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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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Thursday, 20 November 14
MOST MAJOR ASIAN ECONOMIES TO BENEFIT FROM LOWER OIL - FITCH
COALspot.com: The 25% drop in the price of oil since July is likely to lift economic growth prospects, improve terms of trade, and have a pot ...
Thursday, 20 November 14
HANDY: INDO ROUNDS ARE BEING FIXED IN REGION OF US$ 10K - FEARNLEYS
Handy
In the Atlantic we have experienced firmer rates this week much lead by the grain activity out of USG. Vsls open in the USG can achieve in ...
Thursday, 20 November 14
DEMAND FOR DRY BULK CARRIERS INCREASES ON THE BACK OF HEIGHTENED FREIGHT RATE MARKET - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
Ship owners are looking to take advantage of favorable market conditions through the acquisition of more dry bulk carriers. According to shipbroker ...
Wednesday, 19 November 14
INDONESIA FUEL-PRICE RISE A CLEAR, POSITIVE REFORM SIGNAL - FITCH
COALspot.com: Indonesia's hike of more than 30% in administered fuel prices, announced on 17 November, provides a clear, positive signal of the ...
Wednesday, 19 November 14
CAPES WERE UNDER PRESSURE; LOST 20% WITHIN A WEEK
COALspot.com: " The negative environment in which the week prior ended, marked this past week as well, which closed off on Friday noting the f ...
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- GAC Shipping (India) Pvt Ltd
- Grasim Industreis Ltd - India
- SN Aboitiz Power Inc, Philippines
- IHS Mccloskey Coal Group - USA
- ASAPP Information Group - India
- Orica Australia Pty. Ltd.
- Siam City Cement - Thailand
- Independent Power Producers Association of India
- Coal and Oil Company - UAE
- Kapuas Tunggal Persada - Indonesia
- Power Finance Corporation Ltd., India
- Kalimantan Lumbung Energi - Indonesia
- Salva Resources Pvt Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Goldman Sachs - Singapore
- Carbofer General Trading SA - India
- Medco Energi Mining Internasional
- Price Waterhouse Coopers - Russia
- Singapore Mercantile Exchange
- Standard Chartered Bank - UAE
- Oldendorff Carriers - Singapore
- Mintek Dendrill Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Sical Logistics Limited - India
- Anglo American - United Kingdom
- Larsen & Toubro Limited - India
- Interocean Group of Companies - India
- GVK Power & Infra Limited - India
- European Bulk Services B.V. - Netherlands
- Marubeni Corporation - India
- Therma Luzon, Inc, Philippines
- Parry Sugars Refinery, India
- Romanian Commodities Exchange
- Trasteel International SA, Italy
- Wood Mackenzie - Singapore
- Semirara Mining Corp, Philippines
- McConnell Dowell - Australia
- Sinarmas Energy and Mining - Indonesia
- Global Green Power PLC Corporation, Philippines
- South Luzon Thermal Energy Corporation
- Formosa Plastics Group - Taiwan
- CIMB Investment Bank - Malaysia
- Orica Mining Services - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Electricity Generating Authority of Thailand
- GN Power Mariveles Coal Plant, Philippines
- Uttam Galva Steels Limited - India
- Banpu Public Company Limited - Thailand
- Pendopo Energi Batubara - Indonesia
- Eastern Energy - Thailand
- White Energy Company Limited
- AsiaOL BioFuels Corp., Philippines
- Planning Commission, India
- Barasentosa Lestari - Indonesia
- Mercuria Energy - Indonesia
- Miang Besar Coal Terminal - Indonesia
- TeaM Sual Corporation - Philippines
- Jindal Steel & Power Ltd - India
- Agrawal Coal Company - India
- Global Coal Blending Company Limited - Australia
- India Bulls Power Limited - India
- PNOC Exploration Corporation - Philippines
- PetroVietnam Power Coal Import and Supply Company
- Energy Link Ltd, New Zealand
- Aditya Birla Group - India
- OPG Power Generation Pvt Ltd - India
- Australian Commodity Traders Exchange
- Intertek Mineral Services - Indonesia
- Ceylon Electricity Board - Sri Lanka
- PowerSource Philippines DevCo
- Thai Mozambique Logistica
- Deloitte Consulting - India
- Karaikal Port Pvt Ltd - India
- Metalloyd Limited - United Kingdom
- Sojitz Corporation - Japan
- International Coal Ventures Pvt Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Economic Council, Georgia
- Eastern Coal Council - USA
- Dalmia Cement Bharat India
- Madhucon Powers Ltd - India
- Simpson Spence & Young - Indonesia
- Bulk Trading Sa - Switzerland
- Makarim & Taira - Indonesia
- Latin American Coal - Colombia
- Indonesian Coal Mining Association
- Central Java Power - Indonesia
- Ministry of Transport, Egypt
- Bhushan Steel Limited - India
