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Thursday, 26 May 16
GIANT ORE CARRIERS SET TO PLAY A BIGGER ROLE IN THE GLOBAL SHIPPING FLEET: CHINA EMBRACES VALEMAXES - RICHARD SCOTT
 Another phase of the giant ships era is approaching. Chinese shipowners placed orders recently for 30 huge ‘valemax’ ore carriers. These vessels, with a 400,000 deadweight tonnes capacity, are the largest carrying dry bulk commodities. When the ships are delivered in 2018 and 2019, a smooth introduction into the China iron ore imports trade is likely, contrasting with the experience of their predecessors.
The new tonnage will join an existing fleet of 34 similar valemax VLOCs (very large ore carriers) built in the past few years, operated by shipowners in several countries. Originally the class was named ‘chinamax’, reflecting the intended destination for most of the iron ore cargoes carried by these ships, supplied from Brazil. A name change to valemax was decided by Brazilian mining company Vale, which developed the concept, when discharging at Chinese ports was blocked, a severe setback. But this difficulty was eventually resolved.
A new bulk carrier class emerges
An unusually long boom in the dry bulk freight market, over several years up to mid-2008, provided motivation for the valemax concept gestation period. High and volatile freight rates for all dry commodities on international routes were experienced. These elevated rates were especially notable in the size group of vessels widely employed within the global iron ore and some other commodity trades, ‘capesize’ ships carrying about 180,000 dwt tonnes.
China had become, since 2003, the world’s largest iron ore importer and annual volumes continued growing rapidly. As a key supplier, Brazil focused on this market with substantial growth potential. Among alternative suppliers, competition with Australia is particularly intense. Australian miners have a big transportation cost advantage when exporting to Asian destinations: a much shorter distance compared with Brazil. The distance to Chinese ports from Western Australia is one-third of that from Brazil to China, resulting in much lower freight rates
Vale’s strategy to improve its competitiveness was massive capital investment in shipping capacity. A new class of many and far larger vessels, under the mining company’s full control, was designed to exploit economies of scale, with the aim of greatly lowering transportation unit costs. Exposure to the heights and variations of the global ocean freight market, and reliance on independent shipowners operating in that market, would be hugely reduced, making the delivered cost of Brazilian iron ore more attractive.
In mid-2008 the strategy profile became clearer. An order for a series of twelve new valemax 400,000 dwt ore carriers was placed at a Chinese shipbuilding yard, and further newbuilding orders followed for similar ships. Also, long-term 20-25 years transportation contracts were agreed by Vale with several independent shipowners based in other countries who, in turn, placed orders for new similar vessels to service the contracts.
An especially notable agreement was made with South Korean shipowners STX Pan Ocean. Reportedly the world’s largest contract of affreightment, valued at $5.8 billion, it covered 300 million tonnes of iron ore from Brazil to China over 25 years, requiring eight valemaxes each carrying an average 12m annually.
The current fleet
Valemax ships are the leviathans of dry bulk shipping, more than twice as big as capesize bulk carriers, typical vessels in the large capacity category. Dimensions of valemaxes are: length 360 metres, beam (width) 65 metres, draft (depth below waterline) 23 metres. The hull is divided into seven cargo holds and productivity is enhanced by ability to be loaded very rapidly. Previous the record holder was a 365,000 dwt ore carrier built thirty years ago and still trading today.
A remarkably large number of valemaxes, 35 in total, was ordered by Vale and its three shipowner partners – STX Pan Ocean, Oman Shipping and Berge Bulk – in this round. Most orders were obtained by shipyards in China, accompanied by some placed in South Korea. Deliveries began in early 2011, and the majority had been completed by the end of 2013.
The table below shows the year of delivery from builders and current owners. One vessel is still under construction, so the present total is 34. Vale originally owned 19, more than half the total. During the past twelve months, Vale sold 12 ships to Chinese operators (China VLOC, China Ore Shipping and ICBC Leasing) following earlier leasing of four ships to another Chinese owner, Shandong Shipping.
Valemaxes are not the only VLOCs operating in the Brazil iron ore export trades. A large number of other big ore carriers is regularly employed. Many of these ships were originally built as tankers to carry crude oil, and were converted to ore carriers.
