indices with Handysize and Supramax are performing by $1,730 and $1,440 per day or 13% and 9%, respectively. We continue to enhance and renew our fleet. During the quarter, we exercised a purchase option on one long-term chartered Handysize vessel, took delivery of 1 new long-term charter Handysize new building, and we sold and delivered 2 20-year-old Supramax vessels. In addition, we also declared a purchase option on a 3-year-old long-term chartered Handysize vessel with delivery in the fourth quarter of 2026. As of the end of September 2026, we have a total of 258 vessels in operations, comprising 106 owned vessels, 13 long-term chartered vessels at 139 short-term charter vessels. Our current order book consists of 6 Handysize and 4 Ultramax newbuildings, with the expected delivery between 2028 and the first half of 2029. We hold an option for 2 dual-fuel ultra newbuildings that is declarable in February 2026. And we hold purchase options on 11 modern long-term charter vessels already in our fleet, which are declarable between 2027 and 2031. We have 2 long-term charter newbuildings joining our fleet in 2027, one Handysize and Supramax, both of which come with fixed price purchase options. These purchase options and our new buildings on order maximize our flexibility, enabling us to renew our fleet and allocate capital in a disciplined and value-accretive manner. Now, I'll hand over to Jimmy for an overview of the third quarter performance.

Thank you, Martin. Good evening, ladies and gentlemen. I will share with you some observations on the market and a snapshot of the market and also our operational performance for the period. Please turn to Slide 4. Market freight rates maintained the momentum during the third quarter of 2026, supported by healthy drybulk trade floats and continued inefficiencies across global shipping networks. During the quarter, market spot rates for Handysize have reached approximately $14,670 per day, representing an increase of 27% year-on-year. Market spot rates for Supramax averaged approximately $18,290 per day, which was 28% higher year-on-year. The freight market conditions year-to-date have been materially stronger than the last 2 years across both the Handysize and Supramax segments. Geopolitical developments and other disrupting factors such as weather conditions continued to create inefficiencies in the industry. U.S.-Iran tensions remained causing ships to reroute and affecting trading patterns due to severely restricted festival transits through the Strait of Hormuz. Now with a limited progress in the U.S.-Iran relations, the timing of any reopening remains uncertain. Freight market volatility is expected to continue with the various disruptions that are unlikely to be fully resolved in the near future. FFA rates for the remainder of 2026 also point to strong market conditions ahead. Please turn to Slide 5. In the third quarter of 2026, as Martin mentioned earlier, our average daily TCE earnings of USD 6,020 for Handysize and $17,990 for Supramax represented an increase of 37% and 34%, respectively, compared to the same period in 2025. In terms of cover, we have currently covered 65% of our committed vessel days for Handysize and 76% for Supramax at $16,480 and $18,960 per day, respectively. We have retained exposure to the market through open vessel days in attractive positions, giving us the opportunity to benefit from a seasonally stronger market in the remainder of the year. For 2027, we have currently covered 7% of our Handysize vessel days at $13,180 per day and 19% of our Supramax vessel days at $15,590 per day. Complementing our core business, our operating activity generated an average daily margin of $2,190 on about 6,610 operating days in the third quarter. Now this operating activity margin was significantly higher than that of last year. Please turn to Slide 6. In the third quarter of 2026, our Handysize TCE earnings outperformed the spot market index by $1,350 per day or 9%, whereas our Supramax TCE earnings worth $300 per day or 2% below the index. Now that is primarily reflecting the Atlantic-Pacific rate differentials and also our deliberate backhaul positioning into the higher-paying Atlantic market ahead of the typical strong fourth quarter. For the first 9 months of 2026, we continued to record our performance with our Handysize TCE earnings outperforming the market spot rate by 13% or $1,730 per day, and our Supramax outperforming the BSI by 9% or $1,440 per day. This sustained out-performance reflects the strength of our operating model, the resilience of our commercial platform and the effective execution of our long-term business strategy in a highly cyclical market. I will now hand you back to Martin to run you through the market dynamics and outlook.

