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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, 26 May 21
NEW POWER AND ENERGY MASTER PLAN MUST BE DESIGNED IN BANGLADESH'S BEST INTERESTS, NOT JAPAN'S - IEEFA
JICA must deliver a low or zero emissions plan as promised, not fund Matarbari 2 coal plant
Clear understandings from the Bangladesh ...
Tuesday, 25 May 21
KOREA SOUTHERN POWER INVITED BIDS FOR 870,000 MT OF MIN 5300 NCV COAL FOR 2021 TO 2023.
COALspot.com: Korea Southern Power Co., Ltd. (KOSPO) has issued an International tender for total 870,000 MT of Min 5,300 kcal/kg NCV coal for Augu ...
Tuesday, 25 May 21
CHINA’S COAL OUTPUT RISES IN FIRST FOUR MONTHS - XINHUA
China’s raw coal output rose 11.1 percent year on year to 1.29 billion tonnes in the first four months of 2021, official data showed.
&nb ...
Tuesday, 25 May 21
MARINE SHIPPERS BULK UP: ANOTHER GAME OF CHICKEN IN THE WORKS? - THE KOREA TIMES
Global shipping companies have been placing orders for large ships, with many anticipating further increased competition within the next three year ...
Friday, 21 May 21
MARKET INSIGHT - INTERMODAL
The dry bulk market’s counter seasonal surge so far into the first half of the year -in a sort of 2010 manner - and Capesize’s recent r ...
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- Coastal Gujarat Power Limited - India
- Metalloyd Limited - United Kingdom
- Deloitte Consulting - India
- Barasentosa Lestari - Indonesia
- Vizag Seaport Private Limited - India
- Miang Besar Coal Terminal - Indonesia
- Georgia Ports Authority, United States
- Chamber of Mines of South Africa
- ICICI Bank Limited - India
- Electricity Authority, New Zealand
- Intertek Mineral Services - Indonesia
- Mercator Lines Limited - India
- Semirara Mining Corp, Philippines
- European Bulk Services B.V. - Netherlands
- Sojitz Corporation - Japan
- Electricity Generating Authority of Thailand
- PetroVietnam Power Coal Import and Supply Company
- International Coal Ventures Pvt Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Videocon Industries ltd - India
- Economic Council, Georgia
- Simpson Spence & Young - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Antam Resourcindo - Indonesia
- Pendopo Energi Batubara - Indonesia
- Parliament of New Zealand
- Samtan Co., Ltd - South Korea
- Formosa Plastics Group - Taiwan
- Banpu Public Company Limited - Thailand
- Kartika Selabumi Mining - Indonesia
- Ind-Barath Power Infra Limited - India
- Eastern Coal Council - USA
- TeaM Sual Corporation - Philippines
- Central Java Power - Indonesia
- MS Steel International - UAE
- GVK Power & Infra Limited - India
- Merrill Lynch Commodities Europe
- OPG Power Generation Pvt Ltd - India
- Siam City Cement PLC, Thailand
- Coal and Oil Company - UAE
- Gujarat Mineral Development Corp Ltd - India
- Bulk Trading Sa - Switzerland
- Rashtriya Ispat Nigam Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Price Waterhouse Coopers - Russia
- India Bulls Power Limited - India
- Siam City Cement - Thailand
- Dalmia Cement Bharat India
- Sinarmas Energy and Mining - Indonesia
- Posco Energy - South Korea
- SN Aboitiz Power Inc, Philippines
- Maheswari Brothers Coal Limited - India
- Chettinad Cement Corporation Ltd - India
- Meenaskhi Energy Private Limited - India
- Port Waratah Coal Services - Australia
- Lanco Infratech Ltd - India
- San Jose City I Power Corp, Philippines
- Sindya Power Generating Company Private Ltd
- Agrawal Coal Company - India
- Mercuria Energy - Indonesia
- Sarangani Energy Corporation, Philippines
- Interocean Group of Companies - India
- Power Finance Corporation Ltd., India
- Makarim & Taira - Indonesia
- Trasteel International SA, Italy
- PTC India Limited - India
- White Energy Company Limited
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Offshore Bulk Terminal Pte Ltd, Singapore
- Mintek Dendrill Indonesia
- Indonesian Coal Mining Association
- Holcim Trading Pte Ltd - Singapore
- Standard Chartered Bank - UAE
- PNOC Exploration Corporation - Philippines
- GMR Energy Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Toyota Tsusho Corporation, Japan
- Bukit Baiduri Energy - Indonesia
- CIMB Investment Bank - Malaysia
- PowerSource Philippines DevCo
- Goldman Sachs - Singapore
- Ministry of Finance - Indonesia
- Riau Bara Harum - Indonesia
- Aboitiz Power Corporation - Philippines
- Karbindo Abesyapradhi - Indoneisa
- Independent Power Producers Association of India
- AsiaOL BioFuels Corp., Philippines
- Tata Chemicals Ltd - India
- Rio Tinto Coal - Australia