Calculations based on a snapshot view of recent (early May 2016) employment revealed that, excluding the valemaxes, 69 ships of 240,000 dwt and larger were involved in Vale iron ore export trades to China and numerous other destinations. All except one were actually in a range of 247,000 to 327,000 dwt. Converted former tankers numbered 32, almost half the total number, mainly 260,000 to 300,000 dwt, built in the 1990-1995 period and converted between 2008 and 2011.
Trading patterns
Generally, the maxim applicable is that the larger the ship, the more restricted the trading pattern. This basic feature applies to most ship types. Typically there are two constraints: port and berth dimensions and cargo handling facilities (including storage) at loading and discharging ports, and the volume and regularity of cargo flows. Canal restrictions are sometimes another limitation. Valemax 400,000 dwt ore carriers are restricted to a small number of trade routes.
The original rationale for valemax size vessels focused on employment in carrying massive and growing iron ore imports into China. When the current ships were ordered, China was already the dominant iron ore importer, receiving 444 million tonnes in 2008, a 53 percent share of global seaborne iron ore trade, of which Brazil supplied 101mt (23 percent).
Today’s volumes are much higher. China’s total imports reached 953mt in 2015, a 70 percent share of world seaborne iron ore trade. Brazil supplied 192mt, a smaller 20 percent proportion of the China import market, but the actual volume was almost double that seen seven years earlier. The current valemax fleet theoretically could carry about one-quarter of the trade from Brazil to China annually, over 53mt (assuming each vessel completed four trips). Consequently, there is ample potential employment. Moreover, some vessels participate in other trades.
Since valemax ore carriers were introduced, iron ore cargoes from Ponta da Madeira, Tubarao and Guaiba in Brazil carried by these vessels have been received in a number of countries around the world as well as China. Discharge ports include Taranto (Italy), Rotterdam (Netherlands), Sohar (Oman), Oita, Kimitsu and Kashima (Japan), Gwangyang and Dangjin (South Korea), Villanueva (Philippines) and Subic Bay (Philippines). An entirely new port terminal at Teluk Rubiah (Malaysia) started receiving shipments in early 2014.
Delayed role in China’s imports
During the period of almost four years following the introduction of valemaxes in 2011, only a small number of these ships were given permission to discharge in Chinese ports and the cargoes were less than full shiploads. Eventually, in early 2015, problems which had prevented extensive valemax participation in this trade were resolved.
How did the unanticipated prolonged delay in gaining access to Chinese ports occur? Before the first valemax was delivered from the shipbuilders in May 2011, opposition from China was intensifying. Later in that year, the China Shipowners Association expressed their view that employing valemaxes in this trade was monopolistic and represented unfair competition. Concern about port safety also was expressed. In January 2012, the Chinese government announced a formal ban on these vessels using Chinese ports. The competition issue seems to have been the main influence.
Long before the official ban, amid mounting opposition from the Chinese government to the original strategy, Vale had disclosed in October 2010 a modified plan involving transshipments. This plan featured valemaxes carrying iron ore to a port where cargoes could be offloaded into smaller ships acceptable at all final destinations. The regional distribution centre at Teluk Rubiah, Malaysia was designed. A further centre in the Middle East area at Sohar, Oman was planned.
Valemax size shipments started arriving at Sohar in September 2011, with full operations beginning in the following March. Arrangements were made also for another transshipment facility, a floating terminal at Subic Bay, Philippines, where valemax size cargoes could be transferred offshore to smaller bulk carriers. This became operational in February 2012, when the world’s largest dry bulk floating storage vessel (a converted tanker) arrived, and a second floating terminal was added in the next year. The land based distribution hub at Teluk Rubiah began receiving cargoes in early 2014, fully opening later in that year.
Foreshadowing an end to the dispute as opposition from China’s shipowners gradually receded, Chinese shipowning company Shandong Shipping leased four valemaxes from Vale towards the end of 2013. This progress was followed In September 2014 by Cosco signing a provisional cooperation agreement to buy from Vale, and charter back on long term 25-year charters, four vessels of this type. Another provisional contract with China Merchants Group was also agreed.
Eventually, early in 2015, China’s objections were removed and the ban was lifted. Later, several ports were officially permitted to receive the vessels – Dalian, Qingdao, Tangshan and Ningbo-Zhoushan. The first recorded full valemax cargo of iron ore, from Brazil, was received at Dongjiakou (Qingdao) at the end of July 2015.
