LORENTZEN & STEMOCO

WEEKLY 29.2006
Habits Die Hard The persistently high gasoline prices since the start of the US driving season in May have caused anxiety that US consumers will be forced to restrain their driving appetite when faced with high costs at the pump. So far, the sensitivity hasnt really been shown by the gasoline demand figures published by the US Energy Information Administration (EIA). During the first half of this year, as retail gasoline prices in the US have increased 26% from last years levels, gasoline demand still remained as strong as last year. For the past three month of this driving season gasoline demand grew even stronger at 1.8% compared with the same period last year. Average annual growth for 2000-2005 was 1.4%. What this is telling us is that US consumers seem to have adjusted to the new price levels. Rather than driving less, they simply spend less on other items as they pay more at the gas station. Habits die hard. However, in the long term, high gasoline prices will negatively affect demand. Slower economic growth and cooling housing markets will make consumers more cost-conscious. High crude oil prices, changes in product specifications and potential supply disruptions by hurricanes are certainly not helping in easing the price at the pump. Economists in the US Energy Department are estimating that a permanent increase of 10% in the price of crude oil causes a 0.6% decrease in gasoline consumption over two years. Although this sensitivity hasnt really been spotted yet, it will be in the future. Under the backdrop of higher energy costs, more and more attention has been focused on finding cheaper alternative energy sources. As far as gasoline is concerned, there has been increasing investment interest in production of so called biodiesel fuels. So what is biodiesel? According to the US National Biodiesel Board, biodiesel is the name of a clean burning alternative fuel, produced from domestic, renewable resources. Biodiesel contains no petroleum, but it can be blended at any level with petroleum diesel to create a biodiesel blend. It can be used in compression-ignition (diesel) engines with little or no modifications. Biodiesel is simple to use, biodegradable, nontoxic, and essentially free of sulfur and aromatics. Biodiesel is made through a chemical process called transesterification whereby the glycerin is separated from the fat or vegetable oil. The process leaves behind two products -- methyl esters (the chemical name for biodiesel) and glycerin (a valuable byproduct usually sold to be used in soaps and other products). By the end of 2007, global biodiesel production capacity is set to increase by 9-10 million tons from about 5 million tons by the end of 2005. Expansion will come mainly from the US and Europe. The expanding production capacity for biodiesel will lead to strong demand for vegetable oils, especially in the US and Europe. Soybean oil and rapeseed oil are the main vegetable oils that are currently being used for producing biodiesel. In Europe, more than 94% of demand growth for vegetable oils is for biodiesel. Unlike the US, which has ample production capacity for vegetable oils by using domestically grown oil seeds, Europe will be faced with squeeze on vegetable oil supply, due to a lack of crushing capacity for vegetable oils and limited oil seeds plantation in the European region compared with demand growth. Europe is already a net importer for soybean and rapeseed oil. In 2006 it is expected that European imports demand for vegetable oils will increase by 17%, thanks to the surging demand for biodiesel and supply deficit within European countries. China, the second largest importer of vegetable oils after Europe, is expected to import 7% more than last year, driven by strong domestic consumption growth. In total, global vegetable oil trade is set to grow by nearly 8%, higher than the average growth of 7% during the last five years. Main vegetable oil producing countries like Argentina, Brazil, Indonesia and Malaysia are the main exporters for Europe and other Asian countries. Employment for smaller sized product and chemical tankers, which are the main vegetable oil carries, would benefit strongly from growing vegetable oil trades. From January 1st 2007, all vegetable oils will need to be carried by double-hull tonnage under the Marpol Annex II regulation. Together with the ongoing IMO phase-out of non-double hull product tankers, these two regulations will tighten up the tonnage supply for seaborne vegetable oil trades. Non-double hull tankers currently carry the majority share of vegetable oils.

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Lorentzen & Stemoco AS Lilleakerveien 4

PO Box 7 Lilleaker N-0216 Oslo, Norway

www.lorstem.com Phone +47 22 52 77 00

WEEKLY 29.2006
The chemical tanker sector, which has a larger share of double hull tonnage than product tankers, will benefit even more from strong tonnage demand for vegetable oil trades because many chemicals would also demand higher IMO chemical class tonnage under Marpol Annex II regulation. A lack of quality DH tonnage could tighten up fleet supply for the chemical tanker market. As long as high oil prices continue to feed into pricy gasoline and US drivers keep up their driving habits, the outlook for biodiesel demand will be strong. Not only will price levels be firming for various vegetable oils, but also vegetable oil seaborne trades will increase under the current sourcing patterns. Strong tonnage demand from vegetable oil trades, combined with Marpol Annex II regulation and ongoing IMO phaseout, should contribute to a firming chemical tanker market from 2007 onwards. Have a nice day! Lianghui Xia

