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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, 19 October 14
LOW DEMAND PUSHES DOWN COAL FREIGHT RATES; VOLATILITY CONTINUES
COALspot.com: This week all the segments softened including BDI except for Panamax index.
The BDI was down by1.70 pct and clsoed at 944 points ...
Friday, 17 October 14
INTERNATIONAL COAL PRICES ARE AT LOWEST LEVEL; COAL STOCKS AT INDIAN POWER PLANTS ARE ALSO AT LOWEST LEVEL
International coal prices as well as coal freights are falling and reaching to its lowest levels. According to PTI, fuel stockpiles at the thermal ...
Friday, 17 October 14
U.S. COAL PRODUCTION UP BY 3.6% WEEK - ON - WEEK
COALspot.com – United States the world's one of largest coal producers, produced approximately 19.20 million short tons (mmst) of coal in ...
Friday, 17 October 14
DRY BULK SHIPPING'S OUTLOOK NOW SHIFTING TO A LESS PROMISING ONE, SHIP PRICES EXPECTED TO FOLLOW SOON - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
China’s and other Asian countries’ return to the dry bulk market last week, didn’t trigger the hoped support towards the dry bulk ...
Thursday, 16 October 14
KOREA MIDLAND POWER TO BUY 490K MT OF LCV COAL FOR 1Q 2015
COALspot.com : Korea Midland Power Co., Ltd. has invited bids through International open bidding for 490,000 Metric Tons (MT) of LCV (Sub) Bitumino ...
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- Tata Chemicals Ltd - India
- Central Electricity Authority - India
- Ministry of Mines - Canada
- CIMB Investment Bank - Malaysia
- European Bulk Services B.V. - Netherlands
- PTC India Limited - India
- Vizag Seaport Private Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- ASAPP Information Group - India
- Sical Logistics Limited - India
- Bharathi Cement Corporation - India
- Bayan Resources Tbk. - Indonesia
- Mjunction Services Limited - India
- Gujarat Electricity Regulatory Commission - India
- Romanian Commodities Exchange
- Attock Cement Pakistan Limited
- Directorate General of MIneral and Coal - Indonesia
- Renaissance Capital - South Africa
- Wilmar Investment Holdings
- Singapore Mercantile Exchange
- TeaM Sual Corporation - Philippines
- Kartika Selabumi Mining - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Power Finance Corporation Ltd., India
- Maharashtra Electricity Regulatory Commission - India
- Bukit Asam (Persero) Tbk - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Global Coal Blending Company Limited - Australia
- Altura Mining Limited, Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kumho Petrochemical, South Korea
- Energy Development Corp, Philippines
- PowerSource Philippines DevCo
- SMG Consultants - Indonesia
- Trasteel International SA, Italy
- Georgia Ports Authority, United States
- Bhushan Steel Limited - India
- Bangladesh Power Developement Board
- Savvy Resources Ltd - HongKong
- Electricity Generating Authority of Thailand
- Agrawal Coal Company - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Energy Link Ltd, New Zealand
- Offshore Bulk Terminal Pte Ltd, Singapore
- Parry Sugars Refinery, India
- Petrochimia International Co. Ltd.- Taiwan
- Central Java Power - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- IHS Mccloskey Coal Group - USA
- Semirara Mining and Power Corporation, Philippines
- Indian Oil Corporation Limited
- Independent Power Producers Association of India
- Medco Energi Mining Internasional
- Latin American Coal - Colombia
- GMR Energy Limited - India
- Meenaskhi Energy Private Limited - India
- Bulk Trading Sa - Switzerland
- VISA Power Limited - India
- Sindya Power Generating Company Private Ltd
- Ambuja Cements Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Merrill Lynch Commodities Europe
- Goldman Sachs - Singapore
- Mercuria Energy - Indonesia
- Coastal Gujarat Power Limited - India
- Barasentosa Lestari - Indonesia
- Bhoruka Overseas - Indonesia
- Antam Resourcindo - Indonesia
- Anglo American - United Kingdom
- Oldendorff Carriers - Singapore
- Baramulti Group, Indonesia
- Global Green Power PLC Corporation, Philippines
- Straits Asia Resources Limited - Singapore
- Sakthi Sugars Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Star Paper Mills Limited - India
- Electricity Authority, New Zealand
- Interocean Group of Companies - India
- Sojitz Corporation - Japan
- Riau Bara Harum - Indonesia
- Petron Corporation, Philippines
- Mercator Lines Limited - India
- Salva Resources Pvt Ltd - India
- Chettinad Cement Corporation Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Globalindo Alam Lestari - Indonesia
- IEA Clean Coal Centre - UK
