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Monday, 06 October 14
THE IRON ORE SHIPPING BUSINESS IS FACING SOME ROUGH SEAS - EAST ASIA FORUM
The impact of Chinese demand on global iron ore prices is well known. A less acknowledged consequence of China’s emergence is the transformation of incentive structures in the global shipping market. Dramatic increases in freight rates shifted global iron ore producers’ comparative advantage further in favour of Australian exporters to the detriment of the Brazilians. During the commodities boom, between 2002 and 2008, the freight differential between Brazil–China and Australia–China rates increased to around US$60 per tonne for 150,000–160,000 deadweight tonne (dwt) ships.
Japan’s tenure as dominant market player in the second half of the twentieth century was marked by a gradual evolution of the shipping pricing regime, much of it under Japanese control. In stark contrast, China’s impact on the shipping market has been much more concentrated in time, with an absence of long-term planning and coordination between the Chinese steelmakers and ship owners or operators.
In 2008, to compete with BHP and Rio Tinto over shipping costs, the shipping company Vale commissioned, at a cost of over US$2 billion, a new line of ‘Very Large Ore Carriers’ (VLOCs), dubbed the ‘Valemax’. The Valemax carrier is the largest bulk carrier ever built: over twice as big as Cape-size carriers (400,000 dwt). Current shipping costs from Australia to China stand at around US$10/tonne, whereas it currently costs around US$22/tonne to ship iron ore from Brazil to China. Direct Valemax trips from Brazil to China would bring shipping costs down to about US$15/tonne.
Vale had 24 out of 35 of these huge carriers built in China, and the rest in South Korea. China’s Export-Import Bank and the Bank of China even financed the project to the scale of US$1.3 billion, so Vale was confident that this step was in the interest of iron ore consumers in China and that these cargoes would be welcomed.
But, on 29 January 2012, the Chinese Ministry of Transport issued a notice specifying that cargo ships with a capacity greater than 350,000 dwt could not dock in Chinese ports, citing safety concerns. Interviews confirm that Vale was taken aback, alongside many Chinese iron ore industry insiders.
The blocking of the Valemax carriers was not the result of coordinated, state-led, revisionist behaviour. It was not a directive coming from the central government or the Chinese Iron ore and Steel Association, or even the large steel SOEs, all of whom favoured the Valemax since it would reduce the overall price of Brazilian iron ore. The opposition, and lobbying, came from Chinese ship owners/operators, led by COSCO (China Ocean Shipping Company), who stood to lose shipping business, and held enough sway with the Chinese Ship-owners Association, the port authorities and the Transport Ministry to make this happen. It is testament to China’s weight in global markets that a unilateral move by one Chinese interest group could have such destabilising consequences. The blocking of the Valemax was the result of the fragmentation of China’s iron ore industry, and the high jacking of policy-making by a particular interest group, against broader national priorities.
On 6 December 2011, Shouguo Zhang, Vice Executive Chairman of China Ship owners’ Association, said that ‘Vale is an iron ore producing corporation that obviously lacks experience in ship safety management, ship pollution prevention … [It] holds the cargo to itself and now intends to control shipping tonnage. It is a matter of monopoly and unfair competition which not only harms the shipping interest of mainland China but also that of South Korea, Japan and Taiwan’. It is worth noting that the president of the Chinese Ship-owners Association at the time was Wei Jiafu, also president of COSCO.
The Wall Street Journal has spoken to shipping engineers who said that safety concerns cited by the Chinese Transport Ministry were ‘insufficient to cast serious doubt on the safety of Valemax ships. Valemax vessels have docked at ports in such places as Japan, Italy, the Netherlands and the Philippines’. Ralph Leszczynski, head of research at shipping services firm Banchero Costa, said that COSCO’s reaction is natural as ‘the moment a company like Vale decides to build their own ships they are entering the “business turf” of companies like COSCO and they take those companies’ business away’. The ban has been extremely costly for Vale, as the company has had to transfer cargo to smaller carriers in the Philippines at an extra cost of between US$2 and US$7 a tonne.
