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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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Monday, 08 January 24
KOSPO TO BUY 80000 MT OF INDONESIAN LOW CALORIFIC VALUE COAL FOR FEB 2024
Korea Southern Power Co., Ltd. (KOSPO), is inviting bids for the supply of Indonesian Low Calorific Value Coal from qualified suppliers for Korean ...
Monday, 08 January 24
SEABORNE TRADE REACHES 12.4BN TONNES - CLARKSONS
China will establish a back-up coal production system by 2027 to stabilise prices and secure coal supply, the state planner said on Wednesday, even ...
Monday, 08 January 24
CAPESIZES START THE NEW YEAR ON POSITIVE NOTE - BALTIC EXCHANGE
Capesize
This week the capsize market has been marked by a mix of activities and challenges. Despite a slow start following the Christmas and N ...
Friday, 05 January 24
MORGAN STANLEY SEES LOWER OIL PRICES IN 2024 ON OVERSUPPLY CONCERNS - REUTERS
Morgan Stanley sees Brent crude prices anchored near $80 per barrel in the first half in 2024 before declining towards the end of the year as it ex ...
Friday, 05 January 24
INDIA'S COAL OUTPUT RISES NEARLY 11 PC IN DEC TO 92.87 MT - PTI
India’s coal production increased by 10.75 per cent to 92.87 million tonne in December 2023 as compared to the year-ago period, an official s ...
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- Independent Power Producers Association of India
- SMG Consultants - Indonesia
- Ambuja Cements Ltd - India
- GVK Power & Infra Limited - India
- IEA Clean Coal Centre - UK
- Siam City Cement PLC, Thailand
- London Commodity Brokers - England
- GAC Shipping (India) Pvt Ltd
- Australian Coal Association
- Bhushan Steel Limited - India
- San Jose City I Power Corp, Philippines
- Renaissance Capital - South Africa
- Semirara Mining and Power Corporation, Philippines
- Larsen & Toubro Limited - India
- Therma Luzon, Inc, Philippines
- Sojitz Corporation - Japan
- Tata Chemicals Ltd - India
- Dalmia Cement Bharat India
- Holcim Trading Pte Ltd - Singapore
- Timah Investasi Mineral - Indoneisa
- Rashtriya Ispat Nigam Limited - India
- Indian Oil Corporation Limited
- Port Waratah Coal Services - Australia
- Semirara Mining Corp, Philippines
- Merrill Lynch Commodities Europe
- Formosa Plastics Group - Taiwan
- Thai Mozambique Logistica
- Bahari Cakrawala Sebuku - Indonesia
- Bharathi Cement Corporation - India
- Madhucon Powers Ltd - India
- PowerSource Philippines DevCo
- Meenaskhi Energy Private Limited - India
- Ind-Barath Power Infra Limited - India
- Kideco Jaya Agung - Indonesia
- Oldendorff Carriers - Singapore
- VISA Power Limited - India
- Eastern Coal Council - USA
- Karaikal Port Pvt Ltd - India
- Edison Trading Spa - Italy
- Krishnapatnam Port Company Ltd. - India
- LBH Netherlands Bv - Netherlands
- CIMB Investment Bank - Malaysia
- Ministry of Mines - Canada
- Romanian Commodities Exchange
- Indika Energy - Indonesia
- Jindal Steel & Power Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Kobexindo Tractors - Indoneisa
- Bukit Baiduri Energy - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Energy Link Ltd, New Zealand
- Mintek Dendrill Indonesia
- Georgia Ports Authority, United States
- Vizag Seaport Private Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Kalimantan Lumbung Energi - Indonesia
- Thiess Contractors Indonesia
- Malabar Cements Ltd - India
- Indian Energy Exchange, India
- Planning Commission, India
- Globalindo Alam Lestari - Indonesia
- Parliament of New Zealand
- Altura Mining Limited, Indonesia
- CNBM International Corporation - China
- Directorate General of MIneral and Coal - Indonesia
- SMC Global Power, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Eastern Energy - Thailand
- Mjunction Services Limited - India
- Wood Mackenzie - Singapore
- Latin American Coal - Colombia
- Medco Energi Mining Internasional
- McConnell Dowell - Australia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kumho Petrochemical, South Korea
- Indo Tambangraya Megah - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- New Zealand Coal & Carbon
- Chettinad Cement Corporation Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Minerals Council of Australia
- Vedanta Resources Plc - India
- Indonesian Coal Mining Association
- Gujarat Electricity Regulatory Commission - India
- The State Trading Corporation of India Ltd
- Sree Jayajothi Cements Limited - India
- White Energy Company Limited
- Global Coal Blending Company Limited - Australia
- Sakthi Sugars Limited - India
- Billiton Holdings Pty Ltd - Australia
- Standard Chartered Bank - UAE
