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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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Monday, 27 October 14
CFR SOUTH CHINA COAL SWAPS PERFORMED POSITIVE THIS PAST WEEK
COALspot.com: API 8 CFR South China Coal swap for Q4’ 2014 delivery decreased US$ 1.68 (-2.55%) month over month and increased US$ 0.87 (+1.3 ...
Sunday, 26 October 14
CAPE'S STRONG PERFORMANCE PUSHES BDI INDEX UPWARDS
COALspot.com: The BDI was up by 26.27 pct and closed at 1192 points week and week. The Cape size performance has pushed up BDI and Cape size index ...
Friday, 24 October 14
WEEKLY U.S COAL PRODUCTION DOWN 2.7% FOR THE WEEK ENDING OCTOBER 18
COALspot.com – United States the world's one of largest coal producers, produced approximately 18.7 million short tons (mmst) of coal in ...
Thursday, 23 October 14
THE BEARS, HOWEVER, STILL CRY; FOR HOW LONG WILL IT LAST? - FEARNLEYS
Handy
"We experience a typical oversupply of ships in the Atlantic which causing rates to slide. In the USG it is just enough cargoes to kee ...
Wednesday, 22 October 14
MARKET INSIGHT - THEODORE NTALAKOS, INTERMODAL
ECO designs - revisited
The ECO vessels are already here but the oil and bunker prices are plummeting to their cheapest level since 2010. Is this ...
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- Attock Cement Pakistan Limited
- Timah Investasi Mineral - Indoneisa
- Bukit Asam (Persero) Tbk - Indonesia
- Therma Luzon, Inc, Philippines
- Chettinad Cement Corporation Ltd - India
- Agrawal Coal Company - India
- Indian Oil Corporation Limited
- Australian Coal Association
- TNB Fuel Sdn Bhd - Malaysia
- Coastal Gujarat Power Limited - India
- Indonesian Coal Mining Association
- Wood Mackenzie - Singapore
- Africa Commodities Group - South Africa
- Kaltim Prima Coal - Indonesia
- Commonwealth Bank - Australia
- Globalindo Alam Lestari - Indonesia
- Chamber of Mines of South Africa
- Sinarmas Energy and Mining - Indonesia
- McConnell Dowell - Australia
- Australian Commodity Traders Exchange
- Tamil Nadu electricity Board
- Aditya Birla Group - India
- Bhushan Steel Limited - India
- Edison Trading Spa - Italy
- LBH Netherlands Bv - Netherlands
- Oldendorff Carriers - Singapore
- Semirara Mining and Power Corporation, Philippines
- Straits Asia Resources Limited - Singapore
- VISA Power Limited - India
- PTC India Limited - India
- Metalloyd Limited - United Kingdom
- Pendopo Energi Batubara - Indonesia
- Borneo Indobara - Indonesia
- Power Finance Corporation Ltd., India
- PNOC Exploration Corporation - Philippines
- Baramulti Group, Indonesia
- Mercator Lines Limited - India
- Global Business Power Corporation, Philippines
- Bayan Resources Tbk. - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Rio Tinto Coal - Australia
- Sojitz Corporation - Japan
- Gujarat Sidhee Cement - India
- Renaissance Capital - South Africa
- Heidelberg Cement - Germany
- White Energy Company Limited
- PetroVietnam Power Coal Import and Supply Company
- ASAPP Information Group - India
- Mjunction Services Limited - India
- Ministry of Transport, Egypt
- Energy Development Corp, Philippines
- Kumho Petrochemical, South Korea
- Jindal Steel & Power Ltd - India
- Sical Logistics Limited - India
- Bangladesh Power Developement Board
- Petron Corporation, Philippines
- Xindia Steels Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Energy Link Ltd, New Zealand
- Uttam Galva Steels Limited - India
- Vizag Seaport Private Limited - India
- Planning Commission, India
- Maheswari Brothers Coal Limited - India
- Alfred C Toepfer International GmbH - Germany
- Karaikal Port Pvt Ltd - India
- Orica Australia Pty. Ltd.
