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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, 13 November 14
MODERN DRY BULK SHIPS' PRICES START FIRMING UP - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
While the main story of the past few weeks has been the rebound of the dry bulk market, which has been a result of increased Chinese iron ore impor ...
Wednesday, 12 November 14
PANAMAX: WITNESSED A FAIRLY STABLE MARKET IN THE ATLANTIC
COALspot.com: Despite the fact that the Dry Bulk market noted another weekly increase, clouds of uncertainty returned mid-week onwards, as the mini ...
Wednesday, 12 November 14
SHIPPING MARKET INSIGHT - CHRISTOPHER T. WHITTY
COALspot.com: The fight continues between the low-cost iron ore producers and the big three: Vale, Rio Tinto and BHP Billiton. We are moving into a ...
Tuesday, 11 November 14
FACING CHALLENGES AND MEETING OPPORTUNITIES - INTERNATIONAL EPC CONFERENCE & EXHIBITION
Press Release: SKYCONNECTION and TRANSEVENT, which is fully supported by the Institution of Engineers Indonesia and Ministry of Industry of the Rep ...
Tuesday, 11 November 14
NEWCASTLE COAL SWAP CLOSED AT $ 52.65 FOR Q1' 15 DELIVERY
COALspot.com: API 5 FOB Newcastle Coal swap for Q1’ 2015 delivery decreased US$ 2.83 (-5.10%) month over month and US$ 1.35 (-2.50%) week ove ...
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- Sinarmas Energy and Mining - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- IHS Mccloskey Coal Group - USA
- Merrill Lynch Commodities Europe
- Kumho Petrochemical, South Korea
- Madhucon Powers Ltd - India
- Coal and Oil Company - UAE
- Asia Pacific Energy Resources Ventures Inc, Philippines
- New Zealand Coal & Carbon
- Gujarat Electricity Regulatory Commission - India
- Straits Asia Resources Limited - Singapore
- Energy Link Ltd, New Zealand
- Singapore Mercantile Exchange
- Latin American Coal - Colombia
- Indian Energy Exchange, India
- Australian Commodity Traders Exchange
- Karbindo Abesyapradhi - Indoneisa
- European Bulk Services B.V. - Netherlands
- Thai Mozambique Logistica
- Bank of Tokyo Mitsubishi UFJ Ltd
- AsiaOL BioFuels Corp., Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Tata Chemicals Ltd - India
- Aboitiz Power Corporation - Philippines
- GAC Shipping (India) Pvt Ltd
- Standard Chartered Bank - UAE
- VISA Power Limited - India
- Petron Corporation, Philippines
- Indogreen Group - Indonesia
- Baramulti Group, Indonesia
- Orica Mining Services - Indonesia
- Antam Resourcindo - Indonesia
- Meralco Power Generation, Philippines
- White Energy Company Limited
- Gujarat Sidhee Cement - India
- Wood Mackenzie - Singapore
- Kartika Selabumi Mining - Indonesia
- Intertek Mineral Services - Indonesia
- Banpu Public Company Limited - Thailand
- Global Green Power PLC Corporation, Philippines
- Energy Development Corp, Philippines
- Coalindo Energy - Indonesia
- OPG Power Generation Pvt Ltd - India
- Siam City Cement - Thailand
- Videocon Industries ltd - India
- Kapuas Tunggal Persada - Indonesia
- Bayan Resources Tbk. - Indonesia
- Meenaskhi Energy Private Limited - India
- India Bulls Power Limited - India
- Indonesian Coal Mining Association
- Cigading International Bulk Terminal - Indonesia
- Electricity Authority, New Zealand
- Economic Council, Georgia
- Bhatia International Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Ind-Barath Power Infra Limited - India
- Indika Energy - Indonesia
- Aditya Birla Group - India
- Sakthi Sugars Limited - India
- Sree Jayajothi Cements Limited - India
- Edison Trading Spa - Italy
- Sical Logistics Limited - India
- SMC Global Power, Philippines
- Maheswari Brothers Coal Limited - India
- Africa Commodities Group - South Africa
- Indo Tambangraya Megah - Indonesia
- Bangladesh Power Developement Board
- Global Coal Blending Company Limited - Australia
- Formosa Plastics Group - Taiwan
- Independent Power Producers Association of India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Cement Manufacturers Association - India
- Mjunction Services Limited - India
- SN Aboitiz Power Inc, Philippines
- Orica Australia Pty. Ltd.
