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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, 18 September 14
INDONESIA'S JULY COAL EXPORT VOLUME DROPPED 5.13% M-O-M
COALspot.com: Indonesia, one of the world's largest coal producer and the global leading multi grade coal exporter shipped around $1.65* ...
Thursday, 18 September 14
PANAMAX : US GULF/CHINA FRONTHAUL ARE NOW PAYING TYPICALLY 14.5K + 450K BB - FEARNRESEARCH
Handy
We still see a firming tendency in the Atlantic and it is still ECSA and USG leading on. USG/Cont now up in about USD 17/18k for a Smax whi ...
Thursday, 18 September 14
ELECTRONIC BILLS OF LADING: A GUIDE TO PAPERLESS TRADING WHICH HAS TAKEN THE SHIPPING INDUSTRY BY STORM
Bimco has recently developed and published a charter party clause that specifically addresses the use of electronic bills of lading. Increasing use ...
Wednesday, 17 September 14
PANAMAX: LIMITED INTEREST IN BOTH BASINS; RISING TONNAGE - INTERMODAL
With the week starting off at a fast pace and with the positive momentum from the previous Friday seemingly sticking around for a bit longer, most ...
Wednesday, 17 September 14
SHIPPING MARKET INSIGHT - GEORGE LAZARIDIS
Since the onslaught of 2013 the rising tide of asset prices had been primarily driven by the increasing freight market conditions and the improving ...
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- Toyota Tsusho Corporation, Japan
- MS Steel International - UAE
- Asmin Koalindo Tuhup - Indonesia
- Pendopo Energi Batubara - Indonesia
- Independent Power Producers Association of India
- Altura Mining Limited, Indonesia
- San Jose City I Power Corp, Philippines
- Renaissance Capital - South Africa
- SN Aboitiz Power Inc, Philippines
- Tamil Nadu electricity Board
- Interocean Group of Companies - India
- IHS Mccloskey Coal Group - USA
- Globalindo Alam Lestari - Indonesia
- Sakthi Sugars Limited - India
- Bulk Trading Sa - Switzerland
- PowerSource Philippines DevCo
- TNB Fuel Sdn Bhd - Malaysia
- Kumho Petrochemical, South Korea
- Gujarat Sidhee Cement - India
- GVK Power & Infra Limited - India
- Ministry of Transport, Egypt
- Formosa Plastics Group - Taiwan
- Jindal Steel & Power Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- CNBM International Corporation - China
- Agrawal Coal Company - India
- Coal and Oil Company - UAE
- Bhoruka Overseas - Indonesia
- Heidelberg Cement - Germany
- Timah Investasi Mineral - Indoneisa
- Goldman Sachs - Singapore
- Price Waterhouse Coopers - Russia
- Thai Mozambique Logistica
- Wilmar Investment Holdings
- Parry Sugars Refinery, India
- Manunggal Multi Energi - Indonesia
- Coastal Gujarat Power Limited - India
- Sindya Power Generating Company Private Ltd
- Kohat Cement Company Ltd. - Pakistan
- Central Java Power - Indonesia
- Oldendorff Carriers - Singapore
- Ambuja Cements Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Kartika Selabumi Mining - Indonesia
- Bukit Baiduri Energy - Indonesia
- McConnell Dowell - Australia
- Vedanta Resources Plc - India
- Thiess Contractors Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Indian Energy Exchange, India
- Sarangani Energy Corporation, Philippines
- Videocon Industries ltd - India
- Sical Logistics Limited - India
- Indonesian Coal Mining Association
- Tata Chemicals Ltd - India
- Merrill Lynch Commodities Europe
- Kaltim Prima Coal - Indonesia
- Makarim & Taira - Indonesia
- Karaikal Port Pvt Ltd - India
- Barasentosa Lestari - Indonesia
- Intertek Mineral Services - Indonesia
- Borneo Indobara - Indonesia
- Planning Commission, India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- The State Trading Corporation of India Ltd
- Malabar Cements Ltd - India
- Salva Resources Pvt Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Lanco Infratech Ltd - India
- Grasim Industreis Ltd - India
- Ministry of Mines - Canada
- Port Waratah Coal Services - Australia
- Maheswari Brothers Coal Limited - India
- Mintek Dendrill Indonesia
- Australian Coal Association
- Indo Tambangraya Megah - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- GN Power Mariveles Coal Plant, Philippines
- International Coal Ventures Pvt Ltd - India
- Meralco Power Generation, Philippines
- Kobexindo Tractors - Indoneisa
- Chettinad Cement Corporation Ltd - India
- Bayan Resources Tbk. - Indonesia
- Therma Luzon, Inc, Philippines
- Sree Jayajothi Cements Limited - India
- Bangladesh Power Developement Board
- Vijayanagar Sugar Pvt Ltd - India
- The University of Queensland
- India Bulls Power Limited - India
- Indika Energy - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Kepco SPC Power Corporation, Philippines
