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Breakbulk April 2019

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Expect significant investments in mining/minerals and metals projects in 2019, with the possible exception of Latin America, where Vale's catastrophic dam collapse could stall project approvals across the region. 20 The Journal of Commerce | April 2019 Breakbulk & Project Cargo — ethylene crackers, polyethylene projects, and so forth — in the US Gulf. But from our perspective, that first wave is largely passed. Most of the major projects have either started up or will start up in the next couple of years. "And while we do expect to see some derivative investment following the first wave, the second wave will be considerable smaller. Around this time last year, as we were talking with some of the major international chemicals and integrated oil companies, they were still considering some significant investments in the US Gulf Coast — additional crackers and so forth. However, over the past year, as the tariff issue has emerged and other economic factors have evolved, a lot of their interest has shifted to Asia in terms of the next round of chemical investment, particularly to Southeast Asia," Kulkarni said. Despite this slowing down, "we're tracking about $600 billion in capital investment across the US and Canada over the next five years," Kulkarni said. "We do expect many of those projects to be smaller; as I mentioned, many of the first petrochemical wave mega-projects are either in execution or have just concluded. And so, as the US has built up a lot of capacity, as the tariffs have started to take effect, and as companies have really pro- cessed some of the lessons learned from those mega-projects in terms of engineering issues — delays in construction due to shortage of competent and well-trained labor — tain their market capitalization. "So, for gold, base metals, alu- minum, and steel, we expect to see some pretty significant investment. The one caveat I'll add is that the picture's looking gloomy for South America after the recent news about the Vale accident, with the dam col- lapse. Our office in Latin America is expecting that to have a significant impact on project approvals across Latin America, as Vale and other companies deal with the fallout from that significant accident." Refining is flat in the US and Europe, with investment driven pri- marily by maintenance needs, asset age, and the need to ensure flexibil- ity and maintain production. Refin- ing capacity increases are expected in Asia and in the Middle East, where governments are strategizing to keep more of the hydro- carbon value stream in the region but are also quite vulner- able to oil price volatility. Kulkarni expects a significant uptick in pipeline construction and in LNG transportation investment in the US and Canada. Chemicals sector slows The chemicals sector has been a growth engine in the US for several years, but, as noted, that is slowing. "We've seen a lot of major chemicals investments Investment trends Thanks to a notable shift away from offshore oil and gas develop- ment to smaller onshore and un- conventional projects, IPA expects a significant drop-off in energy project capital spending in 2019. Major oil and gas projects were down about 30 percent in 2018 versus the norm over the past five to 10 years, and this dampening should continue. Offshore is increasingly challenging to access, requires hefty investments and can take five years or so before earnings kick in, Kulkar- ni noted, while shale (unconven- tional) is cheaper and faster. "Onshore, you are drilling wells and building pipelines," she said. "Offshore, it's massive facilities and big capital expenditures. So, it's not that demand has fallen, but that companies can meet demand through shale and renewables." However, shale development is likely to slow down in 2019 from a 2018 jump. The one outlier in terms of adding new energy capacity is Southeast Asia, where a relentless demand for electricity is expected to drive significant investment. Power generation capacity should more than double over the next 20 years, Kulkarni said. This means many potential projects will be built, of all types — coal, gas, and renewables — plus the associated transmission and distribution capacity. The mining/minerals and metals sector is poised for growth in 2019, thanks to relatively stable com- modity prices for gold and other base metals. However, Kulkarni said, "Over the past years, [these] companies have chosen to focus on mergers, acquisitions, and consoli- dations as a means to growth. But if they've worked their way through those initiatives, they're now seeing the need to invest in new assets or renew their existing assets to main- Phyllis Kulkarni Regional Director, North America, Independent Project Analysis "For gold, base metals, aluminum, and steel, we expect to see some pretty significant investment."

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