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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, 27 January 21
MARKET INSIGHT - INTERMODAL
As we have entered the era off renewable energies, all industries globally give max effort to minimize their carbon footprint and consequently thei ...
Monday, 25 January 21
ULTRAMAX YET ANOTHER POSITIVE WEEK FOR THE SECTOR, WHICH SAW INCREASED DEMAND ACROSS ALL BASINS - BALTIC BRIEFING
Capesize
The Capesize market rocked and rolled these past few days. But by weeks end little had changed on the Capesize 5TC as it settled down ...
Monday, 25 January 21
NEW LAW IN CALIFORNIA, USA, AFFECTING SHIPOWNERS' LIABILITY FOR OIL POLLUTION - BIMCO
Members are advised that amendments to the so-called Lempert-Keene-Seastrand Oil Spill Prevention and Response Act of 1990 in the State of Californ ...
Monday, 25 January 21
COAL INDIA SAYS GEARED UP TO MEET SURGE IN FUEL DEMAND FROM POWER SECTOR - PTI
State-owned Coal India Ltd on Saturday said that it is well geared to meet any surge in demand for coal from the power sector.
The s ...
Sunday, 24 January 21
GOVT ASSURES COAL INDIA OF 'FULL SUPPORT', STRESSES ON LEARNING 'NEW THINGS' - PTI
Coal Minister Pralhad Joshi assured Coal India of full government support, even as he said the PSU needs to learn “new things” for impr ...
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- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Vijayanagar Sugar Pvt Ltd - India
- Anglo American - United Kingdom
- Directorate Of Revenue Intelligence - India
- Larsen & Toubro Limited - India
- Iligan Light & Power Inc, Philippines
- Wilmar Investment Holdings
- Sree Jayajothi Cements Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Grasim Industreis Ltd - India
- Gujarat Sidhee Cement - India
- Bhushan Steel Limited - India
- Sojitz Corporation - Japan
- Trasteel International SA, Italy
- Orica Australia Pty. Ltd.
- White Energy Company Limited
- Cement Manufacturers Association - India
- Coal and Oil Company - UAE
- Dalmia Cement Bharat India
- Salva Resources Pvt Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Thiess Contractors Indonesia
- Star Paper Mills Limited - India
- IHS Mccloskey Coal Group - USA
- Indogreen Group - Indonesia
- Indika Energy - Indonesia
- GAC Shipping (India) Pvt Ltd
- Asmin Koalindo Tuhup - Indonesia
- Semirara Mining Corp, Philippines
- OPG Power Generation Pvt Ltd - India
- Ind-Barath Power Infra Limited - India
- Billiton Holdings Pty Ltd - Australia
- Siam City Cement - Thailand
- Bharathi Cement Corporation - India
- European Bulk Services B.V. - Netherlands
- Bulk Trading Sa - Switzerland
- SMG Consultants - Indonesia
- Bhatia International Limited - India
- Edison Trading Spa - Italy
- Siam City Cement PLC, Thailand
- Baramulti Group, Indonesia
- Globalindo Alam Lestari - Indonesia
- MS Steel International - UAE
- London Commodity Brokers - England
- Rashtriya Ispat Nigam Limited - India
- Africa Commodities Group - South Africa
- Bahari Cakrawala Sebuku - Indonesia
- Sical Logistics Limited - India
- Chettinad Cement Corporation Ltd - India
- Lanco Infratech Ltd - India
- Meenaskhi Energy Private Limited - India
- Global Green Power PLC Corporation, Philippines
- Indian Energy Exchange, India
- Xindia Steels Limited - India
- PNOC Exploration Corporation - Philippines
- Indian Oil Corporation Limited
- TNB Fuel Sdn Bhd - Malaysia
- Central Electricity Authority - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Pipit Mutiara Jaya. PT, Indonesia
- Binh Thuan Hamico - Vietnam
- Madhucon Powers Ltd - India
- Goldman Sachs - Singapore
- Savvy Resources Ltd - HongKong
- Australian Coal Association
- Holcim Trading Pte Ltd - Singapore
- Karbindo Abesyapradhi - Indoneisa
- ICICI Bank Limited - India
- Thai Mozambique Logistica
- TeaM Sual Corporation - Philippines
- India Bulls Power Limited - India
- Karaikal Port Pvt Ltd - India
- Barasentosa Lestari - Indonesia
- Intertek Mineral Services - Indonesia
- Bhoruka Overseas - Indonesia
- Parliament of New Zealand
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Timah Investasi Mineral - Indoneisa
- Carbofer General Trading SA - India
- Videocon Industries ltd - India
- Leighton Contractors Pty Ltd - Australia
- Therma Luzon, Inc, Philippines
- Coastal Gujarat Power Limited - India
- Eastern Coal Council - USA
- Bayan Resources Tbk. - Indonesia
- Romanian Commodities Exchange
- Heidelberg Cement - Germany
- Kepco SPC Power Corporation, Philippines
- PowerSource Philippines DevCo
- Banpu Public Company Limited - Thailand
- Meralco Power Generation, Philippines
- Energy Link Ltd, New Zealand
