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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, 28 August 14
BANPU REPORTS HIGHER FIRST-HALF YEAR RESULTS FOR 2014
COALspot.com: Banpu Public Company Limited (BANPU) reports higher first half-year financial results for 2014 having its gross profit increasing 3 p ...
Wednesday, 27 August 14
FREIGHT MARKET: IS THE MARKET IN A RECOVERY MOOD? - GEORGE ILIOPOULOS
Is the market in a recovery mood?
August is typically a time when the shipping industry takes it easy… charter-ers book their requireme ...
Tuesday, 26 August 14
4TH ANNUAL ASIA NICKEL
4th Annual Asia Nickel
19-20 Nov 2014
Grand Hyatt Jakarta, Indonesia
Web Site
Asia’s Premier Nickel Conference
Regulation in ...
Tuesday, 26 August 14
DESPITE LOW DRY BULK RATES, BULKER PRICES ARE STILL HIGH - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
Traditionally, August tends to be a month of slow activity in the sale and purchasing market and this year has been no exception. However, as shipb ...
Tuesday, 26 August 14
GOVT ON TRACK TO LIMIT COAL OUTPUT - THE JAKARTA POST
The government has announced that it will proceed with plans to cap the production of coal next year, a move aimed not only at protecting the envir ...
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- Ind-Barath Power Infra Limited - India
- Leighton Contractors Pty Ltd - Australia
- India Bulls Power Limited - India
- Parliament of New Zealand
- Sinarmas Energy and Mining - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Singapore Mercantile Exchange
- Edison Trading Spa - Italy
- Latin American Coal - Colombia
- Bukit Baiduri Energy - Indonesia
- Dalmia Cement Bharat India
- IEA Clean Coal Centre - UK
- Coal and Oil Company - UAE
- Eastern Energy - Thailand
- Semirara Mining Corp, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Miang Besar Coal Terminal - Indonesia
- GMR Energy Limited - India
- Eastern Coal Council - USA
- Rio Tinto Coal - Australia
- Riau Bara Harum - Indonesia
- Economic Council, Georgia
- Banpu Public Company Limited - Thailand
- Vizag Seaport Private Limited - India
- Ministry of Transport, Egypt
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Star Paper Mills Limited - India
- Bulk Trading Sa - Switzerland
- Renaissance Capital - South Africa
- Karbindo Abesyapradhi - Indoneisa
- Ceylon Electricity Board - Sri Lanka
- TeaM Sual Corporation - Philippines
- Malabar Cements Ltd - India
- The State Trading Corporation of India Ltd
- CIMB Investment Bank - Malaysia
- Pendopo Energi Batubara - Indonesia
- Australian Coal Association
- Aditya Birla Group - India
- Formosa Plastics Group - Taiwan
- Bayan Resources Tbk. - Indonesia
- Oldendorff Carriers - Singapore
- Vijayanagar Sugar Pvt Ltd - India
- Tamil Nadu electricity Board
- Parry Sugars Refinery, India
- Energy Link Ltd, New Zealand
- Orica Mining Services - Indonesia
- Kumho Petrochemical, South Korea
- Romanian Commodities Exchange
- Meenaskhi Energy Private Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Indo Tambangraya Megah - Indonesia
- Cement Manufacturers Association - India
- Salva Resources Pvt Ltd - India
- Timah Investasi Mineral - Indoneisa
- Agrawal Coal Company - India
- Mjunction Services Limited - India
- Ambuja Cements Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- MS Steel International - UAE
- Standard Chartered Bank - UAE
- Kohat Cement Company Ltd. - Pakistan
- Karaikal Port Pvt Ltd - India
- Videocon Industries ltd - India
- Thiess Contractors Indonesia
- Thai Mozambique Logistica
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Africa Commodities Group - South Africa
- Tata Chemicals Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Sarangani Energy Corporation, Philippines
- Planning Commission, India
- Australian Commodity Traders Exchange
- Simpson Spence & Young - Indonesia
- The University of Queensland
- ICICI Bank Limited - India
- Borneo Indobara - Indonesia
- Lanco Infratech Ltd - India
- Power Finance Corporation Ltd., India
- Kalimantan Lumbung Energi - Indonesia
- OPG Power Generation Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- London Commodity Brokers - England
- Madhucon Powers Ltd - India
- CNBM International Corporation - China
- Jindal Steel & Power Ltd - India
- Grasim Industreis Ltd - India
- Energy Development Corp, Philippines
- Carbofer General Trading SA - India
- Savvy Resources Ltd - HongKong
- Indogreen Group - Indonesia
- PTC India Limited - India
- Siam City Cement PLC, Thailand
- Directorate Of Revenue Intelligence - India
- Maheswari Brothers Coal Limited - India
- Toyota Tsusho Corporation, Japan
- Sree Jayajothi Cements Limited - India
- Cigading International Bulk Terminal - Indonesia
- Orica Australia Pty. Ltd.