LORENTZEN & STEMOCO

WEEKLY 29.2006

LORENTZEN & STEMOCO

Korea Line was rumoured to have taken a 55K NB ex yard for forward delivery 1-10 Dec. at USD 19,000 for 2 years. Short period remains high and primarily by backhaul cement. One interesting theory has surfaced concerning future demand, some USA cement contracts are up for renewal from September onwards, with many owners burnt from this route there will surely have to be an enormous hike in freight to cover future shipments, whether this can be borne by the purchasers, whether they have to scale down or source from a different route will be interesting to see. For next week we have to see demand levels to be able to judge direction, owners no doubt will have to be alert for more spot/prompt fixing. Bunker Prices in Singapore July 21, 2006: IFO (380): USD 339.00, IFO (180): USD 352.00, MDO: USD 640.50, MGO: USD 647.00.
Handy (max. 15 yr. old craned) T/A r/v Dwt 45/47 42/43 37/38 28/32 45/47 42/43 37/38 28/32 45/47 45/47 42/43 37/38 28/32 45/47 42/43 37/38 28/32 45/47 50/53 45/47 42/43 37/38 28/32 Last Week (USD/day) 21,400 20,000 18,200 16,000 24,500 21,500 18,000 16,500 23,750 22,500 19,000 18,250 15,500 21,000 18,500 17,500 15,500 25,000 22,000 18,500 17,500 16,500 15,000 This week (USD/day) 22,000 20,500 19,000 17,000 25,000 22,000 18,500 17,000 23,750 23,200 19,700 19,000 16,500 22,500 20,000 19,000 17,000 25,000 22,000 18,500 17,500 16,500 15,000

DRY CARGO
HANDYSIZE Atlantic Owners with tonnage in the US Gulf remained confident that the recent healthy level of enquiry would continue. One report suggested that the 1998 built 46,211 "BROTHER GLORY" may have been booked delivery US Gulf spot for 4 to 6 months trading at about USD 22,000 daily although this could not be confirmed. Spot activity included a report that Energy fixed the 1985 built 37,500 dwt "TAI KANG HAI" from the US Gulf to the Mediterranean at a good USD 18,000 daily. From the Mediterranean, it was rumoured that 1995 built 42,000 dwt "SEALADY" open spot Damietta had been booked for a trip via the Black Sea to the east at about USD 20,000 daily but this could not be verified. There was also talk that the 2000 built 45,400 dwt "OCEANTHI" open early August in Greece had also been booked for a trip to the Far East at about USD 22,500 daily but a charterer was not disclosed. Pacific The futures tell the tale perfectly - Capes and Panamaxes up WoW anything from 10-20% but Supermaxes up between 1-3% with the exception of Cal 07 which is up over 6% reflecting a growing focus and belief that 07 might not be so bad and futures might be undervalued as we slowly progress through this year. With all the excitement for the bigger sectors the Handymax in Pacific is best described as finely balanced and stable. There is still healthy demand but rates seem not to be too affected, of note is the slight improvement on both coasts of India and in Pacific basin there are a few vessels prompt, spot and ballasting. This is of interest, the rates are staying stable but the ships are being fixed closer to spot to achieve those rates, any tweak of either supply or demand could have a significant impact. Another factor that must not be forgotten is Atlantic strength, rates are rising at a healthy pace and this can only be good news for the general market (although a dampening influence on the backhaul routes either in absolute terms or in the rate of any increase). Long period rates are steady, Supermaxes being fixed still at USD 21,750 USD 22,000 for 12 months charter, interestingly

USG/F.East

Pac. r/v Cont./F.East

Med.-B.Sea./F.East

F.East/Europe 12 mos. T/C

PANAMAX Pacific The market firmed and continued in this direction over the past week, the supply and demand were there and sentiment influence from a firm Cape market no doubt played its part. The Indices moved up steadily as did the FFA with the WoW up 15%, closing last night at 23,203 on the spot. The physical market is almost a mirror image of two weeks ago with short period activity prevailing and the NOPAC rate being about the same.

