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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, 13 October 14
NEWCASTLE COAL SWAP FOR Q1' 2015 DELIVERY CLOSED AT US$ 54.92, SGX DATA SHOWS
COALspot.com: API 5 FOB Newcastle Coal swap for delivery Q4' 2014 decreased US$ 0.80 (-1.46%) month over month and US$ 0.52 (-0.95%) week over ...
Monday, 13 October 14
INDONESIAN COAL SWAPS FOR DELIVERY Q4' 2014 GAINED WEEK ON WEEK AND DAY ON DAY
COALspot.com: Indonesian coal swaps for delivery Q4' 2014 gained week on week and day on day.
The swap lost US$ 0.13 (-0.25%) month on mon ...
Monday, 13 October 14
Q1' 2015 CFR SOUTH CHINA COAL SWAP CLOSED US$ 0.31 PMT HIGHER THAN Q4' 2014 CLOSING
COALspot.com: API 8 CFR South China Coal swap for Q4’ 2014 delivery decreased US$ 0.66 (-1.00%) month over month and US$ 0.40 (-0.61%) ...
Sunday, 12 October 14
INDONESIA TO INDIA FREIGHT RATES ARE EXPECTED TO BE WEAK - VISTAAR
COALspot.com: This week all the segments softened. The BDI down 7.13 pct week on week and closed below 1000 points at 963 points.
The Cape ind ...
Saturday, 11 October 14
COAL PRODUCTION RISES ONLY SLIGHTLY AS GOVT LIMITS MINING OPERATIONS - THE JAKARTA POST
Indonesian coal production rose by only 4 percent in the first nine months of this year, a relatively low increase compared to previous years, as t ...
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- Essar Steel Hazira Ltd - India
- Bulk Trading Sa - Switzerland
- Leighton Contractors Pty Ltd - Australia
- Aditya Birla Group - India
- Larsen & Toubro Limited - India
- Wilmar Investment Holdings
- The Treasury - Australian Government
- Indika Energy - Indonesia
- ICICI Bank Limited - India
- Africa Commodities Group - South Africa
- IEA Clean Coal Centre - UK
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bayan Resources Tbk. - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Aboitiz Power Corporation - Philippines
- Barasentosa Lestari - Indonesia
- Malabar Cements Ltd - India
- Eastern Coal Council - USA
- SN Aboitiz Power Inc, Philippines
- PTC India Limited - India
- Indonesian Coal Mining Association
- Kapuas Tunggal Persada - Indonesia
- Iligan Light & Power Inc, Philippines
- Interocean Group of Companies - India
- Maheswari Brothers Coal Limited - India
- The State Trading Corporation of India Ltd
- Mintek Dendrill Indonesia
- Port Waratah Coal Services - Australia
- Gujarat Electricity Regulatory Commission - India
- Eastern Energy - Thailand
- Straits Asia Resources Limited - Singapore
- Agrawal Coal Company - India
- South Luzon Thermal Energy Corporation
- Independent Power Producers Association of India
- OPG Power Generation Pvt Ltd - India
- Indian Energy Exchange, India
- ASAPP Information Group - India
- Sarangani Energy Corporation, Philippines
- Orica Australia Pty. Ltd.
- Chettinad Cement Corporation Ltd - India
- Global Green Power PLC Corporation, Philippines
- Power Finance Corporation Ltd., India
- Oldendorff Carriers - Singapore
- Merrill Lynch Commodities Europe
- TNB Fuel Sdn Bhd - Malaysia
- Goldman Sachs - Singapore
- MS Steel International - UAE
- Energy Link Ltd, New Zealand
- VISA Power Limited - India
- Electricity Authority, New Zealand
- SMG Consultants - Indonesia
- Tata Chemicals Ltd - India
- Savvy Resources Ltd - HongKong
- Attock Cement Pakistan Limited
- Jindal Steel & Power Ltd - India
- Meralco Power Generation, Philippines
- Sakthi Sugars Limited - India
- Sical Logistics Limited - India
- Deloitte Consulting - India
- Tamil Nadu electricity Board
- Central Java Power - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Miang Besar Coal Terminal - Indonesia
- Economic Council, Georgia
- Medco Energi Mining Internasional
- Kobexindo Tractors - Indoneisa
- Indogreen Group - Indonesia
- AsiaOL BioFuels Corp., Philippines
- IHS Mccloskey Coal Group - USA
- The University of Queensland
- Jaiprakash Power Ventures ltd
- PNOC Exploration Corporation - Philippines
- Dalmia Cement Bharat India
- SMC Global Power, Philippines
- Bhatia International Limited - India
- Meenaskhi Energy Private Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Directorate General of MIneral and Coal - Indonesia
- Bharathi Cement Corporation - India
- Altura Mining Limited, Indonesia
- Orica Mining Services - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Latin American Coal - Colombia
- White Energy Company Limited
- Semirara Mining and Power Corporation, Philippines
- Therma Luzon, Inc, Philippines
- Sinarmas Energy and Mining - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Thiess Contractors Indonesia
