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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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Monday, 17 November 14
SKULD ISSUES URGENT NOTICE ON BANKRUPTCY OF OW BUNKER A/S
Further to the Association’s advices of 7 November 2014, more information has come to light with respect to the potential impact and scale of ...
Monday, 17 November 14
INDONESIAN COAL PRICE REFERENCE CONTINUES FREE FALL; SLUMPS TO 69-MONTH LOW
COALspot.com - The Ministry of Energy & Mineral Resources of Indonesia revised down the coal bench mark price once again in November. HBA for t ...
Monday, 17 November 14
API 5 FOB NEWCASTLE COAL SWAP FOR Q1' 15 DELIVERY CLOSED AT $ 52.75
COALspot.com: API 5 FOB Newcastle Coal swap for Q1’ 2015 delivery has decreased US$ 1.77 (-3.25%) month over month and US$ 0.02 (-0.04%) day ...
Monday, 17 November 14
SOUTH CHINA COAL SWAP SLIGHTLY INCREASED WEEK OVER WEEK
COALspot.com: API 8 CFR South China Coal swap for Q1’ 2015 delivery has decreased US$ 1.73 (-2.67%) month over month and US$ 0.10 (-0.16%) da ...
Sunday, 16 November 14
THE BDI LOST 12.59% WEEK ON WEEK; THE BCI LOST 19.95%
COALspot.com: The BDI fell 12.59 percent to 1256 point week on week on Friday 14 November. All the segments were also most down this week. The cape ...
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- Ministry of Transport, Egypt
- PetroVietnam Power Coal Import and Supply Company
- Therma Luzon, Inc, Philippines
- Indonesian Coal Mining Association
- OPG Power Generation Pvt Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Mercuria Energy - Indonesia
- Chettinad Cement Corporation Ltd - India
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- Mercator Lines Limited - India
- Indian Energy Exchange, India
- Merrill Lynch Commodities Europe
- Planning Commission, India
- IHS Mccloskey Coal Group - USA
- Riau Bara Harum - Indonesia
- Indika Energy - Indonesia
- Madhucon Powers Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Malabar Cements Ltd - India
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- Simpson Spence & Young - Indonesia
- Alfred C Toepfer International GmbH - Germany
- San Jose City I Power Corp, Philippines
- Salva Resources Pvt Ltd - India
- Singapore Mercantile Exchange
- Manunggal Multi Energi - Indonesia
- Sree Jayajothi Cements Limited - India
- Thai Mozambique Logistica
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- Videocon Industries ltd - India
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- Offshore Bulk Terminal Pte Ltd, Singapore
- Minerals Council of Australia
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- GVK Power & Infra Limited - India
- PTC India Limited - India
- Thiess Contractors Indonesia
- Global Coal Blending Company Limited - Australia
- Kepco SPC Power Corporation, Philippines
- Edison Trading Spa - Italy
- Globalindo Alam Lestari - Indonesia
- Billiton Holdings Pty Ltd - Australia
- IEA Clean Coal Centre - UK
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- Timah Investasi Mineral - Indoneisa
- Anglo American - United Kingdom
- Asmin Koalindo Tuhup - Indonesia
- Commonwealth Bank - Australia
- Antam Resourcindo - Indonesia
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- Jaiprakash Power Ventures ltd
- Kobexindo Tractors - Indoneisa
- Gujarat Mineral Development Corp Ltd - India
- Directorate Of Revenue Intelligence - India
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- New Zealand Coal & Carbon
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- Goldman Sachs - Singapore
- White Energy Company Limited
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- Interocean Group of Companies - India
- Bukit Makmur.PT - Indonesia
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- Intertek Mineral Services - Indonesia
- Iligan Light & Power Inc, Philippines
- International Coal Ventures Pvt Ltd - India
- Deloitte Consulting - India
- CNBM International Corporation - China
- McConnell Dowell - Australia
- Electricity Generating Authority of Thailand
- Kideco Jaya Agung - Indonesia
