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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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Friday, 29 January 21
COAL EXPORTS FROM AUSTRALIA TO MAINLAND CHINA DECLINED BY -22.2% Y-O-Y IN 2020 - BANCHERO COSTA
In the 12 months of 2020, global seaborne coal trade declined by as much as -12.7% year-on-year, according to vessel tracking data from Refinitiv, ...
Friday, 29 January 21
OPEC+, COVID-19 AND ENERGY TRANSITION - 3 THEMES IMPACTING OIL MARKETS AND REFINING IN 2021 - WOOD MACKENZIE
Wood Mackenzie’s latest outlook report shows that the art of balancing oil markets and the refining sector in 2021 hinges upon three key them ...
Thursday, 28 January 21
STRONG CHINESE THERMAL COAL IMPORTS TO BENEFIT INDONESIAN MINERS IN THE NEAR TERM - FITCH RATINGS
China's thermal coal imports are likely to remain strong ahead of the Chinese New Year in mid-February on robust demand, high utilisation at do ...
Thursday, 28 January 21
WIND PROPULSION FOR DRY BULK CARRIERS - OLDENDORFF
Oldendorff Carriers (OC) has signed a Joint Development Project (JDP) with Anemoi Marine Technologies (Anemoi), Lloyd’s Register (LR) and Sha ...
Thursday, 28 January 21
BUMA PRICED A USD400 MILLION 7.75% 5-YEAR SENIOR NOTES
PT Delta Dunia Makmur Tbk. announced that its subsidiary, PT Bukit Makmur Mandiri Utama priced a USD400 million 5-year (non-callable 2-year)& ...
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- Sindya Power Generating Company Private Ltd
- Ceylon Electricity Board - Sri Lanka
- Kumho Petrochemical, South Korea
- Gujarat Sidhee Cement - India
- Heidelberg Cement - Germany
- Ministry of Transport, Egypt
- Samtan Co., Ltd - South Korea
- Sarangani Energy Corporation, Philippines
- CNBM International Corporation - China
- Planning Commission, India
- Madhucon Powers Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- The State Trading Corporation of India Ltd
- Kartika Selabumi Mining - Indonesia
- Georgia Ports Authority, United States
- PNOC Exploration Corporation - Philippines
- Energy Link Ltd, New Zealand
- ASAPP Information Group - India
- Chettinad Cement Corporation Ltd - India
- Manunggal Multi Energi - Indonesia
- Aditya Birla Group - India
- Price Waterhouse Coopers - Russia
- White Energy Company Limited
- Maharashtra Electricity Regulatory Commission - India
- Petron Corporation, Philippines
- London Commodity Brokers - England
- Holcim Trading Pte Ltd - Singapore
- GVK Power & Infra Limited - India
- Baramulti Group, Indonesia
- Commonwealth Bank - Australia
- Electricity Authority, New Zealand
- Anglo American - United Kingdom
- Jorong Barutama Greston.PT - Indonesia
- GAC Shipping (India) Pvt Ltd
- Coalindo Energy - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Cement Manufacturers Association - India
- New Zealand Coal & Carbon
- Star Paper Mills Limited - India
- Indian Oil Corporation Limited
- Meenaskhi Energy Private Limited - India
- Siam City Cement PLC, Thailand
- Standard Chartered Bank - UAE
- Oldendorff Carriers - Singapore
- Mercator Lines Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Pendopo Energi Batubara - Indonesia
- Siam City Cement - Thailand
- Binh Thuan Hamico - Vietnam
- Australian Coal Association
- Karbindo Abesyapradhi - Indoneisa
- Kapuas Tunggal Persada - Indonesia
- Latin American Coal - Colombia
- Pipit Mutiara Jaya. PT, Indonesia
- Borneo Indobara - Indonesia
- Singapore Mercantile Exchange
- Parliament of New Zealand
- Coastal Gujarat Power Limited - India
- Bhatia International Limited - India
- Dalmia Cement Bharat India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- The University of Queensland
- Port Waratah Coal Services - Australia
- Bulk Trading Sa - Switzerland
- Bhoruka Overseas - Indonesia
- Larsen & Toubro Limited - India
- Bukit Makmur.PT - Indonesia
- Malabar Cements Ltd - India
- The Treasury - Australian Government
- Attock Cement Pakistan Limited
- Antam Resourcindo - Indonesia
- Altura Mining Limited, Indonesia
- Tata Chemicals Ltd - India
- Straits Asia Resources Limited - Singapore
- Romanian Commodities Exchange
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Ministry of Finance - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Global Green Power PLC Corporation, Philippines
- San Jose City I Power Corp, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Independent Power Producers Association of India
- Gujarat Electricity Regulatory Commission - India
- Orica Australia Pty. Ltd.
