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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, 01 October 14
ASIAN THERMAL COAL PRICES TO REMAIN WEAK ON OVERSUPPLY - FITCH
COALspot.com: The thermal coal market in Asia will remain oversupplied in the next 12 months, in spite of on-going rationalisation of production, a ...
Wednesday, 01 October 14
PANAMAXES: DEFENSIVE, STRUGGLING TO KEEP ANY FURTHER DECREASES - INTERMODAL
COALspot.com: The Dry Bulk market seemed unable to shake off the trend of the week prior and the BDI remained on a downward slope for the bigger pa ...
Wednesday, 01 October 14
FITCH: GLOBAL ECONOMY FACES MULTI-SPEED RECOVERY, MULTIPLE RISKS
Fitch Ratings says in its latest Global Economic Outlook (GEO) that global growth will pick up in 2015 and 2016, but risks are weighted to the down ...
Tuesday, 30 September 14
COALVIEW TO PARTICIPATE AT MET COKE WORLD SUMMIT 2014 IN CHICAGO
COALspot.com: Coalview Ltd., LLC(“Coalview”) America's leading fully integrated coal technology and fine coal recovery company prov ...
Monday, 29 September 14
INDONESIAN COAL EXPORT VOLUME FALL IN AUGUST
COALspot.com: Indonesia, one of the world's largest coal producers and the global leading multi grade coal exporter shipped around $1.50 ...
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- Tamil Nadu electricity Board
- Altura Mining Limited, Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Power Finance Corporation Ltd., India
- Indian Energy Exchange, India
- Pipit Mutiara Jaya. PT, Indonesia
- Ambuja Cements Ltd - India
- Maheswari Brothers Coal Limited - India
- Iligan Light & Power Inc, Philippines
- Goldman Sachs - Singapore
- Chamber of Mines of South Africa
- Maharashtra Electricity Regulatory Commission - India
- CNBM International Corporation - China
- PTC India Limited - India
- Kobexindo Tractors - Indoneisa
- Bukit Baiduri Energy - Indonesia
- Indian Oil Corporation Limited
- Bank of Tokyo Mitsubishi UFJ Ltd
- The University of Queensland
- Sinarmas Energy and Mining - Indonesia
- Barasentosa Lestari - Indonesia
- Commonwealth Bank - Australia
- Rashtriya Ispat Nigam Limited - India
- Sical Logistics Limited - India
- GVK Power & Infra Limited - India
- Africa Commodities Group - South Africa
- Gujarat Electricity Regulatory Commission - India
- Binh Thuan Hamico - Vietnam
- Metalloyd Limited - United Kingdom
- GAC Shipping (India) Pvt Ltd
- Baramulti Group, Indonesia
- Thai Mozambique Logistica
- Eastern Coal Council - USA
- Carbofer General Trading SA - India
- India Bulls Power Limited - India
- Dalmia Cement Bharat India
- Jorong Barutama Greston.PT - Indonesia
- Wilmar Investment Holdings
- Larsen & Toubro Limited - India
- Bharathi Cement Corporation - India
- Directorate General of MIneral and Coal - Indonesia
- Vizag Seaport Private Limited - India
- Singapore Mercantile Exchange
- Mercuria Energy - Indonesia
- PNOC Exploration Corporation - Philippines
- Australian Commodity Traders Exchange
- Bulk Trading Sa - Switzerland
- Interocean Group of Companies - India
- Manunggal Multi Energi - Indonesia
- Aboitiz Power Corporation - Philippines
- Uttam Galva Steels Limited - India
- Minerals Council of Australia
- SMG Consultants - Indonesia
- Pendopo Energi Batubara - Indonesia
- Banpu Public Company Limited - Thailand
- Kideco Jaya Agung - Indonesia
- Port Waratah Coal Services - Australia
- Karaikal Port Pvt Ltd - India
- Gujarat Sidhee Cement - India
- Bukit Makmur.PT - Indonesia
- Xindia Steels Limited - India
- Simpson Spence & Young - Indonesia
- Electricity Authority, New Zealand
- Wood Mackenzie - Singapore
- Indogreen Group - Indonesia
- South Luzon Thermal Energy Corporation
- Ministry of Finance - Indonesia
- Samtan Co., Ltd - South Korea
- Grasim Industreis Ltd - India
- Heidelberg Cement - Germany
- TNB Fuel Sdn Bhd - Malaysia
- Jaiprakash Power Ventures ltd
- Global Green Power PLC Corporation, Philippines
- Mjunction Services Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Edison Trading Spa - Italy
- MS Steel International - UAE
- Medco Energi Mining Internasional
- SMC Global Power, Philippines
- Indika Energy - Indonesia
- Central Electricity Authority - India
- Bhatia International Limited - India
- London Commodity Brokers - England
- Orica Mining Services - Indonesia
- Trasteel International SA, Italy
- Parliament of New Zealand
- PowerSource Philippines DevCo
- Bhoruka Overseas - Indonesia
- The State Trading Corporation of India Ltd
- Thiess Contractors Indonesia
- Directorate Of Revenue Intelligence - India
- Kohat Cement Company Ltd. - Pakistan
