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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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Wednesday, 28 July 21
IN THE PHILIPPINES, COAL’S DEMISE MAKES WAY FOR A RENEWABLE ENERGY BOOM - IEEFA
Imported gas lock-in could undermine the economic benefits of a clean energy transition
The Philippines’ energy sector is on t ...
Wednesday, 28 July 21
MARKET INSIGHT - INTERMODAL
Assessing the ship repair sector during this first half of the year, we continue to come across surprises and new restrictions which are trembling ...
Saturday, 24 July 21
UNDERSTANDING INDIA'S LATEST PEAK POWER DEMAND RECORD - IEEFA
Ramping up solar will be crucial as peak power demand hits during the day
At around noon on 7 July 2021, India’s instantaneous ...
Wednesday, 21 July 21
MARKET INSIGHT - INTERMODAL
Dry Buk Sales and Purchase activity has heated up during 2021, reaching record high levels during the first half of the year. The increased interes ...
Monday, 19 July 21
CHINA'S COAL OUTPUT UP 6.4 PCT IN H1 - XINHUA
China’s raw coal output climbed 6.4 percent year on year to 1.95 billion tonnes in the first six months of the year, official data showed.
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- Offshore Bulk Terminal Pte Ltd, Singapore
- Krishnapatnam Port Company Ltd. - India
- Rashtriya Ispat Nigam Limited - India
- Siam City Cement PLC, Thailand
- Chamber of Mines of South Africa
- Eastern Coal Council - USA
- TNB Fuel Sdn Bhd - Malaysia
- Attock Cement Pakistan Limited
- Videocon Industries ltd - India
- Australian Coal Association
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Singapore Mercantile Exchange
- International Coal Ventures Pvt Ltd - India
- PowerSource Philippines DevCo
- Bhushan Steel Limited - India
- The State Trading Corporation of India Ltd
- Semirara Mining and Power Corporation, Philippines
- Intertek Mineral Services - Indonesia
- Mercuria Energy - Indonesia
- Global Business Power Corporation, Philippines
- Gujarat Electricity Regulatory Commission - India
- Energy Development Corp, Philippines
- Vedanta Resources Plc - India
- Sree Jayajothi Cements Limited - India
- Altura Mining Limited, Indonesia
- Grasim Industreis Ltd - India
- Energy Link Ltd, New Zealand
- Salva Resources Pvt Ltd - India
- Global Coal Blending Company Limited - Australia
- Orica Mining Services - Indonesia
- Sinarmas Energy and Mining - Indonesia
- GAC Shipping (India) Pvt Ltd
- Deloitte Consulting - India
- Larsen & Toubro Limited - India
- Essar Steel Hazira Ltd - India
- Kumho Petrochemical, South Korea
- Kaltim Prima Coal - Indonesia
- GVK Power & Infra Limited - India
- Xindia Steels Limited - India
- Globalindo Alam Lestari - Indonesia
- Mjunction Services Limited - India
- Iligan Light & Power Inc, Philippines
- Semirara Mining Corp, Philippines
- Edison Trading Spa - Italy
- Interocean Group of Companies - India
- Makarim & Taira - Indonesia
- Orica Australia Pty. Ltd.
- Petrochimia International Co. Ltd.- Taiwan
- Price Waterhouse Coopers - Russia
- Parliament of New Zealand
- Banpu Public Company Limited - Thailand
- GN Power Mariveles Coal Plant, Philippines
- Baramulti Group, Indonesia
- Indika Energy - Indonesia
- TeaM Sual Corporation - Philippines
- Simpson Spence & Young - Indonesia
- Chettinad Cement Corporation Ltd - India
- Alfred C Toepfer International GmbH - Germany
- White Energy Company Limited
- CNBM International Corporation - China
- SN Aboitiz Power Inc, Philippines
- Eastern Energy - Thailand
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Karaikal Port Pvt Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Samtan Co., Ltd - South Korea
- Coal and Oil Company - UAE
- Bukit Baiduri Energy - Indonesia
- Tamil Nadu electricity Board
- European Bulk Services B.V. - Netherlands
- MS Steel International - UAE
- The Treasury - Australian Government
- Indo Tambangraya Megah - Indonesia
- Barasentosa Lestari - Indonesia
- Heidelberg Cement - Germany
- Manunggal Multi Energi - Indonesia
- Malabar Cements Ltd - India
- Ministry of Mines - Canada
- Agrawal Coal Company - India
- Minerals Council of Australia
- Central Java Power - Indonesia
- Star Paper Mills Limited - India
- Coalindo Energy - Indonesia
- Coastal Gujarat Power Limited - India
- Planning Commission, India
- Indonesian Coal Mining Association
- Ceylon Electricity Board - Sri Lanka
- The University of Queensland
- Standard Chartered Bank - UAE
- Georgia Ports Authority, United States
- Pipit Mutiara Jaya. PT, Indonesia
- SMG Consultants - Indonesia
