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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, 10 February 21
FY21 COAL DEMAND MAY BE LOWER THAN PREVIOUSLY ESTIMATED DUE TO COVID-19: PRALHAD JOSHI - PTI
Coal demand in the current fiscal may be lower than the initial estimate of 1,085 million tonnes (MT) due to the impact of COVID-19, Parliament was ...
Wednesday, 10 February 21
MARKET INSIGHT - INTERMODAL
We have just entered February, Chinese New Year holidays are about to start and the SnP market for bulkers is so hot as every seller would dream of ...
Tuesday, 09 February 21
SWITCHING COAL PLANTS TO PLN'S BIOMASS COFIRING PLAN IS NO MAGIC BULLET - IEEFA
Implementation risks for Indonesia PLN's switch from coal to biomass cofiring
PLN’s biomass cofiring plan will require not ...
Friday, 05 February 21
THE INDONESIA COAL PRICE REFERENCE FOR FEBRUARY 2021 SETTLES AT US$ 87.79 PER TON FOB VESSEL
COALspot.com: The Indonesia coal price reference for February 2021 settles at US$ 87.79 per ton FOB vessel. The February reference price is the hig ...
Thursday, 04 February 21
WHY BANGLADESH SHOULDN’T COUNT ON A FOSSIL FUEL FUTURE - IEEFA
Around US$50 billion of LNG projects in Asia at risk of cancellation
Two astonishing figures have circulated in the Asian energy sector in the ...
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- Ministry of Finance - Indonesia
- SMC Global Power, Philippines
- Simpson Spence & Young - Indonesia
- Coalindo Energy - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Ambuja Cements Ltd - India
- OPG Power Generation Pvt Ltd - India
- ICICI Bank Limited - India
- Siam City Cement PLC, Thailand
- Pendopo Energi Batubara - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Savvy Resources Ltd - HongKong
- Parry Sugars Refinery, India
- Siam City Cement - Thailand
- Ministry of Mines - Canada
- Barasentosa Lestari - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Orica Australia Pty. Ltd.
- Manunggal Multi Energi - Indonesia
- Aditya Birla Group - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Chettinad Cement Corporation Ltd - India
- India Bulls Power Limited - India
- Thai Mozambique Logistica
- South Luzon Thermal Energy Corporation
- GMR Energy Limited - India
- SN Aboitiz Power Inc, Philippines
- Bukit Baiduri Energy - Indonesia
- Kepco SPC Power Corporation, Philippines
- Baramulti Group, Indonesia
- Jaiprakash Power Ventures ltd
- Borneo Indobara - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Indo Tambangraya Megah - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Marubeni Corporation - India
- Maheswari Brothers Coal Limited - India
- GAC Shipping (India) Pvt Ltd
- Port Waratah Coal Services - Australia
- Larsen & Toubro Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Energy Development Corp, Philippines
- Latin American Coal - Colombia
- Posco Energy - South Korea
- Samtan Co., Ltd - South Korea
- Bangladesh Power Developement Board
- Billiton Holdings Pty Ltd - Australia
- Metalloyd Limited - United Kingdom
- Bhushan Steel Limited - India
- Sindya Power Generating Company Private Ltd
- Eastern Coal Council - USA
- Toyota Tsusho Corporation, Japan
- GVK Power & Infra Limited - India
- Standard Chartered Bank - UAE
- Kumho Petrochemical, South Korea
- Central Java Power - Indonesia
- Mintek Dendrill Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- AsiaOL BioFuels Corp., Philippines
- IEA Clean Coal Centre - UK
- Thiess Contractors Indonesia
- Merrill Lynch Commodities Europe
- Trasteel International SA, Italy
- Mercuria Energy - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Petron Corporation, Philippines
- Semirara Mining and Power Corporation, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Pipit Mutiara Jaya. PT, Indonesia
- Central Electricity Authority - India
- Kalimantan Lumbung Energi - Indonesia
- Singapore Mercantile Exchange
- Jindal Steel & Power Ltd - India
- Gujarat Sidhee Cement - India
- McConnell Dowell - Australia
- Lanco Infratech Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Ministry of Transport, Egypt
- Minerals Council of Australia
- Vedanta Resources Plc - India
- Indonesian Coal Mining Association
- The Treasury - Australian Government
- Madhucon Powers Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Energy Link Ltd, New Zealand
- Videocon Industries ltd - India
- PTC India Limited - India
- Semirara Mining Corp, Philippines
- Kideco Jaya Agung - Indonesia
- Vizag Seaport Private Limited - India
