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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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Sunday, 23 November 14
ITALY'S STEAM COAL IMPORTS TO DROP BY 11% IN 2014 - ASSOCARBONI
COALspot.com: Italy’s steam coal imports expected to drop to 16 million tons in 2014 (-11% compared to 2013); coking coal imports to plunge t ...
Saturday, 22 November 14
THE FALL IN BUNKER PRICES REDUCE FUEL COSTS SIGNIFICANTLY - BIMCO, PETER SAND
For a ship that burns 24 tonnes of fuel per day while steaming, fuel costs are reduced by as much as USD 1 million a year if current price level st ...
Saturday, 22 November 14
DRY BULKERS NEWBUILDING DELIVERIES REACHED 11.8 MILLION DWT DURING THIRD QUARTER, NET FLEET GROWTH FOR 2014 TO REACH 5% - HELLENIC SHIPPING NEWS
The dry bulk market has rebounded since its less than impressive performance since the start of the year, but overall, third quarter figures could ...
Friday, 21 November 14
BUMI ENTERS INTO CONDITIONAL SALE & PURCHASE AGREEMENT TO SELL FBS STAKE
COALspot.com: PT Bumi Resources Tbk, one of the Indonesia's largest coal producers confirms that it has executed a Conditional Sale and Purchas ...
Friday, 21 November 14
U.S LAST WEEK'S COAL PRODUCTION STAYS FLAT W-O-W
COALspot.com – United States the world's one of the largest coal producers, produced approximately 18.9 million short tons (mmst) of coal ...
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- Intertek Mineral Services - Indonesia
- Chamber of Mines of South Africa
- Cigading International Bulk Terminal - Indonesia
- CIMB Investment Bank - Malaysia
- Sarangani Energy Corporation, Philippines
- Vedanta Resources Plc - India
- Central Electricity Authority - India
- Rio Tinto Coal - Australia
- Bharathi Cement Corporation - India
- Uttam Galva Steels Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Star Paper Mills Limited - India
- Simpson Spence & Young - Indonesia
- Sree Jayajothi Cements Limited - India
- New Zealand Coal & Carbon
- PNOC Exploration Corporation - Philippines
- Energy Link Ltd, New Zealand
- ASAPP Information Group - India
- Georgia Ports Authority, United States
- GVK Power & Infra Limited - India
- Billiton Holdings Pty Ltd - Australia
- Petron Corporation, Philippines
- Price Waterhouse Coopers - Russia
- Maheswari Brothers Coal Limited - India
- Renaissance Capital - South Africa
- Ceylon Electricity Board - Sri Lanka
- San Jose City I Power Corp, Philippines
- ICICI Bank Limited - India
- CNBM International Corporation - China
- Gujarat Sidhee Cement - India
- Jindal Steel & Power Ltd - India
- Planning Commission, India
- Directorate Of Revenue Intelligence - India
- Africa Commodities Group - South Africa
- LBH Netherlands Bv - Netherlands
- Kobexindo Tractors - Indoneisa
- Agrawal Coal Company - India
- Timah Investasi Mineral - Indoneisa
- PowerSource Philippines DevCo
- Indonesian Coal Mining Association
- Xindia Steels Limited - India
- Karaikal Port Pvt Ltd - India
- Edison Trading Spa - Italy
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Ministry of Transport, Egypt
- Carbofer General Trading SA - India
- Port Waratah Coal Services - Australia
- Deloitte Consulting - India
- Formosa Plastics Group - Taiwan
- Aditya Birla Group - India
- Vizag Seaport Private Limited - India
- The University of Queensland
- Madhucon Powers Ltd - India
- Eastern Energy - Thailand
- Tata Chemicals Ltd - India
- Semirara Mining Corp, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Minerals Council of Australia
- McConnell Dowell - Australia
- Ministry of Mines - Canada
- Electricity Authority, New Zealand
- Altura Mining Limited, Indonesia
- The State Trading Corporation of India Ltd
- Electricity Generating Authority of Thailand
- Bukit Asam (Persero) Tbk - Indonesia
- Sakthi Sugars Limited - India
- Holcim Trading Pte Ltd - Singapore
- Essar Steel Hazira Ltd - India
- Bhatia International Limited - India
- Global Green Power PLC Corporation, Philippines
- Makarim & Taira - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- GMR Energy Limited - India
- TeaM Sual Corporation - Philippines
- Eastern Coal Council - USA
- Power Finance Corporation Ltd., India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- White Energy Company Limited
- Merrill Lynch Commodities Europe
- Maharashtra Electricity Regulatory Commission - India
- Kideco Jaya Agung - Indonesia
- Romanian Commodities Exchange
- Thiess Contractors Indonesia
- Alfred C Toepfer International GmbH - Germany
- Bayan Resources Tbk. - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Malabar Cements Ltd - India
- Posco Energy - South Korea