- VISA Power Limited - India
- The State Trading Corporation of India Ltd
- Ministry of Mines - Canada
- ASAPP Information Group - India
- Vedanta Resources Plc - India
- Neyveli Lignite Corporation Ltd, - India
- GVK Power & Infra Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Aditya Birla Group - India
- Kohat Cement Company Ltd. - Pakistan
- Electricity Generating Authority of Thailand
- Bangladesh Power Developement Board
- Gujarat Mineral Development Corp Ltd - India
- Indo Tambangraya Megah - Indonesia
- Sinarmas Energy and Mining - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Metalloyd Limited - United Kingdom
- Offshore Bulk Terminal Pte Ltd, Singapore
- Bukit Baiduri Energy - Indonesia
- Merrill Lynch Commodities Europe
- CNBM International Corporation - China
- Ceylon Electricity Board - Sri Lanka
- Mintek Dendrill Indonesia
- Ambuja Cements Ltd - India
- LBH Netherlands Bv - Netherlands
- Kartika Selabumi Mining - Indonesia
- Sindya Power Generating Company Private Ltd
- Toyota Tsusho Corporation, Japan
- SN Aboitiz Power Inc, Philippines
- Australian Commodity Traders Exchange
- PTC India Limited - India
- Electricity Authority, New Zealand
- Global Business Power Corporation, Philippines
- Latin American Coal - Colombia
- Wood Mackenzie - Singapore
- Indonesian Coal Mining Association
- Simpson Spence & Young - Indonesia
- Essar Steel Hazira Ltd - India
- Aboitiz Power Corporation - Philippines
- Riau Bara Harum - Indonesia
- Kobexindo Tractors - Indoneisa
- Energy Development Corp, Philippines
- Jindal Steel & Power Ltd - India
- Marubeni Corporation - India
- Directorate General of MIneral and Coal - Indonesia
- Coalindo Energy - Indonesia
- Mercator Lines Limited - India
- Ministry of Finance - Indonesia
- Agrawal Coal Company - India
- Altura Mining Limited, Indonesia
- Semirara Mining and Power Corporation, Philippines
- Kideco Jaya Agung - Indonesia
- Tata Chemicals Ltd - India
- Global Coal Blending Company Limited - Australia
- Maheswari Brothers Coal Limited - India
- Formosa Plastics Group - Taiwan
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- The University of Queensland
- Malabar Cements Ltd - India
- IEA Clean Coal Centre - UK
- Ministry of Transport, Egypt
- Deloitte Consulting - India
- Singapore Mercantile Exchange
- Medco Energi Mining Internasional
- Power Finance Corporation Ltd., India
- Krishnapatnam Port Company Ltd. - India
- Borneo Indobara - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Kumho Petrochemical, South Korea
- Independent Power Producers Association of India
- Orica Mining Services - Indonesia
- GMR Energy Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- San Jose City I Power Corp, Philippines
- Kapuas Tunggal Persada - Indonesia
- Makarim & Taira - Indonesia
- Port Waratah Coal Services - Australia
- Minerals Council of Australia
- Miang Besar Coal Terminal - Indonesia
- Economic Council, Georgia
- SMC Global Power, Philippines
- New Zealand Coal & Carbon
- Kaltim Prima Coal - Indonesia
- Attock Cement Pakistan Limited
- Jaiprakash Power Ventures ltd
- Parry Sugars Refinery, India
- McConnell Dowell - Australia
- Eastern Energy - Thailand
- Sakthi Sugars Limited - India
- Oldendorff Carriers - Singapore
- Mercuria Energy - Indonesia
- Planning Commission, India
- Standard Chartered Bank - UAE
- Central Java Power - Indonesia
- Pendopo Energi Batubara - Indonesia
- Georgia Ports Authority, United States
- Uttam Galva Steels Limited - India
- The Treasury - Australian Government
- International Coal Ventures Pvt Ltd - India
- Interocean Group of Companies - India
- Straits Asia Resources Limited - Singapore
- Bukit Makmur.PT - Indonesia
- Antam Resourcindo - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Sarangani Energy Corporation, Philippines
- Gujarat Electricity Regulatory Commission - India
- Renaissance Capital - South Africa
- Price Waterhouse Coopers - Russia
- Tamil Nadu electricity Board
- Samtan Co., Ltd - South Korea
- Manunggal Multi Energi - Indonesia
- South Luzon Thermal Energy Corporation
- AsiaOL BioFuels Corp., Philippines
- Jorong Barutama Greston.PT - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Commonwealth Bank - Australia
- Vizag Seaport Private Limited - India
- Petron Corporation, Philippines
- PetroVietnam Power Coal Import and Supply Company
- CIMB Investment Bank - Malaysia
- Posco Energy - South Korea
- Rio Tinto Coal - Australia
- Alfred C Toepfer International GmbH - Germany
- Mjunction Services Limited - India
- Chamber of Mines of South Africa
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