- Bayan Resources Tbk. - Indonesia
- Eastern Energy - Thailand
- Krishnapatnam Port Company Ltd. - India
- Ministry of Mines - Canada
- Sree Jayajothi Cements Limited - India
- Kaltim Prima Coal - Indonesia
- SN Aboitiz Power Inc, Philippines
- Australian Commodity Traders Exchange
- Orica Mining Services - Indonesia
- Indogreen Group - Indonesia
- OPG Power Generation Pvt Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Marubeni Corporation - India
- Metalloyd Limited - United Kingdom
- Petrochimia International Co. Ltd.- Taiwan
- Coal and Oil Company - UAE
- Jindal Steel & Power Ltd - India
- Wood Mackenzie - Singapore
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kepco SPC Power Corporation, Philippines
- Ind-Barath Power Infra Limited - India
- CIMB Investment Bank - Malaysia
- Rashtriya Ispat Nigam Limited - India
- Therma Luzon, Inc, Philippines
- Vizag Seaport Private Limited - India
- Deloitte Consulting - India
- IEA Clean Coal Centre - UK
- TeaM Sual Corporation - Philippines
- PetroVietnam Power Coal Import and Supply Company
- Videocon Industries ltd - India
- Electricity Generating Authority of Thailand
- SMG Consultants - Indonesia
- Interocean Group of Companies - India
- Minerals Council of Australia
- Mercuria Energy - Indonesia
- Renaissance Capital - South Africa
- Sical Logistics Limited - India
- Tamil Nadu electricity Board
- India Bulls Power Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Banpu Public Company Limited - Thailand
- IHS Mccloskey Coal Group - USA
- Aboitiz Power Corporation - Philippines
- Kalimantan Lumbung Energi - Indonesia
- Meralco Power Generation, Philippines
- SMC Global Power, Philippines
- Semirara Mining and Power Corporation, Philippines
- Global Coal Blending Company Limited - Australia
- Savvy Resources Ltd - HongKong
- PowerSource Philippines DevCo
- Edison Trading Spa - Italy
- Jaiprakash Power Ventures ltd
- LBH Netherlands Bv - Netherlands
- ICICI Bank Limited - India
- Mintek Dendrill Indonesia
- Rio Tinto Coal - Australia
- Timah Investasi Mineral - Indoneisa
- Sakthi Sugars Limited - India
- Xindia Steels Limited - India
- Chamber of Mines of South Africa
- Makarim & Taira - Indonesia
- Bhushan Steel Limited - India
- Indika Energy - Indonesia
- Africa Commodities Group - South Africa
- Economic Council, Georgia
- Bharathi Cement Corporation - India
- Bangladesh Power Developement Board
- Central Java Power - Indonesia
- Formosa Plastics Group - Taiwan
- GMR Energy Limited - India
- Central Electricity Authority - India
- PTC India Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Wilmar Investment Holdings
- Salva Resources Pvt Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Toyota Tsusho Corporation, Japan
- Energy Development Corp, Philippines
- Kideco Jaya Agung - Indonesia
- Kobexindo Tractors - Indoneisa
- Eastern Coal Council - USA
- Power Finance Corporation Ltd., India
- Merrill Lynch Commodities Europe
- VISA Power Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Simpson Spence & Young - Indonesia
- Directorate Of Revenue Intelligence - India
- Billiton Holdings Pty Ltd - Australia
- Barasentosa Lestari - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Bukit Baiduri Energy - Indonesia
- Intertek Mineral Services - Indonesia
- MS Steel International - UAE
- Trasteel International SA, Italy
- Essar Steel Hazira Ltd - India
- Medco Energi Mining Internasional
- Vedanta Resources Plc - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Indo Tambangraya Megah - Indonesia
- South Luzon Thermal Energy Corporation
- Parry Sugars Refinery, India
- Alfred C Toepfer International GmbH - Germany
- Ambuja Cements Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Uttam Galva Steels Limited - India
- Semirara Mining Corp, Philippines
- Iligan Light & Power Inc, Philippines
- Sojitz Corporation - Japan
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Maheswari Brothers Coal Limited - India
- Mjunction Services Limited - India
- Globalindo Alam Lestari - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Grasim Industreis Ltd - India
- International Coal Ventures Pvt Ltd - India
- Lanco Infratech Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Goldman Sachs - Singapore
- Thai Mozambique Logistica
- European Bulk Services B.V. - Netherlands
- GN Power Mariveles Coal Plant, Philippines
- Posco Energy - South Korea
- Thiess Contractors Indonesia
- Leighton Contractors Pty Ltd - Australia
- Agrawal Coal Company - India
- Karaikal Port Pvt Ltd - India
- Global Business Power Corporation, Philippines
- Indian Energy Exchange, India
- McConnell Dowell - Australia
- Riau Bara Harum - Indonesia
- Carbofer General Trading SA - India
- Indonesian Coal Mining Association
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