- Power Finance Corporation Ltd., India
- Jorong Barutama Greston.PT - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Madhucon Powers Ltd - India
- Therma Luzon, Inc, Philippines
- Bhatia International Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Sarangani Energy Corporation, Philippines
- Posco Energy - South Korea
- Savvy Resources Ltd - HongKong
- Mintek Dendrill Indonesia
- Directorate Of Revenue Intelligence - India
- Neyveli Lignite Corporation Ltd, - India
- Sindya Power Generating Company Private Ltd
- Ministry of Transport, Egypt
- Sakthi Sugars Limited - India
- Central Electricity Authority - India
- Electricity Authority, New Zealand
- Australian Commodity Traders Exchange
- Kobexindo Tractors - Indoneisa
- Bulk Trading Sa - Switzerland
- Borneo Indobara - Indonesia
- Maheswari Brothers Coal Limited - India
- Rio Tinto Coal - Australia
- Sical Logistics Limited - India
- SMC Global Power, Philippines
- Sojitz Corporation - Japan
- Bharathi Cement Corporation - India
- Bahari Cakrawala Sebuku - Indonesia
- Africa Commodities Group - South Africa
- GMR Energy Limited - India
- Oldendorff Carriers - Singapore
- Straits Asia Resources Limited - Singapore
- Binh Thuan Hamico - Vietnam
- Medco Energi Mining Internasional
- Thiess Contractors Indonesia
- Indian Oil Corporation Limited
- India Bulls Power Limited - India
- Vizag Seaport Private Limited - India
- Kartika Selabumi Mining - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Kideco Jaya Agung - Indonesia
- Aboitiz Power Corporation - Philippines
- Billiton Holdings Pty Ltd - Australia
- PTC India Limited - India
- Tata Chemicals Ltd - India
- LBH Netherlands Bv - Netherlands
- Ind-Barath Power Infra Limited - India
- Latin American Coal - Colombia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Lanco Infratech Ltd - India
- Kepco SPC Power Corporation, Philippines
- Gujarat Sidhee Cement - India
- Bhoruka Overseas - Indonesia
- Commonwealth Bank - Australia
- IEA Clean Coal Centre - UK
- Economic Council, Georgia
- Cement Manufacturers Association - India
- Bangladesh Power Developement Board
- Directorate General of MIneral and Coal - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Parry Sugars Refinery, India
- Petron Corporation, Philippines
- Independent Power Producers Association of India
- Timah Investasi Mineral - Indoneisa
- Mercator Lines Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Uttam Galva Steels Limited - India
- Wilmar Investment Holdings
- Port Waratah Coal Services - Australia
- Leighton Contractors Pty Ltd - Australia
- OPG Power Generation Pvt Ltd - India
- Global Green Power PLC Corporation, Philippines
- Miang Besar Coal Terminal - Indonesia
- Goldman Sachs - Singapore
- Jaiprakash Power Ventures ltd
- Dalmia Cement Bharat India
- Indian Energy Exchange, India
- Formosa Plastics Group - Taiwan
- Jindal Steel & Power Ltd - India
- New Zealand Coal & Carbon
- Aditya Birla Group - India
- Siam City Cement - Thailand
- Carbofer General Trading SA - India
- Bukit Makmur.PT - Indonesia
- Toyota Tsusho Corporation, Japan
- Kohat Cement Company Ltd. - Pakistan
- San Jose City I Power Corp, Philippines
- Riau Bara Harum - Indonesia
- Metalloyd Limited - United Kingdom
- Bayan Resources Tbk. - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- ASAPP Information Group - India
- IHS Mccloskey Coal Group - USA
- PNOC Exploration Corporation - Philippines
- Meenaskhi Energy Private Limited - India
- Ministry of Finance - Indonesia
- Anglo American - United Kingdom
- Meralco Power Generation, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Wood Mackenzie - Singapore
- Thai Mozambique Logistica
- Renaissance Capital - South Africa
- Kalimantan Lumbung Energi - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- PetroVietnam Power Coal Import and Supply Company
- VISA Power Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Electricity Generating Authority of Thailand
- Kapuas Tunggal Persada - Indonesia
- Antam Resourcindo - Indonesia
- Ambuja Cements Ltd - India
- Indogreen Group - Indonesia
- Pendopo Energi Batubara - Indonesia
- CIMB Investment Bank - Malaysia
- London Commodity Brokers - England
- McConnell Dowell - Australia
- Romanian Commodities Exchange
- Trasteel International SA, Italy
- Marubeni Corporation - India
- South Luzon Thermal Energy Corporation
- Gujarat Mineral Development Corp Ltd - India
- ICICI Bank Limited - India
- Merrill Lynch Commodities Europe
- AsiaOL BioFuels Corp., Philippines
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