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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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Sunday, 14 September 14
FREIGHT RATES RALLY AS DEMAND INCREASED
COALspot.com: The Baltic Dry Index (BDI) is a number (in US$) issued daily by the London-based Baltic Exchange up 2.25 percent week on week. BDI cl ...
Friday, 12 September 14
U.S. YEAR-TO-DATE COAL PRODUCTION TOTALED 673.3 MMST, SAYS EIA
COALspot.com – United States the world's second largest coal producer, produced approximately 19.20 million short tons (mmst) of coal in ...
Thursday, 11 September 14
THE PANAMAX MARKET IS TAKING A BREATHER - FEARNLEYS
Handy
We have experienced more activity in both hemispheres this week, said Fearnleys in this week's weekly report.
"We see rates c ...
Wednesday, 10 September 14
ARE GREEK BANKS ON THE VERGE TO START LENDING AGAIN? - JOHN N. COTZIAS
It is well known that Greek Banks had suffered severely after the economic crisis of 2008. From that period onwards, major changes have occur ...
Tuesday, 09 September 14
WEAK M&A DESPITE ABUNDANT DISTRESSED INDONESIA COAL ASSETS - FITCH RATINGS
COALspot.com: Fitch Ratings says that a meaningful level of merger and acquisition (M&A) activity leading to a consolidation of the coal sector ...
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- The Treasury - Australian Government
- Wood Mackenzie - Singapore
- Indian Oil Corporation Limited
- Uttam Galva Steels Limited - India
- Altura Mining Limited, Indonesia
- Power Finance Corporation Ltd., India
- Bank of Tokyo Mitsubishi UFJ Ltd
- LBH Netherlands Bv - Netherlands
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- Globalindo Alam Lestari - Indonesia
- Lanco Infratech Ltd - India
- McConnell Dowell - Australia
- Leighton Contractors Pty Ltd - Australia
- Baramulti Group, Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Singapore Mercantile Exchange
- Interocean Group of Companies - India
- Bayan Resources Tbk. - Indonesia
- Central Java Power - Indonesia
- Kepco SPC Power Corporation, Philippines
- Karaikal Port Pvt Ltd - India
- Global Business Power Corporation, Philippines
- Borneo Indobara - Indonesia
- Sojitz Corporation - Japan
- South Luzon Thermal Energy Corporation
- AsiaOL BioFuels Corp., Philippines
- Energy Link Ltd, New Zealand
- Directorate General of MIneral and Coal - Indonesia
- Africa Commodities Group - South Africa
- Directorate Of Revenue Intelligence - India
- SN Aboitiz Power Inc, Philippines
- IHS Mccloskey Coal Group - USA
- TNB Fuel Sdn Bhd - Malaysia
- Renaissance Capital - South Africa
- Goldman Sachs - Singapore
- Straits Asia Resources Limited - Singapore
- Jaiprakash Power Ventures ltd
- Ministry of Mines - Canada
- Manunggal Multi Energi - Indonesia
- Mercuria Energy - Indonesia
- Eastern Energy - Thailand
- Electricity Generating Authority of Thailand
- Riau Bara Harum - Indonesia
- Holcim Trading Pte Ltd - Singapore
- London Commodity Brokers - England
- MS Steel International - UAE
- Rashtriya Ispat Nigam Limited - India
- Deloitte Consulting - India
- Vijayanagar Sugar Pvt Ltd - India
- Makarim & Taira - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Australian Commodity Traders Exchange
- Trasteel International SA, Italy
- Anglo American - United Kingdom
- Essar Steel Hazira Ltd - India
- European Bulk Services B.V. - Netherlands
- Bukit Makmur.PT - Indonesia
- Iligan Light & Power Inc, Philippines
- Toyota Tsusho Corporation, Japan
- Tamil Nadu electricity Board
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Jindal Steel & Power Ltd - India
- Electricity Authority, New Zealand
- India Bulls Power Limited - India
- Posco Energy - South Korea
- Ind-Barath Power Infra Limited - India
- Standard Chartered Bank - UAE
- GMR Energy Limited - India
- PTC India Limited - India
- CNBM International Corporation - China
- Thiess Contractors Indonesia
- Oldendorff Carriers - Singapore
- Dalmia Cement Bharat India
- Mercator Lines Limited - India
- Therma Luzon, Inc, Philippines
- ICICI Bank Limited - India
- Vizag Seaport Private Limited - India
- Miang Besar Coal Terminal - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Mjunction Services Limited - India
- Bhatia International Limited - India
- PNOC Exploration Corporation - Philippines
- Indogreen Group - Indonesia
- Intertek Mineral Services - Indonesia
- Georgia Ports Authority, United States
- Semirara Mining Corp, Philippines
- Parry Sugars Refinery, India
- Banpu Public Company Limited - Thailand
- Salva Resources Pvt Ltd - India
