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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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Thursday, 19 May 16
AUSTRALIAN IRON ORE CARGOES PUSHED UP THE FREIGHT RATES FOR CAPE THIS WEEK - FEARNLEYS
Cape
It has been a big jump in the freight rates for Cape size this week, says Fearnleys in its latest weekly report. All of the Australian iron ...
Thursday, 19 May 16
DISPUTE OVER VAT ON COAL DRAGS ON, CAUSING DOUBLE-BLOW TO MINERS - JP
The dispute over the value-added tax ( VAT ) mechanism between coal miners operating under third-generation contracts and the Finance Ministry&rsqu ...
Wednesday, 18 May 16
DRY BULK OUTLOOK REMAINS GLOOMY SAYS DANISH SHIP FINANCE, AS SHIPPING NEEDS TO RETHINK BUSINESS MODEL - HELLENIC SHIPPING
Our Shipping Market Review – May 2016 is devoted to the fourth industrial revolution. To understand the truly disruptive nature of the fourth ...
Wednesday, 18 May 16
LONG TERM FUNDAMENTALS ARE SLOWLY IMPROVING FOR THE DRY BULK MARKET - INTERMODAL
As we are approaching the end of the first half of the year, there is a number of market participants over at the dry bulk sector that have started ...
Tuesday, 17 May 16
INDONESIAN COAL PRICE REFERENCE DECLINE AGAIN
COALspot.com: The Indonesia Coal Benchmark Price declined in May 2016.
The Director General of Mineral and Coal of Indonesia, the regulator of ...
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Showing 2426 to 2430 news of total 6871 |
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- Siam City Cement - Thailand
- Chamber of Mines of South Africa
- Binh Thuan Hamico - Vietnam
- Kapuas Tunggal Persada - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Petrochimia International Co. Ltd.- Taiwan
- Indian Energy Exchange, India
- Mintek Dendrill Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Port Waratah Coal Services - Australia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Bharathi Cement Corporation - India
- Chettinad Cement Corporation Ltd - India
- London Commodity Brokers - England
- Petron Corporation, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Bhushan Steel Limited - India
- Samtan Co., Ltd - South Korea
- Bukit Asam (Persero) Tbk - Indonesia
- Kartika Selabumi Mining - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Pendopo Energi Batubara - Indonesia
- The Treasury - Australian Government
- Indo Tambangraya Megah - Indonesia
- Makarim & Taira - Indonesia
- Global Coal Blending Company Limited - Australia
- Central Electricity Authority - India
- Australian Commodity Traders Exchange
- Trasteel International SA, Italy
- Sical Logistics Limited - India
- Anglo American - United Kingdom
- AsiaOL BioFuels Corp., Philippines
- Directorate Of Revenue Intelligence - India
- Vedanta Resources Plc - India
- Australian Coal Association
- Holcim Trading Pte Ltd - Singapore
- Kobexindo Tractors - Indoneisa
- CNBM International Corporation - China
- PNOC Exploration Corporation - Philippines
- Meralco Power Generation, Philippines
- ASAPP Information Group - India
- Indian Oil Corporation Limited
- Interocean Group of Companies - India
- PTC India Limited - India
- Bukit Baiduri Energy - Indonesia
- Sree Jayajothi Cements Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- IEA Clean Coal Centre - UK
- Gujarat Electricity Regulatory Commission - India
- Posco Energy - South Korea
- Sarangani Energy Corporation, Philippines
- VISA Power Limited - India
- Lanco Infratech Ltd - India
- IHS Mccloskey Coal Group - USA
- Marubeni Corporation - India
- Vijayanagar Sugar Pvt Ltd - India
- Ministry of Transport, Egypt
- OPG Power Generation Pvt Ltd - India
- Therma Luzon, Inc, Philippines
- GN Power Mariveles Coal Plant, Philippines
- TeaM Sual Corporation - Philippines
- Rashtriya Ispat Nigam Limited - India
- Economic Council, Georgia
- San Jose City I Power Corp, Philippines
- Karaikal Port Pvt Ltd - India
- Parry Sugars Refinery, India
- Globalindo Alam Lestari - Indonesia
- Commonwealth Bank - Australia
- GAC Shipping (India) Pvt Ltd
- Xindia Steels Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- TNB Fuel Sdn Bhd - Malaysia
- Maheswari Brothers Coal Limited - India
- Sojitz Corporation - Japan
- Billiton Holdings Pty Ltd - Australia
- Coalindo Energy - Indonesia
- The University of Queensland
- Bhatia International Limited - India
- Thiess Contractors Indonesia
- Asmin Koalindo Tuhup - Indonesia
- PowerSource Philippines DevCo
- Metalloyd Limited - United Kingdom
- Uttam Galva Steels Limited - India
- Semirara Mining Corp, Philippines
- Energy Link Ltd, New Zealand
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Deloitte Consulting - India
