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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, 07 September 14
SHIPMANAGERS SUPERVISION CONTRACT FOR NEWBUILDS - BIMCO
Shipmanagers are frequently called upon by their owner clients to supervise newbuilding projects on their behalf. The scope of the manager’s ...
Saturday, 06 September 14
SLOW COAL EXPORT REGISTRATION RAISES CONCERNS - THE JAKARTA POST
Several coal mining companies have yet to receive the go-ahead from the Energy and Mineral Resources Ministry to obtain exporting licenses, leading ...
Saturday, 06 September 14
DRY BULK MARKET'S PROSPECTS ARE IMPROVING, DESPITE WEAK SECOND QUARTER - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
The dry bulk market has been rebounding during the past month, with the Baltic Dry Index (BDI) ended the week on a high note, reaching 1,155 points ...
Saturday, 06 September 14
INDONESIA WANTS TO REGULATE COAL DEALS - THE TELEGRAPH INDIA
Indonesia has raised concerns about suspected coal deals struck between overseas buyers and its unregistered domestic miners, the telegraph India r ...
Friday, 05 September 14
U.S. PRODUCED 19.2 MMST OF COAL LAST WEEK
COALspot.com – United States the world's second largest coal producer, produced approximately 19.20 million short tons (mmst) of coal in ...
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- Eastern Energy - Thailand
- Vizag Seaport Private Limited - India
- Anglo American - United Kingdom
- Energy Link Ltd, New Zealand
- Thai Mozambique Logistica
- ICICI Bank Limited - India
- Port Waratah Coal Services - Australia
- Global Green Power PLC Corporation, Philippines
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- Chamber of Mines of South Africa
- Merrill Lynch Commodities Europe
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- Metalloyd Limited - United Kingdom
- Formosa Plastics Group - Taiwan
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- ASAPP Information Group - India
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- TeaM Sual Corporation - Philippines
- Standard Chartered Bank - UAE
- Intertek Mineral Services - Indonesia
- Independent Power Producers Association of India
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- Ambuja Cements Ltd - India
- Indogreen Group - Indonesia
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- Global Business Power Corporation, Philippines
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- Cigading International Bulk Terminal - Indonesia
- Mercuria Energy - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- The University of Queensland
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- Ministry of Mines - Canada
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- Heidelberg Cement - Germany
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- Indian Energy Exchange, India
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- Bangladesh Power Developement Board
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- Energy Development Corp, Philippines
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- Altura Mining Limited, Indonesia
- Jaiprakash Power Ventures ltd
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- Commonwealth Bank - Australia
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- Gujarat Mineral Development Corp Ltd - India
- CNBM International Corporation - China
- Holcim Trading Pte Ltd - Singapore
- Krishnapatnam Port Company Ltd. - India
- Singapore Mercantile Exchange
- Simpson Spence & Young - Indonesia
- IHS Mccloskey Coal Group - USA
- Edison Trading Spa - Italy
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- Bulk Trading Sa - Switzerland
- Deloitte Consulting - India
- Jorong Barutama Greston.PT - Indonesia
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- Lanco Infratech Ltd - India
- Iligan Light & Power Inc, Philippines
- Karaikal Port Pvt Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Planning Commission, India
- Coastal Gujarat Power Limited - India
- Parry Sugars Refinery, India
- Georgia Ports Authority, United States
- Ceylon Electricity Board - Sri Lanka
- Bharathi Cement Corporation - India
- Pipit Mutiara Jaya. PT, Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- Wilmar Investment Holdings
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- South Luzon Thermal Energy Corporation
- San Jose City I Power Corp, Philippines
- SN Aboitiz Power Inc, Philippines
- Indian Oil Corporation Limited
- Samtan Co., Ltd - South Korea
- Antam Resourcindo - Indonesia
- Meenaskhi Energy Private Limited - India
- Manunggal Multi Energi - Indonesia
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- Orica Mining Services - Indonesia
- Thiess Contractors Indonesia
- Alfred C Toepfer International GmbH - Germany
- The State Trading Corporation of India Ltd
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- Tata Chemicals Ltd - India
- Chettinad Cement Corporation Ltd - India
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- Asmin Koalindo Tuhup - Indonesia
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- Renaissance Capital - South Africa
- Australian Commodity Traders Exchange
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- Orica Australia Pty. Ltd.
- Sojitz Corporation - Japan
- Siam City Cement - Thailand
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Economic Council, Georgia
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- Star Paper Mills Limited - India
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- Uttam Galva Steels Limited - India
- Baramulti Group, Indonesia
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- Therma Luzon, Inc, Philippines
- Medco Energi Mining Internasional
- International Coal Ventures Pvt Ltd - India
- Minerals Council of Australia
- Goldman Sachs - Singapore
- VISA Power Limited - India
- Parliament of New Zealand
- Global Coal Blending Company Limited - Australia
- Bhatia International Limited - India
- Madhucon Powers Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Australian Coal Association
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- PowerSource Philippines DevCo
- Petron Corporation, Philippines
- Sinarmas Energy and Mining - Indonesia
- Tamil Nadu electricity Board
- Ministry of Transport, Egypt
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- Kalimantan Lumbung Energi - Indonesia
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- Globalindo Alam Lestari - Indonesia
- Interocean Group of Companies - India
- Larsen & Toubro Limited - India
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- White Energy Company Limited
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- Coalindo Energy - Indonesia
- Sical Logistics Limited - India
- Power Finance Corporation Ltd., India
- IEA Clean Coal Centre - UK
- MS Steel International - UAE
- Malabar Cements Ltd - India
- OPG Power Generation Pvt Ltd - India
- LBH Netherlands Bv - Netherlands
- Rio Tinto Coal - Australia
- Indonesian Coal Mining Association
- Directorate General of MIneral and Coal - Indonesia
- Mjunction Services Limited - India
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- GAC Shipping (India) Pvt Ltd
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- Videocon Industries ltd - India
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- Africa Commodities Group - South Africa
- SMC Global Power, Philippines
- London Commodity Brokers - England
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- Aditya Birla Group - India
- Xindia Steels Limited - India
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- Kohat Cement Company Ltd. - Pakistan
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