- ASAPP Information Group - India
- Semirara Mining and Power Corporation, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- CIMB Investment Bank - Malaysia
- Siam City Cement - Thailand
- Formosa Plastics Group - Taiwan
- Petrochimia International Co. Ltd.- Taiwan
- Energy Development Corp, Philippines
- Anglo American - United Kingdom
- Ministry of Mines - Canada
- Mercator Lines Limited - India
- Neyveli Lignite Corporation Ltd, - India
- ICICI Bank Limited - India
- LBH Netherlands Bv - Netherlands
- Sakthi Sugars Limited - India
- Sojitz Corporation - Japan
- Central Java Power - Indonesia
- Siam City Cement PLC, Thailand
- Deloitte Consulting - India
- Attock Cement Pakistan Limited
- Vedanta Resources Plc - India
- VISA Power Limited - India
- Indo Tambangraya Megah - Indonesia
- Petron Corporation, Philippines
- Indonesian Coal Mining Association
- IEA Clean Coal Centre - UK
- Toyota Tsusho Corporation, Japan
- Borneo Indobara - Indonesia
- Therma Luzon, Inc, Philippines
- Riau Bara Harum - Indonesia
- Latin American Coal - Colombia
- Bangladesh Power Developement Board
- Makarim & Taira - Indonesia
- Straits Asia Resources Limited - Singapore
- SN Aboitiz Power Inc, Philippines
- TeaM Sual Corporation - Philippines
- McConnell Dowell - Australia
- PetroVietnam Power Coal Import and Supply Company
- Global Business Power Corporation, Philippines
- Standard Chartered Bank - UAE
- Kartika Selabumi Mining - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Savvy Resources Ltd - HongKong
- Kumho Petrochemical, South Korea
- Antam Resourcindo - Indonesia
- Georgia Ports Authority, United States
- European Bulk Services B.V. - Netherlands
- Gujarat Mineral Development Corp Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Parry Sugars Refinery, India
- Posco Energy - South Korea
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Salva Resources Pvt Ltd - India
- International Coal Ventures Pvt Ltd - India
- Star Paper Mills Limited - India
- Renaissance Capital - South Africa
- Bukit Asam (Persero) Tbk - Indonesia
- Intertek Mineral Services - Indonesia
- Sindya Power Generating Company Private Ltd
- Karbindo Abesyapradhi - Indoneisa
- Meenaskhi Energy Private Limited - India
- Ceylon Electricity Board - Sri Lanka
- Economic Council, Georgia
- Bayan Resources Tbk. - Indonesia
- Australian Coal Association
- Kalimantan Lumbung Energi - Indonesia
- Oldendorff Carriers - Singapore
- Mintek Dendrill Indonesia
- Romanian Commodities Exchange
- Ind-Barath Power Infra Limited - India
- Tata Chemicals Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Meralco Power Generation, Philippines
- Energy Link Ltd, New Zealand
- Kepco SPC Power Corporation, Philippines
- Sarangani Energy Corporation, Philippines
- Electricity Generating Authority of Thailand
- San Jose City I Power Corp, Philippines
- Leighton Contractors Pty Ltd - Australia
- Chettinad Cement Corporation Ltd - India
- Global Coal Blending Company Limited - Australia
- Eastern Energy - Thailand
- Price Waterhouse Coopers - Russia
- Asmin Koalindo Tuhup - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Cement Manufacturers Association - India
- OPG Power Generation Pvt Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Semirara Mining Corp, Philippines
- Planning Commission, India
- Videocon Industries ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- AsiaOL BioFuels Corp., Philippines
- Coastal Gujarat Power Limited - India
- Orica Australia Pty. Ltd.
- GN Power Mariveles Coal Plant, Philippines
- The Treasury - Australian Government
- New Zealand Coal & Carbon
- Ministry of Transport, Egypt
- IHS Mccloskey Coal Group - USA
- Coalindo Energy - Indonesia
- Madhucon Powers Ltd - India
- Sree Jayajothi Cements Limited - India
- Rio Tinto Coal - Australia
- Agrawal Coal Company - India
- Merrill Lynch Commodities Europe
- White Energy Company Limited
- Essar Steel Hazira Ltd - India
- Coal and Oil Company - UAE
- Holcim Trading Pte Ltd - Singapore
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Malabar Cements Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Lanco Infratech Ltd - India
- Jindal Steel & Power Ltd - India
- Independent Power Producers Association of India
- Billiton Holdings Pty Ltd - Australia
- Globalindo Alam Lestari - Indonesia
- Marubeni Corporation - India
- Timah Investasi Mineral - Indoneisa
- GMR Energy Limited - India
- Cigading International Bulk Terminal - Indonesia
- Aditya Birla Group - India
- Bhushan Steel Limited - India
- Kaltim Prima Coal - Indonesia
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