- Kobexindo Tractors - Indoneisa
- Bhushan Steel Limited - India
- Leighton Contractors Pty Ltd - Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Central Electricity Authority - India
- Grasim Industreis Ltd - India
- Straits Asia Resources Limited - Singapore
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Indogreen Group - Indonesia
- Cement Manufacturers Association - India
- LBH Netherlands Bv - Netherlands
- Commonwealth Bank - Australia
- Bharathi Cement Corporation - India
- Kapuas Tunggal Persada - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Star Paper Mills Limited - India
- Directorate Of Revenue Intelligence - India
- Anglo American - United Kingdom
- Coalindo Energy - Indonesia
- Xindia Steels Limited - India
- Jindal Steel & Power Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Edison Trading Spa - Italy
- Global Business Power Corporation, Philippines
- Energy Link Ltd, New Zealand
- Gujarat Sidhee Cement - India
- The Treasury - Australian Government
- Kideco Jaya Agung - Indonesia
- Africa Commodities Group - South Africa
- Asmin Koalindo Tuhup - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- ASAPP Information Group - India
- SMC Global Power, Philippines
- Eastern Energy - Thailand
- Marubeni Corporation - India
- Meralco Power Generation, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Ambuja Cements Ltd - India
- Vedanta Resources Plc - India
- Ministry of Transport, Egypt
- Oldendorff Carriers - Singapore
- Kumho Petrochemical, South Korea
- CNBM International Corporation - China
- Minerals Council of Australia
- Australian Commodity Traders Exchange
- Larsen & Toubro Limited - India
- Thiess Contractors Indonesia
- South Luzon Thermal Energy Corporation
- Savvy Resources Ltd - HongKong
- Petron Corporation, Philippines
- Uttam Galva Steels Limited - India
- VISA Power Limited - India
- Attock Cement Pakistan Limited
- Medco Energi Mining Internasional
- SMG Consultants - Indonesia
- Kepco SPC Power Corporation, Philippines
- Bukit Makmur.PT - Indonesia
- Romanian Commodities Exchange
- The University of Queensland
- Semirara Mining and Power Corporation, Philippines
- Bayan Resources Tbk. - Indonesia
- Iligan Light & Power Inc, Philippines
- Madhucon Powers Ltd - India
- Heidelberg Cement - Germany
- Globalindo Alam Lestari - Indonesia
- Binh Thuan Hamico - Vietnam
- Indika Energy - Indonesia
- Wilmar Investment Holdings
- Malabar Cements Ltd - India
- New Zealand Coal & Carbon
- Bangladesh Power Developement Board
- Altura Mining Limited, Indonesia
- Jaiprakash Power Ventures ltd
- Parry Sugars Refinery, India
- Bhoruka Overseas - Indonesia
- Wood Mackenzie - Singapore
- Neyveli Lignite Corporation Ltd, - India
- Timah Investasi Mineral - Indoneisa
- The State Trading Corporation of India Ltd
- Cigading International Bulk Terminal - Indonesia
- Krishnapatnam Port Company Ltd. - India
- IHS Mccloskey Coal Group - USA
- Kaltim Prima Coal - Indonesia
- GAC Shipping (India) Pvt Ltd
- Kohat Cement Company Ltd. - Pakistan
- Salva Resources Pvt Ltd - India
- Sree Jayajothi Cements Limited - India
- Indian Energy Exchange, India
- Billiton Holdings Pty Ltd - Australia
- Gujarat Electricity Regulatory Commission - India
- Indo Tambangraya Megah - Indonesia
- Tamil Nadu electricity Board
- Ministry of Mines - Canada
- Therma Luzon, Inc, Philippines
- Bhatia International Limited - India
- Renaissance Capital - South Africa
- Aditya Birla Group - India
- Orica Mining Services - Indonesia
- Sakthi Sugars Limited - India
- IEA Clean Coal Centre - UK
- Maharashtra Electricity Regulatory Commission - India
- Global Coal Blending Company Limited - Australia
- London Commodity Brokers - England
- Baramulti Group, Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Carbofer General Trading SA - India
- Indian Oil Corporation Limited
- Ceylon Electricity Board - Sri Lanka
- Singapore Mercantile Exchange
- Vijayanagar Sugar Pvt Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Global Green Power PLC Corporation, Philippines
- Orica Australia Pty. Ltd.
- Manunggal Multi Energi - Indonesia
- Sical Logistics Limited - India
- McConnell Dowell - Australia
- Borneo Indobara - Indonesia
- Essar Steel Hazira Ltd - India
- Australian Coal Association
- Latin American Coal - Colombia
- Thai Mozambique Logistica
- Karaikal Port Pvt Ltd - India
- Energy Development Corp, Philippines
- Planning Commission, India
- Mjunction Services Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
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