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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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Sunday, 11 July 21
COAL SHOWS ITS STAYING POWER AS ECONOMIES BOUNCE BACK - THE WALL STREET JOURNAL
Coal use is surging in some of the world’s largest economies as electricity demand rebounds from the pandemic, illustrating the challenges to ...
Sunday, 11 July 21
ROBUST CHINA COAL DEMAND AMID AUSTRALIA IMPORT BAN FUELS PRICE RALLY - REUTERS
Seaborne coal has become a quiet winner among energy commodities, lacking the attention of higher-profile crude oil and liquefied natural gas (LNG) ...
Saturday, 10 July 21
OVERESTIMATED LCOES OF COAL-FIRED POWER PLANTS CREATE A FINANCIAL BUBBLE - IEEFA
Massive stranded asset risk detrimentally affects the financial and power distribution
India’s future coal-fired power project pipeline ...
Friday, 09 July 21
EIA FORECASTS COAL’S GENERATION SHARE IN U.S TO RISE FROM 20% IN 2020 TO 24% THIS YEAR BUT TO FALL TO 22% NEXT YEAR
The July Short-Term Energy Outlook (STEO) of EIA remains subject to heightened levels of uncertainty related to the ongoing economic recovery from ...
Friday, 09 July 21
KOREA SOUTH-EAST POWER CO., LTD. INVITES BIDS FOR 1.86 MILLION TONS OF COAL OF 5600 & 4000 NCV COAL FOR THREE YEARS
COALspot.com: South Korea’s KOREA SOUTH-EAST POWER CO., LTD. (KOEN) has issued an international tender for 280,000 – 300,000 MT of Min. ...
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- Gujarat Electricity Regulatory Commission - India
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- Maheswari Brothers Coal Limited - India
- Standard Chartered Bank - UAE
- Barasentosa Lestari - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Sakthi Sugars Limited - India
- Iligan Light & Power Inc, Philippines
- Dalmia Cement Bharat India
- Malabar Cements Ltd - India
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- PNOC Exploration Corporation - Philippines
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- Petron Corporation, Philippines
- Romanian Commodities Exchange
- Oldendorff Carriers - Singapore
- Bhoruka Overseas - Indonesia
- Africa Commodities Group - South Africa
- Miang Besar Coal Terminal - Indonesia
- Holcim Trading Pte Ltd - Singapore
- GAC Shipping (India) Pvt Ltd
- Georgia Ports Authority, United States
- Bulk Trading Sa - Switzerland
- Global Coal Blending Company Limited - Australia
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- Directorate Of Revenue Intelligence - India
- Edison Trading Spa - Italy
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- The State Trading Corporation of India Ltd
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- Medco Energi Mining Internasional
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- Power Finance Corporation Ltd., India
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- Indo Tambangraya Megah - Indonesia
- GMR Energy Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Eastern Coal Council - USA
- Kartika Selabumi Mining - Indonesia
- Energy Development Corp, Philippines
- Central Java Power - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Goldman Sachs - Singapore
- Bukit Asam (Persero) Tbk - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Bayan Resources Tbk. - Indonesia
- Sree Jayajothi Cements Limited - India
- Grasim Industreis Ltd - India
- Planning Commission, India
- Star Paper Mills Limited - India
- Indian Energy Exchange, India
- South Luzon Thermal Energy Corporation
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- Bukit Makmur.PT - Indonesia
- San Jose City I Power Corp, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Jaiprakash Power Ventures ltd
- Kalimantan Lumbung Energi - Indonesia
- Tata Chemicals Ltd - India
- Vizag Seaport Private Limited - India
- Indika Energy - Indonesia
- Kideco Jaya Agung - Indonesia
- Australian Commodity Traders Exchange
- Karaikal Port Pvt Ltd - India
- Sojitz Corporation - Japan
- Thai Mozambique Logistica
- Coastal Gujarat Power Limited - India
- Manunggal Multi Energi - Indonesia
- Videocon Industries ltd - India
- India Bulls Power Limited - India
- Alfred C Toepfer International GmbH - Germany
- Mercuria Energy - Indonesia
- Trasteel International SA, Italy
- Bukit Baiduri Energy - Indonesia
- SN Aboitiz Power Inc, Philippines
- Ind-Barath Power Infra Limited - India
- Parry Sugars Refinery, India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- SMC Global Power, Philippines
