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Tuesday, 22 December 20
2021 DRY BULK OUTLOOK - SUPPLY GROWTH - TORVALD KLAVENESS
 In the first article in the series we mentioned that dry bulk freight was in a super cycle between 2001 and 2008. The growth in global yard capacity was unable to keep up with the seaborne demand growth triggered by China joining the World Trade Organization in 2001. This led to extensive contracting on existing yards. In addition, we saw many orders at “greenfield” shipyards in China that had to be built before the construction of vessels could even commence. In some cases, contracts were made with a delivery date 5-6 years into the future. This led to unprecedented fleet growth in the 2009 to 2012 period. The peak year in terms of annual percentage fleet growth was in 2010 at 17.1% (see third graph below). While the peak years in terms of deliveries were in 2011 and 2012. Commodity prices, freight rates, asset prices and newbuild contracts collapsed in the months after the financial crisis. However, China soon stepped in and doubled down on their raw material purchases incentivized by the low landed cost of imported commodities. This led to rebounding freight rates and a new wave of newbuild contracting.
The freight market remained strong through most of 2010 but then started another negative spiral as fleet growth remained elevated and as the Chinese demand growth moderated from the neck breaking pace seen in the period directly after the financial crisis. Deliveries slowed down considerably in 2013(see graph below). As the underlying dry bulk demand was solid, the lower fleet growth was enough to once again pull freight rates higher. At an early stage of the 2013 freight rate recovery it was argued that this time around the higher freight rates would not trigger more orders. The reasoning was that the ship owning companies was strapped for liquidity after buying expensive vessels at the peak of the market. The shipping companies had enough on the plate just servicing their debt obligations, and banks were increasingly restrictive in their lending. Thus, a big wave of ordering was deemed unlikely. However, private equity was drawn to the sector as asset valuations were low and as the freight market was in what appeared to be a cyclical bottom. This unforeseen influx of capital from the outside led to another huge wave of contracting which at its peak almost reached the levels seen in 2008 (see left graph above). This turned out be another false dawn and freight markets trended further down before bottoming out in Q1-2016. Since then the underlying trend in freight rates has been positive. We did see a new wave in contracting in 2017 and 2018, but the amount of orders did not reach the same levels as in the previous waves. It was however enough to increase the year on year fleet growth from a bottom of 2.2% in 2016 to 4.0% in 2019, and about 3.3% in 2020 (see graph below). With limited newbuild orders in the last two years the orderbook as a percentage of the fleet now stands at 6.3% (see right graph above), the lowest level in Clarksons timeseries dating back to 1996.
Fleet growth in 2021/2022
Based on the current level of the orderbook we can with a high level of certainty predict that fleet growth will be at historical low levels in 2021 and 2022. We expect demolition in 2021 and 2022 to be on more or less on par with this year as the effects from higher freight and fairly low bunker prices limits the incentives for scrapping older inefficient tonnage. We expect total fleet growth in 2021 to end at 1.6%, which will be the lowest fleet growth recorded since 1999. For 2022 we expect fleet growth to increase slightly to 1.9%. This includes a guesstimate of another 6.2Mdwt of contracts will be added to orderbook with delivery in 2022. The average lead time between orders and delivery in recent years has been more than 24 months so time is running out for orders with delivery in 2022. However, there will also be contracts that has already been signed which as of today is not included in the orderbook.
We expect the fleet growth in 2021 to be lower than in 2020 for all segments. The fleet growth in the Capesize and Handysize segment is expected to be very low at 0.9 and 0.5% respectively. Fleet growth in the Panamax and Supramax segments are expected to come in at 2.7% and 2.3% respectively. Going into 2022 we expect the fleet growth to be 1.6% in Capesize segment, 2.4% in the Panamax and Supramax segment and 1.3% in the Handysize segment.
We are confident that the dry bulk fleet growth will be at historical lows in 2021 and 2022. What happens in 2023 and beyond is more open for debate. As we walked down the memory lane earlier in the article, we saw that any uptick in freight rates in the past 20 years has triggered big waves of newbuild orders. We believe it is very likely that freight rates will increase in 2021 and 2022 as low fleet growth combines with a seaborne dry bulk trade that recovers from the black swan events of Brumadinho and covid-19. Is there any reason not to expect a big wave of newbuilding orders this time around if the freight market improves? We certainly believe that higher freight markets will trigger more newbuild orders in the coming years. However, we also believe that fleet growth in the next 5 years is likely to be at low levels due to uncertainties around the choice of fuel and propulsion systems. Klaveness will monitor the decarbonization of shipping closely going forward and have established a team named ZeroLab by Klaveness. In the following paragraphs, Head of ZeroLab Martin Prokosch provides a brief introduction to this large topic.
