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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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Saturday, 30 August 14
RECOVERY IN SIGHT FOR THE DRY BULK SHIPPING MARKET - DREWRY SHIPPING CONSULTANTS
Despite weak freight rates so far this year, Dry Bulk shipping earnings are forecast to recover as demand for both major and minor bulk commodities ...
Friday, 29 August 14
U.S. WEEKLY COAL PRODUCTION DROPS 1.3 PERCENT, EIA SAYS
COALspot.com – United States the world's second largest coal producer, produced approximately 19.40 million short tons (mmst) of coal in ...
Friday, 29 August 14
ADARO'S PROFITS SINK FURTHER AMID FALL IN COAL PRICES - JP
Adaro Energy, one of the country’s largest coal miners, has reported a 31 percent drop in net profit in the first half of this year as global ...
Friday, 29 August 14
CHINESE LIGNITE IMPORTS: QUANTITY OVER QUALITY? - CLARKSONS
In the first half of 2014, Chinese seaborne coal imports declined 0.4% y-o-y to 148mt, largely reflecting a 3.3% fall in imports of steam coal. Mea ...
Thursday, 28 August 14
PANAMAX: OWNERS CAN GET AROUND USD 16000 FOR A FRONTHAUL; PERIOD MARKET - VERY QUIET - FEARNLEYS
Handy
The activity and sentiment is improving in the Atlantic with the general TA rate is up about US$ 800 w-o-w. We see more South American carg ...
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- Kumho Petrochemical, South Korea
- Petron Corporation, Philippines
- Directorate Of Revenue Intelligence - India
- The University of Queensland
- Thiess Contractors Indonesia
- Makarim & Taira - Indonesia
- PowerSource Philippines DevCo
- Coalindo Energy - Indonesia
- Meralco Power Generation, Philippines
- SN Aboitiz Power Inc, Philippines
- Dalmia Cement Bharat India
- Aboitiz Power Corporation - Philippines
- IEA Clean Coal Centre - UK
- Ministry of Transport, Egypt
- Thai Mozambique Logistica
- International Coal Ventures Pvt Ltd - India
- Essar Steel Hazira Ltd - India
- Minerals Council of Australia
- ASAPP Information Group - India
- Economic Council, Georgia
- Kobexindo Tractors - Indoneisa
- Cement Manufacturers Association - India
- Petrochimia International Co. Ltd.- Taiwan
- Binh Thuan Hamico - Vietnam
- Ambuja Cements Ltd - India
- Sojitz Corporation - Japan
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kaltim Prima Coal - Indonesia
- Agrawal Coal Company - India
- White Energy Company Limited
- GN Power Mariveles Coal Plant, Philippines
- Deloitte Consulting - India
- Sarangani Energy Corporation, Philippines
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- Orica Australia Pty. Ltd.
- Electricity Authority, New Zealand
- Sree Jayajothi Cements Limited - India
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- Sindya Power Generating Company Private Ltd
- Toyota Tsusho Corporation, Japan
- Star Paper Mills Limited - India
- Trasteel International SA, Italy
- Wilmar Investment Holdings
- Maharashtra Electricity Regulatory Commission - India
- Romanian Commodities Exchange
- Africa Commodities Group - South Africa
- Barasentosa Lestari - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Semirara Mining Corp, Philippines
- Alfred C Toepfer International GmbH - Germany
- Ceylon Electricity Board - Sri Lanka
- Eastern Coal Council - USA
- GVK Power & Infra Limited - India
- Timah Investasi Mineral - Indoneisa
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- Globalindo Alam Lestari - Indonesia
- Georgia Ports Authority, United States
- Metalloyd Limited - United Kingdom
- Posco Energy - South Korea
- TNB Fuel Sdn Bhd - Malaysia
- Directorate General of MIneral and Coal - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Holcim Trading Pte Ltd - Singapore
- Karaikal Port Pvt Ltd - India
- Renaissance Capital - South Africa
- Orica Mining Services - Indonesia
- Videocon Industries ltd - India
- Global Coal Blending Company Limited - Australia
- Commonwealth Bank - Australia
- SMC Global Power, Philippines
- PNOC Exploration Corporation - Philippines
- Sical Logistics Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kartika Selabumi Mining - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Edison Trading Spa - Italy
- Bukit Baiduri Energy - Indonesia
- Meenaskhi Energy Private Limited - India
- Iligan Light & Power Inc, Philippines
- MS Steel International - UAE
- Manunggal Multi Energi - Indonesia
- Energy Link Ltd, New Zealand
- Global Green Power PLC Corporation, Philippines
- Eastern Energy - Thailand
- Siam City Cement - Thailand
