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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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Tuesday, 11 November 14
PORT OF NEWCASTLE'S OCTOBER COAL SHIPMENTS SLIPPED 7.40% M-O-M
COALspot.com: The Port of Newcastle, Australia’s major trading ports and the world’s largest coal export port, has shipped $1,115.7 mil ...
Monday, 10 November 14
Q4' 15 FOB INDONESIA COAL SWAP CLOSED LOWER THAN Q1' 15 CLOSING PRICE OF US$ 49.58 ON LAST FRIDAY
COALspot.com: Indonesian coal swaps for delivery Q1' 2015 lost month on month, week on week and day on day.
The Q1 swap has lost just US$ ...
Monday, 10 November 14
SGX'S API 4 FOB RICHARDS BAY COAL SWAP FOR Q1' 2015 DELIVERY CLOSED AT US$ 65.44 ON 7 NOV, LOST 4.08% M-O-M
COALspot.com: API 4 FOB Richards Bay Coal swap for Q1’ 2015 delivery has decreased US$ 2.78 (-4.08%) month over month and US$ 1.41 (-2.11%) w ...
Monday, 10 November 14
MOZAMBIQUE SIGNED CONTRACT WITH ETA STAR OF UAE FOR OPEN CAST COAL MINE IN TETE - AIM
- ETA Star to build slurry pipeline over the 600 kilometers to Beira in Mozambique to transport coal.
- The viability studies show the presence o ...
Monday, 10 November 14
YEAR 2015 CFR SOUTH CHINA COAL SWAP SHOWS A WEAK TREND THIS PAST WEEK
COALspot.com: API 8 CFR South China Coal swap for Q1’ 2015 delivery has decreased US$ 3.74 (-5.63%) month over month and US$ 2.19 (+3.37%) we ...
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- Videocon Industries ltd - India
- Sakthi Sugars Limited - India
- Rio Tinto Coal - Australia
- Latin American Coal - Colombia
- Oldendorff Carriers - Singapore
- India Bulls Power Limited - India
- Bulk Trading Sa - Switzerland
- Ceylon Electricity Board - Sri Lanka
- Aditya Birla Group - India
- Kepco SPC Power Corporation, Philippines
- Toyota Tsusho Corporation, Japan
- Chamber of Mines of South Africa
- Australian Coal Association
- Vizag Seaport Private Limited - India
- Global Coal Blending Company Limited - Australia
- Baramulti Group, Indonesia
- Wilmar Investment Holdings
- Mercuria Energy - Indonesia
- Timah Investasi Mineral - Indoneisa
- Indian Oil Corporation Limited
- Tamil Nadu electricity Board
- Petrochimia International Co. Ltd.- Taiwan
- Savvy Resources Ltd - HongKong
- Central Java Power - Indonesia
- Coalindo Energy - Indonesia
- PTC India Limited - India
- Minerals Council of Australia
- South Luzon Thermal Energy Corporation
- Uttam Galva Steels Limited - India
- Sojitz Corporation - Japan
- Metalloyd Limited - United Kingdom
- Trasteel International SA, Italy
- The Treasury - Australian Government
- Iligan Light & Power Inc, Philippines
- Formosa Plastics Group - Taiwan
- Jaiprakash Power Ventures ltd
- Salva Resources Pvt Ltd - India
- New Zealand Coal & Carbon
- Bangladesh Power Developement Board
- Lanco Infratech Ltd - India
- Merrill Lynch Commodities Europe
- Dalmia Cement Bharat India
- Anglo American - United Kingdom
- Semirara Mining and Power Corporation, Philippines
- CNBM International Corporation - China
- Sical Logistics Limited - India
- Kapuas Tunggal Persada - Indonesia
- Therma Luzon, Inc, Philippines
- Ambuja Cements Ltd - India
- Cement Manufacturers Association - India
- London Commodity Brokers - England
- Global Green Power PLC Corporation, Philippines
- GAC Shipping (India) Pvt Ltd
- Malabar Cements Ltd - India
- Indika Energy - Indonesia
- Cigading International Bulk Terminal - Indonesia
- White Energy Company Limited
- Ministry of Finance - Indonesia
- Posco Energy - South Korea
- SMG Consultants - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Karaikal Port Pvt Ltd - India
- International Coal Ventures Pvt Ltd - India
- Meralco Power Generation, Philippines
- Indian Energy Exchange, India
- Wood Mackenzie - Singapore
- Semirara Mining Corp, Philippines
- Edison Trading Spa - Italy
- Vijayanagar Sugar Pvt Ltd - India
- Ministry of Mines - Canada
- Kaltim Prima Coal - Indonesia
- The University of Queensland
- Attock Cement Pakistan Limited
- Mintek Dendrill Indonesia
- Gujarat Sidhee Cement - India
- Kumho Petrochemical, South Korea
- Kartika Selabumi Mining - Indonesia
- Pendopo Energi Batubara - Indonesia
- Romanian Commodities Exchange
- Bhatia International Limited - India
- Maheswari Brothers Coal Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Asmin Koalindo Tuhup - Indonesia
- Goldman Sachs - Singapore
- Samtan Co., Ltd - South Korea
- Indogreen Group - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Mercator Lines Limited - India
- Simpson Spence & Young - Indonesia
- Grasim Industreis Ltd - India