The initial IMO Greenhouse Gas (GHG) Strategy, adopted in 2018, sets ambitious targets to reduce carbon intensity of international shipping by 40% in 2030 compared to 2008 and reduce the absolute GHG emissions from ships with 50% by 2050, compared to 2008. These targets are illustrated in the figure below, showing both the development in seaborne trade and GHG emissions from shipping, both indexed to 100 in 2008 (Source: IMO: Fourth GHG Study, 2020). In the years after 2008, the emissions were decoupled from further growth in seaborne trade. This was largely due to slow steaming of vessels and partly due to increased energy efficiency in new vessels (ECO-ships). In the recent years the absolute emissions have again been on the rise. To reach the 40% intensity reduction target in 2030, the absolute emissions will need to stay constant while seaborne trade recovers from COVID-19 and again continues to increase as expected.
While the 2030 targets are achievable with current technologies and available alternative fuel types (e.g., LNG), the 2050 targets are much harder to reach. To achieve a reduction of 50% in absolute emissions, the average vessel needs to emit 70-80% less in 2050 vs. 2008 to compensate for the expected growth in seaborne trade. Further, for the shipping sector to be fully aligned with the +1.5-degree target in the Paris agreement, the absolute emissions from this sector will need to reach net zero by 2050.
The usual tools will not bring us there; in order to reach the 2050 emissions targets (either IMO or full alignment with the Paris agreement), new energy sources and fuels need to be introduced for shipping. Slow-steaming and energy efficiency measures reduced the typical emissions of a Dry Bulk Panamax vessel by ~30% from 2008 to 2020 (equivalent to a reduction of ~10 tCO2e per year), but there is limited remaining potential in these measures. To bring the emissions from such a vessel down to 0-30% of the 2008 baseline, the GHG emissions related to the energy sources and fuel(s) need to be close to zero.
There is large uncertainty around which fuel(s) one should design a ship for when ordering vessels during the next decade. LNG is by many seen as a good bridging fuel, coming both at a cost advantage to HFO and offering 5-25% lower GHG emissions depending on engine technology.But unless both the hydrogen and carbon in the methane (CH4) eventually can be sourced from renewable sources (or directly from the air), even LNG will not bring us even close to the target in 2050. Biofuels can also be a bridging solution to reduce emissions in the short- and medium-term, but the future availability and general sustainability is hotly debated. Ammonia produced from renewable energy is by many regarded as the best candidate for the alternative fuel of the future for deep sea shipping. However, ammonia is challenging to handle and currently not available in “green form” (close to 100% is currently produced from fossil fuel). In the longer run, even nuclear energy could be back on the table, especially for very large ships. In the short- and medium-term owners will need to settle with looking at flexibility and optionality when designing and ordering vessels; an LNG-powered vessel designed with retrofit to use of green ammonia in mind, seems like a good place to start.
Conclusion
We are confident that the supply growth in 2021 and 2022 will be at historical low levels. In the absence of new black swan events of a similar magnitude as the Brumadinho disaster and the covid19 epidemic we firmly believe that 2021 and 2022 will deliver demand growth that exceeds the fleet growth. This will increase freight rates. While we do believe that higher freight will trigger more newbuild orders we expect supply growth to trail demand growth in the coming 5 years due to the uncertainty around the choice of fuel and propulsion systems.
So, there you have it. This concludes our 2021 dry bulk outlook series. Hopefully, it has given you as a reader some food for thought.
Source: Peter Lindström, Head of Research, Torvald Klaveness
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Friday, 13 August 21
INDONESIA’S COAL EXPORTS TO JAPAN DECLINED BY -26.3% YOY TO 11.9 MLN TONNES IN THE FIRST 7 MONTHS OF 2021; STILL THE SECOND LARGEST SOURCE FOR JAPAN’S COAL IMPORTS IS INDONESIA - BANCHERO COSTA
2020 proved to be a truly terrible year for global seaborne coal trade. Total global loadings in the 12 months of 2020 were down -12.7% year-on-yea ...