In the past twelve months, since the lifting of the ban, China has firmly embraced the giant ore carrier concept. Three major purchases from Vale were finalised. In May 2015 Cosco bought four valemaxes for $445 million, for operation by China Ore Shipping (a new company 51 percent owned by Cosco and 49 percent by China Shipping Group, preceding the merger of the two holding companies). Soon after, in July, China Merchants Energy Shipping bought four valemaxes for $448m and set up a new operating subsidiary, China VLOC. Finally, in December, Industrial and Commercial Bank of China’s ICBC Leasing subsidiary purchased a further four ships for $423m.
What has the valemax strategy achieved?
When Vale’s original strategy became known, it was soon clear that it was industrial bulk shipping on a vast scale, one of the biggest arrangements of its type ever seen in the dry bulk sector. Given the enormous scale of capital investment involved, it is arguable that advantages for the mining company have been modest so far, mostly reflecting a shipping market environment evolving very differently to what was envisaged at the outset.
Varying conditions ranging from subdued to depressed have prevailed, in the dry bulk freight market, during much of the past five years since valemaxes started operating. Low open market rates over a long period diminished the economic justification for mega-size ships, greatly reducing envisaged savings in iron ore transport costs. The differential between freight rates from Brazil and the main export competitor, Australia was compressed, removing more benefit. However, some advantage has been gained by avoiding brief spikes in capesize rates.
Accompanying these general market aspects related to valemax employment, an inability to access Chinese ports regularly with fully-loaded ships for several years was a huge setback. Although a workable alternative plan was quickly put in place, featuring transshipment at various locations, it involved significant extra costs. These additional expenses partly offset gains from lower unit costs of transportation resulting from economies of scale.
Nevertheless there are still, potentially, benefits to be gained in the future over the remaining lifespan of the existing ships, two decades or more. A balanced view will be possible only much later during this period. If another long dry bulk freight market boom occurred, unlikely though that may seem based on present signs, the valemax strategy could prove to have been extraordinarily sound and far-sighted.
A contrasting approach by Vale’s principal competitors in the international iron ore market has been seen. Rio Tinto and BHP Billiton have adopted different strategies. Although Rio Tinto has invested in ore carriers to some extent, these are not the mega-size ships. BHP Billiton has remained focused mainly upon using the open freight market.
Future fleet enlargement
Underlining potential future advantages are plans, recently announced, to almost double the size of the present valemax fleet. This expansion presumably has been informed by performance already experienced, and probably reflects expectations of a fairly subdued freight market evolution in many of the years ahead.
During the past few months it was confirmed that three Chinese shipowners have placed orders with shipbuilders in China for 30 valemaxes to be delivered in 2018 and 2019, as shown in the table below. Reports indicate that Vale is chartering all the ships on long 27 years contracts of affreightment.
Although these orders have added to anxiety about future global bulk carrier fleet expansion, it seems clear that a large proportion of the new capacity is effectively replacement tonnage. Many vessels Vale is currently using, VLOCs converted from tankers, probably will reach or approach their life-cycle end by 2020 or earlier. Among these, numerous ships were built in the years up to 1993, and so will be twenty five or more years old by 2018.
The new valemaxes will assist in providing iron ore transportation on the Brazil to China route at the most economical cost. Enhanced competitiveness with other iron ore suppliers, especially Australia is likely to result. Another aspect is that full possession of the vessels by China-owned shipping companies is consistent with the national strategic aim to carry a higher proportion of the country’s trade in domestically-owned ships.
Article by Richard Scott, visiting lecturer, London universities & MD, Bulk Shipping Analysis | Hellenic Shipping News
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Monday, 29 August 16
THE 5000 GAR THERMAL COAL INDEX HAS STRENGTHENED BY 9.90% SINCE JANUARY
COALspot.com: A rally in thermal coal prices over the past few months, after years of decline, is still continuing upward and it is expected to ral ...
Monday, 29 August 16
THE FREIGHT MARKET WAS STEADY AND FIRM THIS PAST WEEK; BCI ROSE 18.74%
COALspot.com: The Baltic Exchange, tracking rates for ships carrying dry bulk commodities rose and ending in a positive note this past week except ...
Friday, 26 August 16
WEEKLY US COAL OUTPUT UP 0.7% W/W TO 16 MMST: EIA
COALspot.com – U.S., the world’s second largest coal producers have produced approximately totalled an estimated 16 million short tons ...
