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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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Tuesday, 01 June 21
CHINA TAIYUAN COAL TRANSACTION PRICE INDEX DOWN 0.02 PCT - XINHUA
China Taiyuan coal transaction price index stood at 160.06 points Monday, down 0.02 percent week on week.
The index, released by Chi ...
Tuesday, 01 June 21
BUMA PRODUCED 11.4 MILLION TONNES OF COAL IN 4Q 2020, 5% LOWER COMPARED TO 12.2 MILLION TONNES IN 4Q 2019
PT Delta Dunia Makmur Tbk. presents its newsletter with consolidated financial and operating results that include its primary and wholly-owne ...
Sunday, 30 May 21
PAKISTAN IS PLANNING TO END COAL IMPORTS, WORSENING OUTLOOK FOR SOUTH AFRICAN COAL - IEEFA
The growing and irreversible risks being faced by South African coal exporters
As Thungela Resources’ CEO attempts to talk up ...
Sunday, 30 May 21
G7 COAL FINANCE EXIT AND WHY IT MATTERS FOR INDIA - IEEFA
While India doesn’t rely on export credit finance to fund new coal plants, there are material implications
The commitment by the Group o ...
Saturday, 29 May 21
SKULD’S IMO 2020 SULPHUR CAP EXPERIENCE
More than a year has passed since the International Maritime Organization (IMO) mandate for the 0.50% sulphur cap for marine fuel (MARPOL Annex VI) ...
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- Rio Tinto Coal - Australia
- Alfred C Toepfer International GmbH - Germany
- Makarim & Taira - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- MS Steel International - UAE
- Africa Commodities Group - South Africa
- Borneo Indobara - Indonesia
- Electricity Authority, New Zealand
- Mercuria Energy - Indonesia
- Wood Mackenzie - Singapore
- Ministry of Transport, Egypt
- Directorate General of MIneral and Coal - Indonesia
- Indika Energy - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Siam City Cement PLC, Thailand
- Global Green Power PLC Corporation, Philippines
- Kobexindo Tractors - Indoneisa
- AsiaOL BioFuels Corp., Philippines
- Coal and Oil Company - UAE
- Bharathi Cement Corporation - India
- Merrill Lynch Commodities Europe
- Malabar Cements Ltd - India
- Attock Cement Pakistan Limited
- Vedanta Resources Plc - India
- Parry Sugars Refinery, India
- Iligan Light & Power Inc, Philippines
- Barasentosa Lestari - Indonesia
- Central Electricity Authority - India
- Banpu Public Company Limited - Thailand
- Price Waterhouse Coopers - Russia
- Kideco Jaya Agung - Indonesia
- McConnell Dowell - Australia
- Riau Bara Harum - Indonesia
- Pendopo Energi Batubara - Indonesia
- India Bulls Power Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Samtan Co., Ltd - South Korea
- The University of Queensland
- Chamber of Mines of South Africa
- Aditya Birla Group - India
- Meralco Power Generation, Philippines
- Aboitiz Power Corporation - Philippines
- Simpson Spence & Young - Indonesia
- Bhatia International Limited - India
- Commonwealth Bank - Australia
- Gujarat Sidhee Cement - India
- SMG Consultants - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Energy Link Ltd, New Zealand
- Toyota Tsusho Corporation, Japan
- Anglo American - United Kingdom
- Ambuja Cements Ltd - India
- Global Coal Blending Company Limited - Australia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Coalindo Energy - Indonesia
- Ministry of Mines - Canada
- Mintek Dendrill Indonesia
- Bayan Resources Tbk. - Indonesia
- Romanian Commodities Exchange
- Edison Trading Spa - Italy
- International Coal Ventures Pvt Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Videocon Industries ltd - India
- Orica Mining Services - Indonesia
- Therma Luzon, Inc, Philippines
- Karbindo Abesyapradhi - Indoneisa
- IEA Clean Coal Centre - UK
- Port Waratah Coal Services - Australia
- Globalindo Alam Lestari - Indonesia
- Medco Energi Mining Internasional
- Antam Resourcindo - Indonesia
- Bukit Makmur.PT - Indonesia
- Heidelberg Cement - Germany
- Goldman Sachs - Singapore
- Kumho Petrochemical, South Korea
- Gujarat Electricity Regulatory Commission - India
- SN Aboitiz Power Inc, Philippines
- Miang Besar Coal Terminal - Indonesia
- Essar Steel Hazira Ltd - India
- Carbofer General Trading SA - India
- Coastal Gujarat Power Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Maheswari Brothers Coal Limited - India
- Thai Mozambique Logistica
- Grasim Industreis Ltd - India
- Indogreen Group - Indonesia
- Australian Coal Association
- Sarangani Energy Corporation, Philippines
- Deloitte Consulting - India
- Singapore Mercantile Exchange
- CNBM International Corporation - China
- Madhucon Powers Ltd - India
- Mercator Lines Limited - India
- Baramulti Group, Indonesia
- Semirara Mining and Power Corporation, Philippines
- Kaltim Prima Coal - Indonesia
- Binh Thuan Hamico - Vietnam
- GVK Power & Infra Limited - India
- Georgia Ports Authority, United States
- Chettinad Cement Corporation Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Metalloyd Limited - United Kingdom
- Latin American Coal - Colombia
- Sojitz Corporation - Japan
- Thiess Contractors Indonesia
- Orica Australia Pty. Ltd.
