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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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Saturday, 05 June 21
IT'S TIME FOR THE BIDEN ADMINISTRATION TO CHAMPION RENEWABLE ENERGY IN THE PHILIPPINES, NOT NUCLEAR OR FOSSIL GAS - IEEFA
Fossil gas and nuclear investments risk locking in costly, outdated infrastructure for the long-term
The United States has spent the ...
Friday, 04 June 21
NEW COAL-FIRED POWER PLANTS IN INDIA WILL BE ECONOMICALLY UNVIABLE - IEEFA
Coal capacity additions face major stranded asset risk
Much of India’s 33 gigawatts (GW) of coal-fired power capacity currently under co ...
Thursday, 03 June 21
JUNE HBA IS HITTING ABOVE $100 AND SETTLED AT ITS HIGHEST SINCE OCTOBER 2020
COALspot.com: The Indonesia coal price reference for June 2021 settles at US$ 100.33 per ton FOB vessel.
The Indonesia coal pr ...
Wednesday, 02 June 21
INDONESIA RV WAS DOWN TO LOW/MID $20,000S DAY FOR PANAMAX/KAMSARMAX WITH DELIVERY S CHINA - BANCHERO COSTA
Panamax
A softening week in the Pacific basin with rates under a downward pressure mainly caused by the oversupply of tonnage in the area, said ...
Wednesday, 02 June 21
EUROPEAN UNION'S IRON ORE IMPORTS - BANCHERO COSTA
The European Union (27) is currently the fourth largest importer of iron ore in the world, after China, Japan, and South Korea.
Euro ...
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- Independent Power Producers Association of India
- Dalmia Cement Bharat India
- Jaiprakash Power Ventures ltd
- Globalindo Alam Lestari - Indonesia
- Medco Energi Mining Internasional
- Semirara Mining and Power Corporation, Philippines
- Miang Besar Coal Terminal - Indonesia
- Sree Jayajothi Cements Limited - India
- Toyota Tsusho Corporation, Japan
- Indo Tambangraya Megah - Indonesia
- Sakthi Sugars Limited - India
- Sojitz Corporation - Japan
- Deloitte Consulting - India
- Rashtriya Ispat Nigam Limited - India
- Aboitiz Power Corporation - Philippines
- Kalimantan Lumbung Energi - Indonesia
- Directorate Of Revenue Intelligence - India
- PNOC Exploration Corporation - Philippines
- Vizag Seaport Private Limited - India
- Thai Mozambique Logistica
- Mintek Dendrill Indonesia
- Edison Trading Spa - Italy
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- Minerals Council of Australia
- Kaltim Prima Coal - Indonesia
- Iligan Light & Power Inc, Philippines
- Straits Asia Resources Limited - Singapore
- Timah Investasi Mineral - Indoneisa
- Australian Coal Association
- Indian Energy Exchange, India
- Bukit Baiduri Energy - Indonesia
- TeaM Sual Corporation - Philippines
- Ministry of Finance - Indonesia
- Therma Luzon, Inc, Philippines
- ASAPP Information Group - India
- Petrochimia International Co. Ltd.- Taiwan
- Indika Energy - Indonesia
- Bulk Trading Sa - Switzerland
- Mercator Lines Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Agrawal Coal Company - India
- Posco Energy - South Korea
- Malabar Cements Ltd - India
- The University of Queensland
- PTC India Limited - India
- White Energy Company Limited
- Grasim Industreis Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Pendopo Energi Batubara - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Energy Link Ltd, New Zealand
- Coalindo Energy - Indonesia
- Energy Development Corp, Philippines
- Simpson Spence & Young - Indonesia
- Cement Manufacturers Association - India
- European Bulk Services B.V. - Netherlands
- Central Electricity Authority - India
- GMR Energy Limited - India
- Alfred C Toepfer International GmbH - Germany
- OPG Power Generation Pvt Ltd - India
- Sindya Power Generating Company Private Ltd
- Marubeni Corporation - India
- Essar Steel Hazira Ltd - India
- Heidelberg Cement - Germany
- The State Trading Corporation of India Ltd
- Baramulti Group, Indonesia
- Bhoruka Overseas - Indonesia
- Standard Chartered Bank - UAE
- Holcim Trading Pte Ltd - Singapore
- Indogreen Group - Indonesia
- Parliament of New Zealand
- Cigading International Bulk Terminal - Indonesia
- Formosa Plastics Group - Taiwan
- Kapuas Tunggal Persada - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Parry Sugars Refinery, India
- Ministry of Transport, Egypt
- Karaikal Port Pvt Ltd - India
- Maheswari Brothers Coal Limited - India
- Electricity Authority, New Zealand
- Leighton Contractors Pty Ltd - Australia
- Chamber of Mines of South Africa
- Goldman Sachs - Singapore
- Wilmar Investment Holdings
- Orica Mining Services - Indonesia
- Manunggal Multi Energi - Indonesia
- Australian Commodity Traders Exchange
- IEA Clean Coal Centre - UK
- Carbofer General Trading SA - India
- Star Paper Mills Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Coastal Gujarat Power Limited - India
- Kideco Jaya Agung - Indonesia
- Bharathi Cement Corporation - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sical Logistics Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Port Waratah Coal Services - Australia
- Jorong Barutama Greston.PT - Indonesia
- Africa Commodities Group - South Africa
- New Zealand Coal & Carbon
- LBH Netherlands Bv - Netherlands
- Antam Resourcindo - Indonesia
- Semirara Mining Corp, Philippines
- AsiaOL BioFuels Corp., Philippines
- Latin American Coal - Colombia
- Merrill Lynch Commodities Europe
- Mjunction Services Limited - India
- London Commodity Brokers - England
- Siam City Cement PLC, Thailand
- Bhatia International Limited - India
- GVK Power & Infra Limited - India
- India Bulls Power Limited - India
- Electricity Generating Authority of Thailand
- Lanco Infratech Ltd - India
- Sarangani Energy Corporation, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Orica Australia Pty. Ltd.