- Global Business Power Corporation, Philippines
- Indian Oil Corporation Limited
- Australian Commodity Traders Exchange
- Agrawal Coal Company - India
- Sarangani Energy Corporation, Philippines
- Altura Mining Limited, Indonesia
- Antam Resourcindo - Indonesia
- Binh Thuan Hamico - Vietnam
- Eastern Energy - Thailand
- Meenaskhi Energy Private Limited - India
- Georgia Ports Authority, United States
- Kobexindo Tractors - Indoneisa
- Wilmar Investment Holdings
- Power Finance Corporation Ltd., India
- Planning Commission, India
- Parliament of New Zealand
- Miang Besar Coal Terminal - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Attock Cement Pakistan Limited
- Economic Council, Georgia
- Directorate Of Revenue Intelligence - India
- The University of Queensland
- Essar Steel Hazira Ltd - India
- Rio Tinto Coal - Australia
- SMG Consultants - Indonesia
- London Commodity Brokers - England
- Grasim Industreis Ltd - India
- Cement Manufacturers Association - India
- Kaltim Prima Coal - Indonesia
- Indika Energy - Indonesia
- Bukit Makmur.PT - Indonesia
- Bhoruka Overseas - Indonesia
- Renaissance Capital - South Africa
- Cigading International Bulk Terminal - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Bahari Cakrawala Sebuku - Indonesia
- Indian Energy Exchange, India
- Bulk Trading Sa - Switzerland
- Makarim & Taira - Indonesia
- PNOC Exploration Corporation - Philippines
- Meralco Power Generation, Philippines
- Riau Bara Harum - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Goldman Sachs - Singapore
- PowerSource Philippines DevCo
- Oldendorff Carriers - Singapore
- European Bulk Services B.V. - Netherlands
- Bharathi Cement Corporation - India
- Australian Coal Association
- Coal and Oil Company - UAE
- Sree Jayajothi Cements Limited - India
- Intertek Mineral Services - Indonesia
- Formosa Plastics Group - Taiwan
- Star Paper Mills Limited - India
- White Energy Company Limited
- Dalmia Cement Bharat India
- Mercator Lines Limited - India
- Aboitiz Power Corporation - Philippines
- LBH Netherlands Bv - Netherlands
- CIMB Investment Bank - Malaysia
- Interocean Group of Companies - India
- Xindia Steels Limited - India
- ASAPP Information Group - India
- Ind-Barath Power Infra Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Chamber of Mines of South Africa
- Therma Luzon, Inc, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Africa Commodities Group - South Africa
- Commonwealth Bank - Australia
- Orica Mining Services - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- New Zealand Coal & Carbon
- Edison Trading Spa - Italy
- Romanian Commodities Exchange
- Medco Energi Mining Internasional
- The State Trading Corporation of India Ltd
- Carbofer General Trading SA - India
- Deloitte Consulting - India
- Heidelberg Cement - Germany
- Price Waterhouse Coopers - Russia
- Sojitz Corporation - Japan
- Electricity Authority, New Zealand
- Banpu Public Company Limited - Thailand
- Global Coal Blending Company Limited - Australia
- Electricity Generating Authority of Thailand
- Salva Resources Pvt Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Gujarat Mineral Development Corp Ltd - India
- Tata Chemicals Ltd - India
- Malabar Cements Ltd - India
- CNBM International Corporation - China
- Global Green Power PLC Corporation, Philippines
- Uttam Galva Steels Limited - India
- Sical Logistics Limited - India
- TeaM Sual Corporation - Philippines
- International Coal Ventures Pvt Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Kartika Selabumi Mining - Indonesia
- IHS Mccloskey Coal Group - USA
- Sakthi Sugars Limited - India
- Straits Asia Resources Limited - Singapore
- Rashtriya Ispat Nigam Limited - India
- Ceylon Electricity Board - Sri Lanka
- San Jose City I Power Corp, Philippines
- MS Steel International - UAE
- Independent Power Producers Association of India
- Iligan Light & Power Inc, Philippines
- Tamil Nadu electricity Board
- Bhatia International Limited - India
- Kapuas Tunggal Persada - Indonesia
- VISA Power Limited - India
- Bayan Resources Tbk. - Indonesia
- Coastal Gujarat Power Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Mjunction Services Limited - India
- Karaikal Port Pvt Ltd - India
- Timah Investasi Mineral - Indoneisa
- Krishnapatnam Port Company Ltd. - India
- Globalindo Alam Lestari - Indonesia
- Indogreen Group - Indonesia
- Wood Mackenzie - Singapore
- Anglo American - United Kingdom
- Bukit Asam (Persero) Tbk - Indonesia
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