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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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Tuesday, 25 November 14
SUB-BIT FOB INDONESIA COAL SWAP FOR Q2' 15 DELIVERY CLOSED AT $ 49.55
COALspot.com: Indonesian coal swaps for delivery Q1' 2015 lost month on month, gained week on week.
The Q1 swap has lost US$ 0.12 (-0.24%) ...
Monday, 24 November 14
CHOPPY WATERS IN DRY BULK - SGX
COALspot.com: Dry bulk freight rates have experienced a sharp rise in volatility in recent weeks as bulk commodity supply has ramped up, said SGX i ...
Monday, 24 November 14
Q1 2015 FOB NEWCASTLE COAL SWAP CLOSED AT $ 52.73
COALspot.com: API 5 FOB Newcastle Coal swap for Q1’ 2015 delivery closed at US$ 52.73 on 21 November after losing US$ 0.40 (-0.75%) month ove ...
Monday, 24 November 14
CFR SOUTH CHINA COAL: Q2' 15 COAL SWAPS CLOSED LOWER COMPARED TO Q1' 15 SWAPS
COALspot.com: API 8 CFR South China Coal swap for Q1’ 2015 delivery has decreased US$ 0.63 (-0.99%) month over month and US$ 0.12 (-0.19%) da ...
Sunday, 23 November 14
SPOT FREIGHT RATES IMPROVED SLIGHTLY OVER PREVIOUS WEEK
COALspot.com: The BDI was up 5.41 pct week on week and closed at 1,324 points on Friday. All the segments were up this week except Panamax index.&n ...
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- Grasim Industreis Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Kideco Jaya Agung - Indonesia
- Jorong Barutama Greston.PT - Indonesia
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- Kohat Cement Company Ltd. - Pakistan
- Malabar Cements Ltd - India
- International Coal Ventures Pvt Ltd - India
- Central Java Power - Indonesia
- Therma Luzon, Inc, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Xindia Steels Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Port Waratah Coal Services - Australia
- Meenaskhi Energy Private Limited - India
- Salva Resources Pvt Ltd - India
- Makarim & Taira - Indonesia
- London Commodity Brokers - England
- SMC Global Power, Philippines
- Australian Commodity Traders Exchange
- Pendopo Energi Batubara - Indonesia
- Jaiprakash Power Ventures ltd
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- Petron Corporation, Philippines
- The University of Queensland
- Karbindo Abesyapradhi - Indoneisa
- Thai Mozambique Logistica
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- Bulk Trading Sa - Switzerland
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- Lanco Infratech Ltd - India
- Energy Link Ltd, New Zealand
- GMR Energy Limited - India
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- Maharashtra Electricity Regulatory Commission - India
- Standard Chartered Bank - UAE
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- Goldman Sachs - Singapore
- Deloitte Consulting - India
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- Kalimantan Lumbung Energi - Indonesia
- Global Green Power PLC Corporation, Philippines
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- Economic Council, Georgia
- Global Business Power Corporation, Philippines
- Dalmia Cement Bharat India
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- Thiess Contractors Indonesia
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- Vijayanagar Sugar Pvt Ltd - India
- Singapore Mercantile Exchange
- Merrill Lynch Commodities Europe
- Vedanta Resources Plc - India
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- Dong Bac Coal Mineral Investment Coporation - Vietnam
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- Bhushan Steel Limited - India
- Energy Development Corp, Philippines
- Sree Jayajothi Cements Limited - India
- Kapuas Tunggal Persada - Indonesia
- Commonwealth Bank - Australia
- Tamil Nadu electricity Board
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- Indian Oil Corporation Limited
- MS Steel International - UAE
- Krishnapatnam Port Company Ltd. - India
- Madhucon Powers Ltd - India
- Gujarat Mineral Development Corp Ltd - India
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- Indo Tambangraya Megah - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- SN Aboitiz Power Inc, Philippines
- Simpson Spence & Young - Indonesia
- Kaltim Prima Coal - Indonesia
- Ministry of Mines - Canada
- Posco Energy - South Korea
- The State Trading Corporation of India Ltd
- Minerals Council of Australia
- Sinarmas Energy and Mining - Indonesia
- Karaikal Port Pvt Ltd - India
- Altura Mining Limited, Indonesia
- Indonesian Coal Mining Association
- GAC Shipping (India) Pvt Ltd
- Vizag Seaport Private Limited - India
- Alfred C Toepfer International GmbH - Germany
- PowerSource Philippines DevCo
- AsiaOL BioFuels Corp., Philippines
- Coastal Gujarat Power Limited - India
- Mercuria Energy - Indonesia
- New Zealand Coal & Carbon
- Attock Cement Pakistan Limited
- Edison Trading Spa - Italy
- Orica Australia Pty. Ltd.
