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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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Tuesday, 29 December 20
CORROSION-RESISTANT STEELS FOR CARGO OIL TANKS - DNV GL
KNOWLEDGE TO ELEVATE
Crude oil is a complex mixture of substances at varying ratios and in most cases contains at least some salt water. ...
Tuesday, 29 December 20
CHINA COKING COAL FUTURES RISE FOR THIRD DAY ON SUPPLY WORRIES - REUTERS
Chinese coking coal futures extended gains into a third session on Monday, jumping as much as 6.2% as lower imports, sliding inventories and mines ...
Wednesday, 23 December 20
COKING COAL'S DECLINE LIKELY TO FOLLOW THE PATH OF THERMAL COAL’S PROGRESSIVE DEMISE - IEEFA
Technology disruption the likely theme of global energy markets in 2021
There has been a growing tsunami of climate commitment annou ...
Wednesday, 23 December 20
MARKET INSIGHT - INTERMODAL
As we all know, China forges more steel than the rest of the world combined, and even during this unprecedented pandemic, the nation is set to brea ...
Tuesday, 22 December 20
INDIA'S COAL DEMAND IS SET TO EXPAND DESPITE PLUMMETING IN 2020 - IEA
Coal consumption in India amounted to 979 Mt in 2019, with the largest share being thermal coal (including lignite) for electricity generation (687 ...
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- GVK Power & Infra Limited - India
- Aditya Birla Group - India
- Savvy Resources Ltd - HongKong
- Xindia Steels Limited - India
- Kaltim Prima Coal - Indonesia
- Singapore Mercantile Exchange
- Meralco Power Generation, Philippines
- Global Coal Blending Company Limited - Australia
- Mintek Dendrill Indonesia
- Cement Manufacturers Association - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Indonesian Coal Mining Association
- Offshore Bulk Terminal Pte Ltd, Singapore
- Bhatia International Limited - India
- Indian Oil Corporation Limited
- Ceylon Electricity Board - Sri Lanka
- Rio Tinto Coal - Australia
- European Bulk Services B.V. - Netherlands
- Marubeni Corporation - India
- International Coal Ventures Pvt Ltd - India
- Karaikal Port Pvt Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Binh Thuan Hamico - Vietnam
- Electricity Generating Authority of Thailand
- Georgia Ports Authority, United States
- Bayan Resources Tbk. - Indonesia
- White Energy Company Limited
- Romanian Commodities Exchange
- Ministry of Finance - Indonesia
- India Bulls Power Limited - India
- SMC Global Power, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Commonwealth Bank - Australia
- Bukit Asam (Persero) Tbk - Indonesia
- Minerals Council of Australia
- Energy Link Ltd, New Zealand
- Ind-Barath Power Infra Limited - India
- Miang Besar Coal Terminal - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- The Treasury - Australian Government
- Kobexindo Tractors - Indoneisa
- Power Finance Corporation Ltd., India
- Goldman Sachs - Singapore
- Maheswari Brothers Coal Limited - India
- Global Business Power Corporation, Philippines
- Siam City Cement - Thailand
- Directorate General of MIneral and Coal - Indonesia
- Malabar Cements Ltd - India
- Therma Luzon, Inc, Philippines
- Port Waratah Coal Services - Australia
- MS Steel International - UAE
- Manunggal Multi Energi - Indonesia
- The State Trading Corporation of India Ltd
- IHS Mccloskey Coal Group - USA
- Standard Chartered Bank - UAE
- South Luzon Thermal Energy Corporation
- Cigading International Bulk Terminal - Indonesia
- Global Green Power PLC Corporation, Philippines
- Borneo Indobara - Indonesia
- Orica Mining Services - Indonesia
- Banpu Public Company Limited - Thailand
- Renaissance Capital - South Africa
- Madhucon Powers Ltd - India
- Pendopo Energi Batubara - Indonesia
- Indika Energy - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- CNBM International Corporation - China
- Australian Coal Association
- Holcim Trading Pte Ltd - Singapore
- Interocean Group of Companies - India
- Toyota Tsusho Corporation, Japan
- McConnell Dowell - Australia
- Tata Chemicals Ltd - India
- Star Paper Mills Limited - India
- New Zealand Coal & Carbon
- Thiess Contractors Indonesia
- Sarangani Energy Corporation, Philippines
- Wilmar Investment Holdings
- Jaiprakash Power Ventures ltd
- Deloitte Consulting - India
- IEA Clean Coal Centre - UK
- Petrochimia International Co. Ltd.- Taiwan
- Sakthi Sugars Limited - India
- VISA Power Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Jindal Steel & Power Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- SN Aboitiz Power Inc, Philippines
- GMR Energy Limited - India
