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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, 25 September 14
LACK OF COAL BUSINESS PUSHING DOWN PANAMAX EARNINGS IN PACIFIC
Handy
In the Atlantic we see rates steady climbing upwards. More coal cargoes out of USG and USEC are helping the TA market which is up some USD ...
Wednesday, 24 September 14
ADARO AGREED TO REDUCE ITS CONCESSION AREA TO 31,379.8 HECTARES
COALspot.com: PT Adaro Energy Tbk (Adaro Energy) today announced that, PT Adaro Indonesia (AI), its wholly owned subsidiary, entered into a M ...
Wednesday, 24 September 14
CAPESIZE: ACTIVITY IN BOTH BASINS WAS UNIMPRESSIVE
COALspot.com: The end of the week prior seems to have marked the tone for the days that followed, with the Dry Bulk market giving up a significant ...
Tuesday, 23 September 14
MEDCO TO INCREASE ITS COAL PRODUCTION NEXT YEAR
COALspot.com: PT Medco Energi Internasional is looking to increase its coal production next year, supported by the launch of operations at its Duta ...
Monday, 22 September 14
COAL SECTOR CHAOS - GENESIS TO REVELATION - DIPESH DIPU
COALspot.com: “Let there be light”, intends the government of India but the fuel side of the story paints a blackout. The recent Suprem ...
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- Kartika Selabumi Mining - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Leighton Contractors Pty Ltd - Australia
- Independent Power Producers Association of India
- Dalmia Cement Bharat India
- PowerSource Philippines DevCo
- Meralco Power Generation, Philippines
- Kepco SPC Power Corporation, Philippines
- Anglo American - United Kingdom
- Africa Commodities Group - South Africa
- CNBM International Corporation - China
- Directorate General of MIneral and Coal - Indonesia
- Siam City Cement - Thailand
- Formosa Plastics Group - Taiwan
- Xindia Steels Limited - India
- International Coal Ventures Pvt Ltd - India
- Sakthi Sugars Limited - India
- PNOC Exploration Corporation - Philippines
- Singapore Mercantile Exchange
- Indian Energy Exchange, India
- South Luzon Thermal Energy Corporation
- Jindal Steel & Power Ltd - India
- Semirara Mining Corp, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Vijayanagar Sugar Pvt Ltd - India
- Deloitte Consulting - India
- ICICI Bank Limited - India
- Trasteel International SA, Italy
- Rio Tinto Coal - Australia
- PTC India Limited - India
- Sojitz Corporation - Japan
- Coalindo Energy - Indonesia
- Georgia Ports Authority, United States
- Global Business Power Corporation, Philippines
- Wilmar Investment Holdings
- Bhatia International Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Thiess Contractors Indonesia
- Sindya Power Generating Company Private Ltd
- Mintek Dendrill Indonesia
- Madhucon Powers Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Mercator Lines Limited - India
- Aditya Birla Group - India
- Commonwealth Bank - Australia
- Kobexindo Tractors - Indoneisa
- The Treasury - Australian Government
- San Jose City I Power Corp, Philippines
- IEA Clean Coal Centre - UK
- Maharashtra Electricity Regulatory Commission - India
- Sree Jayajothi Cements Limited - India
- Videocon Industries ltd - India
- Tata Chemicals Ltd - India
- Australian Commodity Traders Exchange
- Bhoruka Overseas - Indonesia
- Larsen & Toubro Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Romanian Commodities Exchange
- Ministry of Transport, Egypt
- India Bulls Power Limited - India
- Grasim Industreis Ltd - India
- Marubeni Corporation - India
- Sarangani Energy Corporation, Philippines
- Rashtriya Ispat Nigam Limited - India
- Kapuas Tunggal Persada - Indonesia
- Energy Link Ltd, New Zealand
- TNB Fuel Sdn Bhd - Malaysia
- GN Power Mariveles Coal Plant, Philippines
- Petron Corporation, Philippines
- Ministry of Finance - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Salva Resources Pvt Ltd - India
- Iligan Light & Power Inc, Philippines
- Sinarmas Energy and Mining - Indonesia
- Bulk Trading Sa - Switzerland
- GMR Energy Limited - India
- Timah Investasi Mineral - Indoneisa
- Latin American Coal - Colombia
- Economic Council, Georgia
- Chamber of Mines of South Africa
- Maheswari Brothers Coal Limited - India
- The University of Queensland
- Sical Logistics Limited - India
- Billiton Holdings Pty Ltd - Australia
- Ind-Barath Power Infra Limited - India
- Coal and Oil Company - UAE
- Global Coal Blending Company Limited - Australia
- Merrill Lynch Commodities Europe
- Ambuja Cements Ltd - India
- Kumho Petrochemical, South Korea
- TeaM Sual Corporation - Philippines
