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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, 04 September 14
PUNJAB STATE POWER CORPORATION LIMITED OF INDIA HAS DECIDED TO BUY IMPORTED COAL - HINDUSTAN TIMES
COALspot.com: The Punjab State Power Corporation Limited (PSPCL) has decided to buy imported coal to run its thermal plants, as reported by Hindust ...
Thursday, 04 September 14
INDONESIAN COAL MINERS MAY GET MORE TIME ON ROYALTIES - FITCH RATINGS
COALspot.com: Fitch Ratings says that coal miners in Indonesia are likely to get more time to repay the government the royalties that were set off ...
Thursday, 04 September 14
INDONESIAN COAL SWAPS SLIDE THIS PAST WEEK
COALspot.com: Indonesian coal swaps for average October 2014 decreased US$ 0.90 (-1.68%) day on day and US$ 1.80 (-3.31%) per mt week on week. The ...
Thursday, 04 September 14
CAPESIZE : SENTIMENT REMAINS POSITIVE FOR Q3/Q4 - FEARNRESEARCH
Handy
The Atlantic market has experienced more activity this week. Rates for TA´s are up about 8% w-o-w, much lead by an increasing number ...
Wednesday, 03 September 14
KOREA MIDLAND POWER CO. LTD INVITES BIDS FOR 1 MMT OF BITUMINOUS & SUB-BITUMINOUS COAL FOR BORYEONG POWER PLANT
COALspot.com: KOMIPO again in the market for 1 million tons of 5700 NAR and 4600 NAR coal for Jan – March 2015. South Korean state-owned util ...
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- ASAPP Information Group - India
- Merrill Lynch Commodities Europe
- Jorong Barutama Greston.PT - Indonesia
- Chettinad Cement Corporation Ltd - India
- Marubeni Corporation - India
- Kohat Cement Company Ltd. - Pakistan
- Aditya Birla Group - India
- Electricity Authority, New Zealand
- PTC India Limited - India
- Price Waterhouse Coopers - Russia
- Alfred C Toepfer International GmbH - Germany
- Edison Trading Spa - Italy
- Neyveli Lignite Corporation Ltd, - India
- Asmin Koalindo Tuhup - Indonesia
- Minerals Council of Australia
- Cement Manufacturers Association - India
- Kapuas Tunggal Persada - Indonesia
- Australian Coal Association
- Wilmar Investment Holdings
- Maharashtra Electricity Regulatory Commission - India
- Sinarmas Energy and Mining - Indonesia
- The University of Queensland
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kideco Jaya Agung - Indonesia
- Energy Development Corp, Philippines
- Global Coal Blending Company Limited - Australia
- Therma Luzon, Inc, Philippines
- Intertek Mineral Services - Indonesia
- Power Finance Corporation Ltd., India
- Electricity Generating Authority of Thailand
- Sarangani Energy Corporation, Philippines
- Timah Investasi Mineral - Indoneisa
- Sakthi Sugars Limited - India
- Tamil Nadu electricity Board
- Petrochimia International Co. Ltd.- Taiwan
- Aboitiz Power Corporation - Philippines
- Manunggal Multi Energi - Indonesia
- Australian Commodity Traders Exchange
- Orica Mining Services - Indonesia
- IEA Clean Coal Centre - UK
- Trasteel International SA, Italy
- Star Paper Mills Limited - India
- Pendopo Energi Batubara - Indonesia
- Kobexindo Tractors - Indoneisa
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Parry Sugars Refinery, India
- Directorate Of Revenue Intelligence - India
- Independent Power Producers Association of India
- Globalindo Alam Lestari - Indonesia
- GVK Power & Infra Limited - India
- Semirara Mining and Power Corporation, Philippines
- Thiess Contractors Indonesia
- Gujarat Sidhee Cement - India
- CIMB Investment Bank - Malaysia
- Rashtriya Ispat Nigam Limited - India
- Meenaskhi Energy Private Limited - India
- Semirara Mining Corp, Philippines
- Ministry of Mines - Canada
- New Zealand Coal & Carbon
- Coalindo Energy - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Eastern Coal Council - USA
- Sical Logistics Limited - India
- Barasentosa Lestari - Indonesia
- Binh Thuan Hamico - Vietnam
- International Coal Ventures Pvt Ltd - India
- Siam City Cement - Thailand
- Jaiprakash Power Ventures ltd
- Tata Chemicals Ltd - India
- Bayan Resources Tbk. - Indonesia
- Metalloyd Limited - United Kingdom
- McConnell Dowell - Australia
- Kumho Petrochemical, South Korea
- The State Trading Corporation of India Ltd
- Ceylon Electricity Board - Sri Lanka
- Wood Mackenzie - Singapore
- Goldman Sachs - Singapore
- LBH Netherlands Bv - Netherlands
- Ministry of Finance - Indonesia
- Mercuria Energy - Indonesia
- Indian Energy Exchange, India
- Renaissance Capital - South Africa
- Maheswari Brothers Coal Limited - India
- Bharathi Cement Corporation - India
- Uttam Galva Steels Limited - India
- Straits Asia Resources Limited - Singapore
- Petron Corporation, Philippines
- Orica Australia Pty. Ltd.