- Thai Mozambique Logistica
- Global Green Power PLC Corporation, Philippines
- Sakthi Sugars Limited - India
- Baramulti Group, Indonesia
- Cigading International Bulk Terminal - Indonesia
- Coal and Oil Company - UAE
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Planning Commission, India
- Krishnapatnam Port Company Ltd. - India
- Jorong Barutama Greston.PT - Indonesia
- Oldendorff Carriers - Singapore
- Formosa Plastics Group - Taiwan
- The State Trading Corporation of India Ltd
- Electricity Authority, New Zealand
- Jindal Steel & Power Ltd - India
- Singapore Mercantile Exchange
- Africa Commodities Group - South Africa
- Eastern Energy - Thailand
- Iligan Light & Power Inc, Philippines
- Timah Investasi Mineral - Indoneisa
- PetroVietnam Power Coal Import and Supply Company
- Aditya Birla Group - India
- Riau Bara Harum - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Bangladesh Power Developement Board
- Georgia Ports Authority, United States
- Jaiprakash Power Ventures ltd
- Savvy Resources Ltd - HongKong
- Renaissance Capital - South Africa
- Straits Asia Resources Limited - Singapore
- Indonesian Coal Mining Association
- Sindya Power Generating Company Private Ltd
- Romanian Commodities Exchange
- Pipit Mutiara Jaya. PT, Indonesia
- Miang Besar Coal Terminal - Indonesia
- Meenaskhi Energy Private Limited - India
- Kepco SPC Power Corporation, Philippines
- European Bulk Services B.V. - Netherlands
- Barasentosa Lestari - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Tata Chemicals Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Malabar Cements Ltd - India
- Altura Mining Limited, Indonesia
- Global Business Power Corporation, Philippines
- Leighton Contractors Pty Ltd - Australia
- GVK Power & Infra Limited - India
- Kaltim Prima Coal - Indonesia
- Kideco Jaya Agung - Indonesia
- Simpson Spence & Young - Indonesia
- Kumho Petrochemical, South Korea
- Aboitiz Power Corporation - Philippines
- New Zealand Coal & Carbon
- Indika Energy - Indonesia
- SMG Consultants - Indonesia
- Bhoruka Overseas - Indonesia
- Coastal Gujarat Power Limited - India
- Cement Manufacturers Association - India
- India Bulls Power Limited - India
- McConnell Dowell - Australia
- MS Steel International - UAE
- Indogreen Group - Indonesia
- Price Waterhouse Coopers - Russia
- Tamil Nadu electricity Board
- Central Java Power - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Toyota Tsusho Corporation, Japan
- GMR Energy Limited - India
- Carbofer General Trading SA - India
- Parliament of New Zealand
- Goldman Sachs - Singapore
- Merrill Lynch Commodities Europe
- Salva Resources Pvt Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Madhucon Powers Ltd - India
- Dalmia Cement Bharat India
- Larsen & Toubro Limited - India
- Standard Chartered Bank - UAE
- Neyveli Lignite Corporation Ltd, - India
- Star Paper Mills Limited - India
- Videocon Industries ltd - India
- Siam City Cement PLC, Thailand
- Essar Steel Hazira Ltd - India
- Mercator Lines Limited - India
- Antam Resourcindo - Indonesia
- Independent Power Producers Association of India
- South Luzon Thermal Energy Corporation
- SN Aboitiz Power Inc, Philippines
- Wood Mackenzie - Singapore
- Latin American Coal - Colombia
- Eastern Coal Council - USA
- Sinarmas Energy and Mining - Indonesia
- Orica Mining Services - Indonesia
- Grasim Industreis Ltd - India
- Attock Cement Pakistan Limited
- Bukit Makmur.PT - Indonesia
- Agrawal Coal Company - India
- Bulk Trading Sa - Switzerland
- Minerals Council of Australia
- CIMB Investment Bank - Malaysia
- Ind-Barath Power Infra Limited - India
- Mjunction Services Limited - India
- SMC Global Power, Philippines
- ICICI Bank Limited - India
- Edison Trading Spa - Italy
- Gujarat Sidhee Cement - India
- Ambuja Cements Ltd - India
- Power Finance Corporation Ltd., India
- Bayan Resources Tbk. - Indonesia
- Borneo Indobara - Indonesia
- Rio Tinto Coal - Australia
- Energy Development Corp, Philippines
- Manunggal Multi Energi - Indonesia
- Medco Energi Mining Internasional
- Ministry of Mines - Canada
- Banpu Public Company Limited - Thailand
- Maharashtra Electricity Regulatory Commission - India
- White Energy Company Limited
- Vizag Seaport Private Limited - India
- Wilmar Investment Holdings
- Heidelberg Cement - Germany
- Intertek Mineral Services - Indonesia
- LBH Netherlands Bv - Netherlands
- Ministry of Finance - Indonesia
- Orica Australia Pty. Ltd.
- Electricity Generating Authority of Thailand
- International Coal Ventures Pvt Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Mercuria Energy - Indonesia
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