- India Bulls Power Limited - India
- Uttam Galva Steels Limited - India
- Coal and Oil Company - UAE
- Riau Bara Harum - Indonesia
- Samtan Co., Ltd - South Korea
- Manunggal Multi Energi - Indonesia
- Global Coal Blending Company Limited - Australia
- Iligan Light & Power Inc, Philippines
- Bhatia International Limited - India
- Renaissance Capital - South Africa
- Heidelberg Cement - Germany
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- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Electricity Authority, New Zealand
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bukit Asam (Persero) Tbk - Indonesia
- Cement Manufacturers Association - India
- PTC India Limited - India
- Leighton Contractors Pty Ltd - Australia
- TeaM Sual Corporation - Philippines
- Metalloyd Limited - United Kingdom
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- OPG Power Generation Pvt Ltd - India
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- Binh Thuan Hamico - Vietnam
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- Bank of Tokyo Mitsubishi UFJ Ltd
- CIMB Investment Bank - Malaysia
- Kumho Petrochemical, South Korea
- LBH Netherlands Bv - Netherlands
- Intertek Mineral Services - Indonesia
- Sindya Power Generating Company Private Ltd
- McConnell Dowell - Australia
- Planning Commission, India
- Tata Chemicals Ltd - India
- Wood Mackenzie - Singapore
- Ministry of Finance - Indonesia
- Independent Power Producers Association of India
- Electricity Generating Authority of Thailand
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kepco SPC Power Corporation, Philippines
- Medco Energi Mining Internasional
- Trasteel International SA, Italy
- Billiton Holdings Pty Ltd - Australia
- Sojitz Corporation - Japan
- ASAPP Information Group - India
- Ceylon Electricity Board - Sri Lanka
- Sarangani Energy Corporation, Philippines
- Chettinad Cement Corporation Ltd - India
- Semirara Mining Corp, Philippines
- IHS Mccloskey Coal Group - USA
- Latin American Coal - Colombia
- Sical Logistics Limited - India
- Eastern Coal Council - USA
- Cigading International Bulk Terminal - Indonesia
- Mjunction Services Limited - India
- Siam City Cement - Thailand
- Holcim Trading Pte Ltd - Singapore
- Maheswari Brothers Coal Limited - India
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- Neyveli Lignite Corporation Ltd, - India
- Rashtriya Ispat Nigam Limited - India
- SMG Consultants - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- PNOC Exploration Corporation - Philippines
- Indogreen Group - Indonesia
- Chamber of Mines of South Africa
- Siam City Cement PLC, Thailand
- Barasentosa Lestari - Indonesia
- Baramulti Group, Indonesia
- Larsen & Toubro Limited - India
- Oldendorff Carriers - Singapore
- Gujarat Sidhee Cement - India
- IEA Clean Coal Centre - UK
- Carbofer General Trading SA - India
- Directorate Of Revenue Intelligence - India
- San Jose City I Power Corp, Philippines
- Ambuja Cements Ltd - India
- Formosa Plastics Group - Taiwan
- Gujarat Electricity Regulatory Commission - India
- Pipit Mutiara Jaya. PT, Indonesia
- White Energy Company Limited
- Aditya Birla Group - India
- Bukit Makmur.PT - Indonesia
- Savvy Resources Ltd - HongKong
- Rio Tinto Coal - Australia
- Star Paper Mills Limited - India
- Romanian Commodities Exchange
- The Treasury - Australian Government
- Parliament of New Zealand
- Indian Energy Exchange, India
- Africa Commodities Group - South Africa
- Agrawal Coal Company - India
- Central Electricity Authority - India
- Australian Coal Association
- Price Waterhouse Coopers - Russia
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- Interocean Group of Companies - India
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- Wilmar Investment Holdings
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- Banpu Public Company Limited - Thailand
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