- Bukit Asam (Persero) Tbk - Indonesia
- Port Waratah Coal Services - Australia
- Madhucon Powers Ltd - India
- Africa Commodities Group - South Africa
- India Bulls Power Limited - India
- Indika Energy - Indonesia
- European Bulk Services B.V. - Netherlands
- Karaikal Port Pvt Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Central Java Power - Indonesia
- Bukit Makmur.PT - Indonesia
- Sindya Power Generating Company Private Ltd
- Cigading International Bulk Terminal - Indonesia
- Ambuja Cements Ltd - India
- Dalmia Cement Bharat India
- Indonesian Coal Mining Association
- Gujarat Mineral Development Corp Ltd - India
- Attock Cement Pakistan Limited
- Posco Energy - South Korea
- Latin American Coal - Colombia
- Oldendorff Carriers - Singapore
- Bhoruka Overseas - Indonesia
- PowerSource Philippines DevCo
- Medco Energi Mining Internasional
- Xindia Steels Limited - India
- Carbofer General Trading SA - India
- ICICI Bank Limited - India
- Videocon Industries ltd - India
- Toyota Tsusho Corporation, Japan
- Simpson Spence & Young - Indonesia
- Thai Mozambique Logistica
- Central Electricity Authority - India
- Sree Jayajothi Cements Limited - India
- Georgia Ports Authority, United States
- Riau Bara Harum - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Commonwealth Bank - Australia
- OPG Power Generation Pvt Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Energy Link Ltd, New Zealand
- Baramulti Group, Indonesia
- Mercator Lines Limited - India
- Deloitte Consulting - India
- Directorate General of MIneral and Coal - Indonesia
- White Energy Company Limited
- Ind-Barath Power Infra Limited - India
- Kartika Selabumi Mining - Indonesia
- The Treasury - Australian Government
- Kepco SPC Power Corporation, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- CNBM International Corporation - China
- Formosa Plastics Group - Taiwan
- Essar Steel Hazira Ltd - India
- PNOC Exploration Corporation - Philippines
- Parliament of New Zealand
- SN Aboitiz Power Inc, Philippines
- Global Business Power Corporation, Philippines
- Sojitz Corporation - Japan
- Heidelberg Cement - Germany
- Coal and Oil Company - UAE
- Singapore Mercantile Exchange
- Bulk Trading Sa - Switzerland
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Salva Resources Pvt Ltd - India
- Grasim Industreis Ltd - India
- Rio Tinto Coal - Australia
- PetroVietnam Power Coal Import and Supply Company
- Billiton Holdings Pty Ltd - Australia
- Mintek Dendrill Indonesia
- Larsen & Toubro Limited - India
- Banpu Public Company Limited - Thailand
- Bhushan Steel Limited - India
- MS Steel International - UAE
- Pipit Mutiara Jaya. PT, Indonesia
- Lanco Infratech Ltd - India
- SMC Global Power, Philippines
- Holcim Trading Pte Ltd - Singapore
- GAC Shipping (India) Pvt Ltd
- Eastern Energy - Thailand
- Iligan Light & Power Inc, Philippines
- Borneo Indobara - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Makarim & Taira - Indonesia
- GMR Energy Limited - India
- Jindal Steel & Power Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Interocean Group of Companies - India
- London Commodity Brokers - England
- TeaM Sual Corporation - Philippines
- Altura Mining Limited, Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Mjunction Services Limited - India
- Indian Oil Corporation Limited
- Standard Chartered Bank - UAE
- Ministry of Transport, Egypt
- Bangladesh Power Developement Board
- SMG Consultants - Indonesia
- Malabar Cements Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Vizag Seaport Private Limited - India
- Siam City Cement PLC, Thailand
- Global Green Power PLC Corporation, Philippines
- Indo Tambangraya Megah - Indonesia
- VISA Power Limited - India
- Antam Resourcindo - Indonesia
- IHS Mccloskey Coal Group - USA
- Meralco Power Generation, Philippines
- Samtan Co., Ltd - South Korea
- Chamber of Mines of South Africa
- San Jose City I Power Corp, Philippines
- Bhatia International Limited - India
- Economic Council, Georgia
- Vedanta Resources Plc - India
- Romanian Commodities Exchange
- Agrawal Coal Company - India
- Coastal Gujarat Power Limited - India
- Anglo American - United Kingdom
- South Luzon Thermal Energy Corporation
- Savvy Resources Ltd - HongKong
- Gujarat Electricity Regulatory Commission - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Indogreen Group - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Planning Commission, India
- Kaltim Prima Coal - Indonesia
- Bukit Baiduri Energy - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Karbindo Abesyapradhi - Indoneisa
- Miang Besar Coal Terminal - Indonesia
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