- Bank of Tokyo Mitsubishi UFJ Ltd
- Bhushan Steel Limited - India
- Straits Asia Resources Limited - Singapore
- MS Steel International - UAE
- Heidelberg Cement - Germany
- The Treasury - Australian Government
- Siam City Cement - Thailand
- Jorong Barutama Greston.PT - Indonesia
- Iligan Light & Power Inc, Philippines
- Trasteel International SA, Italy
- Sical Logistics Limited - India
- Cement Manufacturers Association - India
- Oldendorff Carriers - Singapore
- Goldman Sachs - Singapore
- Ambuja Cements Ltd - India
- Thai Mozambique Logistica
- European Bulk Services B.V. - Netherlands
- Globalindo Alam Lestari - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Antam Resourcindo - Indonesia
- Manunggal Multi Energi - Indonesia
- Dalmia Cement Bharat India
- Central Java Power - Indonesia
- Wood Mackenzie - Singapore
- Mintek Dendrill Indonesia
- Savvy Resources Ltd - HongKong
- Bukit Baiduri Energy - Indonesia
- SN Aboitiz Power Inc, Philippines
- Samtan Co., Ltd - South Korea
- Kumho Petrochemical, South Korea
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Indika Energy - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Grasim Industreis Ltd - India
- GAC Shipping (India) Pvt Ltd
- Energy Development Corp, Philippines
- Wilmar Investment Holdings
- Indogreen Group - Indonesia
- Toyota Tsusho Corporation, Japan
- Independent Power Producers Association of India
- Indo Tambangraya Megah - Indonesia
- Lanco Infratech Ltd - India
- Metalloyd Limited - United Kingdom
- Meralco Power Generation, Philippines
- Binh Thuan Hamico - Vietnam
- Sinarmas Energy and Mining - Indonesia
- Sindya Power Generating Company Private Ltd
- Kalimantan Lumbung Energi - Indonesia
- Barasentosa Lestari - Indonesia
- India Bulls Power Limited - India
- Leighton Contractors Pty Ltd - Australia
- Indian Energy Exchange, India
- Ministry of Finance - Indonesia
- Chettinad Cement Corporation Ltd - India
- Meenaskhi Energy Private Limited - India
- Kaltim Prima Coal - Indonesia
- Commonwealth Bank - Australia
- Siam City Cement PLC, Thailand
- IHS Mccloskey Coal Group - USA
- London Commodity Brokers - England
- IEA Clean Coal Centre - UK
- Rashtriya Ispat Nigam Limited - India
- Interocean Group of Companies - India
- Bhoruka Overseas - Indonesia
- Parry Sugars Refinery, India
- Petrochimia International Co. Ltd.- Taiwan
- Kepco SPC Power Corporation, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Coal and Oil Company - UAE
- Aboitiz Power Corporation - Philippines
- Directorate General of MIneral and Coal - Indonesia
- Global Coal Blending Company Limited - Australia
- Krishnapatnam Port Company Ltd. - India
- Bukit Makmur.PT - Indonesia
- Australian Commodity Traders Exchange
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Mjunction Services Limited - India
- Bulk Trading Sa - Switzerland
- Kartika Selabumi Mining - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Therma Luzon, Inc, Philippines
- Salva Resources Pvt Ltd - India
- Tamil Nadu electricity Board
- Pendopo Energi Batubara - Indonesia
- SMG Consultants - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Semirara Mining and Power Corporation, Philippines
- Larsen & Toubro Limited - India
- Latin American Coal - Colombia
- South Luzon Thermal Energy Corporation
- Parliament of New Zealand
- Coastal Gujarat Power Limited - India
- Global Business Power Corporation, Philippines
- VISA Power Limited - India
- Mercuria Energy - Indonesia
- AsiaOL BioFuels Corp., Philippines
- PTC India Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Sojitz Corporation - Japan
- Jaiprakash Power Ventures ltd
- OPG Power Generation Pvt Ltd - India
- Riau Bara Harum - Indonesia
- Baramulti Group, Indonesia
- Singapore Mercantile Exchange
- Karbindo Abesyapradhi - Indoneisa
- Gujarat Electricity Regulatory Commission - India
- Anglo American - United Kingdom
- Coalindo Energy - Indonesia
- Marubeni Corporation - India
- Orica Australia Pty. Ltd.
- Standard Chartered Bank - UAE
- International Coal Ventures Pvt Ltd - India
- Attock Cement Pakistan Limited
- SMC Global Power, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Bangladesh Power Developement Board
- Ind-Barath Power Infra Limited - India
- Mercator Lines Limited - India
- Economic Council, Georgia
- Australian Coal Association
- Pipit Mutiara Jaya. PT, Indonesia
- Banpu Public Company Limited - Thailand
- Asmin Koalindo Tuhup - Indonesia
- Medco Energi Mining Internasional
- Borneo Indobara - Indonesia
- Indian Oil Corporation Limited
- Videocon Industries ltd - India
- Orica Mining Services - Indonesia
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