- Australian Commodity Traders Exchange
- Siam City Cement PLC, Thailand
- LBH Netherlands Bv - Netherlands
- Leighton Contractors Pty Ltd - Australia
- Directorate Of Revenue Intelligence - India
- Aditya Birla Group - India
- Siam City Cement - Thailand
- Cement Manufacturers Association - India
- Ministry of Finance - Indonesia
- SMG Consultants - Indonesia
- VISA Power Limited - India
- Semirara Mining and Power Corporation, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Dalmia Cement Bharat India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Energy Development Corp, Philippines
- Power Finance Corporation Ltd., India
- Central Electricity Authority - India
- Semirara Mining Corp, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Africa Commodities Group - South Africa
- Rashtriya Ispat Nigam Limited - India
- Eastern Coal Council - USA
- Mercuria Energy - Indonesia
- Bukit Makmur.PT - Indonesia
- Eastern Energy - Thailand
- OPG Power Generation Pvt Ltd - India
- Meenaskhi Energy Private Limited - India
- Mjunction Services Limited - India
- Vizag Seaport Private Limited - India
- Chamber of Mines of South Africa
- South Luzon Thermal Energy Corporation
- Savvy Resources Ltd - HongKong
- Posco Energy - South Korea
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Anglo American - United Kingdom
- GAC Shipping (India) Pvt Ltd
- Gujarat Electricity Regulatory Commission - India
- Uttam Galva Steels Limited - India
- Georgia Ports Authority, United States
- Bhatia International Limited - India
- IEA Clean Coal Centre - UK
- Neyveli Lignite Corporation Ltd, - India
- Jaiprakash Power Ventures ltd
- GMR Energy Limited - India
- New Zealand Coal & Carbon
- Bukit Asam (Persero) Tbk - Indonesia
- Minerals Council of Australia
- Krishnapatnam Port Company Ltd. - India
- Billiton Holdings Pty Ltd - Australia
- Indogreen Group - Indonesia
- Sojitz Corporation - Japan
- Metalloyd Limited - United Kingdom
- Orica Mining Services - Indonesia
- Petron Corporation, Philippines
- Romanian Commodities Exchange
- Rio Tinto Coal - Australia
- Miang Besar Coal Terminal - Indonesia
- Global Coal Blending Company Limited - Australia
- Latin American Coal - Colombia
- Essar Steel Hazira Ltd - India
- Madhucon Powers Ltd - India
- Singapore Mercantile Exchange
- TeaM Sual Corporation - Philippines
- Attock Cement Pakistan Limited
- Mercator Lines Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Ind-Barath Power Infra Limited - India
- Antam Resourcindo - Indonesia
- Electricity Generating Authority of Thailand
- Wood Mackenzie - Singapore
- Indian Oil Corporation Limited
- PetroVietnam Power Coal Import and Supply Company
- Riau Bara Harum - Indonesia
- PNOC Exploration Corporation - Philippines
- ASAPP Information Group - India
- AsiaOL BioFuels Corp., Philippines
- PTC India Limited - India
- Commonwealth Bank - Australia
- London Commodity Brokers - England
- Xindia Steels Limited - India
- European Bulk Services B.V. - Netherlands
- Samtan Co., Ltd - South Korea
- SMC Global Power, Philippines
- Simpson Spence & Young - Indonesia
- Carbofer General Trading SA - India
- Bahari Cakrawala Sebuku - Indonesia
- ICICI Bank Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Baramulti Group, Indonesia
- The Treasury - Australian Government
- Larsen & Toubro Limited - India
- Coalindo Energy - Indonesia
- Trasteel International SA, Italy
- Bhushan Steel Limited - India
- Global Business Power Corporation, Philippines
- Kideco Jaya Agung - Indonesia
- Economic Council, Georgia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bharathi Cement Corporation - India
- Maharashtra Electricity Regulatory Commission - India
- Alfred C Toepfer International GmbH - Germany
- Aboitiz Power Corporation - Philippines
- Energy Link Ltd, New Zealand
- White Energy Company Limited
- Banpu Public Company Limited - Thailand
- Sinarmas Energy and Mining - Indonesia
- Iligan Light & Power Inc, Philippines
- Parliament of New Zealand
- Orica Australia Pty. Ltd.
- Binh Thuan Hamico - Vietnam
- Straits Asia Resources Limited - Singapore
- CIMB Investment Bank - Malaysia
- Deloitte Consulting - India
- Kapuas Tunggal Persada - Indonesia
- Global Green Power PLC Corporation, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Electricity Authority, New Zealand
- Star Paper Mills Limited - India
- Standard Chartered Bank - UAE
- Marubeni Corporation - India
- Edison Trading Spa - Italy
- Cigading International Bulk Terminal - Indonesia
- Medco Energi Mining Internasional
- Holcim Trading Pte Ltd - Singapore
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