- Edison Trading Spa - Italy
- Vijayanagar Sugar Pvt Ltd - India
- Baramulti Group, Indonesia
- Carbofer General Trading SA - India
- Xindia Steels Limited - India
- Indian Oil Corporation Limited
- Antam Resourcindo - Indonesia
- Simpson Spence & Young - Indonesia
- Videocon Industries ltd - India
- Kideco Jaya Agung - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Wood Mackenzie - Singapore
- Karbindo Abesyapradhi - Indoneisa
- Krishnapatnam Port Company Ltd. - India
- Singapore Mercantile Exchange
- Banpu Public Company Limited - Thailand
- Toyota Tsusho Corporation, Japan
- Timah Investasi Mineral - Indoneisa
- Holcim Trading Pte Ltd - Singapore
- Directorate Of Revenue Intelligence - India
- Electricity Generating Authority of Thailand
- Intertek Mineral Services - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Metalloyd Limited - United Kingdom
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Australian Coal Association
- Kartika Selabumi Mining - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Marubeni Corporation - India
- Indo Tambangraya Megah - Indonesia
- Parry Sugars Refinery, India
- Karaikal Port Pvt Ltd - India
- Binh Thuan Hamico - Vietnam
- International Coal Ventures Pvt Ltd - India
- PowerSource Philippines DevCo
- Samtan Co., Ltd - South Korea
- Ambuja Cements Ltd - India
- Ind-Barath Power Infra Limited - India
- Sindya Power Generating Company Private Ltd
- Bukit Baiduri Energy - Indonesia
- Coal and Oil Company - UAE
- Anglo American - United Kingdom
- Petrochimia International Co. Ltd.- Taiwan
- Trasteel International SA, Italy
- Bhoruka Overseas - Indonesia
- McConnell Dowell - Australia
- Grasim Industreis Ltd - India
- GMR Energy Limited - India
- Madhucon Powers Ltd - India
- Kepco SPC Power Corporation, Philippines
- Siam City Cement - Thailand
- Ministry of Transport, Egypt
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Energy Development Corp, Philippines
- CIMB Investment Bank - Malaysia
- Coalindo Energy - Indonesia
- Manunggal Multi Energi - Indonesia
- Salva Resources Pvt Ltd - India
- London Commodity Brokers - England
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- CNBM International Corporation - China
- New Zealand Coal & Carbon
- Australian Commodity Traders Exchange
- Offshore Bulk Terminal Pte Ltd, Singapore
- Price Waterhouse Coopers - Russia
- Jorong Barutama Greston.PT - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Global Business Power Corporation, Philippines
- GVK Power & Infra Limited - India
- Semirara Mining Corp, Philippines
- Petron Corporation, Philippines
- Globalindo Alam Lestari - Indonesia
- TeaM Sual Corporation - Philippines
- Mercator Lines Limited - India
- Bangladesh Power Developement Board
- Thai Mozambique Logistica
- Mjunction Services Limited - India
- Lanco Infratech Ltd - India
- Minerals Council of Australia
- Romanian Commodities Exchange
- Uttam Galva Steels Limited - India
- San Jose City I Power Corp, Philippines
- Global Coal Blending Company Limited - Australia
- Chamber of Mines of South Africa
- GAC Shipping (India) Pvt Ltd
- Planning Commission, India
- Sree Jayajothi Cements Limited - India
- Kohat Cement Company Ltd. - Pakistan
- European Bulk Services B.V. - Netherlands
- LBH Netherlands Bv - Netherlands
- Rio Tinto Coal - Australia
- Renaissance Capital - South Africa
- Vizag Seaport Private Limited - India
- Posco Energy - South Korea
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kumho Petrochemical, South Korea
- Bukit Makmur.PT - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Formosa Plastics Group - Taiwan
- Central Electricity Authority - India
- Pendopo Energi Batubara - Indonesia
- Riau Bara Harum - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Parliament of New Zealand
- Mercuria Energy - Indonesia
- Georgia Ports Authority, United States
- Makarim & Taira - Indonesia
- Siam City Cement PLC, Thailand
- Ministry of Finance - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Sojitz Corporation - Japan
- Kalimantan Lumbung Energi - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Gujarat Sidhee Cement - India
- Ministry of Mines - Canada
- India Bulls Power Limited - India
- Vedanta Resources Plc - India
- Standard Chartered Bank - UAE
- Commonwealth Bank - Australia
- Heidelberg Cement - Germany
- Coastal Gujarat Power Limited - India
- Kaltim Prima Coal - Indonesia
- Bhushan Steel Limited - India
- Borneo Indobara - Indonesia
- Cement Manufacturers Association - India
- Star Paper Mills Limited - India
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