WEEKLY 29.2006
NOPAC rates having closed on average at about 21,000 last week we now see 22,000 being fixed for a 70,000 whilst the larger 76,000 being rumoured done at 23,750. The Aussie R/V remained quiet with little reported. In the SE Asia market we saw one fixture reported at 23,000. Backhaul again not much activity but we would be guided by the fixture via PNW to the Continent, delivery Japan at 22,000. The period market was this week's active playground with short period being done at 25,250 for a 76000, a 75000 getting 23000 and another 76000 fixing at 24000. Now, the 76,000 fixed at 25,250 was by TMT who legend has it have a Paper agenda nuff said on that deal we think. One year trading is at 19,750 for a 70,000 whilst a Kamsarmax was rumoured fixed and failed at 23,000, which is probably not surprising. The coming week ... well, as we are a little gun shy of predicting these days if you recall, but we do feel that the market is in all likelihood to hold firm with further "up" expected.
Last Week (USD/mt) This Week (USD/mt) Modern Panamax 55,000 hss Gulf/Cont. 54,000 hss Gulf/Japan T/A r/v Pac. r/v Trip Atl./F.East Trip F.East/Atl. 12 mos. T/C 20.25 38.80 USD/day 21,500 22,300 21,000 20.25 38.80 USD/day 23,500 23,000 20,000 Del.China-Jpn TCT Cont.-Med. F.East r/v One year T/C 170,000 dwt

LORENTZEN & STEMOCO

26,000 41,000 42,000 32,000 47,000 45,000

TANKERS
SMALL (5/15.000 DWT) N.W.E. Beginning of last week we had a lot of trading activity ex Baltic and on the Continent, but it slowed down towards the end of the week. With few open ships for July loading, the rates have stabilized at firm levels. Several ships are still waiting birthing at Oiltanking Terminal in Amsterdam without prospect, and similar waiting times for discharging at Rotterdam and Thames have been reported. Outlook: Summer.

CAPESIZE The Baltic spot rate for Capesize, as measured by the four TC route average, is at current USD 45,650 per day. In the third quarter of 2006, pricing at USD 42,600, per day, and in the fourth quarter of 2006 at USD 46,250 per day. The entire 2007 is priced at USD 36,900 per day. The entire 2008 is priced at USD 32,600 per day. The entire 2009 is priced at USD 29,750 per day.
Last Week (USD/mt) 25.25 14.00 13.50 14.00 11.00 19.00 USD/day 51,000 40,000 This Week (USD/mt) 27.50 16.50 14.50 15.00 12.25 20.50 USD/day 58,000 45,000

CLEAN The clean tanker rates in the West stayed quite flat this week and remained at firm level. The market in the East was helped by strong market in the West due to tight vessel supply. During the past three months, we have seen the US domestic gasoline production surging to the highest level for the past three years. Together with strong imports, US gasoline stock finally moved above 5y-average level. Although the gasoline demand has been very healthy so far, high domestic production could curb the imports if no major hurricane threat is on the horizon soon. Outlook: Steady.

Capesize Tubarao/Beilun-Baoshan Richards Bay/Rotterdam Tubarao/Rotterdam Bolivar/Rotterdam Dampier/Beilun-Baoshan Gladstone/Rotterdam Del.Cont.-Med. TCT F.East Del. Gib-Hbg T/A r/v

WEEKLY 29.2006
HANDY CLEAN (R/V) 33,000 Cont/USAC 25,000 Cross UKC 27,500 Skikda/UKCM 28,500 Caribs/USAC 35,000 MEG/E Africa 33,000 MEG/Japan 30,000 Spore/Japan PANAMAX CLEAN (R/V) 70,000 Cont/USAC 55,000 MEG/JAPAN Last week This week (WS) (WS) 317 295 297 350 340 260 237 315 300 335 350 340 270 250 Average earnings This week (USD/day) 26,750 24,950 29,450 23,250 31,750 18,900 16,650

LORENTZEN & STEMOCO

GAS
VLGC With holidays coming up and people away from the office in combination with the present difficult market, the activity in the VLGC market suffers. However, there are not many vessels around and we dont believe we will experience any dramatic drops in spot rates for the week to come. There are a few traders sniffing around for vessels first half August, however, they have not been willing to pay anything starting with a 6 and they are temporizing, hoping for freight rates to come down. For the moment it seems more likely that cargoes will head east as this netback is substantially stronger vs. western destinations. 40 60,000 Cbm The Yuzhny line-up for July is totalling about 380 mts of NH3, with five LGC vessels appearing in the lineup, equal to about 50% of the product committed. Yuzhny product prices have remained firm and stable throughout the month of July in the range of USD 205/210 pmt fob. We have reasons to believe that this price level will be maintained well into August following Yara purchases of substantial quantities for August loading in line with July pricing. Nitrochem have taken "STEVEN N" for a voyage of 35 mts NH3 from Yuzhny to contract customers in GCT/Gabes followed by BASF/Antwerp with loading early August. 20/40,000 Cbm