- Global Business Power Corporation, Philippines
- Ministry of Finance - Indonesia
- ICICI Bank Limited - India
- Binh Thuan Hamico - Vietnam
- Marubeni Corporation - India
- Wilmar Investment Holdings
- Anglo American - United Kingdom
- Karbindo Abesyapradhi - Indoneisa
- Kohat Cement Company Ltd. - Pakistan
- OPG Power Generation Pvt Ltd - India
- Siam City Cement PLC, Thailand
- Port Waratah Coal Services - Australia
- European Bulk Services B.V. - Netherlands
- Thiess Contractors Indonesia
- VISA Power Limited - India
- The University of Queensland
- Uttam Galva Steels Limited - India
- Bhushan Steel Limited - India
- Economic Council, Georgia
- Central Electricity Authority - India
- Metalloyd Limited - United Kingdom
- Chettinad Cement Corporation Ltd - India
- Australian Coal Association
- Maharashtra Electricity Regulatory Commission - India
- Heidelberg Cement - Germany
- Pendopo Energi Batubara - Indonesia
- Energy Link Ltd, New Zealand
- Eastern Energy - Thailand
- Gujarat Mineral Development Corp Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Carbofer General Trading SA - India
- TNB Fuel Sdn Bhd - Malaysia
- Salva Resources Pvt Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Parliament of New Zealand
- Global Green Power PLC Corporation, Philippines
- Coalindo Energy - Indonesia
- Intertek Mineral Services - Indonesia
- MS Steel International - UAE
- Samtan Co., Ltd - South Korea
- GVK Power & Infra Limited - India
- Altura Mining Limited, Indonesia
- Formosa Plastics Group - Taiwan
- Bangladesh Power Developement Board
- Antam Resourcindo - Indonesia
- Xindia Steels Limited - India
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- CNBM International Corporation - China
- Tamil Nadu electricity Board
- Latin American Coal - Colombia
- GN Power Mariveles Coal Plant, Philippines
- ASAPP Information Group - India
- Semirara Mining and Power Corporation, Philippines
- Leighton Contractors Pty Ltd - Australia
- McConnell Dowell - Australia
- Billiton Holdings Pty Ltd - Australia
- Globalindo Alam Lestari - Indonesia
- Ministry of Mines - Canada
- Kepco SPC Power Corporation, Philippines
- Bhatia International Limited - India
- Coal and Oil Company - UAE
- Ministry of Transport, Egypt
- Posco Energy - South Korea
- Mjunction Services Limited - India
- Sarangani Energy Corporation, Philippines
- Siam City Cement - Thailand
- Orica Mining Services - Indonesia
- The Treasury - Australian Government
- Commonwealth Bank - Australia
- Sindya Power Generating Company Private Ltd
- Indonesian Coal Mining Association
- Wood Mackenzie - Singapore
- Baramulti Group, Indonesia
- PTC India Limited - India
- Vedanta Resources Plc - India
- Indogreen Group - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- International Coal Ventures Pvt Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Cement Manufacturers Association - India
- Savvy Resources Ltd - HongKong
- Toyota Tsusho Corporation, Japan
- Timah Investasi Mineral - Indoneisa
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- White Energy Company Limited
- Bharathi Cement Corporation - India
- TeaM Sual Corporation - Philippines
- Borneo Indobara - Indonesia
- Kobexindo Tractors - Indoneisa
- Larsen & Toubro Limited - India
- LBH Netherlands Bv - Netherlands
- Rio Tinto Coal - Australia
- Merrill Lynch Commodities Europe
- Ceylon Electricity Board - Sri Lanka
- Makarim & Taira - Indonesia
- Interocean Group of Companies - India
- IHS Mccloskey Coal Group - USA
- Offshore Bulk Terminal Pte Ltd, Singapore
- SMG Consultants - Indonesia
- Independent Power Producers Association of India
- Riau Bara Harum - Indonesia
- Singapore Mercantile Exchange
- Deloitte Consulting - India
- Semirara Mining Corp, Philippines
- Aboitiz Power Corporation - Philippines
- Therma Luzon, Inc, Philippines
- Kumho Petrochemical, South Korea
- Cigading International Bulk Terminal - Indonesia
- IEA Clean Coal Centre - UK
- Minerals Council of Australia
- Electricity Authority, New Zealand
- CIMB Investment Bank - Malaysia
- Meralco Power Generation, Philippines
- Orica Australia Pty. Ltd.
- PowerSource Philippines DevCo
- PetroVietnam Power Coal Import and Supply Company
- Indian Oil Corporation Limited
- Sinarmas Energy and Mining - Indonesia
- London Commodity Brokers - England
- New Zealand Coal & Carbon
- Chamber of Mines of South Africa
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