- Chettinad Cement Corporation Ltd - India
- The Treasury - Australian Government
- San Jose City I Power Corp, Philippines
- Salva Resources Pvt Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- GAC Shipping (India) Pvt Ltd
- Savvy Resources Ltd - HongKong
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Ministry of Finance - Indonesia
- Jaiprakash Power Ventures ltd
- Indonesian Coal Mining Association
- Semirara Mining and Power Corporation, Philippines
- McConnell Dowell - Australia
- Uttam Galva Steels Limited - India
- Gujarat Sidhee Cement - India
- LBH Netherlands Bv - Netherlands
- Baramulti Group, Indonesia
- Attock Cement Pakistan Limited
- Antam Resourcindo - Indonesia
- Xindia Steels Limited - India
- Mintek Dendrill Indonesia
- Kideco Jaya Agung - Indonesia
- Straits Asia Resources Limited - Singapore
- Heidelberg Cement - Germany
- Banpu Public Company Limited - Thailand
- Larsen & Toubro Limited - India
- Standard Chartered Bank - UAE
- European Bulk Services B.V. - Netherlands
- Indian Energy Exchange, India
- Latin American Coal - Colombia
- Planning Commission, India
- Power Finance Corporation Ltd., India
- Siam City Cement PLC, Thailand
- Simpson Spence & Young - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Miang Besar Coal Terminal - Indonesia
- Therma Luzon, Inc, Philippines
- PTC India Limited - India
- Altura Mining Limited, Indonesia
- Indian Oil Corporation Limited
- Interocean Group of Companies - India
- Goldman Sachs - Singapore
- Indogreen Group - Indonesia
- Central Java Power - Indonesia
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- AsiaOL BioFuels Corp., Philippines
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- New Zealand Coal & Carbon
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- Sakthi Sugars Limited - India
- Chamber of Mines of South Africa
- Pendopo Energi Batubara - Indonesia
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- Grasim Industreis Ltd - India
- Tata Chemicals Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Bharathi Cement Corporation - India
- Electricity Generating Authority of Thailand
- South Luzon Thermal Energy Corporation
- Gujarat Mineral Development Corp Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Kepco SPC Power Corporation, Philippines
- Maheswari Brothers Coal Limited - India
- Bhoruka Overseas - Indonesia
- Lanco Infratech Ltd - India
- Medco Energi Mining Internasional
- ICICI Bank Limited - India
- Samtan Co., Ltd - South Korea
- OPG Power Generation Pvt Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Coastal Gujarat Power Limited - India
- Bhushan Steel Limited - India
- Energy Development Corp, Philippines
- Sinarmas Energy and Mining - Indonesia
- Anglo American - United Kingdom
- IHS Mccloskey Coal Group - USA
- Port Waratah Coal Services - Australia
- SMG Consultants - Indonesia
- Indo Tambangraya Megah - Indonesia
- CNBM International Corporation - China
- Price Waterhouse Coopers - Russia
- Riau Bara Harum - Indonesia
- Mjunction Services Limited - India
- Bulk Trading Sa - Switzerland
- Madhucon Powers Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Intertek Mineral Services - Indonesia
- Independent Power Producers Association of India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- VISA Power Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Australian Coal Association
- Singapore Mercantile Exchange
- Ind-Barath Power Infra Limited - India
- Cigading International Bulk Terminal - Indonesia
- Australian Commodity Traders Exchange
- Parliament of New Zealand
- Leighton Contractors Pty Ltd - Australia
- Rashtriya Ispat Nigam Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Merrill Lynch Commodities Europe
- Carbofer General Trading SA - India
- Central Electricity Authority - India
- Global Business Power Corporation, Philippines
- Coal and Oil Company - UAE
- London Commodity Brokers - England
- Jindal Steel & Power Ltd - India
- Bangladesh Power Developement Board
- TeaM Sual Corporation - Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Malabar Cements Ltd - India
- The State Trading Corporation of India Ltd
- Borneo Indobara - Indonesia
- Mercuria Energy - Indonesia
- Vedanta Resources Plc - India
- Ministry of Mines - Canada
- Bhatia International Limited - India
- Rio Tinto Coal - Australia
- India Bulls Power Limited - India
- CIMB Investment Bank - Malaysia
- Pipit Mutiara Jaya. PT, Indonesia
- GMR Energy Limited - India
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