Yes. Thank you, Jimmy. And please turn to Slide 8. So seaborne dry bulk trade continued to expand during the third quarter, supported by ton mile demand growth across several major and minor bulk commodities. Cargo volumes for minor bulk particular were weaker, but continued geopolitical disruptions and trade inefficiencies resulted in broadly stable minor bulk ton mile demand. Turning to grain. Trade volumes benefited from stronger Argentinian exports following a record soybean harvest and increased U.S. and Brazilian grain shipments. This was partly offset by the continued disruptions in the Black Sea. Iron ore trade recorded healthy growth, supported by robust demand in China with continued high volume of Chinese steel being exported. Coal demand also remained resilient amid continued disruption to energy supply and regional trade flows. In summary, dry bulk demand remained resilient during the first quarter. Ongoing geopolitical disruptions and trade inefficiencies resulted in longer voyage distances, which supported our mile demand and tightened effective vessel supply. Please turn to Slide 9. Global dry bulk net fleet growth is forecasted to be 3.8% in 2026 and 4.4% in 2027, driven by higher scheduled newbuildings -- newbuilding deliveries across the sector. However, heavy size and Supramax net fleet growth is expected to be about 3.9% in 2026 and 3.8% in 2027. The total dry bulk order book currently stands at 15% of the existing fleet, while the order book for Heavysize and Supramax represents 8% and 60% of the existing fleet, respectively, both remain moderate. And overall, the order book in dry bulk remain much lower than in tanker and container sector. Please turn to Slide 10. While the market fundamentals remain constructive, the outlook continues to be influenced by several macro uncertainties. U.S.-China relations appear to be more stable in 2026 with U.S. exports to China recovering, but remaining below the pre 2025 level. Current U.S.-China trade arrangements have been extended to January 2027 and the suspension of the USTR Section 301 measures have reduced near-term uncertainty. However, the longer-term direction of trade policy and its application for trade and shipping remain uncertain. The Arabian Gulf conflict continued to create disruption across global trade routes, which has contributed to longer voyage distances and greater freight market volatility. The reopening of the Strait of Hormuz remains uncertain. El Nino caused adverse weather in different parts of the world, extreme weather conditions, including hot and dry summers and typhoon, impacted trade flows and cost congestions to major ports. These environmental disruptions also affect both energy demand and agricultural production. Stronger power demand is supporting Pacific coal volumes in 2026, while hot and dry conditions could weigh on grain production and reduce Atlantic grain volumes. These contrasting effects may affect trade patterns and increased volatility across coal, grain and other minor bull markets. From a regulatory perspective, the details and future direction of the IMO net 0 framework remain unclear. Global and regional regulatory developments will continue to influence investment decision, business specifications and future fuel strategies. Please turn to Slide 11. Looking ahead, we expect the dry bulk industry will continue to be influenced by geopolitical disruptions, trade inefficiencies and changing cargo flows leading to stronger market outlook for the remainder of 2026 and also into 2027. El Nino weather-related disruptions, which are expected to continue into 2027 and will shift seaborne trade patterns, may also affect ton-mile demand. Despite these macro disruptions, IMF's forecasts point to a positive direction with expected global GDP growth of 3.4% for 2027, meaning an improving global economy. FFA rates for the fourth quarter of 2026 remained at healthy levels, averaging approximately $16,230 per day for Handysize and $18,980 per day for Supramax. In the dry bulk sector, overall drybulk ton mile demand is projected to increase by 3.7% in '26 and 3% in 2027, while minor bulk ton mile demand is projected to increase by 2.7% this year and 3.1% in 2027. This is driven by demand in iron ore, grain and minor bulk cargoes and long-haul trade routes that support ton-mile demand. On the supply side, net fleet growth of overall dry bulk is expected to increase to 4.4% in 2027, but minor bulk net fee growth is forecasted to slow to 3.8% next year. However, the aging global fleet, tightening environmental requirements and continued market inefficiencies are expected to narrow the supply-demand imbalances longer term. Overall, the macro environment and trend points to a positive direction for the dry bulk sector, as supported by the strong fundamentals and persistent disruptions in the market. With that, I would like to conclude our 2026 Third Quarter Trading Update presentation and hand the call back to the operator for Q&A.