- Indo Tambangraya Megah - Indonesia
- Directorate Of Revenue Intelligence - India
- Ind-Barath Power Infra Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Alfred C Toepfer International GmbH - Germany
- McConnell Dowell - Australia
- Kalimantan Lumbung Energi - Indonesia
- Borneo Indobara - Indonesia
- Power Finance Corporation Ltd., India
- Marubeni Corporation - India
- Petron Corporation, Philippines
- Madhucon Powers Ltd - India
- Makarim & Taira - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Maharashtra Electricity Regulatory Commission - India
- LBH Netherlands Bv - Netherlands
- Intertek Mineral Services - Indonesia
- Vedanta Resources Plc - India
- GVK Power & Infra Limited - India
- Rashtriya Ispat Nigam Limited - India
- Globalindo Alam Lestari - Indonesia
- Independent Power Producers Association of India
- CIMB Investment Bank - Malaysia
- Bhushan Steel Limited - India
- Global Business Power Corporation, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Australian Commodity Traders Exchange
- Directorate General of MIneral and Coal - Indonesia
- Economic Council, Georgia
- Sinarmas Energy and Mining - Indonesia
- ICICI Bank Limited - India
- MS Steel International - UAE
- PNOC Exploration Corporation - Philippines
- ASAPP Information Group - India
- Aboitiz Power Corporation - Philippines
- Eastern Energy - Thailand
- Energy Development Corp, Philippines
- Manunggal Multi Energi - Indonesia
- SMC Global Power, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Bayan Resources Tbk. - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Bukit Makmur.PT - Indonesia
- Meenaskhi Energy Private Limited - India
- Commonwealth Bank - Australia
- Deloitte Consulting - India
- VISA Power Limited - India
- Sindya Power Generating Company Private Ltd
- TeaM Sual Corporation - Philippines
- Binh Thuan Hamico - Vietnam
- Karbindo Abesyapradhi - Indoneisa
- PetroVietnam Power Coal Import and Supply Company
- Planning Commission, India
- SN Aboitiz Power Inc, Philippines
- Antam Resourcindo - Indonesia
- IEA Clean Coal Centre - UK
- Singapore Mercantile Exchange
- Bahari Cakrawala Sebuku - Indonesia
- Electricity Authority, New Zealand
- Parliament of New Zealand
- Xindia Steels Limited - India
- Straits Asia Resources Limited - Singapore
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bhoruka Overseas - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- PowerSource Philippines DevCo
- Energy Link Ltd, New Zealand
- Bukit Baiduri Energy - Indonesia
- European Bulk Services B.V. - Netherlands
- Holcim Trading Pte Ltd - Singapore
- Interocean Group of Companies - India
- Riau Bara Harum - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Price Waterhouse Coopers - Russia
- San Jose City I Power Corp, Philippines
- Banpu Public Company Limited - Thailand
- Billiton Holdings Pty Ltd - Australia
- Coastal Gujarat Power Limited - India
- OPG Power Generation Pvt Ltd - India
- Orica Australia Pty. Ltd.
- Barasentosa Lestari - Indonesia
- Indonesian Coal Mining Association
- Kobexindo Tractors - Indoneisa
- Essar Steel Hazira Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Siam City Cement PLC, Thailand
- Larsen & Toubro Limited - India
- Heidelberg Cement - Germany
- Parry Sugars Refinery, India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Eastern Coal Council - USA
- Agrawal Coal Company - India
- Mjunction Services Limited - India
- Star Paper Mills Limited - India
- Standard Chartered Bank - UAE
- GMR Energy Limited - India
- Sree Jayajothi Cements Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Central Electricity Authority - India
- Port Waratah Coal Services - Australia
- Altura Mining Limited, Indonesia
- Coal and Oil Company - UAE
- Renaissance Capital - South Africa
- Ministry of Transport, Egypt
- Gujarat Mineral Development Corp Ltd - India
- Electricity Generating Authority of Thailand
- Chettinad Cement Corporation Ltd - India
- Siam City Cement - Thailand
- Leighton Contractors Pty Ltd - Australia
- Kideco Jaya Agung - Indonesia
- Orica Mining Services - Indonesia
- Jindal Steel & Power Ltd - India
- Medco Energi Mining Internasional
- Thai Mozambique Logistica
- Krishnapatnam Port Company Ltd. - India
- The State Trading Corporation of India Ltd
- Georgia Ports Authority, United States
- Sarangani Energy Corporation, Philippines
- Africa Commodities Group - South Africa
- Carbofer General Trading SA - India
- Bharathi Cement Corporation - India
- Tata Chemicals Ltd - India
- IHS Mccloskey Coal Group - USA
- Thiess Contractors Indonesia
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