Industry analysts have ventured that the only way out for Vale, as a concession to COSCO and other Chinese ship operators, would be for it to agree to a charter or sharing solution with the Chinese shipping companies, by transferring Valemax ships for Chinese ship-owners to operate.
In December 2013, news of one such five-year ‘bareboat charter arrangement’ with Shandong Shipping Alliance was announced by Vale’s Jose Carlos Martin.
On 10 February 2014, the Chinese Ministry of Transport issued a notice reframing coastal berthing regulations. From 1 July 2014, oversized cargo ships have been allowed to dock in Chinese ports with a capacity not exceeding 250,000 dwt, as long as they match their load with the port’s capacity. Some analysts say this new regulation slowly opens the door to Valemax cargoes docking in China, while the China Ship-owners Association reiterated its opposition to 400,000 dwt cargoes ever docking at Chinese ports.
Then on 12 September 2014, in a ground-breaking announcement, Vale revealed that it had reached a ‘framework agreement for strategic cooperation in iron ore shipping’ with COSCO. This is another step towards resolving the almost 3-year-old impasse between the two giants. Following the terms of the agreement, Vale will transfer 4 VLOCs to COSCO and charter them back from the shipping giant for the next 25 years. It also agreed to similar terms regarding 10 more VLOCs to be built by COSCO to transport iron ore from Brazil.
The new agreement between COSCO and Vale will presumably lead to the Chinese Ministry of Transport fully lifting the ban on the Valemax cargoes in the near future.
The Valemax story highlights the role of non-state actors as a determinant of Chinese international procurement behaviour. It also highlights the fact that despite China’s share of global demand, Chinese stakeholders feel powerless in global commodity markets whose rules were established long before Chinese re-emergence. The sheer reach of COSCO’s behaviour demonstrates how important it is to understand Chinese domestic market dynamics, and also points to broader patterns we can expect as China tries to carve itself a position commensurate with its global purchasing power. China’s domestic dynamics have now become a determining feature of the global economy.
Source: East Asia Forum / Hellenic Shipping News
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Wednesday, 03 November 21
MARKET INSIGHT - INTERMODAL
November is here and soon the all time seasonal favorite “all I want or Christmas is you” by Mariah Carey will be played in radio stati ...
Monday, 01 November 21
COAL PRICES HAVE FURTHER ROOM TO DROP: TOP ECONOMIC PLANNER - GLOBAL TIMES
China’s top economic planner said coal prices have further room to drop on Friday, as the most traded coal futures dropped to below 1,000 yua ...
Saturday, 30 October 21
CHINA'S COAL PRICES SEE BIGGEST WEEKLY FALL IN MORE THAN 5 YEARS - REUTERS
China’s coal futures prices saw their biggest fall in more than five years after the powerful state planner said there is still room to adjus ...
Saturday, 30 October 21
G-20 LEADERS PREPARE STATEMENT TO STOP FUNDING FOREIGN COAL PLANTS - BLOOMBERG
Leaders of the Group of 20 wealthy economies are preparing to pledge to stop funding foreign coal-fired plants, but are still wrangling over climat ...
Friday, 29 October 21
APAC THERMAL COAL SUPPLY TO REMAIN TIGHT AS WINTER LOOMS - FITCH RATINGS
APAC thermal coal prices have surged, hitting historically high levels. The benchmark Newcastle 6,000kcal/kg grade coal reached USD228/tonne in mid ...