- ASAPP Information Group - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Eastern Energy - Thailand
- Kalimantan Lumbung Energi - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Eastern Coal Council - USA
- Oldendorff Carriers - Singapore
- Interocean Group of Companies - India
- SMC Global Power, Philippines
- Star Paper Mills Limited - India
- Power Finance Corporation Ltd., India
- The State Trading Corporation of India Ltd
- Gujarat Mineral Development Corp Ltd - India
- Global Green Power PLC Corporation, Philippines
- Thai Mozambique Logistica
- Siam City Cement PLC, Thailand
- Manunggal Multi Energi - Indonesia
- VISA Power Limited - India
- White Energy Company Limited
- Alfred C Toepfer International GmbH - Germany
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Electricity Authority, New Zealand
- Bayan Resources Tbk. - Indonesia
- Energy Development Corp, Philippines
- Directorate Of Revenue Intelligence - India
- Indogreen Group - Indonesia
- Standard Chartered Bank - UAE
- Cigading International Bulk Terminal - Indonesia
- Central Java Power - Indonesia
- Baramulti Group, Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- European Bulk Services B.V. - Netherlands
- Port Waratah Coal Services - Australia
- Metalloyd Limited - United Kingdom
- Intertek Mineral Services - Indonesia
- Bangladesh Power Developement Board
- Karbindo Abesyapradhi - Indoneisa
- Makarim & Taira - Indonesia
- Meenaskhi Energy Private Limited - India
- Borneo Indobara - Indonesia
- Straits Asia Resources Limited - Singapore
- Therma Luzon, Inc, Philippines
- Electricity Generating Authority of Thailand
- Binh Thuan Hamico - Vietnam
- Globalindo Alam Lestari - Indonesia
- Barasentosa Lestari - Indonesia
- CIMB Investment Bank - Malaysia
- Central Electricity Authority - India
- Cement Manufacturers Association - India
- AsiaOL BioFuels Corp., Philippines
- Carbofer General Trading SA - India
- Bukit Baiduri Energy - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Bhushan Steel Limited - India
- SMG Consultants - Indonesia
- Medco Energi Mining Internasional
- Miang Besar Coal Terminal - Indonesia
- McConnell Dowell - Australia
- Pipit Mutiara Jaya. PT, Indonesia
- Karaikal Port Pvt Ltd - India
- Parliament of New Zealand
- Gujarat Sidhee Cement - India
- Uttam Galva Steels Limited - India
- Minerals Council of Australia
- Indo Tambangraya Megah - Indonesia
- Agrawal Coal Company - India
- Bukit Makmur.PT - Indonesia
- Pendopo Energi Batubara - Indonesia
- Chettinad Cement Corporation Ltd - India
- Heidelberg Cement - Germany
- Orica Mining Services - Indonesia
- Indika Energy - Indonesia
- Edison Trading Spa - Italy
- LBH Netherlands Bv - Netherlands
- Simpson Spence & Young - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Australian Coal Association
- Gujarat Electricity Regulatory Commission - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Price Waterhouse Coopers - Russia
- Antam Resourcindo - Indonesia
- SN Aboitiz Power Inc, Philippines
- Mercuria Energy - Indonesia
- Indonesian Coal Mining Association
- Semirara Mining and Power Corporation, Philippines
- Holcim Trading Pte Ltd - Singapore
- Planning Commission, India
- Parry Sugars Refinery, India
- Lanco Infratech Ltd - India
- Mjunction Services Limited - India
- Coastal Gujarat Power Limited - India
- GAC Shipping (India) Pvt Ltd
- New Zealand Coal & Carbon
- Posco Energy - South Korea
- Bharathi Cement Corporation - India
- MS Steel International - UAE
- Ministry of Mines - Canada
- Kohat Cement Company Ltd. - Pakistan
- OPG Power Generation Pvt Ltd - India
- Vedanta Resources Plc - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Altura Mining Limited, Indonesia
- London Commodity Brokers - England
- IHS Mccloskey Coal Group - USA
- Tamil Nadu electricity Board
- Kaltim Prima Coal - Indonesia
- Banpu Public Company Limited - Thailand
- Goldman Sachs - Singapore
- Vizag Seaport Private Limited - India
- Savvy Resources Ltd - HongKong
- Attock Cement Pakistan Limited
- Kideco Jaya Agung - Indonesia
- Orica Australia Pty. Ltd.
- Jorong Barutama Greston.PT - Indonesia
- Indian Oil Corporation Limited
- Renaissance Capital - South Africa
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Samtan Co., Ltd - South Korea
- GVK Power & Infra Limited - India
- Aboitiz Power Corporation - Philippines
- Essar Steel Hazira Ltd - India
- Wood Mackenzie - Singapore
- Toyota Tsusho Corporation, Japan
- Malabar Cements Ltd - India
- Jaiprakash Power Ventures ltd
- Riau Bara Harum - Indonesia
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