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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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Thursday, 16 October 14
PANAMAX OWNERS RECEIVE A PREMIUM FOR GOING TO INDIA VIA INDONESIA - FEARNLEYS AS
Handy
The Handy/Supra market continues to slide in both hemispheres, said Fearnleys AS in its latest week report. In the Atlantic we see rates co ...
Thursday, 16 October 14
ARE WE GOING TO SHOOT OURSELVES IN THE FOOT ONCE AGAIN? - PANOS MAKRINOS
As the East part of our globe was coming back from its October holidays last week, everyone expected that the Dry Bulk market would follow suit and ...
Wednesday, 15 October 14
PANAMAX: ACTIVITY IN THE PACIFIC WAS UNIMPRESSIVE
The Dry Bulk market noted another weekly decline last week, while the BDI moved below 1,000 points taking down with it expectations that a post hol ...
Wednesday, 15 October 14
INDONESIAN COAL PRICE REFERENCE FELL TO FRESH MULTI-YEAR LOWS IN OCTOBER
COALspot.com - The Ministry of Energy & Mineral Resources of Indonesia revised down the coal bench mark price once again in October 2014.
...
Wednesday, 15 October 14
DRY BULK SHIPPING: RATE IMPROVEMENTS ARRIVED AS FORECAST, BUT UNCERTAINTY MOUNTS FOR 2015 DEMAND - BIMCO
BIMCO released its latest short term assessment of the dry bulk market, estimating that over the October-November period, the level of Capesize TC ...
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- Ministry of Transport, Egypt
- PTC India Limited - India
- Thiess Contractors Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- The University of Queensland
- Mercator Lines Limited - India
- Sree Jayajothi Cements Limited - India
- Gujarat Sidhee Cement - India
- Price Waterhouse Coopers - Russia
- London Commodity Brokers - England
- Wood Mackenzie - Singapore
- Gujarat Electricity Regulatory Commission - India
- Manunggal Multi Energi - Indonesia
- Videocon Industries ltd - India
- Bhushan Steel Limited - India
- San Jose City I Power Corp, Philippines
- Sical Logistics Limited - India
- Energy Link Ltd, New Zealand
- Jorong Barutama Greston.PT - Indonesia
- Antam Resourcindo - Indonesia
- GAC Shipping (India) Pvt Ltd
- Rashtriya Ispat Nigam Limited - India
- Ind-Barath Power Infra Limited - India
- Barasentosa Lestari - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- ICICI Bank Limited - India
- Metalloyd Limited - United Kingdom
- SMC Global Power, Philippines
- Globalindo Alam Lestari - Indonesia
- Meenaskhi Energy Private Limited - India
- Alfred C Toepfer International GmbH - Germany
- Electricity Generating Authority of Thailand
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Vizag Seaport Private Limited - India
- Siam City Cement - Thailand
- Tamil Nadu electricity Board
- Jaiprakash Power Ventures ltd
- Deloitte Consulting - India
- The Treasury - Australian Government
- SMG Consultants - Indonesia
- Sojitz Corporation - Japan
- PNOC Exploration Corporation - Philippines
- Essar Steel Hazira Ltd - India
- Independent Power Producers Association of India
- White Energy Company Limited
- Semirara Mining and Power Corporation, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kideco Jaya Agung - Indonesia
- Sinarmas Energy and Mining - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Star Paper Mills Limited - India
- OPG Power Generation Pvt Ltd - India
- Commonwealth Bank - Australia
- Cement Manufacturers Association - India
- Sindya Power Generating Company Private Ltd
- Australian Coal Association
- Parry Sugars Refinery, India
- Lanco Infratech Ltd - India
- Borneo Indobara - Indonesia
- Edison Trading Spa - Italy
- TNB Fuel Sdn Bhd - Malaysia
- New Zealand Coal & Carbon
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Ambuja Cements Ltd - India
- Global Coal Blending Company Limited - Australia
- Petron Corporation, Philippines
- Africa Commodities Group - South Africa
- Global Green Power PLC Corporation, Philippines
- Banpu Public Company Limited - Thailand
- Coal and Oil Company - UAE
- Heidelberg Cement - Germany
- Cigading International Bulk Terminal - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Binh Thuan Hamico - Vietnam
- Eastern Energy - Thailand
- Indika Energy - Indonesia
- Merrill Lynch Commodities Europe
- IHS Mccloskey Coal Group - USA
- European Bulk Services B.V. - Netherlands
- Planning Commission, India
- Standard Chartered Bank - UAE
- Bukit Baiduri Energy - Indonesia
- Ministry of Finance - Indonesia
- SN Aboitiz Power Inc, Philippines
- ASAPP Information Group - India
- Central Electricity Authority - India
