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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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Friday, 14 November 14
U.S. WEEKLY COAL OUTPUT SLIPS SLIGHTLY WEEK ENDING NOVEMBER 08
COALspot.com – United States the world's one of the largest coal producers, produced approximately 18.9 million short tons (mmst) of coal ...
Friday, 14 November 14
MORE NATURAL GAS FROM RUSSIA TO HELP STABILISE CHINA PRICES - FITCH RATINGS
COALspot.com: Fitch Ratings has said possible additional natural gas supplies from Russia's OAO Gazprom to China via the Altai pipeline would h ...
Thursday, 13 November 14
SLOWER AND LOWER HAS BEEN THE TREND OF THE PANAMAX IN BOTH HEMISPHERES - FEARNLEYS
Handy
We are experiencing an oversupply of tonnage in the Atlantic which is out numbering the amount of cargoes, Fearnleys broker says in its lat ...
Thursday, 13 November 14
DRY BULK MARKET'S REBOUND HINGES ON IRON ORE OVERSUPPLY ISSUES MOVING FORWARD - HELLENIC SHIPPING NEWS
“One man’s benefit, is another man’s demise” is a phrase which can be used to describe today’s situation in the dry b ...
Thursday, 13 November 14
COAL MINISTER WANTS INDIA TO STOP COAL IMPORTS IN TWO OR THREE YEARS
COALspot.com: India to ramp up coal production to a billion tonnes by 2019 from its current level of 490 million tones. According to Power and Coal ...
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- Eastern Coal Council - USA
- Madhucon Powers Ltd - India
- Siam City Cement - Thailand
- Toyota Tsusho Corporation, Japan
- Baramulti Group, Indonesia
- Indian Energy Exchange, India
- Simpson Spence & Young - Indonesia
- Electricity Generating Authority of Thailand
- Sindya Power Generating Company Private Ltd
- The State Trading Corporation of India Ltd
- Global Green Power PLC Corporation, Philippines
- PowerSource Philippines DevCo
- Grasim Industreis Ltd - India
- Borneo Indobara - Indonesia
- PNOC Exploration Corporation - Philippines
- Videocon Industries ltd - India
- SMC Global Power, Philippines
- Port Waratah Coal Services - Australia
- London Commodity Brokers - England
- Planning Commission, India
- Meenaskhi Energy Private Limited - India
- GAC Shipping (India) Pvt Ltd
- Orica Mining Services - Indonesia
- Attock Cement Pakistan Limited
- Bukit Asam (Persero) Tbk - Indonesia
- Mercator Lines Limited - India
- Energy Development Corp, Philippines
- India Bulls Power Limited - India
- Semirara Mining Corp, Philippines
- Antam Resourcindo - Indonesia
- Bulk Trading Sa - Switzerland
- Altura Mining Limited, Indonesia
- Medco Energi Mining Internasional
- Petron Corporation, Philippines
- Savvy Resources Ltd - HongKong
- Kapuas Tunggal Persada - Indonesia
- Meralco Power Generation, Philippines
- Heidelberg Cement - Germany
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kaltim Prima Coal - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Tata Chemicals Ltd - India
- Mintek Dendrill Indonesia
- Star Paper Mills Limited - India
- Africa Commodities Group - South Africa
- Mercuria Energy - Indonesia
- South Luzon Thermal Energy Corporation
- Australian Coal Association
- Makarim & Taira - Indonesia
- PTC India Limited - India
- San Jose City I Power Corp, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Metalloyd Limited - United Kingdom
- Directorate General of MIneral and Coal - Indonesia
- ASAPP Information Group - India
- Maharashtra Electricity Regulatory Commission - India
- Alfred C Toepfer International GmbH - Germany
- Carbofer General Trading SA - India
- Malabar Cements Ltd - India
- Bukit Makmur.PT - Indonesia
- Maheswari Brothers Coal Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Chettinad Cement Corporation Ltd - India
- Aboitiz Power Corporation - Philippines
- Ministry of Transport, Egypt
- Gujarat Electricity Regulatory Commission - India
- Price Waterhouse Coopers - Russia
- Directorate Of Revenue Intelligence - India
- Asmin Koalindo Tuhup - Indonesia
- SN Aboitiz Power Inc, Philippines
- Ministry of Mines - Canada
- Kartika Selabumi Mining - Indonesia
- Riau Bara Harum - Indonesia
- GVK Power & Infra Limited - India
- Marubeni Corporation - India
- Gujarat Mineral Development Corp Ltd - India
- McConnell Dowell - Australia
- Salva Resources Pvt Ltd - India
- SMG Consultants - Indonesia
- Karaikal Port Pvt Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Semirara Mining and Power Corporation, Philippines
- GMR Energy Limited - India
- Electricity Authority, New Zealand
- European Bulk Services B.V. - Netherlands
- Globalindo Alam Lestari - Indonesia
- Coastal Gujarat Power Limited - India