- Toyota Tsusho Corporation, Japan
- The University of Queensland
- Sojitz Corporation - Japan
- Vedanta Resources Plc - India
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- Kumho Petrochemical, South Korea
- Energy Link Ltd, New Zealand
- Cement Manufacturers Association - India
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- PNOC Exploration Corporation - Philippines
- Coal and Oil Company - UAE
- Kohat Cement Company Ltd. - Pakistan
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- GN Power Mariveles Coal Plant, Philippines
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- Renaissance Capital - South Africa
- Rashtriya Ispat Nigam Limited - India
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- Meralco Power Generation, Philippines
- Wood Mackenzie - Singapore
- Attock Cement Pakistan Limited
- Metalloyd Limited - United Kingdom
- Posco Energy - South Korea
- Maheswari Brothers Coal Limited - India
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- Energy Development Corp, Philippines
- Bharathi Cement Corporation - India
- SMC Global Power, Philippines
- Australian Coal Association
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- Holcim Trading Pte Ltd - Singapore
- Mintek Dendrill Indonesia
- Power Finance Corporation Ltd., India
- SN Aboitiz Power Inc, Philippines
- London Commodity Brokers - England
- VISA Power Limited - India
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- Romanian Commodities Exchange
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- Banpu Public Company Limited - Thailand
- Dalmia Cement Bharat India
- Bahari Cakrawala Sebuku - Indonesia
- Sindya Power Generating Company Private Ltd
- The State Trading Corporation of India Ltd
- Tamil Nadu electricity Board
- Ind-Barath Power Infra Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Petrochimia International Co. Ltd.- Taiwan
- TNB Fuel Sdn Bhd - Malaysia
- Pendopo Energi Batubara - Indonesia
- Star Paper Mills Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Directorate General of MIneral and Coal - Indonesia
- Kartika Selabumi Mining - Indonesia
- Parliament of New Zealand
- Orica Australia Pty. Ltd.
- Global Green Power PLC Corporation, Philippines
- Rio Tinto Coal - Australia
- Central Electricity Authority - India
- Medco Energi Mining Internasional
- Essar Steel Hazira Ltd - India
- Sical Logistics Limited - India
- Indo Tambangraya Megah - Indonesia
- Indian Oil Corporation Limited
- Bukit Asam (Persero) Tbk - Indonesia
- Electricity Authority, New Zealand
- Ministry of Mines - Canada
- Bhoruka Overseas - Indonesia
- Ambuja Cements Ltd - India
- Eastern Energy - Thailand
- Bank of Tokyo Mitsubishi UFJ Ltd
- Orica Mining Services - Indonesia
- Standard Chartered Bank - UAE
- Larsen & Toubro Limited - India
- Semirara Mining and Power Corporation, Philippines
- Sakthi Sugars Limited - India
- Coalindo Energy - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Global Business Power Corporation, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Africa Commodities Group - South Africa
- Sarangani Energy Corporation, Philippines
- Savvy Resources Ltd - HongKong
- Economic Council, Georgia
- Australian Commodity Traders Exchange
- Siam City Cement PLC, Thailand
- Agrawal Coal Company - India
- Gujarat Electricity Regulatory Commission - India
- Georgia Ports Authority, United States
- Heidelberg Cement - Germany
- Bangladesh Power Developement Board
- Maharashtra Electricity Regulatory Commission - India
- Eastern Coal Council - USA
- LBH Netherlands Bv - Netherlands
- Bhatia International Limited - India
- South Luzon Thermal Energy Corporation
- Jindal Steel & Power Ltd - India
- Kaltim Prima Coal - Indonesia
- Parry Sugars Refinery, India
- Chamber of Mines of South Africa
- AsiaOL BioFuels Corp., Philippines
- The Treasury - Australian Government
- Mjunction Services Limited - India
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- Ceylon Electricity Board - Sri Lanka
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- Wilmar Investment Holdings
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