- Central Java Power - Indonesia
- SN Aboitiz Power Inc, Philippines
- Uttam Galva Steels Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Banpu Public Company Limited - Thailand
- Intertek Mineral Services - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Vijayanagar Sugar Pvt Ltd - India
- Kartika Selabumi Mining - Indonesia
- Larsen & Toubro Limited - India
- Interocean Group of Companies - India
- South Luzon Thermal Energy Corporation
- TNB Fuel Sdn Bhd - Malaysia
- CIMB Investment Bank - Malaysia
- Anglo American - United Kingdom
- Romanian Commodities Exchange
- Ambuja Cements Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Makarim & Taira - Indonesia
- Coal and Oil Company - UAE
- Wood Mackenzie - Singapore
- Ministry of Mines - Canada
- Commonwealth Bank - Australia
- Singapore Mercantile Exchange
- Georgia Ports Authority, United States
- Binh Thuan Hamico - Vietnam
- Tata Chemicals Ltd - India
- Indian Oil Corporation Limited
- Barasentosa Lestari - Indonesia
- Power Finance Corporation Ltd., India
- McConnell Dowell - Australia
- Bayan Resources Tbk. - Indonesia
- Jindal Steel & Power Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Attock Cement Pakistan Limited
- Ceylon Electricity Board - Sri Lanka
- Global Green Power PLC Corporation, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- IHS Mccloskey Coal Group - USA
- Ind-Barath Power Infra Limited - India
- VISA Power Limited - India
- Meralco Power Generation, Philippines
- ICICI Bank Limited - India
- Neyveli Lignite Corporation Ltd, - India
- MS Steel International - UAE
- Salva Resources Pvt Ltd - India
- Economic Council, Georgia
- Pipit Mutiara Jaya. PT, Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Mercuria Energy - Indonesia
- Metalloyd Limited - United Kingdom
- San Jose City I Power Corp, Philippines
- CNBM International Corporation - China
- Kumho Petrochemical, South Korea
- Eastern Coal Council - USA
- Bukit Makmur.PT - Indonesia
- Kepco SPC Power Corporation, Philippines
- The Treasury - Australian Government
- GAC Shipping (India) Pvt Ltd
- International Coal Ventures Pvt Ltd - India
- Tamil Nadu electricity Board
- Kobexindo Tractors - Indoneisa
- SMC Global Power, Philippines
- Global Coal Blending Company Limited - Australia
- PowerSource Philippines DevCo
- Borneo Indobara - Indonesia
- Price Waterhouse Coopers - Russia
- Meenaskhi Energy Private Limited - India
- Petron Corporation, Philippines
- Altura Mining Limited, Indonesia
- Eastern Energy - Thailand
- Videocon Industries ltd - India
- Rio Tinto Coal - Australia
- Gujarat Mineral Development Corp Ltd - India
- Oldendorff Carriers - Singapore
- Vedanta Resources Plc - India
- Xindia Steels Limited - India
- Global Business Power Corporation, Philippines
- Siam City Cement - Thailand
- Trasteel International SA, Italy
- SMG Consultants - Indonesia
- Bangladesh Power Developement Board
- Madhucon Powers Ltd - India
- Samtan Co., Ltd - South Korea
- Gujarat Sidhee Cement - India
- Bhushan Steel Limited - India
- Riau Bara Harum - Indonesia
- Planning Commission, India
- Aditya Birla Group - India
- PetroVietnam Power Coal Import and Supply Company
- GN Power Mariveles Coal Plant, Philippines
- Indonesian Coal Mining Association
- Chettinad Cement Corporation Ltd - India
- Renaissance Capital - South Africa
- Thiess Contractors Indonesia
- Savvy Resources Ltd - HongKong
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