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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 March 21
MARCH 2021 INDONESIA COAL PRICE REFERENCE SETTLES LOWER
COALspot.com: The Indonesia coal price reference for March 2021 settles at US$ 84.49 per ton FOB vessel.
The Indonesia coal pr ...
Saturday, 06 March 21
AUSTRALIAN COAL: SOME WEAKNESS COULD MATERIALIZE AFTER THE WINTER - ING
Newcastle coal prices remain well supported for now, however as we move out of the winter months we would expect prices to come under pressure. Mea ...
Saturday, 06 March 21
ASIA SEABORNE COAL PRICES START TO RETREAT, CHINA-AUSTRALIA DISPUTE LINGERS - REUTERS
There are signs that the price and demand surge for coal during the recent colder-than-expected winter across North Asia is starting to ease, even ...
Thursday, 04 March 21
HEAD OF JBIC SAYS THE JAPANESE BANK WILL NOT FUND NEW COAL PLANT DEVELOPMENT - NHK NEWS
The governor of the Japan Bank for International Cooperation has said that the government-owned financial institution will stop funding new coal-fi ...
Wednesday, 03 March 21
MARKET INSIGHT - INTERMODAL
Following the recent rally to multi year highs of metal-based commodities, amid an unprecedented global economic stimulus, discussions of an emergi ...
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- Bhatia International Limited - India
- IEA Clean Coal Centre - UK
- Ministry of Finance - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Madhucon Powers Ltd - India
- The Treasury - Australian Government
- Kepco SPC Power Corporation, Philippines
- MS Steel International - UAE
- Global Business Power Corporation, Philippines
- Indian Oil Corporation Limited
- Siam City Cement - Thailand
- Maharashtra Electricity Regulatory Commission - India
- Malabar Cements Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Attock Cement Pakistan Limited
- Mjunction Services Limited - India
- Billiton Holdings Pty Ltd - Australia
- Anglo American - United Kingdom
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- Timah Investasi Mineral - Indoneisa
- Indonesian Coal Mining Association
- Kobexindo Tractors - Indoneisa
- Africa Commodities Group - South Africa
- Port Waratah Coal Services - Australia
- GVK Power & Infra Limited - India
- Rio Tinto Coal - Australia
- Interocean Group of Companies - India
- Videocon Industries ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Pipit Mutiara Jaya. PT, Indonesia
- Eastern Energy - Thailand
- Uttam Galva Steels Limited - India
- Semirara Mining and Power Corporation, Philippines
- Bhoruka Overseas - Indonesia
- Toyota Tsusho Corporation, Japan
- Energy Link Ltd, New Zealand
- Formosa Plastics Group - Taiwan
- Semirara Mining Corp, Philippines
- Posco Energy - South Korea
- Parry Sugars Refinery, India
- Leighton Contractors Pty Ltd - Australia
- Trasteel International SA, Italy
- Indika Energy - Indonesia
- Sarangani Energy Corporation, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Medco Energi Mining Internasional
- Larsen & Toubro Limited - India
- Directorate Of Revenue Intelligence - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- OPG Power Generation Pvt Ltd - India
- Bukit Baiduri Energy - Indonesia
- Therma Luzon, Inc, Philippines
- London Commodity Brokers - England
- Romanian Commodities Exchange
- Renaissance Capital - South Africa
- Bank of Tokyo Mitsubishi UFJ Ltd
- The University of Queensland
- Mercator Lines Limited - India
- Karaikal Port Pvt Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Sical Logistics Limited - India
- Australian Coal Association
- Bharathi Cement Corporation - India
- Sojitz Corporation - Japan
- Simpson Spence & Young - Indonesia
- Ministry of Mines - Canada
- Xindia Steels Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Gujarat Sidhee Cement - India
- Grasim Industreis Ltd - India
- Carbofer General Trading SA - India
- Petron Corporation, Philippines
- Orica Australia Pty. Ltd.