- GAC Shipping (India) Pvt Ltd
- Carbofer General Trading SA - India
- Gujarat Mineral Development Corp Ltd - India
- Bangladesh Power Developement Board
- Kartika Selabumi Mining - Indonesia
- Edison Trading Spa - Italy
- Bhushan Steel Limited - India
- Uttam Galva Steels Limited - India
- CIMB Investment Bank - Malaysia
- Sinarmas Energy and Mining - Indonesia
- Globalindo Alam Lestari - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Price Waterhouse Coopers - Russia
- Gujarat Electricity Regulatory Commission - India
- Attock Cement Pakistan Limited
- Central Electricity Authority - India
- Videocon Industries ltd - India
- San Jose City I Power Corp, Philippines
- PTC India Limited - India
- Tamil Nadu electricity Board
- Oldendorff Carriers - Singapore
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Vizag Seaport Private Limited - India
- PowerSource Philippines DevCo
- Bulk Trading Sa - Switzerland
- Mercuria Energy - Indonesia
- Latin American Coal - Colombia
- Mercator Lines Limited - India
- Samtan Co., Ltd - South Korea
- Alfred C Toepfer International GmbH - Germany
- Rashtriya Ispat Nigam Limited - India
- ASAPP Information Group - India
- Semirara Mining and Power Corporation, Philippines
- Eastern Coal Council - USA
- Metalloyd Limited - United Kingdom
- Simpson Spence & Young - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Bharathi Cement Corporation - India
- Altura Mining Limited, Indonesia
- Petron Corporation, Philippines
- Antam Resourcindo - Indonesia
- The University of Queensland
- Dalmia Cement Bharat India
- Bukit Makmur.PT - Indonesia
- Coal and Oil Company - UAE
- Riau Bara Harum - Indonesia
- Semirara Mining Corp, Philippines
- Formosa Plastics Group - Taiwan
- Kepco SPC Power Corporation, Philippines
- Kideco Jaya Agung - Indonesia
- TeaM Sual Corporation - Philippines
- Neyveli Lignite Corporation Ltd, - India
- Sojitz Corporation - Japan
- SMG Consultants - Indonesia
- Sical Logistics Limited - India
- Intertek Mineral Services - Indonesia
- OPG Power Generation Pvt Ltd - India
- Indian Energy Exchange, India
- Sree Jayajothi Cements Limited - India
- Parliament of New Zealand
- Chamber of Mines of South Africa
- Parry Sugars Refinery, India
- Electricity Authority, New Zealand
- Larsen & Toubro Limited - India
- Economic Council, Georgia
- Planning Commission, India
- Bhoruka Overseas - Indonesia
- Meenaskhi Energy Private Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Posco Energy - South Korea
- Independent Power Producers Association of India
- Baramulti Group, Indonesia
- Sindya Power Generating Company Private Ltd
- Australian Commodity Traders Exchange
- Coastal Gujarat Power Limited - India
- Africa Commodities Group - South Africa
- Barasentosa Lestari - Indonesia
- Directorate Of Revenue Intelligence - India
- Eastern Energy - Thailand
- Heidelberg Cement - Germany
- Aboitiz Power Corporation - Philippines
- Lanco Infratech Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Ambuja Cements Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Trasteel International SA, Italy
- Kumho Petrochemical, South Korea
- Maharashtra Electricity Regulatory Commission - India
- Agrawal Coal Company - India
- Orica Australia Pty. Ltd.
- Kapuas Tunggal Persada - Indonesia
- Salva Resources Pvt Ltd - India
- Iligan Light & Power Inc, Philippines
- London Commodity Brokers - England
- Energy Development Corp, Philippines
- Krishnapatnam Port Company Ltd. - India
- TNB Fuel Sdn Bhd - Malaysia
- PNOC Exploration Corporation - Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Siam City Cement PLC, Thailand
- Merrill Lynch Commodities Europe
- Anglo American - United Kingdom
- Ministry of Mines - Canada
- Straits Asia Resources Limited - Singapore
- Mjunction Services Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Vedanta Resources Plc - India
- Central Java Power - Indonesia
- ICICI Bank Limited - India
- Chettinad Cement Corporation Ltd - India
- Coalindo Energy - Indonesia
- Gujarat Sidhee Cement - India
- Indogreen Group - Indonesia
- Ministry of Transport, Egypt
- Indo Tambangraya Megah - Indonesia
- Wood Mackenzie - Singapore
- PetroVietnam Power Coal Import and Supply Company
- Medco Energi Mining Internasional
- Makarim & Taira - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Thai Mozambique Logistica
- Timah Investasi Mineral - Indoneisa
- Bukit Baiduri Energy - Indonesia
- Essar Steel Hazira Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- LBH Netherlands Bv - Netherlands
- Grasim Industreis Ltd - India
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