- Intertek Mineral Services - Indonesia
- Singapore Mercantile Exchange
- Billiton Holdings Pty Ltd - Australia
- IEA Clean Coal Centre - UK
- Meralco Power Generation, Philippines
- Medco Energi Mining Internasional
- AsiaOL BioFuels Corp., Philippines
- India Bulls Power Limited - India
- Toyota Tsusho Corporation, Japan
- Thai Mozambique Logistica
- Anglo American - United Kingdom
- PowerSource Philippines DevCo
- Kalimantan Lumbung Energi - Indonesia
- GVK Power & Infra Limited - India
- Timah Investasi Mineral - Indoneisa
- Indonesian Coal Mining Association
- VISA Power Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Wilmar Investment Holdings
- Oldendorff Carriers - Singapore
- Bukit Makmur.PT - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Indogreen Group - Indonesia
- Chamber of Mines of South Africa
- Minerals Council of Australia
- Posco Energy - South Korea
- Holcim Trading Pte Ltd - Singapore
- Leighton Contractors Pty Ltd - Australia
- McConnell Dowell - Australia
- Bhatia International Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- The State Trading Corporation of India Ltd
- Economic Council, Georgia
- TeaM Sual Corporation - Philippines
- Grasim Industreis Ltd - India
- Aditya Birla Group - India
- Baramulti Group, Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Aboitiz Power Corporation - Philippines
- Semirara Mining Corp, Philippines
- Vedanta Resources Plc - India
- Interocean Group of Companies - India
- Orica Australia Pty. Ltd.
- Bayan Resources Tbk. - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Agrawal Coal Company - India
- CIMB Investment Bank - Malaysia
- Mintek Dendrill Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Rio Tinto Coal - Australia
- South Luzon Thermal Energy Corporation
- Uttam Galva Steels Limited - India
- Savvy Resources Ltd - HongKong
- Salva Resources Pvt Ltd - India
- Therma Luzon, Inc, Philippines
- Pendopo Energi Batubara - Indonesia
- Siam City Cement PLC, Thailand
- Goldman Sachs - Singapore
- Georgia Ports Authority, United States
- Formosa Plastics Group - Taiwan
- Latin American Coal - Colombia
- Tata Chemicals Ltd - India
- Makarim & Taira - Indonesia
- Karaikal Port Pvt Ltd - India
- Port Waratah Coal Services - Australia
- Australian Commodity Traders Exchange
- International Coal Ventures Pvt Ltd - India
- Bhoruka Overseas - Indonesia
- Bangladesh Power Developement Board
- GN Power Mariveles Coal Plant, Philippines
- Samtan Co., Ltd - South Korea
- Gujarat Mineral Development Corp Ltd - India
- Trasteel International SA, Italy
- Marubeni Corporation - India
- Sakthi Sugars Limited - India
- Jindal Steel & Power Ltd - India
- Indian Energy Exchange, India
- Indo Tambangraya Megah - Indonesia
- Coastal Gujarat Power Limited - India
- Eastern Coal Council - USA
- Madhucon Powers Ltd - India
- Renaissance Capital - South Africa
- Mjunction Services Limited - India
- Altura Mining Limited, Indonesia
- GMR Energy Limited - India
- Malabar Cements Ltd - India
- Coalindo Energy - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Ministry of Mines - Canada
- Central Java Power - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Attock Cement Pakistan Limited
- LBH Netherlands Bv - Netherlands
- Neyveli Lignite Corporation Ltd, - India
- Directorate Of Revenue Intelligence - India
- Simpson Spence & Young - Indonesia
- Xindia Steels Limited - India
- Mercuria Energy - Indonesia
- Energy Development Corp, Philippines
- Sarangani Energy Corporation, Philippines
- Larsen & Toubro Limited - India
- Dalmia Cement Bharat India
- Carbofer General Trading SA - India
- Krishnapatnam Port Company Ltd. - India
- Maheswari Brothers Coal Limited - India
- Orica Mining Services - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Romanian Commodities Exchange
- Kumho Petrochemical, South Korea
- MS Steel International - UAE
- Parliament of New Zealand
- Indian Oil Corporation Limited
- Electricity Authority, New Zealand
- Kaltim Prima Coal - Indonesia
- Power Finance Corporation Ltd., India
- Iligan Light & Power Inc, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- CNBM International Corporation - China
- Chettinad Cement Corporation Ltd - India
- Bharathi Cement Corporation - India
- Kobexindo Tractors - Indoneisa
- Kartika Selabumi Mining - Indonesia
- Kepco SPC Power Corporation, Philippines
- Straits Asia Resources Limited - Singapore
- Miang Besar Coal Terminal - Indonesia
- Bulk Trading Sa - Switzerland
- Global Business Power Corporation, Philippines
- Riau Bara Harum - Indonesia
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