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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, 04 November 14
INDONESIAN COAL SWAPS FOR 2015 DELIVERIES SHOW A WEAK TREND
COALspot.com: Indonesian coal swaps for delivery Q4' 2014 lost month on month and gained day on day and week on week, the trend was same as las ...
Tuesday, 04 November 14
FOB NEWCASTLE COAL SWAPS GAINED WEEK OVER WEEK
COALspot.com: API 5 FOB Newcastle Coal swap for Q4’ 2014 delivery decreased US$ 1.09 (-1.99%) month over month and increased US$ 0.31 (+0.58% ...
Monday, 03 November 14
ADARO PRODUCED 41.90MT OF COAL FOR FIRST 9 MONTHS OF 2014
COALspot.com: Adaro’s coal production in the third quarter reached 14.03 Mt, a 2% increase compared to the same period of last year. Accordin ...
Monday, 03 November 14
CFR SOUTH CHINA COAL SWAP FOR Q4' 2014 DELIVERY LOST 2.80% MONTH OVER MONTH
COALspot.com: API 8 CFR South China Coal swap for Q4’ 2014 delivery has decreased US$ 1.86 (-2.80%) month over month and increased US$ 0.37 ( ...
Monday, 03 November 14
INDONESIAN'S COAL EXPORTS JUMP IN SEPTEMBER
COALspot.com: Indonesia, one of the world's largest coal producers and the global leading multi grade coal exporter shipped around $1.50 ...
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- Therma Luzon, Inc, Philippines
- Karaikal Port Pvt Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Australian Commodity Traders Exchange
- Meenaskhi Energy Private Limited - India
- Independent Power Producers Association of India
- Renaissance Capital - South Africa
- Lanco Infratech Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Ministry of Transport, Egypt
- Kaltim Prima Coal - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- VISA Power Limited - India
- Aboitiz Power Corporation - Philippines
- Chamber of Mines of South Africa
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Banpu Public Company Limited - Thailand
- AsiaOL BioFuels Corp., Philippines
- PowerSource Philippines DevCo
- Iligan Light & Power Inc, Philippines
- Malabar Cements Ltd - India
- SN Aboitiz Power Inc, Philippines
- Siam City Cement PLC, Thailand
- Karbindo Abesyapradhi - Indoneisa
- Petron Corporation, Philippines
- The State Trading Corporation of India Ltd
- Globalindo Alam Lestari - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Tamil Nadu electricity Board
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- Attock Cement Pakistan Limited
- Jindal Steel & Power Ltd - India
- Toyota Tsusho Corporation, Japan
- Kideco Jaya Agung - Indonesia
- Thai Mozambique Logistica
- Ind-Barath Power Infra Limited - India
- Sojitz Corporation - Japan
- Sarangani Energy Corporation, Philippines
- Siam City Cement - Thailand
- IHS Mccloskey Coal Group - USA
- PNOC Exploration Corporation - Philippines
- Australian Coal Association
- Pipit Mutiara Jaya. PT, Indonesia
- Anglo American - United Kingdom
- Orica Mining Services - Indonesia
- London Commodity Brokers - England
- Metalloyd Limited - United Kingdom
- GAC Shipping (India) Pvt Ltd
- Cement Manufacturers Association - India
- Standard Chartered Bank - UAE
- Merrill Lynch Commodities Europe
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- Gujarat Sidhee Cement - India
- Coastal Gujarat Power Limited - India
- Thiess Contractors Indonesia
- Edison Trading Spa - Italy
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- Romanian Commodities Exchange
- Maheswari Brothers Coal Limited - India
- Global Business Power Corporation, Philippines
- Mercator Lines Limited - India
- Meralco Power Generation, Philippines
- The Treasury - Australian Government
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- Global Green Power PLC Corporation, Philippines
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- Neyveli Lignite Corporation Ltd, - India
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- India Bulls Power Limited - India
- Intertek Mineral Services - Indonesia
- Chettinad Cement Corporation Ltd - India
- Parliament of New Zealand
- Larsen & Toubro Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Grasim Industreis Ltd - India
- Latin American Coal - Colombia
- Bangladesh Power Developement Board
- Electricity Authority, New Zealand
- IEA Clean Coal Centre - UK
- CIMB Investment Bank - Malaysia
- Rio Tinto Coal - Australia
- MS Steel International - UAE
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Madhucon Powers Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Marubeni Corporation - India
- Holcim Trading Pte Ltd - Singapore
- Samtan Co., Ltd - South Korea
- Sree Jayajothi Cements Limited - India
- Singapore Mercantile Exchange
- Pendopo Energi Batubara - Indonesia
- Commonwealth Bank - Australia
- Heidelberg Cement - Germany
- SMC Global Power, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Straits Asia Resources Limited - Singapore
- Medco Energi Mining Internasional
- Xindia Steels Limited - India
- Vizag Seaport Private Limited - India
- Ministry of Mines - Canada
- GVK Power & Infra Limited - India
- Sindya Power Generating Company Private Ltd
- ASAPP Information Group - India
- Eastern Energy - Thailand
- Wood Mackenzie - Singapore
- Orica Australia Pty. Ltd.