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Coalindo Energy - Indonesia
- Deloitte Consulting - India
- Sindya Power Generating Company Private Ltd
- SMC Global Power, Philippines
- Kepco SPC Power Corporation, Philippines
- Georgia Ports Authority, United States
- Port Waratah Coal Services - Australia
- Sojitz Corporation - Japan
- Pipit Mutiara Jaya. PT, Indonesia
- Kapuas Tunggal Persada - Indonesia
- Antam Resourcindo - Indonesia
- LBH Netherlands Bv - Netherlands
- Bukit Makmur.PT - Indonesia
- Electricity Authority, New Zealand
- Globalindo Alam Lestari - Indonesia
- Goldman Sachs - Singapore
- Samtan Co., Ltd - South Korea
- Jaiprakash Power Ventures ltd
- Larsen & Toubro Limited - India
- Straits Asia Resources Limited - Singapore
- Marubeni Corporation - India
- White Energy Company Limited
- International Coal Ventures Pvt Ltd - India
- Iligan Light & Power Inc, Philippines
- Altura Mining Limited, Indonesia
- SN Aboitiz Power Inc, Philippines
- Global Green Power PLC Corporation, Philippines
- GVK Power & Infra Limited - India
- Central Java Power - Indonesia
- Uttam Galva Steels Limited - India
- PowerSource Philippines DevCo
- Heidelberg Cement - Germany
- Alfred C Toepfer International GmbH - Germany
- Kartika Selabumi Mining - Indonesia
- Price Waterhouse Coopers - Russia
- Gujarat Mineral Development Corp Ltd - India
- Bhushan Steel Limited - India
- Aboitiz Power Corporation - Philippines
- Rashtriya Ispat Nigam Limited - India
- Ministry of Mines - Canada
- Vedanta Resources Plc - India
- Indian Energy Exchange, India
- Kobexindo Tractors - Indoneisa
- Intertek Mineral Services - Indonesia
- IHS Mccloskey Coal Group - USA
- Bhoruka Overseas - Indonesia
- Holcim Trading Pte Ltd - Singapore
- McConnell Dowell - Australia
- Binh Thuan Hamico - Vietnam
- Anglo American - United Kingdom
- Sakthi Sugars Limited - India
- Petron Corporation, Philippines
- Merrill Lynch Commodities Europe
- Gujarat Sidhee Cement - India
- Attock Cement Pakistan Limited
- Meralco Power Generation, Philippines
- Global Coal Blending Company Limited - Australia
- Therma Luzon, Inc, Philippines
- Medco Energi Mining Internasional
- Maharashtra Electricity Regulatory Commission - India
- Indika Energy - Indonesia
- SMG Consultants - Indonesia
- Xindia Steels Limited - India
- Kaltim Prima Coal - Indonesia
- Baramulti Group, Indonesia
- Chettinad Cement Corporation Ltd - India
- Sical Logistics Limited - India
- Interocean Group of Companies - India
- South Luzon Thermal Energy Corporation
- Kideco Jaya Agung - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- GAC Shipping (India) Pvt Ltd
- Electricity Generating Authority of Thailand
- Trasteel International SA, Italy
- New Zealand Coal & Carbon
- Independent Power Producers Association of India
- Manunggal Multi Energi - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Siam City Cement - Thailand
- Mercator Lines Limited - India
- PetroVietnam Power Coal Import and Supply Company
- The Treasury - Australian Government
- San Jose City I Power Corp, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- VISA Power Limited - India
- Wood Mackenzie - Singapore
- Mercuria Energy - Indonesia
- Indian Oil Corporation Limited
- Neyveli Lignite Corporation Ltd, - India
- Bahari Cakrawala Sebuku - Indonesia
- Minerals Council of Australia
- Essar Steel Hazira Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Bangladesh Power Developement Board
- Barasentosa Lestari - Indonesia
- Bhatia International Limited - India
- Makarim & Taira - Indonesia
- Chamber of Mines of South Africa
- Wilmar Investment Holdings
- Commonwealth Bank - Australia
- Posco Energy - South Korea
- AsiaOL BioFuels Corp., Philippines
- Mintek Dendrill Indonesia
- Indonesian Coal Mining Association
- Coastal Gujarat Power Limited - India
- Bharathi Cement Corporation - India
- Gujarat Electricity Regulatory Commission - India
- ASAPP Information Group - India
- Ministry of Finance - Indonesia
- PNOC Exploration Corporation - Philippines
- Metalloyd Limited - United Kingdom
- Central Electricity Authority - India
- Global Business Power Corporation, Philippines
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