- ASAPP Information Group - India
- OPG Power Generation Pvt Ltd - India
- Salva Resources Pvt Ltd - India
- Formosa Plastics Group - Taiwan
- Mjunction Services Limited - India
- Wilmar Investment Holdings
- Krishnapatnam Port Company Ltd. - India
- The State Trading Corporation of India Ltd
- Directorate Of Revenue Intelligence - India
- Dalmia Cement Bharat India
- London Commodity Brokers - England
- Straits Asia Resources Limited - Singapore
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Marubeni Corporation - India
- Trasteel International SA, Italy
- Petrochimia International Co. Ltd.- Taiwan
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Minerals Council of Australia
- Asmin Koalindo Tuhup - Indonesia
- Economic Council, Georgia
- Posco Energy - South Korea
- Jindal Steel & Power Ltd - India
- GAC Shipping (India) Pvt Ltd
- Central Java Power - Indonesia
- Eastern Coal Council - USA
- GN Power Mariveles Coal Plant, Philippines
- Bhushan Steel Limited - India
- Tata Chemicals Ltd - India
- Sakthi Sugars Limited - India
- ICICI Bank Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Manunggal Multi Energi - Indonesia
- SMC Global Power, Philippines
- Bulk Trading Sa - Switzerland
- PetroVietnam Power Coal Import and Supply Company
- Larsen & Toubro Limited - India
- Bangladesh Power Developement Board
- Standard Chartered Bank - UAE
- Cigading International Bulk Terminal - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Electricity Generating Authority of Thailand
- PowerSource Philippines DevCo
- Savvy Resources Ltd - HongKong
- Intertek Mineral Services - Indonesia
- Bhoruka Overseas - Indonesia
- TeaM Sual Corporation - Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Star Paper Mills Limited - India
- South Luzon Thermal Energy Corporation
- Agrawal Coal Company - India
- Tamil Nadu electricity Board
- San Jose City I Power Corp, Philippines
- Independent Power Producers Association of India
- Indo Tambangraya Megah - Indonesia
- Petron Corporation, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Global Business Power Corporation, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Indian Energy Exchange, India
- The Treasury - Australian Government
- Cement Manufacturers Association - India
- Lanco Infratech Ltd - India
- Ministry of Finance - Indonesia
- CIMB Investment Bank - Malaysia
- Jorong Barutama Greston.PT - Indonesia
- New Zealand Coal & Carbon
- LBH Netherlands Bv - Netherlands
- Uttam Galva Steels Limited - India
- Rashtriya Ispat Nigam Limited - India
- PNOC Exploration Corporation - Philippines
- PTC India Limited - India
- Siam City Cement - Thailand
- Karaikal Port Pvt Ltd - India
- Interocean Group of Companies - India
- Power Finance Corporation Ltd., India
- Timah Investasi Mineral - Indoneisa
- Bank of Tokyo Mitsubishi UFJ Ltd
- Semirara Mining Corp, Philippines
- Holcim Trading Pte Ltd - Singapore
- GMR Energy Limited - India
- Meenaskhi Energy Private Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Energy Development Corp, Philippines
- Vizag Seaport Private Limited - India
- Bukit Baiduri Energy - Indonesia
- Jaiprakash Power Ventures ltd
- Indian Oil Corporation Limited
- Australian Commodity Traders Exchange
- Renaissance Capital - South Africa
- Sical Logistics Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Sree Jayajothi Cements Limited - India
- European Bulk Services B.V. - Netherlands
- IHS Mccloskey Coal Group - USA
- VISA Power Limited - India
- White Energy Company Limited
- Oldendorff Carriers - Singapore
- Leighton Contractors Pty Ltd - Australia
- Xindia Steels Limited - India
- Parliament of New Zealand
- Indonesian Coal Mining Association
- Kartika Selabumi Mining - Indonesia
- Eastern Energy - Thailand
- Ind-Barath Power Infra Limited - India
- Sindya Power Generating Company Private Ltd
- Altura Mining Limited, Indonesia
- Planning Commission, India
- Kepco SPC Power Corporation, Philippines
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