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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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Tuesday, 17 May 16
CHINA THERMAL-POWER OVERSUPPLY TO WORSEN - FITCH
COALspot.com: The overcapacity in thermal-power generation in China is likely to worsen in 2016 to 2017, Fitch Ratings says in a new report.
F ...
Tuesday, 17 May 16
ON YOUR MARKS: TRACKING CHINESE TRADE - CLARKSONS
One of the major drivers behind the challenges currently facing many of the shipping markets has been slower demand growth. World seaborne trade gr ...
Monday, 16 May 16
INDONESIAN WEEKLY COAL INDICES AT POSITIVE LEVELS - CS (I) COAL INDEX
COALspot.com: Average 5000 GAR coal index of Indonesian origin up 0.31 percent week over week to averaging $38.94 per ton this past week, shows CS ...
Monday, 16 May 16
OPEC SEES RIVAL OIL PRODUCTION DECLINING
Crude Oil Price Movements
The OPEC Reference Basket averaged $37.86/b in April, a gain of $3.21 or 9.3%. This was 40% higher than the lows reache ...
Monday, 16 May 16
THE FREIGHT MARKET WAS WEAK AND ALL SEGMENTS EXCEPT PANAMAX WERE DOWN
COALspot.com: The Baltic Exchange, tracking rates for ships carrying dry bulk commodities decline this week.
The freight market was weak and a ...
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- ICICI Bank Limited - India
- The State Trading Corporation of India Ltd
- GMR Energy Limited - India
- Borneo Indobara - Indonesia
- Power Finance Corporation Ltd., India
- Orica Mining Services - Indonesia
- PNOC Exploration Corporation - Philippines
- Wood Mackenzie - Singapore
- Thiess Contractors Indonesia
- Medco Energi Mining Internasional
- Sindya Power Generating Company Private Ltd
- Indo Tambangraya Megah - Indonesia
- Australian Commodity Traders Exchange
- Vijayanagar Sugar Pvt Ltd - India
- Attock Cement Pakistan Limited
- Bahari Cakrawala Sebuku - Indonesia
- Economic Council, Georgia
- Commonwealth Bank - Australia
- Trasteel International SA, Italy
- MS Steel International - UAE
- Sical Logistics Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Directorate Of Revenue Intelligence - India
- South Luzon Thermal Energy Corporation
- Straits Asia Resources Limited - Singapore
- Oldendorff Carriers - Singapore
- Latin American Coal - Colombia
- Altura Mining Limited, Indonesia
- Lanco Infratech Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Wilmar Investment Holdings
- Merrill Lynch Commodities Europe
- SN Aboitiz Power Inc, Philippines
- CIMB Investment Bank - Malaysia
- Africa Commodities Group - South Africa
- Simpson Spence & Young - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Kideco Jaya Agung - Indonesia
- Manunggal Multi Energi - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Ministry of Transport, Egypt
- Mercator Lines Limited - India
- Timah Investasi Mineral - Indoneisa
- The University of Queensland
- Rio Tinto Coal - Australia
- Tamil Nadu electricity Board
- Meenaskhi Energy Private Limited - India
- Heidelberg Cement - Germany
- ASAPP Information Group - India
- Global Coal Blending Company Limited - Australia
- Electricity Authority, New Zealand
- Agrawal Coal Company - India
- Bangladesh Power Developement Board
- Banpu Public Company Limited - Thailand
- Salva Resources Pvt Ltd - India
- Sarangani Energy Corporation, Philippines
- Coalindo Energy - Indonesia
- Chamber of Mines of South Africa
- McConnell Dowell - Australia
- Intertek Mineral Services - Indonesia
- IHS Mccloskey Coal Group - USA
- Interocean Group of Companies - India
- Karaikal Port Pvt Ltd - India
- Georgia Ports Authority, United States
- Gujarat Sidhee Cement - India
- Baramulti Group, Indonesia
- Cigading International Bulk Terminal - Indonesia
- Siam City Cement PLC, Thailand
- Australian Coal Association
- Bukit Baiduri Energy - Indonesia
- San Jose City I Power Corp, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Bharathi Cement Corporation - India
- Directorate General of MIneral and Coal - Indonesia
- Jindal Steel & Power Ltd - India
- Grasim Industreis Ltd - India
- Kumho Petrochemical, South Korea
- AsiaOL BioFuels Corp., Philippines
- Ministry of Mines - Canada
- Metalloyd Limited - United Kingdom
- Thai Mozambique Logistica
- Bhushan Steel Limited - India
- Renaissance Capital - South Africa
- Alfred C Toepfer International GmbH - Germany
- Central Electricity Authority - India
- Indonesian Coal Mining Association
- Central Java Power - Indonesia
- Xindia Steels Limited - India
- Mjunction Services Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Standard Chartered Bank - UAE