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- Meenaskhi Energy Private Limited - India
- Goldman Sachs - Singapore
- Riau Bara Harum - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Sical Logistics Limited - India
- Alfred C Toepfer International GmbH - Germany
- Mjunction Services Limited - India
- Thai Mozambique Logistica
- San Jose City I Power Corp, Philippines
- European Bulk Services B.V. - Netherlands
- Gujarat Sidhee Cement - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Directorate General of MIneral and Coal - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Toyota Tsusho Corporation, Japan
- Baramulti Group, Indonesia
- Posco Energy - South Korea
- Straits Asia Resources Limited - Singapore
- Interocean Group of Companies - India
- Siam City Cement - Thailand
- Vedanta Resources Plc - India
- GMR Energy Limited - India
- Sojitz Corporation - Japan
- The State Trading Corporation of India Ltd
- Antam Resourcindo - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Ministry of Transport, Egypt
- SMG Consultants - Indonesia
- Deloitte Consulting - India
- Lanco Infratech Ltd - India
- IHS Mccloskey Coal Group - USA
- Kohat Cement Company Ltd. - Pakistan
- Kobexindo Tractors - Indoneisa
- Holcim Trading Pte Ltd - Singapore
- Formosa Plastics Group - Taiwan
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Sindya Power Generating Company Private Ltd
- Standard Chartered Bank - UAE
- Kapuas Tunggal Persada - Indonesia
- Borneo Indobara - Indonesia
- Bhushan Steel Limited - India
- Kartika Selabumi Mining - Indonesia
- TeaM Sual Corporation - Philippines
- Neyveli Lignite Corporation Ltd, - India
- Ministry of Finance - Indonesia
- PowerSource Philippines DevCo
- Trasteel International SA, Italy
- Gujarat Mineral Development Corp Ltd - India
- Minerals Council of Australia
- Xindia Steels Limited - India
- SN Aboitiz Power Inc, Philippines
- Kideco Jaya Agung - Indonesia
- OPG Power Generation Pvt Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Price Waterhouse Coopers - Russia
- Maharashtra Electricity Regulatory Commission - India
- Renaissance Capital - South Africa
- IEA Clean Coal Centre - UK
- Offshore Bulk Terminal Pte Ltd, Singapore
- Salva Resources Pvt Ltd - India
- Aboitiz Power Corporation - Philippines
- Edison Trading Spa - Italy
- Samtan Co., Ltd - South Korea
- Makarim & Taira - Indonesia
- PNOC Exploration Corporation - Philippines
- Indian Oil Corporation Limited
- Carbofer General Trading SA - India
- Iligan Light & Power Inc, Philippines
- Vizag Seaport Private Limited - India
- Planning Commission, India
- Marubeni Corporation - India
- Wilmar Investment Holdings
- Sakthi Sugars Limited - India
- The University of Queensland
- Romanian Commodities Exchange
- Aditya Birla Group - India
- GAC Shipping (India) Pvt Ltd
- Bukit Makmur.PT - Indonesia
- Maheswari Brothers Coal Limited - India
- Global Business Power Corporation, Philippines
- Semirara Mining and Power Corporation, Philippines
- Malabar Cements Ltd - India
- ICICI Bank Limited - India
- Rio Tinto Coal - Australia
- PTC India Limited - India
- New Zealand Coal & Carbon
- Rashtriya Ispat Nigam Limited - India
- Bhatia International Limited - India
- Ceylon Electricity Board - Sri Lanka
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Kepco SPC Power Corporation, Philippines
- London Commodity Brokers - England
- Pendopo Energi Batubara - Indonesia
- Larsen & Toubro Limited - India
- White Energy Company Limited
- Parry Sugars Refinery, India
- Coal and Oil Company - UAE
- Global Green Power PLC Corporation, Philippines
- Bayan Resources Tbk. - Indonesia
- The Treasury - Australian Government
- Eastern Energy - Thailand
- Banpu Public Company Limited - Thailand
- Altura Mining Limited, Indonesia
- South Luzon Thermal Energy Corporation
- Electricity Authority, New Zealand
- Indian Energy Exchange, India
- Siam City Cement PLC, Thailand
- Kaltim Prima Coal - Indonesia
- Coastal Gujarat Power Limited - India
- Jindal Steel & Power Ltd - India
- Commonwealth Bank - Australia
- GVK Power & Infra Limited - India
- SMC Global Power, Philippines
- Oldendorff Carriers - Singapore
- Karaikal Port Pvt Ltd - India
- Savvy Resources Ltd - HongKong
- Mercuria Energy - Indonesia
- Economic Council, Georgia
- Sree Jayajothi Cements Limited - India
- Sinarmas Energy and Mining - Indonesia
- Manunggal Multi Energi - Indonesia
- Africa Commodities Group - South Africa
- Madhucon Powers Ltd - India
- Star Paper Mills Limited - India
- AsiaOL BioFuels Corp., Philippines
- CNBM International Corporation - China
- Kumho Petrochemical, South Korea
- LBH Netherlands Bv - Netherlands
- Intertek Mineral Services - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Coalindo Energy - Indonesia
- India Bulls Power Limited - India
- Timah Investasi Mineral - Indoneisa
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Port Waratah Coal Services - Australia
- Ind-Barath Power Infra Limited - India
- Orica Australia Pty. Ltd.