- Bhatia International Limited - India
- Essar Steel Hazira Ltd - India
- Indo Tambangraya Megah - Indonesia
- Ministry of Finance - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Bharathi Cement Corporation - India
- Posco Energy - South Korea
- Georgia Ports Authority, United States
- Maheswari Brothers Coal Limited - India
- Riau Bara Harum - Indonesia
- Australian Coal Association
- Antam Resourcindo - Indonesia
- Manunggal Multi Energi - Indonesia
- Bukit Makmur.PT - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Bayan Resources Tbk. - Indonesia
- Indogreen Group - Indonesia
- Indika Energy - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Indian Energy Exchange, India
- MS Steel International - UAE
- Coastal Gujarat Power Limited - India
- SMG Consultants - Indonesia
- Petron Corporation, Philippines
- Straits Asia Resources Limited - Singapore
- Globalindo Alam Lestari - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- CNBM International Corporation - China
- Directorate General of MIneral and Coal - Indonesia
- Videocon Industries ltd - India
- Jaiprakash Power Ventures ltd
- Alfred C Toepfer International GmbH - Germany
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Meralco Power Generation, Philippines
- GMR Energy Limited - India
- Billiton Holdings Pty Ltd - Australia
- Malabar Cements Ltd - India
- Kumho Petrochemical, South Korea
- PTC India Limited - India
- Sarangani Energy Corporation, Philippines
- Star Paper Mills Limited - India
- Global Business Power Corporation, Philippines
- The University of Queensland
- Wilmar Investment Holdings
- Ministry of Mines - Canada
- Bukit Baiduri Energy - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Chamber of Mines of South Africa
- Kideco Jaya Agung - Indonesia
- New Zealand Coal & Carbon
- Tamil Nadu electricity Board
- London Commodity Brokers - England
- Bahari Cakrawala Sebuku - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Timah Investasi Mineral - Indoneisa
- SMC Global Power, Philippines
- Vedanta Resources Plc - India
- Binh Thuan Hamico - Vietnam
- VISA Power Limited - India
- Sree Jayajothi Cements Limited - India
- LBH Netherlands Bv - Netherlands
- Kaltim Prima Coal - Indonesia
- Samtan Co., Ltd - South Korea
- Aboitiz Power Corporation - Philippines
- Maharashtra Electricity Regulatory Commission - India
- The State Trading Corporation of India Ltd
- Vizag Seaport Private Limited - India
- Coalindo Energy - Indonesia
- Toyota Tsusho Corporation, Japan
- Tata Chemicals Ltd - India
- Baramulti Group, Indonesia
- Indian Oil Corporation Limited
- Cigading International Bulk Terminal - Indonesia
- Mercator Lines Limited - India
- Borneo Indobara - Indonesia
- Cement Manufacturers Association - India
- Bhoruka Overseas - Indonesia
- Thiess Contractors Indonesia
- Heidelberg Cement - Germany
- Savvy Resources Ltd - HongKong
- Sindya Power Generating Company Private Ltd
- Ambuja Cements Ltd - India
- Rio Tinto Coal - Australia
- Chettinad Cement Corporation Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- ICICI Bank Limited - India
- San Jose City I Power Corp, Philippines
- Renaissance Capital - South Africa
- Minerals Council of Australia
- Kartika Selabumi Mining - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Africa Commodities Group - South Africa
- Pipit Mutiara Jaya. PT, Indonesia
- Commonwealth Bank - Australia
- Bukit Asam (Persero) Tbk - Indonesia
- Bangladesh Power Developement Board
- Directorate Of Revenue Intelligence - India
- Gujarat Electricity Regulatory Commission - India
- Jorong Barutama Greston.PT - Indonesia
- Ind-Barath Power Infra Limited - India
- Xindia Steels Limited - India
- Electricity Authority, New Zealand
- The Treasury - Australian Government
- Leighton Contractors Pty Ltd - Australia
- TNB Fuel Sdn Bhd - Malaysia
- Attock Cement Pakistan Limited
- Mjunction Services Limited - India
- IEA Clean Coal Centre - UK
- Parliament of New Zealand
- Meenaskhi Energy Private Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kepco SPC Power Corporation, Philippines
- Sakthi Sugars Limited - India
- Kobexindo Tractors - Indoneisa
- Gujarat Sidhee Cement - India
- Port Waratah Coal Services - Australia
- Neyveli Lignite Corporation Ltd, - India
- Merrill Lynch Commodities Europe
- Lanco Infratech Ltd - India
- Altura Mining Limited, Indonesia
- Central Electricity Authority - India
- Siam City Cement PLC, Thailand
- Edison Trading Spa - Italy
- Iligan Light & Power Inc, Philippines
- Energy Development Corp, Philippines
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