- Mintek Dendrill Indonesia
- Videocon Industries ltd - India
- Simpson Spence & Young - Indonesia
- Meralco Power Generation, Philippines
- London Commodity Brokers - England
- Gujarat Mineral Development Corp Ltd - India
- Wood Mackenzie - Singapore
- Samtan Co., Ltd - South Korea
- Port Waratah Coal Services - Australia
- CNBM International Corporation - China
- Grasim Industreis Ltd - India
- Makarim & Taira - Indonesia
- San Jose City I Power Corp, Philippines
- Bhatia International Limited - India
- Price Waterhouse Coopers - Russia
- Kepco SPC Power Corporation, Philippines
- Ind-Barath Power Infra Limited - India
- Economic Council, Georgia
- Parliament of New Zealand
- The University of Queensland
- AsiaOL BioFuels Corp., Philippines
- Chamber of Mines of South Africa
- South Luzon Thermal Energy Corporation
- Standard Chartered Bank - UAE
- International Coal Ventures Pvt Ltd - India
- OPG Power Generation Pvt Ltd - India
- Semirara Mining Corp, Philippines
- Maheswari Brothers Coal Limited - India
- ICICI Bank Limited - India
- GVK Power & Infra Limited - India
- Carbofer General Trading SA - India
- Aditya Birla Group - India
- Siam City Cement - Thailand
- Africa Commodities Group - South Africa
- Sree Jayajothi Cements Limited - India
- White Energy Company Limited
- The State Trading Corporation of India Ltd
- Kapuas Tunggal Persada - Indonesia
- Indika Energy - Indonesia
- Planning Commission, India
- Miang Besar Coal Terminal - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Orica Australia Pty. Ltd.
- Indogreen Group - Indonesia
- Uttam Galva Steels Limited - India
- Holcim Trading Pte Ltd - Singapore
- Billiton Holdings Pty Ltd - Australia
- Edison Trading Spa - Italy
- Sarangani Energy Corporation, Philippines
- Formosa Plastics Group - Taiwan
- Indian Energy Exchange, India
- Ceylon Electricity Board - Sri Lanka
- Leighton Contractors Pty Ltd - Australia
- Manunggal Multi Energi - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Indonesian Coal Mining Association
- Vedanta Resources Plc - India
- The Treasury - Australian Government
- Madhucon Powers Ltd - India
- Orica Mining Services - Indonesia
- Indo Tambangraya Megah - Indonesia
- Eastern Energy - Thailand
- Global Business Power Corporation, Philippines
- New Zealand Coal & Carbon
- Ministry of Transport, Egypt
- Kalimantan Lumbung Energi - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Thiess Contractors Indonesia
- Heidelberg Cement - Germany
- Karaikal Port Pvt Ltd - India
- India Bulls Power Limited - India
- Siam City Cement PLC, Thailand
- Minerals Council of Australia
- Kaltim Prima Coal - Indonesia
- Thai Mozambique Logistica
- Xindia Steels Limited - India
- Posco Energy - South Korea
- Commonwealth Bank - Australia
- Krishnapatnam Port Company Ltd. - India
- SMC Global Power, Philippines
- Metalloyd Limited - United Kingdom
- Coalindo Energy - Indonesia
- Rio Tinto Coal - Australia
- Alfred C Toepfer International GmbH - Germany
- Directorate Of Revenue Intelligence - India
- Malabar Cements Ltd - India
- Jaiprakash Power Ventures ltd
- Australian Coal Association
- Timah Investasi Mineral - Indoneisa
- Deloitte Consulting - India
- Tamil Nadu electricity Board
- Banpu Public Company Limited - Thailand
- Kobexindo Tractors - Indoneisa
- Ministry of Finance - Indonesia
- Cement Manufacturers Association - India
- Intertek Mineral Services - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Cigading International Bulk Terminal - Indonesia
- Coal and Oil Company - UAE
- Bukit Makmur.PT - Indonesia
- GAC Shipping (India) Pvt Ltd
- Neyveli Lignite Corporation Ltd, - India
- Gujarat Sidhee Cement - India
- Australian Commodity Traders Exchange
- PetroVietnam Power Coal Import and Supply Company
- Pendopo Energi Batubara - Indonesia
- Therma Luzon, Inc, Philippines
- Aboitiz Power Corporation - Philippines
- LBH Netherlands Bv - Netherlands
- Bukit Baiduri Energy - Indonesia
- Jindal Steel & Power Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Binh Thuan Hamico - Vietnam
- SN Aboitiz Power Inc, Philippines
- Marubeni Corporation - India
- McConnell Dowell - Australia
- Kideco Jaya Agung - Indonesia
- Eastern Coal Council - USA
- PNOC Exploration Corporation - Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- MS Steel International - UAE
- Toyota Tsusho Corporation, Japan
- Essar Steel Hazira Ltd - India
- Larsen & Toubro Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Iligan Light & Power Inc, Philippines
- Borneo Indobara - Indonesia
- Dalmia Cement Bharat India
- Lanco Infratech Ltd - India
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