Thursday, 12 August 21
ONLY 3 VLCCS SOLD FOR DEMOLITION IN 2021 AS SECONDHAND PRICES TEMPT - BIMCO
During the first seven months of 2021, only three actively trading Very Large Crude Carriers (VLCCs) have been sold for demolition. The current mar ...
Wednesday, 11 August 21
U.S: EIA EXPECTS COAL EXPORTS TO TOTAL 90 MMST IN 2021, 30% INCREASE FROM 2020
Coal production in EIA's forecast totals 607 million short tons (MMst) in 2021, an increase of 13% over 2020.
EIA is also ...
Wednesday, 11 August 21
MARKET INSIGHT - INTERMODAL
Energy is at the core of the global climate dialogue as the climate challenge is essentially an energy challenge. Policy experts around the world a ...
Tuesday, 10 August 21
34 INDONESIAN COAL COMPANIES TEMPORARILY BANNED FOR COAL EXPORTS
The Ministry of Energy and Mineral Resources (ESDM) has imposed sanctions in the form of a coal export ban for 34 coal companies as reported by CNB ...
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- Heidelberg Cement - Germany
- Global Green Power PLC Corporation, Philippines
- Gujarat Sidhee Cement - India
- Pendopo Energi Batubara - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Kideco Jaya Agung - Indonesia
- OPG Power Generation Pvt Ltd - India
- Coalindo Energy - Indonesia
- MS Steel International - UAE
- Goldman Sachs - Singapore
- Intertek Mineral Services - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Deloitte Consulting - India
- Wilmar Investment Holdings
- Coal and Oil Company - UAE
- Agrawal Coal Company - India
- GMR Energy Limited - India
- Vizag Seaport Private Limited - India
- Maheswari Brothers Coal Limited - India
- Bayan Resources Tbk. - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Global Business Power Corporation, Philippines
- SMC Global Power, Philippines
- Coastal Gujarat Power Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Global Coal Blending Company Limited - Australia
- SMG Consultants - Indonesia
- Sical Logistics Limited - India
- McConnell Dowell - Australia
- Uttam Galva Steels Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- CNBM International Corporation - China
- Economic Council, Georgia
- Romanian Commodities Exchange
- Salva Resources Pvt Ltd - India
- Formosa Plastics Group - Taiwan
- Australian Coal Association
- European Bulk Services B.V. - Netherlands
- Sakthi Sugars Limited - India
- Bharathi Cement Corporation - India
- Barasentosa Lestari - Indonesia
- Metalloyd Limited - United Kingdom
- Baramulti Group, Indonesia
- Mjunction Services Limited - India
- Therma Luzon, Inc, Philippines
- Planning Commission, India
- Merrill Lynch Commodities Europe
- Georgia Ports Authority, United States
- Electricity Generating Authority of Thailand
- Bhatia International Limited - India
- Electricity Authority, New Zealand
- Meenaskhi Energy Private Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Riau Bara Harum - Indonesia
- Minerals Council of Australia
- Jindal Steel & Power Ltd - India
- Chettinad Cement Corporation Ltd - India
- Larsen & Toubro Limited - India
- Toyota Tsusho Corporation, Japan
- Aditya Birla Group - India
- Standard Chartered Bank - UAE
- Indonesian Coal Mining Association
- Aboitiz Power Corporation - Philippines
- Cigading International Bulk Terminal - Indonesia
- Wood Mackenzie - Singapore
- Tamil Nadu electricity Board
- Orica Mining Services - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Malabar Cements Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Ambuja Cements Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Bukit Baiduri Energy - Indonesia
- International Coal Ventures Pvt Ltd - India
- Xindia Steels Limited - India
- Australian Commodity Traders Exchange
- Mercuria Energy - Indonesia
- Timah Investasi Mineral - Indoneisa
- IEA Clean Coal Centre - UK
- Ministry of Mines - Canada
- Semirara Mining and Power Corporation, Philippines
- Thiess Contractors Indonesia
- Chamber of Mines of South Africa
- Jorong Barutama Greston.PT - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Videocon Industries ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Siam City Cement PLC, Thailand
- Directorate General of MIneral and Coal - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Energy Link Ltd, New Zealand
- London Commodity Brokers - England
- Offshore Bulk Terminal Pte Ltd, Singapore