Thursday, 25 August 16
SUPRAMAXES ARE BEING FIXED IN REGION OF $9000
Supramax
Due to Chinese coal imports which continues to source much of the tonnage in SE Asia combined with a good flow of mineral exports ex Aus ...
Wednesday, 24 August 16
MARKET INSIGHT
Brazil and the world bid farewell on Sunday to the first Olympic Games in South America in the midst of a finale meant to be both one last bash and ...
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- Essar Steel Hazira Ltd - India
- Therma Luzon, Inc, Philippines
- Kaltim Prima Coal - Indonesia
- Bangladesh Power Developement Board
- Rashtriya Ispat Nigam Limited - India
- Alfred C Toepfer International GmbH - Germany
- Mercator Lines Limited - India
- Jindal Steel & Power Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- PowerSource Philippines DevCo
- Agrawal Coal Company - India
- Global Coal Blending Company Limited - Australia
- Neyveli Lignite Corporation Ltd, - India
- Sical Logistics Limited - India
- Bhushan Steel Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Orica Mining Services - Indonesia
- Antam Resourcindo - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Ind-Barath Power Infra Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Holcim Trading Pte Ltd - Singapore
- Karbindo Abesyapradhi - Indoneisa
- GN Power Mariveles Coal Plant, Philippines
- Eastern Energy - Thailand
- Ministry of Mines - Canada
- Ministry of Transport, Egypt
- Bulk Trading Sa - Switzerland
- Minerals Council of Australia
- Sakthi Sugars Limited - India
- Goldman Sachs - Singapore
- Maharashtra Electricity Regulatory Commission - India
- Miang Besar Coal Terminal - Indonesia
- Madhucon Powers Ltd - India
- Latin American Coal - Colombia
- Electricity Generating Authority of Thailand
- Carbofer General Trading SA - India
- Aboitiz Power Corporation - Philippines
- OPG Power Generation Pvt Ltd - India
- Uttam Galva Steels Limited - India
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- Indika Energy - Indonesia
- Deloitte Consulting - India
- Grasim Industreis Ltd - India
- Karaikal Port Pvt Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Africa Commodities Group - South Africa
- Coalindo Energy - Indonesia
- Medco Energi Mining Internasional
- Bhatia International Limited - India
- Siam City Cement PLC, Thailand
- Eastern Coal Council - USA
- Vijayanagar Sugar Pvt Ltd - India
- Ministry of Finance - Indonesia
- Port Waratah Coal Services - Australia
- GMR Energy Limited - India
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- Tata Chemicals Ltd - India
- Samtan Co., Ltd - South Korea
- Jaiprakash Power Ventures ltd
- VISA Power Limited - India
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- Altura Mining Limited, Indonesia
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- Trasteel International SA, Italy
- Sindya Power Generating Company Private Ltd
- CNBM International Corporation - China
- Bank of Tokyo Mitsubishi UFJ Ltd
- Marubeni Corporation - India
- Banpu Public Company Limited - Thailand
- Simpson Spence & Young - Indonesia
- Indonesian Coal Mining Association
- Baramulti Group, Indonesia
- Indian Energy Exchange, India
- Merrill Lynch Commodities Europe
- SMG Consultants - Indonesia
- Mjunction Services Limited - India
- Siam City Cement - Thailand
- Bhoruka Overseas - Indonesia
- PNOC Exploration Corporation - Philippines
- Indian Oil Corporation Limited
- Posco Energy - South Korea
- Semirara Mining and Power Corporation, Philippines
- IHS Mccloskey Coal Group - USA
- The State Trading Corporation of India Ltd
- Thiess Contractors Indonesia
- Semirara Mining Corp, Philippines
- Kobexindo Tractors - Indoneisa
- Attock Cement Pakistan Limited
- Salva Resources Pvt Ltd - India
- Coastal Gujarat Power Limited - India
- Anglo American - United Kingdom
- Tamil Nadu electricity Board
- Star Paper Mills Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Toyota Tsusho Corporation, Japan
- CIMB Investment Bank - Malaysia
- Directorate General of MIneral and Coal - Indonesia
- Chettinad Cement Corporation Ltd - India
- Sarangani Energy Corporation, Philippines
- International Coal Ventures Pvt Ltd - India
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- Indogreen Group - Indonesia
- India Bulls Power Limited - India
- Iligan Light & Power Inc, Philippines
- SMC Global Power, Philippines
- Intertek Mineral Services - Indonesia
- Mercuria Energy - Indonesia
- Parry Sugars Refinery, India
- Dalmia Cement Bharat India
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- ICICI Bank Limited - India
- AsiaOL BioFuels Corp., Philippines
- Borneo Indobara - Indonesia
- Vizag Seaport Private Limited - India
- Bayan Resources Tbk. - Indonesia
- Energy Development Corp, Philippines
- Interocean Group of Companies - India
- Renaissance Capital - South Africa
- The University of Queensland
- Heidelberg Cement - Germany
- Jorong Barutama Greston.PT - Indonesia
- Pendopo Energi Batubara - Indonesia
- The Treasury - Australian Government
- Georgia Ports Authority, United States
- Wilmar Investment Holdings
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- European Bulk Services B.V. - Netherlands
- Commonwealth Bank - Australia
- Gujarat Mineral Development Corp Ltd - India
- Orica Australia Pty. Ltd.
