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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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Wednesday, 03 September 14
CFR S.CHINA COAL SWAP FOR JAN 2015 DELIVERY CLOSED AT $ 68.30 PMT; DOWN 2.43% W-O-W
COALspot.com: API 8 CFR South China Coal swap for delivery in October 2014 decreased US$ 0.95 (-1.39%) day on day and US$ 1.40 (-2.03%) week on wee ...
Tuesday, 02 September 14
BERAU COAL HAS AWARDED A CONTRACT EXTENSION TO BUMA FOR 647 MLN BCM OVERBURDEN REMOVAL
COALspot.com: PT Delta Dunia Makmur Tbk (“DOID”) has announced that its primary operating subsidiary, PT Bukit Makmur Mandiri Utama (&l ...
Monday, 01 September 14
GLOBALCOAL WELCOMES TWO NEW MARKET MEMBERS
COALspot.com: globalCOAL® announced today that two Market Members have joined its trading community. Both new Market Members are from the India ...
Sunday, 31 August 14
COAL FREIGHT RATES INTO INDIA FROM INDONESIA FIRM
COALspot.com: The freight market continued to firm this week. BDI up 5.42 percent week ended 29 August and closed at 1147 points while the Ca ...
Saturday, 30 August 14
INDIAN GOVERNMENT SHOULD TAKE NOTICE: THERMAL COAL IMPORT PRICES EXTREMELY LOW - COMMODORE RESEARCH
COALspot.com: Both Indonesian and Australian thermal coal prices are at the lowest levels seen this decade, with Indonesia's monthly benchmark ...
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- Neyveli Lignite Corporation Ltd, - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Semirara Mining and Power Corporation, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bharathi Cement Corporation - India
- Kideco Jaya Agung - Indonesia
- Intertek Mineral Services - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Oldendorff Carriers - Singapore
- Independent Power Producers Association of India
- Toyota Tsusho Corporation, Japan
- New Zealand Coal & Carbon
- Cigading International Bulk Terminal - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Power Finance Corporation Ltd., India
- PetroVietnam Power Coal Import and Supply Company
- CNBM International Corporation - China
- Energy Link Ltd, New Zealand
- Ambuja Cements Ltd - India
- Barasentosa Lestari - Indonesia
- Bukit Baiduri Energy - Indonesia
- Meralco Power Generation, Philippines
- Riau Bara Harum - Indonesia
- Indogreen Group - Indonesia
- India Bulls Power Limited - India
- Bukit Makmur.PT - Indonesia
- Wood Mackenzie - Singapore
- IHS Mccloskey Coal Group - USA
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Lanco Infratech Ltd - India
- Bangladesh Power Developement Board
- Minerals Council of Australia
- San Jose City I Power Corp, Philippines
- Uttam Galva Steels Limited - India
- Kepco SPC Power Corporation, Philippines
- Thiess Contractors Indonesia
- Eastern Coal Council - USA
- TeaM Sual Corporation - Philippines
- Australian Commodity Traders Exchange
- Mintek Dendrill Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Altura Mining Limited, Indonesia
- Star Paper Mills Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Parry Sugars Refinery, India
- Merrill Lynch Commodities Europe
- Vijayanagar Sugar Pvt Ltd - India
- ICICI Bank Limited - India
- Kartika Selabumi Mining - Indonesia
- Heidelberg Cement - Germany
- Chamber of Mines of South Africa
- The Treasury - Australian Government
- Australian Coal Association
- Siam City Cement PLC, Thailand
- Mercuria Energy - Indonesia
- Sakthi Sugars Limited - India
- The University of Queensland
- Electricity Authority, New Zealand
- SN Aboitiz Power Inc, Philippines
- Formosa Plastics Group - Taiwan
- Grasim Industreis Ltd - India
- Antam Resourcindo - Indonesia
- Goldman Sachs - Singapore
- Kapuas Tunggal Persada - Indonesia
- Binh Thuan Hamico - Vietnam
- Siam City Cement - Thailand
- Straits Asia Resources Limited - Singapore
- Miang Besar Coal Terminal - Indonesia
- Marubeni Corporation - India
- Semirara Mining Corp, Philippines
- OPG Power Generation Pvt Ltd - India
- Kumho Petrochemical, South Korea
- Bhushan Steel Limited - India
- ASAPP Information Group - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- IEA Clean Coal Centre - UK
- Electricity Generating Authority of Thailand
- Cement Manufacturers Association - India
- Orica Australia Pty. Ltd.