- Kaltim Prima Coal - Indonesia
- Bhushan Steel Limited - India
- VISA Power Limited - India
- Indian Oil Corporation Limited
- Port Waratah Coal Services - Australia
- Interocean Group of Companies - India
- GAC Shipping (India) Pvt Ltd
- Cement Manufacturers Association - India
- Trasteel International SA, Italy
- Edison Trading Spa - Italy
- White Energy Company Limited
- Sree Jayajothi Cements Limited - India
- Straits Asia Resources Limited - Singapore
- Essar Steel Hazira Ltd - India
- Semirara Mining Corp, Philippines
- Karaikal Port Pvt Ltd - India
- Bukit Makmur.PT - Indonesia
- Manunggal Multi Energi - Indonesia
- Sojitz Corporation - Japan
- Rio Tinto Coal - Australia
- Lanco Infratech Ltd - India
- The Treasury - Australian Government
- Mercator Lines Limited - India
- Vedanta Resources Plc - India
- Indo Tambangraya Megah - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Renaissance Capital - South Africa
- Kumho Petrochemical, South Korea
- Pipit Mutiara Jaya. PT, Indonesia
- Ind-Barath Power Infra Limited - India
- New Zealand Coal & Carbon
- Banpu Public Company Limited - Thailand
- Neyveli Lignite Corporation Ltd, - India
- Grasim Industreis Ltd - India
- ASAPP Information Group - India
- Indogreen Group - Indonesia
- Sarangani Energy Corporation, Philippines
- Independent Power Producers Association of India
- Asmin Koalindo Tuhup - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Bhoruka Overseas - Indonesia
- Directorate Of Revenue Intelligence - India
- Anglo American - United Kingdom
- Attock Cement Pakistan Limited
- Rashtriya Ispat Nigam Limited - India
- Price Waterhouse Coopers - Russia
- Parry Sugars Refinery, India
- PowerSource Philippines DevCo
- Karbindo Abesyapradhi - Indoneisa
- Petron Corporation, Philippines
- Parliament of New Zealand
- Carbofer General Trading SA - India
- TeaM Sual Corporation - Philippines
- Marubeni Corporation - India
- Simpson Spence & Young - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- IHS Mccloskey Coal Group - USA
- San Jose City I Power Corp, Philippines
- Power Finance Corporation Ltd., India
- Jaiprakash Power Ventures ltd
- Binh Thuan Hamico - Vietnam
- Commonwealth Bank - Australia
- Kobexindo Tractors - Indoneisa
- ICICI Bank Limited - India
- Kartika Selabumi Mining - Indonesia
- Samtan Co., Ltd - South Korea
- TNB Fuel Sdn Bhd - Malaysia
- Bulk Trading Sa - Switzerland
- LBH Netherlands Bv - Netherlands
- Bangladesh Power Developement Board
- Orica Australia Pty. Ltd.
- GVK Power & Infra Limited - India
- CIMB Investment Bank - Malaysia
- Thai Mozambique Logistica
- Indian Energy Exchange, India
- Posco Energy - South Korea
- Oldendorff Carriers - Singapore
- Ministry of Transport, Egypt
- South Luzon Thermal Energy Corporation
- Central Electricity Authority - India
- Medco Energi Mining Internasional
- Energy Development Corp, Philippines
- PTC India Limited - India
- India Bulls Power Limited - India
- Globalindo Alam Lestari - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Madhucon Powers Ltd - India
- Ministry of Finance - Indonesia
- Indika Energy - Indonesia
- Meralco Power Generation, Philippines
- Savvy Resources Ltd - HongKong
- Kepco SPC Power Corporation, Philippines
- Iligan Light & Power Inc, Philippines
- Star Paper Mills Limited - India
- Mintek Dendrill Indonesia
- Eastern Energy - Thailand
- The State Trading Corporation of India Ltd
- Tata Chemicals Ltd - India
- Makarim & Taira - Indonesia
- Alfred C Toepfer International GmbH - Germany
- PNOC Exploration Corporation - Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Sindya Power Generating Company Private Ltd
- AsiaOL BioFuels Corp., Philippines
- Sinarmas Energy and Mining - Indonesia
- Altura Mining Limited, Indonesia
- Singapore Mercantile Exchange
- Leighton Contractors Pty Ltd - Australia
- Central Java Power - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Antam Resourcindo - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Dalmia Cement Bharat India
- Borneo Indobara - Indonesia
- Siam City Cement - Thailand
- The University of Queensland
- Kapuas Tunggal Persada - Indonesia
- Africa Commodities Group - South Africa
- Eastern Coal Council - USA
- Latin American Coal - Colombia
- SN Aboitiz Power Inc, Philippines
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