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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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Saturday, 23 January 21
GOVT PLANNING TO OPEN UP COAL MARKETING TO STREAMLINE PROCESS - THE INDIAN EXPRESS
The government is considering opening up coal marketing, Coal Secretary Anil Kumar Jain said on Thursday. Currently, production by Coal India is al ...
Thursday, 21 January 21
LNG MARKET RIDING HIGH, BUT WILL THE GAINS CONTINUE? - DREWRY
The LNG market started 2021 on a high note with Asian spot prices crossing $30 per MMBtu while LNG shipping rates recorded a high $350k per day due ...
Thursday, 21 January 21
CHINA'S SPOT THERMAL COAL PRICES REFRESH RECORD HIGH - MYSTEEL
Despite the moderate rebound in temperatures across most regions of China after late December’s deep-freeze, thermal coal prices in the count ...
Wednesday, 20 January 21
CORONAVIRUS OUTBREAK IN HEBEI HAS LIMITED IMPACT ON CHINA'S STEEL INDUSTRY - FITCH RATINGS
The recent Covid-19 outbreak in the steel producing hub Hebei will not have material impact on China’s steel industry, Fitch Ratings says.
...
Wednesday, 20 January 21
MARKET INSIGHT - INTERMODAL
While 2020 is finally behind us, its negative impacts are still hovering over the shipping market. That being said, it is still too early to even s ...
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- SMG Consultants - Indonesia
- Indian Oil Corporation Limited
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- GAC Shipping (India) Pvt Ltd
- Dalmia Cement Bharat India
- Mjunction Services Limited - India
- San Jose City I Power Corp, Philippines
- LBH Netherlands Bv - Netherlands
- Sinarmas Energy and Mining - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Goldman Sachs - Singapore
- Marubeni Corporation - India
- Planning Commission, India
- Coal and Oil Company - UAE
- Orica Australia Pty. Ltd.
- Kalimantan Lumbung Energi - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Orica Mining Services - Indonesia
- ASAPP Information Group - India
- Ministry of Finance - Indonesia
- Bayan Resources Tbk. - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- IHS Mccloskey Coal Group - USA
- Independent Power Producers Association of India
- The Treasury - Australian Government
- The State Trading Corporation of India Ltd
- Merrill Lynch Commodities Europe
- Larsen & Toubro Limited - India
- OPG Power Generation Pvt Ltd - India
- Timah Investasi Mineral - Indoneisa
- Rio Tinto Coal - Australia
- Samtan Co., Ltd - South Korea
- Coastal Gujarat Power Limited - India
- Chettinad Cement Corporation Ltd - India
- Price Waterhouse Coopers - Russia
- Petrochimia International Co. Ltd.- Taiwan
- Mintek Dendrill Indonesia
- Jaiprakash Power Ventures ltd
- Xindia Steels Limited - India
- CNBM International Corporation - China
- Aditya Birla Group - India
- Bukit Baiduri Energy - Indonesia
- Lanco Infratech Ltd - India
- Renaissance Capital - South Africa
- Sree Jayajothi Cements Limited - India
- Australian Coal Association
- Latin American Coal - Colombia
- Kepco SPC Power Corporation, Philippines
- Malabar Cements Ltd - India
- Bhoruka Overseas - Indonesia
- Sical Logistics Limited - India
- Indika Energy - Indonesia
- Bangladesh Power Developement Board
- Bukit Asam (Persero) Tbk - Indonesia
- Ind-Barath Power Infra Limited - India
- Wilmar Investment Holdings
- Madhucon Powers Ltd - India
- Standard Chartered Bank - UAE
- Bulk Trading Sa - Switzerland
- Maheswari Brothers Coal Limited - India
- Banpu Public Company Limited - Thailand
- Port Waratah Coal Services - Australia
- Economic Council, Georgia
- Ministry of Mines - Canada
- Global Business Power Corporation, Philippines
- Semirara Mining and Power Corporation, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Parliament of New Zealand
- Videocon Industries ltd - India
- Therma Luzon, Inc, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Eastern Energy - Thailand
- Sarangani Energy Corporation, Philippines
- Indonesian Coal Mining Association
- VISA Power Limited - India
- Central Electricity Authority - India
- Agrawal Coal Company - India
- Straits Asia Resources Limited - Singapore
- ICICI Bank Limited - India
- Riau Bara Harum - Indonesia
- Eastern Coal Council - USA
- Billiton Holdings Pty Ltd - Australia
- Kaltim Prima Coal - Indonesia
- Cement Manufacturers Association - India
- Kumho Petrochemical, South Korea
- Indogreen Group - Indonesia
- Petron Corporation, Philippines
- Georgia Ports Authority, United States
- PNOC Exploration Corporation - Philippines
- Kohat Cement Company Ltd. - Pakistan