- CNBM International Corporation - China
- Renaissance Capital - South Africa
- Georgia Ports Authority, United States
- OPG Power Generation Pvt Ltd - India
- Kumho Petrochemical, South Korea
- Offshore Bulk Terminal Pte Ltd, Singapore
- Coal and Oil Company - UAE
- TNB Fuel Sdn Bhd - Malaysia
- Binh Thuan Hamico - Vietnam
- Uttam Galva Steels Limited - India
- Tamil Nadu electricity Board
- Latin American Coal - Colombia
- AsiaOL BioFuels Corp., Philippines
- Standard Chartered Bank - UAE
- Siam City Cement PLC, Thailand
- Interocean Group of Companies - India
- Rio Tinto Coal - Australia
- Trasteel International SA, Italy
- Vedanta Resources Plc - India
- The University of Queensland
- Wood Mackenzie - Singapore
- Jorong Barutama Greston.PT - Indonesia
- Larsen & Toubro Limited - India
- Pendopo Energi Batubara - Indonesia
- Indian Oil Corporation Limited
- Dalmia Cement Bharat India
- Bukit Baiduri Energy - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Gujarat Sidhee Cement - India
- Eastern Energy - Thailand
- Ministry of Finance - Indonesia
- Bharathi Cement Corporation - India
- Sarangani Energy Corporation, Philippines
- Lanco Infratech Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- IEA Clean Coal Centre - UK
- Samtan Co., Ltd - South Korea
- Thai Mozambique Logistica
- Formosa Plastics Group - Taiwan
- IHS Mccloskey Coal Group - USA
- Thiess Contractors Indonesia
- Billiton Holdings Pty Ltd - Australia
- Parry Sugars Refinery, India
- Global Business Power Corporation, Philippines
- Krishnapatnam Port Company Ltd. - India
- Miang Besar Coal Terminal - Indonesia
- Parliament of New Zealand
- Pipit Mutiara Jaya. PT, Indonesia
- Mjunction Services Limited - India
- Iligan Light & Power Inc, Philippines
- Kepco SPC Power Corporation, Philippines
- Banpu Public Company Limited - Thailand
- Global Coal Blending Company Limited - Australia
- Edison Trading Spa - Italy
- Sical Logistics Limited - India
- Timah Investasi Mineral - Indoneisa
- Straits Asia Resources Limited - Singapore
- Central Java Power - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Merrill Lynch Commodities Europe
- Vizag Seaport Private Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Goldman Sachs - Singapore
- Commonwealth Bank - Australia
- Intertek Mineral Services - Indonesia
- Agrawal Coal Company - India
- Xindia Steels Limited - India
- Sakthi Sugars Limited - India
- Bhatia International Limited - India
- Sojitz Corporation - Japan
- Orica Australia Pty. Ltd.
- Deloitte Consulting - India
- Independent Power Producers Association of India
- Manunggal Multi Energi - Indonesia
- Indonesian Coal Mining Association
- Therma Luzon, Inc, Philippines
- Anglo American - United Kingdom
- Petrochimia International Co. Ltd.- Taiwan
- White Energy Company Limited
- New Zealand Coal & Carbon
- Ceylon Electricity Board - Sri Lanka
- Indika Energy - Indonesia
- Coalindo Energy - Indonesia
- Australian Commodity Traders Exchange
- Indogreen Group - Indonesia
- Ind-Barath Power Infra Limited - India
- Oldendorff Carriers - Singapore
- PetroVietnam Power Coal Import and Supply Company
- Vijayanagar Sugar Pvt Ltd - India
- Kobexindo Tractors - Indoneisa
- Aditya Birla Group - India
- Jaiprakash Power Ventures ltd
- Essar Steel Hazira Ltd - India
- Posco Energy - South Korea
- Bangladesh Power Developement Board
- Bhushan Steel Limited - India
- Jindal Steel & Power Ltd - India
- Sree Jayajothi Cements Limited - India
- The Treasury - Australian Government
- Wilmar Investment Holdings
- Rashtriya Ispat Nigam Limited - India
- Ambuja Cements Ltd - India
- Indo Tambangraya Megah - Indonesia
- Economic Council, Georgia
- Minerals Council of Australia
- Kideco Jaya Agung - Indonesia
- Chamber of Mines of South Africa
- International Coal Ventures Pvt Ltd - India
- LBH Netherlands Bv - Netherlands
- Bayan Resources Tbk. - Indonesia
- MS Steel International - UAE
- TeaM Sual Corporation - Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Holcim Trading Pte Ltd - Singapore
- Energy Link Ltd, New Zealand
- Kalimantan Lumbung Energi - Indonesia
- ICICI Bank Limited - India
- CIMB Investment Bank - Malaysia
- Barasentosa Lestari - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Power Finance Corporation Ltd., India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Cigading International Bulk Terminal - Indonesia
- Cement Manufacturers Association - India
- Central Electricity Authority - India
- Singapore Mercantile Exchange
- VISA Power Limited - India
- Bhoruka Overseas - Indonesia
- Romanian Commodities Exchange
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