- Kohat Cement Company Ltd. - Pakistan
- Orica Mining Services - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Attock Cement Pakistan Limited
- Africa Commodities Group - South Africa
- Ministry of Mines - Canada
- Aboitiz Power Corporation - Philippines
- White Energy Company Limited
- Sinarmas Energy and Mining - Indonesia
- Bulk Trading Sa - Switzerland
- Global Green Power PLC Corporation, Philippines
- Sojitz Corporation - Japan
- Energy Development Corp, Philippines
- VISA Power Limited - India
- Ceylon Electricity Board - Sri Lanka
- Global Coal Blending Company Limited - Australia
- Rashtriya Ispat Nigam Limited - India
- European Bulk Services B.V. - Netherlands
- Planning Commission, India
- SMC Global Power, Philippines
- AsiaOL BioFuels Corp., Philippines
- Trasteel International SA, Italy
- Makarim & Taira - Indonesia
- Latin American Coal - Colombia
- TNB Fuel Sdn Bhd - Malaysia
- Interocean Group of Companies - India
- Gujarat Mineral Development Corp Ltd - India
- Wilmar Investment Holdings
- GMR Energy Limited - India
- Ministry of Finance - Indonesia
- Metalloyd Limited - United Kingdom
- Ind-Barath Power Infra Limited - India
- Holcim Trading Pte Ltd - Singapore
- Banpu Public Company Limited - Thailand
- Georgia Ports Authority, United States
- Singapore Mercantile Exchange
- Offshore Bulk Terminal Pte Ltd, Singapore
- Chettinad Cement Corporation Ltd - India
- Thai Mozambique Logistica
- Dalmia Cement Bharat India
- Jaiprakash Power Ventures ltd
- MS Steel International - UAE
- Medco Energi Mining Internasional
- Mjunction Services Limited - India
- Maheswari Brothers Coal Limited - India
- Carbofer General Trading SA - India
- McConnell Dowell - Australia
- Parliament of New Zealand
- Renaissance Capital - South Africa
- Gujarat Sidhee Cement - India
- LBH Netherlands Bv - Netherlands
- Sindya Power Generating Company Private Ltd
- Timah Investasi Mineral - Indoneisa
- Manunggal Multi Energi - Indonesia
- South Luzon Thermal Energy Corporation
- Borneo Indobara - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Malabar Cements Ltd - India
- Agrawal Coal Company - India
- Vedanta Resources Plc - India
- Jindal Steel & Power Ltd - India
- Meenaskhi Energy Private Limited - India
- Videocon Industries ltd - India
- Anglo American - United Kingdom
- Bukit Asam (Persero) Tbk - Indonesia
- Simpson Spence & Young - Indonesia
- Eastern Energy - Thailand
- CIMB Investment Bank - Malaysia
- Coal and Oil Company - UAE
- Rio Tinto Coal - Australia
- Aditya Birla Group - India
- SMG Consultants - Indonesia
- Ministry of Transport, Egypt
- Central Java Power - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- International Coal Ventures Pvt Ltd - India
- Tamil Nadu electricity Board
- Bhoruka Overseas - Indonesia
- Posco Energy - South Korea
- Directorate General of MIneral and Coal - Indonesia
- The State Trading Corporation of India Ltd
- GAC Shipping (India) Pvt Ltd
- Port Waratah Coal Services - Australia
- Tata Chemicals Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Indian Oil Corporation Limited
- Indika Energy - Indonesia
- Bhatia International Limited - India
- Savvy Resources Ltd - HongKong
- Gujarat Electricity Regulatory Commission - India
- Commonwealth Bank - Australia
- Essar Steel Hazira Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Central Electricity Authority - India
- Romanian Commodities Exchange
- PTC India Limited - India
- Price Waterhouse Coopers - Russia
- GVK Power & Infra Limited - India
- Coastal Gujarat Power Limited - India
- Kaltim Prima Coal - Indonesia
- Baramulti Group, Indonesia
- Karaikal Port Pvt Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Indian Energy Exchange, India
- Petron Corporation, Philippines
- Coalindo Energy - Indonesia
- Pendopo Energi Batubara - Indonesia
- Iligan Light & Power Inc, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Standard Chartered Bank - UAE
- Bayan Resources Tbk. - Indonesia
- Indonesian Coal Mining Association
- Billiton Holdings Pty Ltd - Australia
- Economic Council, Georgia
- Sical Logistics Limited - India
- Edison Trading Spa - Italy
- Therma Luzon, Inc, Philippines
- Global Business Power Corporation, Philippines
- Salva Resources Pvt Ltd - India
- Directorate Of Revenue Intelligence - India
- PowerSource Philippines DevCo
- Alfred C Toepfer International GmbH - Germany
- Indo Tambangraya Megah - Indonesia
- Xindia Steels Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Madhucon Powers Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Sree Jayajothi Cements Limited - India
- PNOC Exploration Corporation - Philippines
- Sarangani Energy Corporation, Philippines
- Mercator Lines Limited - India
- Kobexindo Tractors - Indoneisa
- Larsen & Toubro Limited - India
- London Commodity Brokers - England
- Globalindo Alam Lestari - Indonesia
- Vizag Seaport Private Limited - India
- Samtan Co., Ltd - South Korea
- Deloitte Consulting - India
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