- Gujarat Sidhee Cement - India
- Star Paper Mills Limited - India
- Heidelberg Cement - Germany
- Offshore Bulk Terminal Pte Ltd, Singapore
- SMC Global Power, Philippines
- Timah Investasi Mineral - Indoneisa
- Videocon Industries ltd - India
- Independent Power Producers Association of India
- IEA Clean Coal Centre - UK
- ASAPP Information Group - India
- Coastal Gujarat Power Limited - India
- Barasentosa Lestari - Indonesia
- Malabar Cements Ltd - India
- Meralco Power Generation, Philippines
- GVK Power & Infra Limited - India
- Sakthi Sugars Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Simpson Spence & Young - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Rio Tinto Coal - Australia
- Thai Mozambique Logistica
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- TeaM Sual Corporation - Philippines
- Indonesian Coal Mining Association
- Maheswari Brothers Coal Limited - India
- Kapuas Tunggal Persada - Indonesia
- VISA Power Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Ministry of Transport, Egypt
- Planning Commission, India
- Meenaskhi Energy Private Limited - India
- Bulk Trading Sa - Switzerland
- White Energy Company Limited
- Medco Energi Mining Internasional
- Coalindo Energy - Indonesia
- Chamber of Mines of South Africa
- Wilmar Investment Holdings
- Bangladesh Power Developement Board
- Romanian Commodities Exchange
- Madhucon Powers Ltd - India
- Coal and Oil Company - UAE
- GN Power Mariveles Coal Plant, Philippines
- OPG Power Generation Pvt Ltd - India
- Aboitiz Power Corporation - Philippines
- Bhushan Steel Limited - India
- Siam City Cement PLC, Thailand
- Latin American Coal - Colombia
- Samtan Co., Ltd - South Korea
- Indika Energy - Indonesia
- Metalloyd Limited - United Kingdom
- Kumho Petrochemical, South Korea
- Tata Chemicals Ltd - India
- Price Waterhouse Coopers - Russia
- Kobexindo Tractors - Indoneisa
- Bharathi Cement Corporation - India
- CIMB Investment Bank - Malaysia
- Sinarmas Energy and Mining - Indonesia
- Eastern Coal Council - USA
- San Jose City I Power Corp, Philippines
- Bukit Baiduri Energy - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Cement Manufacturers Association - India
- Pendopo Energi Batubara - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Minerals Council of Australia
- Chettinad Cement Corporation Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Petrochimia International Co. Ltd.- Taiwan
- Siam City Cement - Thailand
- Maharashtra Electricity Regulatory Commission - India
- Indo Tambangraya Megah - Indonesia
- SMG Consultants - Indonesia
- Mintek Dendrill Indonesia
- Binh Thuan Hamico - Vietnam
- Energy Development Corp, Philippines
- Sarangani Energy Corporation, Philippines
- Economic Council, Georgia
- Ministry of Finance - Indonesia
- Carbofer General Trading SA - India
- Cigading International Bulk Terminal - Indonesia
- Kideco Jaya Agung - Indonesia
- Orica Mining Services - Indonesia
- Merrill Lynch Commodities Europe
- Central Electricity Authority - India
- The State Trading Corporation of India Ltd
- Gujarat Mineral Development Corp Ltd - India
- Global Coal Blending Company Limited - Australia
- Semirara Mining and Power Corporation, Philippines
- Alfred C Toepfer International GmbH - Germany
- Karbindo Abesyapradhi - Indoneisa
- Ambuja Cements Ltd - India
- Kartika Selabumi Mining - Indonesia
- Marubeni Corporation - India
- Sree Jayajothi Cements Limited - India
- Agrawal Coal Company - India
- Jorong Barutama Greston.PT - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Grasim Industreis Ltd - India
- New Zealand Coal & Carbon
- PowerSource Philippines DevCo
- Commonwealth Bank - Australia
- Kaltim Prima Coal - Indonesia
- Petron Corporation, Philippines
- Orica Australia Pty. Ltd.
- International Coal Ventures Pvt Ltd - India
- Antam Resourcindo - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Xindia Steels Limited - India
- Vedanta Resources Plc - India
- Formosa Plastics Group - Taiwan
- Edison Trading Spa - Italy
- GAC Shipping (India) Pvt Ltd
- Global Green Power PLC Corporation, Philippines
- Aditya Birla Group - India
- Sical Logistics Limited - India
- Australian Coal Association
- Indian Energy Exchange, India
- The University of Queensland
- Kalimantan Lumbung Energi - Indonesia
- Bhoruka Overseas - Indonesia
- Sindya Power Generating Company Private Ltd
- Port Waratah Coal Services - Australia
- Parliament of New Zealand
- Attock Cement Pakistan Limited
- Savvy Resources Ltd - HongKong
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