- TNB Fuel Sdn Bhd - Malaysia
- LBH Netherlands Bv - Netherlands
- SMG Consultants - Indonesia
- Vedanta Resources Plc - India
- Ceylon Electricity Board - Sri Lanka
- Electricity Generating Authority of Thailand
- Sakthi Sugars Limited - India
- Bharathi Cement Corporation - India
- The University of Queensland
- Barasentosa Lestari - Indonesia
- Bhushan Steel Limited - India
- Indo Tambangraya Megah - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Central Electricity Authority - India
- Kartika Selabumi Mining - Indonesia
- Parry Sugars Refinery, India
- Star Paper Mills Limited - India
- Kapuas Tunggal Persada - Indonesia
- Georgia Ports Authority, United States
- New Zealand Coal & Carbon
- Price Waterhouse Coopers - Russia
- Interocean Group of Companies - India
- Bulk Trading Sa - Switzerland
- Planning Commission, India
- Deloitte Consulting - India
- Oldendorff Carriers - Singapore
- Indogreen Group - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Indian Energy Exchange, India
- Indonesian Coal Mining Association
- Bayan Resources Tbk. - Indonesia
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- PTC India Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Gujarat Electricity Regulatory Commission - India
- Semirara Mining Corp, Philippines
- Indian Oil Corporation Limited
- Bhatia International Limited - India
- Krishnapatnam Port Company Ltd. - India
- Coal and Oil Company - UAE
- Africa Commodities Group - South Africa
- Energy Development Corp, Philippines
- Savvy Resources Ltd - HongKong
- Kobexindo Tractors - Indoneisa
- GMR Energy Limited - India
- Borneo Indobara - Indonesia
- McConnell Dowell - Australia
- Leighton Contractors Pty Ltd - Australia
- Tata Chemicals Ltd - India
- Minerals Council of Australia
- Essar Steel Hazira Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Eastern Coal Council - USA
- Bank of Tokyo Mitsubishi UFJ Ltd
- Alfred C Toepfer International GmbH - Germany
- Mercuria Energy - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Formosa Plastics Group - Taiwan
- Bukit Baiduri Energy - Indonesia
- Carbofer General Trading SA - India
- ICICI Bank Limited - India
- Agrawal Coal Company - India
- Mjunction Services Limited - India
- European Bulk Services B.V. - Netherlands
- Port Waratah Coal Services - Australia
- South Luzon Thermal Energy Corporation
- Indika Energy - Indonesia
- Posco Energy - South Korea
- Timah Investasi Mineral - Indoneisa
- White Energy Company Limited
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Vijayanagar Sugar Pvt Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Ministry of Finance - Indonesia
- Simpson Spence & Young - Indonesia
- Dalmia Cement Bharat India
- Energy Link Ltd, New Zealand
- Central Java Power - Indonesia
- Altura Mining Limited, Indonesia
- Jaiprakash Power Ventures ltd
- Semirara Mining and Power Corporation, Philippines
- Ambuja Cements Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- International Coal Ventures Pvt Ltd - India
- Salva Resources Pvt Ltd - India
- Kumho Petrochemical, South Korea
- Global Coal Blending Company Limited - Australia
- Asmin Koalindo Tuhup - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Binh Thuan Hamico - Vietnam
- Manunggal Multi Energi - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Coalindo Energy - Indonesia
- Mintek Dendrill Indonesia
- Wilmar Investment Holdings
- Goldman Sachs - Singapore
- Directorate Of Revenue Intelligence - India
- Trasteel International SA, Italy
- Videocon Industries ltd - India
- Bukit Makmur.PT - Indonesia
- Economic Council, Georgia
- Bhoruka Overseas - Indonesia
- Power Finance Corporation Ltd., India
- CNBM International Corporation - China
- San Jose City I Power Corp, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Uttam Galva Steels Limited - India
- Makarim & Taira - Indonesia
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