205 200

230 208

47,800 23,150

DIRTY The VLCC market had another firm week as charters have been scrambling to cover the demand for August fixtures. The vessel supply is still fairly tight. However, the WTI-Brent spread has been falling like a stone during the last 2 weeks, which could curb the crude flow into the US and thus potentially softened the VLCC rates in the short term. A weaker VLCC market could easily soften the market of smaller sizes. Outlook: Soft.
VLCC/ULCC MT 290,000 MEG/Continent TT 275,000 MEG/Continent MT 250,000 MEG/S.Korea/Jpn TT 260,000 MEG/Singapore SUEZMAX MT 130,000 W.Afr./USG MT 130,000 Sidi Kerir/Lavera AFRAMAX 80,000 N.Sea/USAC 80,000 N.Sea/UK-Cont. 80,000 MEG/Singapore 70,000 Caribs/USAC-G PANAMAX 50,000 Caribs/USG 223 210 23,650 182 165 200 200 212 197 215 212 45,550 61,350 40,750 36,450 155 145 149 145 42,450 40,650 Last week (WS) 95 95 115 130 This Week (WS) 100 100 135 152 Average earnings This week (USD/day) 74,900 41,050 83,650 75,700

The ammonia availability in Ventspils is expected to be restricted to only 25/30 mts for August following maintenance shutdowns at the production plants of Perm and Berezniki. The entire August export volume is already committed, mainly to Yara and Trammo at a price level of about USD 215/220 pmt fob. Asmidal in Algeria will enter into a maintenance shutdown of the Arzew plant from 4th August resulting in a production shortage of about 35/40 mts of NH3. The shutdown might encourage additional midsize shipments from Yuzhny into OCP/Morocco in order to substitute for Algerian shortfall under their delivery contract with Fertiberia. The Middle East Gulf product market is undergoing a significant correction with product prices lately

WEEKLY 29.2006
dropping with about USD 25 pmt from a level of about USD 235 pmt to about USD 210 pmt for loading early August. The price drop has been partly motivated by competition from new production capacity of Yara in Burrup/Australia. The new Safco IV plant in Al Jubail which is expected to come on stream by the end of this quarter might put further downward pressure on product prices in the region. The new Safco plant which is a combined ammonia/urea plant will have an ammonia export capacity of about 450 mts yearly. The IFFCO requirement of 20/25 mts NH3 for arrival Paradip within end August/early September could very well receive offers down towards USD 250/255 pmt c+f based on a Middle East Gulf netback of about USD 210 pmt and a shipping element for such voyage of only about USD 40/45 pmt based on very competitive time charter tonnage held by some Middle East Gulf producers. Trammo has sold 8,000 mts NH3 into GFCL/Kakinada at about USD 270 pmt c+f net and another 10,000 mts NH3 into Formosa Plastic in Mailiao at about USD 275 pmt c+f. "HERAKLES" as Keytrade sublet has been fixed for the lifting with loading of 18 mts NH3 ex BIK around 10/12 July. Spot gas at Henry Hub closed this week at USD 5,89 mm/btu equivalent to a production cost of ammonia of about 240 pmt ex plant. Contract prices in USG have been settled around USD 275 pmt c+f for second half July by both Yara and PCS. LNG The joint venture between Aker Kvrner and IHI has been awarded a USD 665m contract for the construction of a LNG receiving terminal for Occidental Petroleums Ingleside Energy Centre in Texas. Ingleside is expected to take about three years to complete and construction is scheduled to begin in the first quarter of 2007. The Dutch gas shipping specialist Anthony Veder has ordered its first LNG carrier. The 7,500 cbm vessel will also be able to transport other gases like LPG and petchem gases. The vessel will be built by the Polish yard Remontowa and delivery is scheduled for the end of 2008. The newbuilding has a long-term, 15-year contract with the Norwegian company Gasnor. Russian president Vladimir Putin has endorsed the St. Petersburg LNG project between Gazprom and PetroCanada. The two companies unveiled plans for a USD 1.5bn LNG plant last year. The aim is to ship LNG to a

LORENTZEN & STEMOCO

Canadian regasification plant at Quebec for distribution in both Canada and the US. The growing importance of LNG in the worlds energy supplies has been underlined by the worlds leading industrialised countries. The G8 countries have endorsed a statement that commits its members to promoting LNG as a way to add stability to global energy markets. The G8 leaders agreed to call for lower barriers to energy trade and investment, with a special emphasis on LNG. MISC has signed new charter agreements with Malaysia LNG on four older LNG carriers that will tie up the ships for the rest of their operational life. Malaysia LNG will extend charters on two vessels already under its control, the 19,000 cbm "AMAN BINTULU" (built 1993) and "AMAN HAKATA" (built 1998). It has also signed new charter contracts on MISCs 130,000-cbm "TENAGA TIGA" (1981) and 130,000-cbm "TENAGA LIMA" (1981). For further information about the gas market, please read our weekly gas report.