- SN Aboitiz Power Inc, Philippines
- Malabar Cements Ltd - India
- San Jose City I Power Corp, Philippines
- Planning Commission, India
- Rio Tinto Coal - Australia
- Central Electricity Authority - India
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- Gujarat Electricity Regulatory Commission - India
- Lanco Infratech Ltd - India
- PTC India Limited - India
- Chamber of Mines of South Africa
- Vedanta Resources Plc - India
- Videocon Industries ltd - India
- GAC Shipping (India) Pvt Ltd
- GVK Power & Infra Limited - India
- London Commodity Brokers - England
- New Zealand Coal & Carbon
- Kapuas Tunggal Persada - Indonesia
- Kumho Petrochemical, South Korea
- Krishnapatnam Port Company Ltd. - India
- Ambuja Cements Ltd - India
- Aditya Birla Group - India
- Cement Manufacturers Association - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Barasentosa Lestari - Indonesia
- Maheswari Brothers Coal Limited - India
- Globalindo Alam Lestari - Indonesia
- Standard Chartered Bank - UAE
- MS Steel International - UAE
- Sinarmas Energy and Mining - Indonesia
- Sojitz Corporation - Japan
- Cigading International Bulk Terminal - Indonesia
- Power Finance Corporation Ltd., India
- Coal and Oil Company - UAE
- TNB Fuel Sdn Bhd - Malaysia
- Savvy Resources Ltd - HongKong
- Xindia Steels Limited - India
- Australian Coal Association
- Global Business Power Corporation, Philippines
- Energy Link Ltd, New Zealand
- Mintek Dendrill Indonesia
- Timah Investasi Mineral - Indoneisa
- Formosa Plastics Group - Taiwan
- Billiton Holdings Pty Ltd - Australia
- Kepco SPC Power Corporation, Philippines
- Directorate Of Revenue Intelligence - India
- Australian Commodity Traders Exchange
- Kalimantan Lumbung Energi - Indonesia
- TeaM Sual Corporation - Philippines
- Bukit Makmur.PT - Indonesia
- Petron Corporation, Philippines
- Riau Bara Harum - Indonesia
- Romanian Commodities Exchange
- Metalloyd Limited - United Kingdom
- Singapore Mercantile Exchange
- Global Green Power PLC Corporation, Philippines
- Central Java Power - Indonesia
- McConnell Dowell - Australia
- Ceylon Electricity Board - Sri Lanka
- Meenaskhi Energy Private Limited - India
- PetroVietnam Power Coal Import and Supply Company
- ASAPP Information Group - India
- Edison Trading Spa - Italy
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Leighton Contractors Pty Ltd - Australia
- IEA Clean Coal Centre - UK
- Thai Mozambique Logistica
- Electricity Authority, New Zealand
- Parliament of New Zealand
- Kideco Jaya Agung - Indonesia
- White Energy Company Limited
- Straits Asia Resources Limited - Singapore
- Bukit Asam (Persero) Tbk - Indonesia
- Makarim & Taira - Indonesia
- Wood Mackenzie - Singapore
- Bharathi Cement Corporation - India
- Kartika Selabumi Mining - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Manunggal Multi Energi - Indonesia
- LBH Netherlands Bv - Netherlands
- South Luzon Thermal Energy Corporation
- Larsen & Toubro Limited - India
- Binh Thuan Hamico - Vietnam
- Economic Council, Georgia
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