- Metalloyd Limited - United Kingdom
- Heidelberg Cement - Germany
- South Luzon Thermal Energy Corporation
- Parry Sugars Refinery, India
- Salva Resources Pvt Ltd - India
- MS Steel International - UAE
- Anglo American - United Kingdom
- Minerals Council of Australia
- Siam City Cement - Thailand
- McConnell Dowell - Australia
- Formosa Plastics Group - Taiwan
- Singapore Mercantile Exchange
- Karbindo Abesyapradhi - Indoneisa
- Kartika Selabumi Mining - Indonesia
- Bharathi Cement Corporation - India
- Indian Energy Exchange, India
- Commonwealth Bank - Australia
- Gujarat Mineral Development Corp Ltd - India
- Meenaskhi Energy Private Limited - India
- Energy Link Ltd, New Zealand
- Offshore Bulk Terminal Pte Ltd, Singapore
- GVK Power & Infra Limited - India
- Pendopo Energi Batubara - Indonesia
- Edison Trading Spa - Italy
- Holcim Trading Pte Ltd - Singapore
- TNB Fuel Sdn Bhd - Malaysia
- SN Aboitiz Power Inc, Philippines
- Attock Cement Pakistan Limited
- Kapuas Tunggal Persada - Indonesia
- PowerSource Philippines DevCo
- White Energy Company Limited
- Ministry of Transport, Egypt
- Energy Development Corp, Philippines
- Mercuria Energy - Indonesia
- Meralco Power Generation, Philippines
- Indo Tambangraya Megah - Indonesia
- Manunggal Multi Energi - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Wood Mackenzie - Singapore
- Star Paper Mills Limited - India
- Kideco Jaya Agung - Indonesia
- TeaM Sual Corporation - Philippines
- Sindya Power Generating Company Private Ltd
- Karaikal Port Pvt Ltd - India
- Central Java Power - Indonesia
- Tata Chemicals Ltd - India
- Gujarat Sidhee Cement - India
- Siam City Cement PLC, Thailand
- Posco Energy - South Korea
- Maharashtra Electricity Regulatory Commission - India
- Binh Thuan Hamico - Vietnam
- Chamber of Mines of South Africa
- Carbofer General Trading SA - India
- Power Finance Corporation Ltd., India
- Globalindo Alam Lestari - Indonesia
- Electricity Authority, New Zealand
- Jindal Steel & Power Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- IEA Clean Coal Centre - UK
- Thiess Contractors Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Electricity Generating Authority of Thailand
- Vedanta Resources Plc - India
- Jorong Barutama Greston.PT - Indonesia
- Aboitiz Power Corporation - Philippines
- Simpson Spence & Young - Indonesia
- Bhatia International Limited - India
- Ambuja Cements Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Semirara Mining Corp, Philippines
- Vizag Seaport Private Limited - India
- Australian Commodity Traders Exchange
- Altura Mining Limited, Indonesia
- Uttam Galva Steels Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Essar Steel Hazira Ltd - India
- Savvy Resources Ltd - HongKong
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Leighton Contractors Pty Ltd - Australia
- Trasteel International SA, Italy
- International Coal Ventures Pvt Ltd - India
- Ceylon Electricity Board - Sri Lanka
- CIMB Investment Bank - Malaysia
- European Bulk Services B.V. - Netherlands
- Bhushan Steel Limited - India
- India Bulls Power Limited - India
- London Commodity Brokers - England
- Intertek Mineral Services - Indonesia
- Global Coal Blending Company Limited - Australia
- Gujarat Electricity Regulatory Commission - India
- Oldendorff Carriers - Singapore
- Sakthi Sugars Limited - India
- SMC Global Power, Philippines
- Global Green Power PLC Corporation, Philippines
- Sojitz Corporation - Japan
- Miang Besar Coal Terminal - Indonesia
- Deloitte Consulting - India
- Toyota Tsusho Corporation, Japan
- Borneo Indobara - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Baramulti Group, Indonesia
- Mercator Lines Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Tamil Nadu electricity Board
- PTC India Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Interocean Group of Companies - India
- Grasim Industreis Ltd - India
- The University of Queensland
- Neyveli Lignite Corporation Ltd, - India
- Thai Mozambique Logistica
- Romanian Commodities Exchange
- GMR Energy Limited - India
- Bukit Makmur.PT - Indonesia
- AsiaOL BioFuels Corp., Philippines
- New Zealand Coal & Carbon
- Bank of Tokyo Mitsubishi UFJ Ltd
- Directorate Of Revenue Intelligence - India
- Kobexindo Tractors - Indoneisa
- Africa Commodities Group - South Africa
- Barasentosa Lestari - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Iligan Light & Power Inc, Philippines
- Medco Energi Mining Internasional
- Makarim & Taira - Indonesia
- Coalindo Energy - Indonesia
- Antam Resourcindo - Indonesia
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