- Gujarat Electricity Regulatory Commission - India
- Latin American Coal - Colombia
- Directorate Of Revenue Intelligence - India
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- Tata Chemicals Ltd - India
- Bangladesh Power Developement Board
- Georgia Ports Authority, United States
- ASAPP Information Group - India
- Meralco Power Generation, Philippines
- Energy Development Corp, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- VISA Power Limited - India
- Grasim Industreis Ltd - India
- Eastern Coal Council - USA
- Metalloyd Limited - United Kingdom
- Jaiprakash Power Ventures ltd
- Bank of Tokyo Mitsubishi UFJ Ltd
- Cigading International Bulk Terminal - Indonesia
- Bulk Trading Sa - Switzerland
- Globalindo Alam Lestari - Indonesia
- Agrawal Coal Company - India
- Indogreen Group - Indonesia
- Heidelberg Cement - Germany
- Bukit Baiduri Energy - Indonesia
- Semirara Mining Corp, Philippines
- Cement Manufacturers Association - India
- Barasentosa Lestari - Indonesia
- Petron Corporation, Philippines
- Essar Steel Hazira Ltd - India
- Therma Luzon, Inc, Philippines
- Dalmia Cement Bharat India
- Sarangani Energy Corporation, Philippines
- Indika Energy - Indonesia
- McConnell Dowell - Australia
- International Coal Ventures Pvt Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Ministry of Mines - Canada
- Wood Mackenzie - Singapore
- Indonesian Coal Mining Association
- Mintek Dendrill Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Binh Thuan Hamico - Vietnam
- Energy Link Ltd, New Zealand
- Electricity Generating Authority of Thailand
- Central Electricity Authority - India
- Pipit Mutiara Jaya. PT, Indonesia
- Parliament of New Zealand
- PetroVietnam Power Coal Import and Supply Company
- Bahari Cakrawala Sebuku - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Chettinad Cement Corporation Ltd - India
- Uttam Galva Steels Limited - India
- Simpson Spence & Young - Indonesia
- Anglo American - United Kingdom
- Mercator Lines Limited - India
- Bhoruka Overseas - Indonesia
- Global Coal Blending Company Limited - Australia
- Singapore Mercantile Exchange
- Attock Cement Pakistan Limited
- Central Java Power - Indonesia
- MS Steel International - UAE
- Australian Commodity Traders Exchange
- Indo Tambangraya Megah - Indonesia
- CIMB Investment Bank - Malaysia
- Ambuja Cements Ltd - India
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- Orica Mining Services - Indonesia
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- Merrill Lynch Commodities Europe
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- Chamber of Mines of South Africa
- Tamil Nadu electricity Board
- Jorong Barutama Greston.PT - Indonesia
- Bharathi Cement Corporation - India
- Thiess Contractors Indonesia
- Power Finance Corporation Ltd., India
- Videocon Industries ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Independent Power Producers Association of India
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