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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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Sunday, 09 November 14
CAPE INDEX UP 3.06%; PANAMAX INDEX FELL 4.05%
COALspot.com: The BDI was almost at same levels compared to last week closing or just increased 0.77 pct from last week. The BDI was closed at 1437 ...
Friday, 07 November 14
U.S. PRODUCED 85.60 MILLION SHORT TONS OF COAL IN OCTOBER, UP 2.88% M-O-M
COALspot.com – United States the world's one of the largest coal producers, produced approximately 19.0 million short tons (mmst) of coal ...
Thursday, 06 November 14
THE ATLANTIC HAS REMAINED STRONG WITH A HEALTHY SUPPLY OF NEW CARGOES
Handy
This week has continued its slow trend in both hemispheres and even though rates are a bit up w-o-w it is not a clear sign for any improvem ...
Wednesday, 05 November 14
CAPESIZE SEGMENT ENJOYED FIRMING RATES ACROSS BOTH BASINS
Following a fantastic week in terms of rate performance for Capes, the Dry Bulk market managed to note another positive weekly closing, which stron ...
Wednesday, 05 November 14
SHIPPING MARKET INSIGHT - PANOS TSILINGIRIS
COALspot.com: The steep appreciation in dry bulker values between late 2012 and March 2014 resulted in unrealistically expensive ship values compar ...
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- Semirara Mining and Power Corporation, Philippines
- Semirara Mining Corp, Philippines
- Holcim Trading Pte Ltd - Singapore
- Interocean Group of Companies - India
- Tamil Nadu electricity Board
- GN Power Mariveles Coal Plant, Philippines
- Eastern Coal Council - USA
- Kalimantan Lumbung Energi - Indonesia
- Indogreen Group - Indonesia
- CNBM International Corporation - China
- Sree Jayajothi Cements Limited - India
- India Bulls Power Limited - India
- Sinarmas Energy and Mining - Indonesia
- Global Coal Blending Company Limited - Australia
- Kepco SPC Power Corporation, Philippines
- Parliament of New Zealand
- Sarangani Energy Corporation, Philippines
- Wilmar Investment Holdings
- Binh Thuan Hamico - Vietnam
- Vedanta Resources Plc - India
- Electricity Generating Authority of Thailand
- Energy Link Ltd, New Zealand
- Latin American Coal - Colombia
- Bukit Baiduri Energy - Indonesia
- Africa Commodities Group - South Africa
- Oldendorff Carriers - Singapore
- Simpson Spence & Young - Indonesia
- Electricity Authority, New Zealand
- Bulk Trading Sa - Switzerland
- Lanco Infratech Ltd - India
- Posco Energy - South Korea
- Kaltim Prima Coal - Indonesia
- IHS Mccloskey Coal Group - USA
- Ambuja Cements Ltd - India
- LBH Netherlands Bv - Netherlands
- Indian Energy Exchange, India
- Riau Bara Harum - Indonesia
- Kumho Petrochemical, South Korea
- Standard Chartered Bank - UAE
- Wood Mackenzie - Singapore
- Mintek Dendrill Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Coastal Gujarat Power Limited - India
- Edison Trading Spa - Italy
- SMG Consultants - Indonesia
- Bhushan Steel Limited - India
- Kideco Jaya Agung - Indonesia
- Barasentosa Lestari - Indonesia
- Star Paper Mills Limited - India
- TeaM Sual Corporation - Philippines
- Salva Resources Pvt Ltd - India
- International Coal Ventures Pvt Ltd - India
- Central Electricity Authority - India
- Australian Coal Association
- Karbindo Abesyapradhi - Indoneisa
- Coalindo Energy - Indonesia
- Altura Mining Limited, Indonesia
- Essar Steel Hazira Ltd - India
- The State Trading Corporation of India Ltd
- Grasim Industreis Ltd - India
- OPG Power Generation Pvt Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Therma Luzon, Inc, Philippines
- Leighton Contractors Pty Ltd - Australia
- European Bulk Services B.V. - Netherlands
- Kartika Selabumi Mining - Indonesia
- Orica Mining Services - Indonesia
- Uttam Galva Steels Limited - India
- Toyota Tsusho Corporation, Japan
- Mercator Lines Limited - India
- Attock Cement Pakistan Limited
- Rashtriya Ispat Nigam Limited - India
- Medco Energi Mining Internasional
- Chettinad Cement Corporation Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Global Green Power PLC Corporation, Philippines
- San Jose City I Power Corp, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Carbofer General Trading SA - India
- The University of Queensland
- Bhatia International Limited - India
- Bharathi Cement Corporation - India
- Samtan Co., Ltd - South Korea
- Meralco Power Generation, Philippines
- Price Waterhouse Coopers - Russia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Bahari Cakrawala Sebuku - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Central Java Power - Indonesia