- Larsen & Toubro Limited - India
- Ministry of Transport, Egypt
- Deloitte Consulting - India
- South Luzon Thermal Energy Corporation
- The University of Queensland
- Sindya Power Generating Company Private Ltd
- Jindal Steel & Power Ltd - India
- Georgia Ports Authority, United States
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Krishnapatnam Port Company Ltd. - India
- Indian Oil Corporation Limited
- Timah Investasi Mineral - Indoneisa
- Miang Besar Coal Terminal - Indonesia
- Power Finance Corporation Ltd., India
- Pipit Mutiara Jaya. PT, Indonesia
- Ministry of Finance - Indonesia
- Price Waterhouse Coopers - Russia
- Sarangani Energy Corporation, Philippines
- Eastern Energy - Thailand
- Essar Steel Hazira Ltd - India
- Trasteel International SA, Italy
- PTC India Limited - India
- Makarim & Taira - Indonesia
- Kaltim Prima Coal - Indonesia
- CIMB Investment Bank - Malaysia
- Siam City Cement PLC, Thailand
- Malabar Cements Ltd - India
- Ambuja Cements Ltd - India
- ICICI Bank Limited - India
- Bhoruka Overseas - Indonesia
- Anglo American - United Kingdom
- Asmin Koalindo Tuhup - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Minerals Council of Australia
- Savvy Resources Ltd - HongKong
- Grasim Industreis Ltd - India
- Altura Mining Limited, Indonesia
- Carbofer General Trading SA - India
- GVK Power & Infra Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Parry Sugars Refinery, India
- Dalmia Cement Bharat India
- Mintek Dendrill Indonesia
- Chettinad Cement Corporation Ltd - India
- Manunggal Multi Energi - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- The Treasury - Australian Government
- MS Steel International - UAE
- Bharathi Cement Corporation - India
- Jaiprakash Power Ventures ltd
- Planning Commission, India
- The State Trading Corporation of India Ltd
- Offshore Bulk Terminal Pte Ltd, Singapore
- Bukit Makmur.PT - Indonesia
- International Coal Ventures Pvt Ltd - India
- ASAPP Information Group - India
- Lanco Infratech Ltd - India
- Semirara Mining Corp, Philippines
- Thiess Contractors Indonesia
- Eastern Coal Council - USA
- Rashtriya Ispat Nigam Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Agrawal Coal Company - India
- GN Power Mariveles Coal Plant, Philippines
- Vedanta Resources Plc - India
- GMR Energy Limited - India
- Kobexindo Tractors - Indoneisa
- Bahari Cakrawala Sebuku - Indonesia
- Xindia Steels Limited - India
- Kepco SPC Power Corporation, Philippines
- Bhushan Steel Limited - India
- PNOC Exploration Corporation - Philippines
- Kalimantan Lumbung Energi - Indonesia
- Heidelberg Cement - Germany
- Uttam Galva Steels Limited - India
- Australian Coal Association
- Simpson Spence & Young - Indonesia
- Commonwealth Bank - Australia
- Tamil Nadu electricity Board
- Metalloyd Limited - United Kingdom
- Semirara Mining and Power Corporation, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Ceylon Electricity Board - Sri Lanka
- Therma Luzon, Inc, Philippines
- Karaikal Port Pvt Ltd - India
- IEA Clean Coal Centre - UK
- Gujarat Mineral Development Corp Ltd - India
- LBH Netherlands Bv - Netherlands
- Interocean Group of Companies - India
- Chamber of Mines of South Africa
- Medco Energi Mining Internasional
- Renaissance Capital - South Africa
- CNBM International Corporation - China
- PowerSource Philippines DevCo
- Kideco Jaya Agung - Indonesia
- Posco Energy - South Korea
- TeaM Sual Corporation - Philippines
- SMG Consultants - Indonesia
- Toyota Tsusho Corporation, Japan
- Coastal Gujarat Power Limited - India
- Samtan Co., Ltd - South Korea
- Alfred C Toepfer International GmbH - Germany
- Global Business Power Corporation, Philippines
- Wilmar Investment Holdings
- Leighton Contractors Pty Ltd - Australia
- PetroVietnam Power Coal Import and Supply Company
- Jorong Barutama Greston.PT - Indonesia
- Mercator Lines Limited - India
- Riau Bara Harum - Indonesia
- Directorate Of Revenue Intelligence - India
- Ministry of Mines - Canada
- Bulk Trading Sa - Switzerland
- Iligan Light & Power Inc, Philippines
- Binh Thuan Hamico - Vietnam
- Globalindo Alam Lestari - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- San Jose City I Power Corp, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Star Paper Mills Limited - India
- McConnell Dowell - Australia
- Rio Tinto Coal - Australia
- London Commodity Brokers - England
- Port Waratah Coal Services - Australia
- Mercuria Energy - Indonesia
- Sojitz Corporation - Japan
- Attock Cement Pakistan Limited
- Bukit Baiduri Energy - Indonesia
- Borneo Indobara - Indonesia
- Parliament of New Zealand
- Holcim Trading Pte Ltd - Singapore
- Oldendorff Carriers - Singapore
- Vizag Seaport Private Limited - India
- Billiton Holdings Pty Ltd - Australia
- Central Electricity Authority - India
- Electricity Generating Authority of Thailand
- Salva Resources Pvt Ltd - India
- Romanian Commodities Exchange
- Central Java Power - Indonesia
- Barasentosa Lestari - Indonesia
- Pendopo Energi Batubara - Indonesia
- Marubeni Corporation - India
- Goldman Sachs - Singapore
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