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Cigading International Bulk Terminal - Indonesia
- Baramulti Group, Indonesia
- Sindya Power Generating Company Private Ltd
- Agrawal Coal Company - India
- Rio Tinto Coal - Australia
- Petron Corporation, Philippines
- Directorate Of Revenue Intelligence - India
- Global Business Power Corporation, Philippines
- Aditya Birla Group - India
- Carbofer General Trading SA - India
- Straits Asia Resources Limited - Singapore
- Bayan Resources Tbk. - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Posco Energy - South Korea
- Xindia Steels Limited - India
- Central Java Power - Indonesia
- Central Electricity Authority - India
- Pipit Mutiara Jaya. PT, Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Wilmar Investment Holdings
- Petrochimia International Co. Ltd.- Taiwan
- Anglo American - United Kingdom
- Global Green Power PLC Corporation, Philippines
- Ceylon Electricity Board - Sri Lanka
- Neyveli Lignite Corporation Ltd, - India
- Mercuria Energy - Indonesia
- Ministry of Finance - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Sarangani Energy Corporation, Philippines
- Siam City Cement - Thailand
- TeaM Sual Corporation - Philippines
- Chamber of Mines of South Africa
- Grasim Industreis Ltd - India
- Iligan Light & Power Inc, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- ICICI Bank Limited - India
- Electricity Authority, New Zealand
- Singapore Mercantile Exchange
- Metalloyd Limited - United Kingdom
- The Treasury - Australian Government
- Coalindo Energy - Indonesia
- Savvy Resources Ltd - HongKong
- Banpu Public Company Limited - Thailand
- Kohat Cement Company Ltd. - Pakistan
- Makarim & Taira - Indonesia
- Commonwealth Bank - Australia
- Australian Commodity Traders Exchange
- Deloitte Consulting - India
- Uttam Galva Steels Limited - India
- Bangladesh Power Developement Board
- Jorong Barutama Greston.PT - Indonesia
- Power Finance Corporation Ltd., India
- Maheswari Brothers Coal Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Ministry of Transport, Egypt
- Leighton Contractors Pty Ltd - Australia
- AsiaOL BioFuels Corp., Philippines
- Lanco Infratech Ltd - India
- Riau Bara Harum - Indonesia
- Electricity Generating Authority of Thailand
- Kaltim Prima Coal - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Attock Cement Pakistan Limited
- Energy Development Corp, Philippines
- Bukit Makmur.PT - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Marubeni Corporation - India
- Trasteel International SA, Italy
- Indogreen Group - Indonesia
- Kepco SPC Power Corporation, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Kartika Selabumi Mining - Indonesia
- Samtan Co., Ltd - South Korea
- Salva Resources Pvt Ltd - India
- ASAPP Information Group - India
- Africa Commodities Group - South Africa
- Aboitiz Power Corporation - Philippines
- Jaiprakash Power Ventures ltd
- Manunggal Multi Energi - Indonesia
- Coal and Oil Company - UAE
- Antam Resourcindo - Indonesia
- Bulk Trading Sa - Switzerland
- Binh Thuan Hamico - Vietnam
- European Bulk Services B.V. - Netherlands
- International Coal Ventures Pvt Ltd - India
- Parry Sugars Refinery, India
- Price Waterhouse Coopers - Russia
- Gujarat Sidhee Cement - India
- Videocon Industries ltd - India
- Coastal Gujarat Power Limited - India
- Pendopo Energi Batubara - Indonesia
- Bhatia International Limited - India
- South Luzon Thermal Energy Corporation
- Kapuas Tunggal Persada - Indonesia
- MS Steel International - UAE
- Orica Mining Services - Indonesia
- Interocean Group of Companies - India
- OPG Power Generation Pvt Ltd - India
- Economic Council, Georgia
- Goldman Sachs - Singapore
- India Bulls Power Limited - India
- Intertek Mineral Services - Indonesia
- Essar Steel Hazira Ltd - India
- Barasentosa Lestari - Indonesia
- PNOC Exploration Corporation - Philippines
- Miang Besar Coal Terminal - Indonesia
- SN Aboitiz Power Inc, Philippines
- Bhoruka Overseas - Indonesia
- Mercator Lines Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Tamil Nadu electricity Board
- Orica Australia Pty. Ltd.
- Sical Logistics Limited - India
- PTC India Limited - India
- Borneo Indobara - Indonesia
- Meralco Power Generation, Philippines
- Cement Manufacturers Association - India
- Toyota Tsusho Corporation, Japan
- Alfred C Toepfer International GmbH - Germany
- IHS Mccloskey Coal Group - USA
- Heidelberg Cement - Germany
- Simpson Spence & Young - Indonesia
- GMR Energy Limited - India
- Star Paper Mills Limited - India
- The University of Queensland
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