[Operator Instructions] Our first question comes from Parash Jain from HSBC.

I have a question, now that 2026 is pretty much in the bag, if you can talk about your initial thoughts on 2027? And looking at today's rates, are there opportunities to get into 1-year TC rate kind of a market? Or you would still continue to expose yourself to the spot rates given relatively higher rates? And secondly, with respect to the recent weakness in the Capesize because of iron ore, is it more cyclical because of the main maintenance of the factories in China or you would think it more the other reasons? And will that have an impact on the smaller vessels?

Yes. Thank you, Parash. Good question. I think I -- first of all, I think we've been quite successful this year actually positioning ourselves correctly in the market. So we took less cover. So I think what really went well, a lot of things have gone well so far this year. But basically, also we got the timing right and positioned ourselves quite well for this market. I think we're still quite well positioned with the fleet all in all. We, of course, are, as you say, 2026 it's not all over, that we still have some earning capacity still. We, of course, have good cover, but there's still some upside in the market for normally in fourth quarter, and we also have open days to cover. So I think we have a good position for that. I think -- if you look into next year, would we take cover. We have taken a little bit of cover, but it's not much as you can see on our cover on that part of it. We -- and of course, we would -- we are actually quite positive about next year. It's hard when you -- it's hard to find something when we say to look at it, that world economy and all these things can of course change things, when we look fundamentally at our business and this demand and when we talk to the customers, we're actually quite optimistic about the market. We are getting into the contract season. And I think what also a little bit happening at the moment that maybe our industrial customers, I think they will continue to extend the contract into next year. I think those who are maybe a little bit more trading-oriented would probably pull back a little bit. It is not only the freight rates, but also the oil prices, of course, is very high bunker prices. So I think many are holding back on taking contracts into next year. And also, if you very aggressively want to take cover next year, you actually had to discount quite a bit on that part. And we are not really willing to do that at the moment. And we'd rather take the earnings here now and maximize our short-term earnings. And with a view that these disruptions that we see at the moment, I'm sure some might go away, but it's very hard push to see that these will disappear. And on top of that, you have El Nino and so on. And I would also say that something we are looking at as well is the demand in the market, our volumes on the minor bulk has not really increased. But when we talk to the market, our customers and so on, demand is there, fundamental demand is there. And I think that promised quite well for at least a shorter period going forward. So we, of course, have positioned ourselves on purpose in the sense that we are actually quite positive about the market also going forward. The Capesize market, of course, much more volatility in the Capesize rates, you know that from the past, we got more liquidity in the FFA part of it. So I'm not -- we are not experts on the Capesizes, but we see it again. Again, our earnings are normally much more stable. And of course, there's not as much liquidity in the derivative market, as you see on the Capesizes. So I'm not going to say that I know what's happening, but I have a little bit of feeling maybe the rates came too high, and Capesize, they don't have a lot of customers. Much of it is actually going to China. I'm sure I'm sure there's a little bit of that going on as well. But I do actually have to say that seen from our point of view, the outlook for iron ore and coal and bauxite is still very positive and ton-mile is still very positive for the Capesizes. So we see this probably more as a short-term correction, and then, let's see what happens. But of course, it has an impact that you can see our share price today, of course, unfortunately, the BDI has an immediate impact on our share price. Actually, our earnings have not moved at all on at least for now.

No, fair. That's very, very helpful. .

Our next question comes from Nathan Gee from Bank of America.

Maybe 2 questions for me. Firstly, if I'm looking at your Supramax 3Q rates, it seems like it came in under what you secured in August. So just help me understand that in a market where market is going up. And I think that good rate had not included a scrubber premium, which I think was good. So that's the first question. Second question, just in terms of operating activity margin. We won't be extrapolating this, but just help us understand what drove the 2 for the quarter.

Say the last question again? .

So just operating activity margins. So how did it get to the 2k.