- AsiaOL BioFuels Corp., Philippines
- Sindya Power Generating Company Private Ltd
- Kalimantan Lumbung Energi - Indonesia
- Aboitiz Power Corporation - Philippines
- GN Power Mariveles Coal Plant, Philippines
- Metalloyd Limited - United Kingdom
- Economic Council, Georgia
- Pendopo Energi Batubara - Indonesia
- Central Java Power - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Borneo Indobara - Indonesia
- Minerals Council of Australia
- CIMB Investment Bank - Malaysia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bukit Makmur.PT - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Kartika Selabumi Mining - Indonesia
- Dalmia Cement Bharat India
- Power Finance Corporation Ltd., India
- GAC Shipping (India) Pvt Ltd
- Barasentosa Lestari - Indonesia
- Altura Mining Limited, Indonesia
- Globalindo Alam Lestari - Indonesia
- Parliament of New Zealand
- Singapore Mercantile Exchange
- Thai Mozambique Logistica
- Intertek Mineral Services - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Cement Manufacturers Association - India
- Sinarmas Energy and Mining - Indonesia
- Coalindo Energy - Indonesia
- Wood Mackenzie - Singapore
- Manunggal Multi Energi - Indonesia
- Bayan Resources Tbk. - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Meralco Power Generation, Philippines
- SN Aboitiz Power Inc, Philippines
- Chamber of Mines of South Africa
- Ministry of Transport, Egypt
- Kaltim Prima Coal - Indonesia
- Commonwealth Bank - Australia
- Jaiprakash Power Ventures ltd
- Indo Tambangraya Megah - Indonesia
- European Bulk Services B.V. - Netherlands
- Georgia Ports Authority, United States
- Standard Chartered Bank - UAE
- Coal and Oil Company - UAE
- Merrill Lynch Commodities Europe
- Kapuas Tunggal Persada - Indonesia
- Ceylon Electricity Board - Sri Lanka
- LBH Netherlands Bv - Netherlands
- Riau Bara Harum - Indonesia
- Marubeni Corporation - India
- Maheswari Brothers Coal Limited - India
- Price Waterhouse Coopers - Russia
- Oldendorff Carriers - Singapore
- Kumho Petrochemical, South Korea
- International Coal Ventures Pvt Ltd - India
- Heidelberg Cement - Germany
- SMG Consultants - Indonesia
- ASAPP Information Group - India
- Karbindo Abesyapradhi - Indoneisa
- Energy Development Corp, Philippines
- GMR Energy Limited - India
- Agrawal Coal Company - India
- Edison Trading Spa - Italy
- Mercuria Energy - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Neyveli Lignite Corporation Ltd, - India
- India Bulls Power Limited - India
- PetroVietnam Power Coal Import and Supply Company
- PowerSource Philippines DevCo
- Alfred C Toepfer International GmbH - Germany
- Bhushan Steel Limited - India
- White Energy Company Limited
- Vizag Seaport Private Limited - India
- San Jose City I Power Corp, Philippines
- McConnell Dowell - Australia
- Electricity Generating Authority of Thailand
- Gujarat Electricity Regulatory Commission - India
- Binh Thuan Hamico - Vietnam
- Jindal Steel & Power Ltd - India
- IHS Mccloskey Coal Group - USA
- Salva Resources Pvt Ltd - India
- PTC India Limited - India
- Planning Commission, India
- Tata Chemicals Ltd - India
- Tamil Nadu electricity Board
- Thiess Contractors Indonesia
- Ind-Barath Power Infra Limited - India
- Bangladesh Power Developement Board
- Antam Resourcindo - Indonesia
- Straits Asia Resources Limited - Singapore
- CNBM International Corporation - China
- Rashtriya Ispat Nigam Limited - India
- Miang Besar Coal Terminal - Indonesia
- Iligan Light & Power Inc, Philippines
- Electricity Authority, New Zealand
- Bukit Asam (Persero) Tbk - Indonesia
- VISA Power Limited - India
- Sree Jayajothi Cements Limited - India
- Bulk Trading Sa - Switzerland
- Indogreen Group - Indonesia
- Indian Energy Exchange, India
- Chettinad Cement Corporation Ltd - India
- Goldman Sachs - Singapore
- Siam City Cement PLC, Thailand
- Lanco Infratech Ltd - India
- Wilmar Investment Holdings
- SMC Global Power, Philippines
- Savvy Resources Ltd - HongKong
- Banpu Public Company Limited - Thailand
- Central Electricity Authority - India
- Star Paper Mills Limited - India
- Essar Steel Hazira Ltd - India
- Australian Commodity Traders Exchange
- Vedanta Resources Plc - India
- ICICI Bank Limited - India
- Mintek Dendrill Indonesia
- The State Trading Corporation of India Ltd
- Global Coal Blending Company Limited - Australia
- Kideco Jaya Agung - Indonesia
- New Zealand Coal & Carbon
- Aditya Birla Group - India
- TeaM Sual Corporation - Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- South Luzon Thermal Energy Corporation
- Coastal Gujarat Power Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Sakthi Sugars Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- PNOC Exploration Corporation - Philippines
- Orica Mining Services - Indonesia
- Makarim & Taira - Indonesia
- Global Green Power PLC Corporation, Philippines
- Meenaskhi Energy Private Limited - India
- Eastern Coal Council - USA
- Directorate General of MIneral and Coal - Indonesia
- Deloitte Consulting - India
- Independent Power Producers Association of India
- Latin American Coal - Colombia
- Baramulti Group, Indonesia
- Samtan Co., Ltd - South Korea
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