- Mercuria Energy - Indonesia
- MS Steel International - UAE
- Binh Thuan Hamico - Vietnam
- Orica Mining Services - Indonesia
- Simpson Spence & Young - Indonesia
- Semirara Mining Corp, Philippines
- Sarangani Energy Corporation, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Siam City Cement PLC, Thailand
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Sakthi Sugars Limited - India
- Vedanta Resources Plc - India
- TeaM Sual Corporation - Philippines
- Georgia Ports Authority, United States
- Trasteel International SA, Italy
- Economic Council, Georgia
- San Jose City I Power Corp, Philippines
- Rashtriya Ispat Nigam Limited - India
- AsiaOL BioFuels Corp., Philippines
- Maharashtra Electricity Regulatory Commission - India
- Neyveli Lignite Corporation Ltd, - India
- Samtan Co., Ltd - South Korea
- Jorong Barutama Greston.PT - Indonesia
- SN Aboitiz Power Inc, Philippines
- Parry Sugars Refinery, India
- Kartika Selabumi Mining - Indonesia
- Port Waratah Coal Services - Australia
- Singapore Mercantile Exchange
- Goldman Sachs - Singapore
- Sindya Power Generating Company Private Ltd
- Gujarat Electricity Regulatory Commission - India
- Kobexindo Tractors - Indoneisa
- Bahari Cakrawala Sebuku - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Parliament of New Zealand
- Thai Mozambique Logistica
- Kepco SPC Power Corporation, Philippines
- Deloitte Consulting - India
- Indika Energy - Indonesia
- Mintek Dendrill Indonesia
- Standard Chartered Bank - UAE
- PowerSource Philippines DevCo
- Price Waterhouse Coopers - Russia
- Indian Energy Exchange, India
- Miang Besar Coal Terminal - Indonesia
- Posco Energy - South Korea
- Ministry of Finance - Indonesia
- GAC Shipping (India) Pvt Ltd
- Central Electricity Authority - India
- Kapuas Tunggal Persada - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- CNBM International Corporation - China
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Holcim Trading Pte Ltd - Singapore
- GMR Energy Limited - India
- Cigading International Bulk Terminal - Indonesia
- Bharathi Cement Corporation - India
- OPG Power Generation Pvt Ltd - India
- Directorate Of Revenue Intelligence - India
- Billiton Holdings Pty Ltd - Australia
- Carbofer General Trading SA - India
- CIMB Investment Bank - Malaysia
- IHS Mccloskey Coal Group - USA
- Madhucon Powers Ltd - India
- Marubeni Corporation - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sree Jayajothi Cements Limited - India
- Global Green Power PLC Corporation, Philippines
- Malabar Cements Ltd - India
- Ministry of Mines - Canada
- Bhoruka Overseas - Indonesia
- Aboitiz Power Corporation - Philippines
- Meralco Power Generation, Philippines
- Iligan Light & Power Inc, Philippines
- Latin American Coal - Colombia
- Cement Manufacturers Association - India
- Eastern Energy - Thailand
- Leighton Contractors Pty Ltd - Australia
- Coalindo Energy - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- The University of Queensland
- Bhatia International Limited - India
- SMC Global Power, Philippines
- Larsen & Toubro Limited - India
- Bukit Makmur.PT - Indonesia
- IEA Clean Coal Centre - UK
- Kideco Jaya Agung - Indonesia
- Eastern Coal Council - USA
- Star Paper Mills Limited - India
- Lanco Infratech Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Tata Chemicals Ltd - India
- Ind-Barath Power Infra Limited - India
- New Zealand Coal & Carbon
- Essar Steel Hazira Ltd - India
- International Coal Ventures Pvt Ltd - India
- Romanian Commodities Exchange
- Indo Tambangraya Megah - Indonesia
- Coal and Oil Company - UAE
- Savvy Resources Ltd - HongKong
- London Commodity Brokers - England
- SMG Consultants - Indonesia
- Videocon Industries ltd - India
- Meenaskhi Energy Private Limited - India
- Grasim Industreis Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Banpu Public Company Limited - Thailand
- Wilmar Investment Holdings
- Medco Energi Mining Internasional
- Antam Resourcindo - Indonesia
- Interocean Group of Companies - India
- Merrill Lynch Commodities Europe
- ICICI Bank Limited - India
- Altura Mining Limited, Indonesia
- Central Java Power - Indonesia
- Makarim & Taira - Indonesia
- Independent Power Producers Association of India
- Electricity Authority, New Zealand
- Global Coal Blending Company Limited - Australia
- Toyota Tsusho Corporation, Japan
- Bulk Trading Sa - Switzerland
- Jaiprakash Power Ventures ltd
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- South Luzon Thermal Energy Corporation
- Salva Resources Pvt Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Siam City Cement - Thailand
- Gujarat Mineral Development Corp Ltd - India
- Ambuja Cements Ltd - India
- Barasentosa Lestari - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Kalimantan Lumbung Energi - Indonesia
- Electricity Generating Authority of Thailand
- Riau Bara Harum - Indonesia
- Dalmia Cement Bharat India
- Formosa Plastics Group - Taiwan
- GVK Power & Infra Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Manunggal Multi Energi - Indonesia
- European Bulk Services B.V. - Netherlands
- Minerals Council of Australia
- Intertek Mineral Services - Indonesia
- Anglo American - United Kingdom
- The Treasury - Australian Government
- Bukit Baiduri Energy - Indonesia
- India Bulls Power Limited - India
- The State Trading Corporation of India Ltd
- Offshore Bulk Terminal Pte Ltd, Singapore
- Indogreen Group - Indonesia
- Thiess Contractors Indonesia
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