SALE & PURCHASE

Bulk "FORMOSA QUEEN" 5,779 dwt. Built Shin Kochi 1996, NK class. 2 holds/hatches. 2/30ts. and 1/25ts. derricks. Akasaka 2,800 BHP. Sold to undisclosed buyers for USD 5.7 mill. "JELAND STAR" 10,393 dwt. Built Kochi Jyuko 1973, KI class. 3 holds/hatches. 4/20ts. derricks. MAN 6,000 BHP. Sold to undisclosed buyers for USD 1.68 mill. "GRETA-C" 19,461 dwt. Built Damen 2002, LR class. 2 holds. 3/45ts. cranes. 1,226 TEU. B&W 10,686 BHP. Sold to Chinese buyers for USD 26.75 mill. "TIARELLA" 27,476 dwt. Built Oshima 1977, RS class. 5 holds/hatches. 5/15ts. cranes. Sulzer 11,550 BHP. Sold to Chinese buyers for USD 3.2 mill. "SUMMER"/"AUTUMN" 29,129 dwt. Built China 1978, BV class. 5 holds/9 hatches. 3/20ts. and 2/15ts. cranes. 826 TEU. Sulzer 13,300 BHP. Sold en bloc to Navlamar, Greece for USD 4.4 mill. each.

WEEKLY 29.2006
"FEDERAL PESCADORES" 40,864 dwt. Built Sanoyas 1986, BV class. 5 holds/hatches. 5/25ts. cranes. 824 TEU. Sulzer 8,440 BHP. Sold to undisclosed buyers for USD 11 mill. "ZENOVIA" 43,595 dwt. Built Tsuneishi 1992, NK class. 5 holds/hatches. 4/30ts. cranes. B&W 8,230 BHP. Sold to Korean buyers for USD 20.5 mill. "ARISTEA M" 45,584 dwt. Built Halla 1997, RINA class. 5 holds/hatches. 4/30ts. cranes. B&W 9,459 BHP. Sold to undisclosed buyers for USD 25 mill. "POPI S" 64,916 dwt. Built Hitachi 1982, ABS class. 7 holds/hatches. B&W 13,800 BHP. Sold to Chinese buyers for USD 8.5 mill. "TORM TEKLA" 69,268 dwt. Built Tsuneishi 1993, NV class. 7 holds/hatches. B&W 12,120 BHP. Sold to Greek buyers for USD 23.6 mill. incl. balance of T/C until Nov. 2006 at USD 19,700 per day. "FOUR STERLING" 69,616 dwt. Built Tsuneishi 1993, ABS class. 7 holds/hatches. B&W 11,640 BHP. Sold to Far Eastern buyers for USD 23 mill. "TORM MARINA" 69,637 dwt. Built Hashihama 1990, NV class. 7 holds/hatches. B&W 12,106 BHP. Sold to undisclosed buyers for USD 20 mill. "MASTER NICOS" 69,668 dwt. Built I.H.I. 1989, LR class. 7 holds/hatches. Sulzer 9,136 BHP. Sold to Chinese buyers for USD 18.5 mill. Cont. "BESIRE KALKAVAN" 12,184 dwt. Built Tuzla 1998, ABS class. 5 holds/7 hatches. 2/40ts. cranes. 1,145 TEU. B&W 15,600 BHP. Sold to undisclosed buyers for USD 20 mill. "PU TRUSTY" 14,300 dwt. Built MTW 1992, GL class. 3 holds/7 hatches. 1/40ts. crane. 1,166 TEU. Sulzer 10,808 BHP. Sold to Marfret, France for USD 14.25 mill. Tank "BONITO" 5,500 dwt. Built Tuzla 2001, BV class. Coated. Coiled. Alpha 3,698 BHP. Sold to US based buyers for USD 13 mill. "ALHASBAH"/"ALDANA" 113,000 dwt. Built Hyundai 2006, NV class. Coiled. DB/DS. B&W 18,420 BHP. Sold en bloc to Foresight Group, UK based Indian buyers, for USD 70 mill. each.

LORENTZEN & STEMOCO

"GLYFADA SPIRIT" 159,600 dwt. Built Samsung 2003, ABS class. Coiled. DB/DS. B&W 25,320 BHP. Sold to NAT for USD 80.9 mill. Best regards, LORENTZEN & STEMOCO AS