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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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Wednesday, 29 October 14
GOOD REASON WHY Q4 CAPESIZE OUTLOOK WAS SO BULLISH AT START OF THE YEAR - COMMODORE RESEARCH
COALspot.com: There was good reason why so many analysts' capesize outlook for Q4 was so very strong at the start of this year. Brazilian ...
Tuesday, 28 October 14
SGX'S FOB RICHARDS BAY COAL SWAP FOR DELIVERY Q1' 2015 CLOSED AT $ 68.07 ON 24 OCT
COALspot.com: API 4 FOB Richards Bay coal swap for Q4’ 2014 delivery decreased US$ 0.65 (-0.96%) month over month and increased US$ 1.79 (+2. ...
Tuesday, 28 October 14
SUB-BIT FOB INDONESIA COAL SWAP FOR Q1' 15 DELIVERY CLOSED 3.68% LOWER MONTH ON MONTH
COALspot.com: Indonesian coal swaps for delivery Q4' 2014 lost month on month and gained day on day and week on week.
The swap has lost US ...
Monday, 27 October 14
GOVT PROMISES TO EASE LICENSING PROCEDURES IN MINING SECTOR - THE JAKARTA POST
The Energy and Mineral Resources Ministry’s directorate general for mineral and coal plans to simplify the complicated licensing procedures i ...
Monday, 27 October 14
FOB NEWCASTLE COAL SWAP FOR Q1' 15 DELIVERY CLOSED $ 0.10 LESSER THAN Q4' 14 CLOSING OF $ 53.27 PMT
COALspot.com: API 5 FOB Newcastle Coal swap for Q4’ 2014 delivery decreased US$ 1.43 (-2.61%) month over month and increased US$ 0.05 (+0.09% ...
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- The State Trading Corporation of India Ltd
- Standard Chartered Bank - UAE
- Ministry of Transport, Egypt
- SN Aboitiz Power Inc, Philippines
- PNOC Exploration Corporation - Philippines
- Independent Power Producers Association of India
- Petron Corporation, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Directorate Of Revenue Intelligence - India
- Bhatia International Limited - India
- Sical Logistics Limited - India
- Makarim & Taira - Indonesia
- Port Waratah Coal Services - Australia
- Antam Resourcindo - Indonesia
- Kartika Selabumi Mining - Indonesia
- Indo Tambangraya Megah - Indonesia
- TeaM Sual Corporation - Philippines
- Electricity Authority, New Zealand
- Indogreen Group - Indonesia
- CIMB Investment Bank - Malaysia
- Marubeni Corporation - India
- Sakthi Sugars Limited - India
- Renaissance Capital - South Africa
- Bank of Tokyo Mitsubishi UFJ Ltd
- Vedanta Resources Plc - India
- Pipit Mutiara Jaya. PT, Indonesia
- Toyota Tsusho Corporation, Japan
- India Bulls Power Limited - India
- Miang Besar Coal Terminal - Indonesia
- VISA Power Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Central Electricity Authority - India
- Agrawal Coal Company - India
- Economic Council, Georgia
- SMC Global Power, Philippines
- Energy Link Ltd, New Zealand
- Australian Commodity Traders Exchange
- Semirara Mining Corp, Philippines
- GMR Energy Limited - India
- Vizag Seaport Private Limited - India
- Ind-Barath Power Infra Limited - India
- Anglo American - United Kingdom
- Lanco Infratech Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Vijayanagar Sugar Pvt Ltd - India
- Price Waterhouse Coopers - Russia
- Mintek Dendrill Indonesia
- Sarangani Energy Corporation, Philippines
- Savvy Resources Ltd - HongKong
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Parliament of New Zealand
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Global Coal Blending Company Limited - Australia
- Samtan Co., Ltd - South Korea
- Commonwealth Bank - Australia
- Jindal Steel & Power Ltd - India
- Pendopo Energi Batubara - Indonesia
- Jaiprakash Power Ventures ltd
- Gujarat Mineral Development Corp Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Therma Luzon, Inc, Philippines
- Binh Thuan Hamico - Vietnam
- Siam City Cement PLC, Thailand
- Africa Commodities Group - South Africa
- Maharashtra Electricity Regulatory Commission - India
- Formosa Plastics Group - Taiwan
- Heidelberg Cement - Germany
- Gujarat Sidhee Cement - India
- ASAPP Information Group - India
- Larsen & Toubro Limited - India
- White Energy Company Limited
- Oldendorff Carriers - Singapore
- Power Finance Corporation Ltd., India
- Grasim Industreis Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Madhucon Powers Ltd - India
- Malabar Cements Ltd - India
- Indonesian Coal Mining Association
- Uttam Galva Steels Limited - India
- Mercator Lines Limited - India
- Coal and Oil Company - UAE
- Salva Resources Pvt Ltd - India
- Planning Commission, India
- Petrochimia International Co. Ltd.- Taiwan
- Alfred C Toepfer International GmbH - Germany
- International Coal Ventures Pvt Ltd - India
- Trasteel International SA, Italy