- GVK Power & Infra Limited - India
- Price Waterhouse Coopers - Russia
- Maharashtra Electricity Regulatory Commission - India
- New Zealand Coal & Carbon
- Kapuas Tunggal Persada - Indonesia
- Independent Power Producers Association of India
- Ministry of Finance - Indonesia
- Bukit Makmur.PT - Indonesia
- Indian Oil Corporation Limited
- Rashtriya Ispat Nigam Limited - India
- OPG Power Generation Pvt Ltd - India
- Vedanta Resources Plc - India
- SMG Consultants - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Gujarat Mineral Development Corp Ltd - India
- Siam City Cement - Thailand
- Kepco SPC Power Corporation, Philippines
- Miang Besar Coal Terminal - Indonesia
- Tata Chemicals Ltd - India
- Dalmia Cement Bharat India
- Indika Energy - Indonesia
- Bhatia International Limited - India
- Energy Development Corp, Philippines
- Mintek Dendrill Indonesia
- Uttam Galva Steels Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Kobexindo Tractors - Indoneisa
- Minerals Council of Australia
- Formosa Plastics Group - Taiwan
- Maheswari Brothers Coal Limited - India
- Krishnapatnam Port Company Ltd. - India
- Indian Energy Exchange, India
- Global Green Power PLC Corporation, Philippines
- Bhoruka Overseas - Indonesia
- Bulk Trading Sa - Switzerland
- Kohat Cement Company Ltd. - Pakistan
- Petron Corporation, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Binh Thuan Hamico - Vietnam
- Vizag Seaport Private Limited - India
- Deloitte Consulting - India
- LBH Netherlands Bv - Netherlands
- Savvy Resources Ltd - HongKong
- Parry Sugars Refinery, India
- Videocon Industries ltd - India
- Star Paper Mills Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Electricity Generating Authority of Thailand
- Posco Energy - South Korea
- Edison Trading Spa - Italy
- Ambuja Cements Ltd - India
- European Bulk Services B.V. - Netherlands
- Sree Jayajothi Cements Limited - India
- Samtan Co., Ltd - South Korea
- Jaiprakash Power Ventures ltd
- Port Waratah Coal Services - Australia
- Billiton Holdings Pty Ltd - Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Toyota Tsusho Corporation, Japan
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- White Energy Company Limited
- Goldman Sachs - Singapore
- Semirara Mining Corp, Philippines
- Ind-Barath Power Infra Limited - India
- SMC Global Power, Philippines
- Pendopo Energi Batubara - Indonesia
- Marubeni Corporation - India
- Mercuria Energy - Indonesia
- Coal and Oil Company - UAE
- Sojitz Corporation - Japan
- Aboitiz Power Corporation - Philippines
- Chettinad Cement Corporation Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Sakthi Sugars Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Globalindo Alam Lestari - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Holcim Trading Pte Ltd - Singapore
- Malabar Cements Ltd - India
- Global Business Power Corporation, Philippines
- Cement Manufacturers Association - India
- Sinarmas Energy and Mining - Indonesia
- Larsen & Toubro Limited - India
- PowerSource Philippines DevCo
- India Bulls Power Limited - India
- International Coal Ventures Pvt Ltd - India
- Bayan Resources Tbk. - Indonesia
- PTC India Limited - India
- IEA Clean Coal Centre - UK
- Aditya Birla Group - India
- Orica Australia Pty. Ltd.
- Offshore Bulk Terminal Pte Ltd, Singapore
- Parliament of New Zealand
- Riau Bara Harum - Indonesia
- The Treasury - Australian Government
- Petrochimia International Co. Ltd.- Taiwan
- Antam Resourcindo - Indonesia
- CNBM International Corporation - China
- Makarim & Taira - Indonesia
- Essar Steel Hazira Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Meralco Power Generation, Philippines
- Barasentosa Lestari - Indonesia
- Kaltim Prima Coal - Indonesia
- Eastern Energy - Thailand
- VISA Power Limited - India
- London Commodity Brokers - England
- Coastal Gujarat Power Limited - India
- Anglo American - United Kingdom
- Indogreen Group - Indonesia
- GAC Shipping (India) Pvt Ltd
- Planning Commission, India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bank of Tokyo Mitsubishi UFJ Ltd
- Eastern Coal Council - USA
- Gujarat Electricity Regulatory Commission - India
- Energy Link Ltd, New Zealand
- Romanian Commodities Exchange
- Singapore Mercantile Exchange
- Therma Luzon, Inc, Philippines
- Iligan Light & Power Inc, Philippines
- Madhucon Powers Ltd - India
- TeaM Sual Corporation - Philippines
- Carbofer General Trading SA - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kartika Selabumi Mining - Indonesia
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