- Trasteel International SA, Italy
- Ministry of Mines - Canada
- SN Aboitiz Power Inc, Philippines
- Vizag Seaport Private Limited - India
- Commonwealth Bank - Australia
- Economic Council, Georgia
- Manunggal Multi Energi - Indonesia
- Goldman Sachs - Singapore
- TNB Fuel Sdn Bhd - Malaysia
- Indika Energy - Indonesia
- Makarim & Taira - Indonesia
- Global Business Power Corporation, Philippines
- Australian Commodity Traders Exchange
- Xindia Steels Limited - India
- Banpu Public Company Limited - Thailand
- Indo Tambangraya Megah - Indonesia
- Indonesian Coal Mining Association
- Straits Asia Resources Limited - Singapore
- Bukit Asam (Persero) Tbk - Indonesia
- Mercuria Energy - Indonesia
- Singapore Mercantile Exchange
- IEA Clean Coal Centre - UK
- Thiess Contractors Indonesia
- Meenaskhi Energy Private Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Ceylon Electricity Board - Sri Lanka
- Tata Chemicals Ltd - India
- The Treasury - Australian Government
- Miang Besar Coal Terminal - Indonesia
- Agrawal Coal Company - India
- Larsen & Toubro Limited - India
- Heidelberg Cement - Germany
- Neyveli Lignite Corporation Ltd, - India
- Kobexindo Tractors - Indoneisa
- VISA Power Limited - India
- Aboitiz Power Corporation - Philippines
- Pendopo Energi Batubara - Indonesia
- Sojitz Corporation - Japan
- Pipit Mutiara Jaya. PT, Indonesia
- Cement Manufacturers Association - India
- PNOC Exploration Corporation - Philippines
- Globalindo Alam Lestari - Indonesia
- Sindya Power Generating Company Private Ltd
- Merrill Lynch Commodities Europe
- Bayan Resources Tbk. - Indonesia
- Parry Sugars Refinery, India
- New Zealand Coal & Carbon
- Kapuas Tunggal Persada - Indonesia
- Power Finance Corporation Ltd., India
- Karaikal Port Pvt Ltd - India
- Port Waratah Coal Services - Australia
- Baramulti Group, Indonesia
- Jaiprakash Power Ventures ltd
- GAC Shipping (India) Pvt Ltd
- Bukit Makmur.PT - Indonesia
- Rio Tinto Coal - Australia
- Bhoruka Overseas - Indonesia
- Gujarat Sidhee Cement - India
- Indian Oil Corporation Limited
- McConnell Dowell - Australia
- Asmin Koalindo Tuhup - Indonesia
- Borneo Indobara - Indonesia
- Siam City Cement - Thailand
- Eastern Energy - Thailand
- Directorate Of Revenue Intelligence - India
- Iligan Light & Power Inc, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Madhucon Powers Ltd - India
- Chamber of Mines of South Africa
- London Commodity Brokers - England
- Aditya Birla Group - India
- Planning Commission, India
- Krishnapatnam Port Company Ltd. - India
- White Energy Company Limited
- SMC Global Power, Philippines
- Petron Corporation, Philippines
- Minerals Council of Australia
- Maharashtra Electricity Regulatory Commission - India
- Renaissance Capital - South Africa
- Bank of Tokyo Mitsubishi UFJ Ltd
- Romanian Commodities Exchange
- Energy Development Corp, Philippines
- ASAPP Information Group - India
- Cigading International Bulk Terminal - Indonesia
- Maheswari Brothers Coal Limited - India
- Mjunction Services Limited - India
- Coal and Oil Company - UAE
- Orica Australia Pty. Ltd.
- Sakthi Sugars Limited - India
- Videocon Industries ltd - India
- MS Steel International - UAE
- Vijayanagar Sugar Pvt Ltd - India
- Marubeni Corporation - India
- Independent Power Producers Association of India
- Formosa Plastics Group - Taiwan
- Timah Investasi Mineral - Indoneisa
- Savvy Resources Ltd - HongKong
- Deloitte Consulting - India
- Sical Logistics Limited - India
- Thai Mozambique Logistica
- Asia Pacific Energy Resources Ventures Inc, Philippines
- PowerSource Philippines DevCo
- Bangladesh Power Developement Board
- Jorong Barutama Greston.PT - Indonesia
- South Luzon Thermal Energy Corporation
- Gujarat Mineral Development Corp Ltd - India
- Siam City Cement PLC, Thailand
- CIMB Investment Bank - Malaysia
- Ministry of Transport, Egypt
- Gujarat Electricity Regulatory Commission - India
- Antam Resourcindo - Indonesia
- Intertek Mineral Services - Indonesia
- Ind-Barath Power Infra Limited - India
- Malabar Cements Ltd - India
- PTC India Limited - India
- Dalmia Cement Bharat India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Ministry of Finance - Indonesia
- GVK Power & Infra Limited - India
- Alfred C Toepfer International GmbH - Germany
- ICICI Bank Limited - India
- Metalloyd Limited - United Kingdom
- Anglo American - United Kingdom
- Georgia Ports Authority, United States
- Kohat Cement Company Ltd. - Pakistan
- GMR Energy Limited - India
- Jindal Steel & Power Ltd - India
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