- PowerSource Philippines DevCo
- Jorong Barutama Greston.PT - Indonesia
- Aditya Birla Group - India
- Metalloyd Limited - United Kingdom
- Minerals Council of Australia
- Directorate General of MIneral and Coal - Indonesia
- Thai Mozambique Logistica
- Eastern Coal Council - USA
- ICICI Bank Limited - India
- Deloitte Consulting - India
- Ceylon Electricity Board - Sri Lanka
- Chamber of Mines of South Africa
- Chettinad Cement Corporation Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Kaltim Prima Coal - Indonesia
- Wood Mackenzie - Singapore
- Siam City Cement - Thailand
- Bharathi Cement Corporation - India
- Indian Oil Corporation Limited
- CNBM International Corporation - China
- Krishnapatnam Port Company Ltd. - India
- Videocon Industries ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Sinarmas Energy and Mining - Indonesia
- South Luzon Thermal Energy Corporation
- GAC Shipping (India) Pvt Ltd
- Singapore Mercantile Exchange
- Central Java Power - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Meenaskhi Energy Private Limited - India
- Bulk Trading Sa - Switzerland
- Intertek Mineral Services - Indonesia
- Xindia Steels Limited - India
- Rio Tinto Coal - Australia
- Indian Energy Exchange, India
- MS Steel International - UAE
- Energy Development Corp, Philippines
- Global Green Power PLC Corporation, Philippines
- Kideco Jaya Agung - Indonesia
- IHS Mccloskey Coal Group - USA
- Bayan Resources Tbk. - Indonesia
- Wilmar Investment Holdings
- San Jose City I Power Corp, Philippines
- AsiaOL BioFuels Corp., Philippines
- Neyveli Lignite Corporation Ltd, - India
- Orica Mining Services - Indonesia
- Australian Coal Association
- European Bulk Services B.V. - Netherlands
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Tamil Nadu electricity Board
- PetroVietnam Power Coal Import and Supply Company
- Gujarat Electricity Regulatory Commission - India
- McConnell Dowell - Australia
- Kepco SPC Power Corporation, Philippines
- Coalindo Energy - Indonesia
- Borneo Indobara - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Posco Energy - South Korea
- GVK Power & Infra Limited - India
- Medco Energi Mining Internasional
- Mjunction Services Limited - India
- London Commodity Brokers - England
- Cement Manufacturers Association - India
- Global Business Power Corporation, Philippines
- Sojitz Corporation - Japan
- IEA Clean Coal Centre - UK
- Cigading International Bulk Terminal - Indonesia
- Parry Sugars Refinery, India
- The Treasury - Australian Government
- Manunggal Multi Energi - Indonesia
- Orica Australia Pty. Ltd.
- Bhushan Steel Limited - India
- Aboitiz Power Corporation - Philippines
- Kobexindo Tractors - Indoneisa
- Sindya Power Generating Company Private Ltd
- Sree Jayajothi Cements Limited - India
- Indika Energy - Indonesia
- Interocean Group of Companies - India
- Ministry of Finance - Indonesia
- Thiess Contractors Indonesia
- Bhoruka Overseas - Indonesia
- Tata Chemicals Ltd - India
- Bangladesh Power Developement Board
- Goldman Sachs - Singapore
- Straits Asia Resources Limited - Singapore
- Kumho Petrochemical, South Korea
- Attock Cement Pakistan Limited
- Simpson Spence & Young - Indonesia
- The University of Queensland
- Mercuria Energy - Indonesia
- New Zealand Coal & Carbon
- SMG Consultants - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Offshore Bulk Terminal Pte Ltd, Singapore
- PTC India Limited - India
- Barasentosa Lestari - Indonesia
- Altura Mining Limited, Indonesia
- Ministry of Mines - Canada
- Timah Investasi Mineral - Indoneisa
- Banpu Public Company Limited - Thailand
- Eastern Energy - Thailand
- Karaikal Port Pvt Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Iligan Light & Power Inc, Philippines
- Dalmia Cement Bharat India
- Bukit Makmur.PT - Indonesia
- Baramulti Group, Indonesia
- Bukit Baiduri Energy - Indonesia
- Electricity Generating Authority of Thailand
- Meralco Power Generation, Philippines
- Merrill Lynch Commodities Europe
- TNB Fuel Sdn Bhd - Malaysia
- Latin American Coal - Colombia
- Leighton Contractors Pty Ltd - Australia
- Romanian Commodities Exchange
- Ambuja Cements Ltd - India
- OPG Power Generation Pvt Ltd - India
- Coastal Gujarat Power Limited - India
- Essar Steel Hazira Ltd - India
- Star Paper Mills Limited - India
- LBH Netherlands Bv - Netherlands
- Maheswari Brothers Coal Limited - India
- Rashtriya Ispat Nigam Limited - India
- Riau Bara Harum - Indonesia
- Carbofer General Trading SA - India
- Edison Trading Spa - Italy
- Georgia Ports Authority, United States
- Globalindo Alam Lestari - Indonesia
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