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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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Monday, 21 December 20
A REBOUND IN GLOBAL COAL DEMAND IN 2021 IS SET TO BE SHORT-LIVED, BUT NO IMMEDIATE DECLINE IN SIGHT - IEA
After a major drop in recent years, global coal demand is forecast to rise by 2.6% in 2021 before flattening out to 2025
A global ec ...
Friday, 18 December 20
AUSTRALIA PM WARNS OF ‘LOSE-LOSE’ IN ANY CHINA COAL SHIFT - REUTERS
Australian Prime Minister Scott Morrison said any shift by China away from importing high quality Australian coal would be a “lose-lose&rdquo ...
Friday, 18 December 20
BIG OIL AND COAL EXPORTERS FACE RECKONING AS PARIS AGREEMENT TURNS FIVE - CNA
On Dec 12, more than 70 global leaders came together at the UN’s Climate Ambition Summit, marking the fifth anniversary of the Paris Agreemen ...
Friday, 18 December 20
SOUTH AFRICAN COAL EXPORTERS LARGELY DEPENDENT ON THE ASIAN MARKETS - BANCHERO COSTA
South Africa is the fourth largest exporter of coal in the world, after Australia, Indonesia and Russia. In calendar 2019 the country exported a to ...
Thursday, 17 December 20
CHINA'S BAN IS LESS OF A THREAT TO AUSTRALIA'S COAL INDUSTRY THAN INTERNATIONAL CLIMATE AMBITION - IEEFA
Australian coal exporters will survive this near-term political fight but there are longterm structural headwinds
The decision by Ch ...
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- TNB Fuel Sdn Bhd - Malaysia
- Jindal Steel & Power Ltd - India
- Global Business Power Corporation, Philippines
- Sinarmas Energy and Mining - Indonesia
- Mjunction Services Limited - India
- Videocon Industries ltd - India
- CIMB Investment Bank - Malaysia
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- Samtan Co., Ltd - South Korea
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- Power Finance Corporation Ltd., India
- Leighton Contractors Pty Ltd - Australia
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- Ministry of Mines - Canada
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- Petron Corporation, Philippines
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- Ministry of Finance - Indonesia
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- OPG Power Generation Pvt Ltd - India
- Oldendorff Carriers - Singapore
- GVK Power & Infra Limited - India
- Larsen & Toubro Limited - India
- ASAPP Information Group - India
- Kalimantan Lumbung Energi - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- European Bulk Services B.V. - Netherlands
- ICICI Bank Limited - India
- Salva Resources Pvt Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Siam City Cement - Thailand
- Parliament of New Zealand
- Bulk Trading Sa - Switzerland
- Price Waterhouse Coopers - Russia
- Sojitz Corporation - Japan
- The State Trading Corporation of India Ltd
- Billiton Holdings Pty Ltd - Australia
- Trasteel International SA, Italy
- Kepco SPC Power Corporation, Philippines
- Chamber of Mines of South Africa
- Independent Power Producers Association of India
- Gujarat Sidhee Cement - India
- Toyota Tsusho Corporation, Japan
- Chettinad Cement Corporation Ltd - India
- PowerSource Philippines DevCo
- Romanian Commodities Exchange
- Siam City Cement PLC, Thailand
- Mintek Dendrill Indonesia
- Uttam Galva Steels Limited - India
- Mercuria Energy - Indonesia
- VISA Power Limited - India
- Orica Australia Pty. Ltd.
- Sakthi Sugars Limited - India
- Renaissance Capital - South Africa
- Directorate General of MIneral and Coal - Indonesia
- Indian Energy Exchange, India
- Global Coal Blending Company Limited - Australia
- Central Java Power - Indonesia
- Antam Resourcindo - Indonesia
- Wilmar Investment Holdings
- Vizag Seaport Private Limited - India
- New Zealand Coal & Carbon
- Thai Mozambique Logistica
- Medco Energi Mining Internasional
- Therma Luzon, Inc, Philippines
- Planning Commission, India
- Miang Besar Coal Terminal - Indonesia
- Grasim Industreis Ltd - India
- SMG Consultants - Indonesia
- Kobexindo Tractors - Indoneisa
- Minerals Council of Australia
- GN Power Mariveles Coal Plant, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Jaiprakash Power Ventures ltd
- Petrochimia International Co. Ltd.- Taiwan
- Formosa Plastics Group - Taiwan
- Electricity Generating Authority of Thailand
- Neyveli Lignite Corporation Ltd, - India
- Sindya Power Generating Company Private Ltd
- Global Green Power PLC Corporation, Philippines
- Carbofer General Trading SA - India
- Borneo Indobara - Indonesia
- Attock Cement Pakistan Limited
- South Luzon Thermal Energy Corporation
- Rashtriya Ispat Nigam Limited - India
- Port Waratah Coal Services - Australia
- The University of Queensland
- Kapuas Tunggal Persada - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Bangladesh Power Developement Board
- Barasentosa Lestari - Indonesia
- Meenaskhi Energy Private Limited - India
- Sree Jayajothi Cements Limited - India
- McConnell Dowell - Australia
- Tamil Nadu electricity Board
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- MS Steel International - UAE
- Alfred C Toepfer International GmbH - Germany
- Thiess Contractors Indonesia
- Parry Sugars Refinery, India
- Baramulti Group, Indonesia
- Ambuja Cements Ltd - India
- Interocean Group of Companies - India
- AsiaOL BioFuels Corp., Philippines
- Singapore Mercantile Exchange
- Commonwealth Bank - Australia
- SMC Global Power, Philippines
- Central Electricity Authority - India
- Gujarat Electricity Regulatory Commission - India
- Jorong Barutama Greston.PT - Indonesia
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- Dalmia Cement Bharat India
- White Energy Company Limited
- Binh Thuan Hamico - Vietnam
- Maheswari Brothers Coal Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- CNBM International Corporation - China
- The Treasury - Australian Government
- Cement Manufacturers Association - India
- GMR Energy Limited - India
- Energy Development Corp, Philippines
- Marubeni Corporation - India
- IHS Mccloskey Coal Group - USA
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- Coalindo Energy - Indonesia
- Lanco Infratech Ltd - India
- Meralco Power Generation, Philippines
- Ceylon Electricity Board - Sri Lanka
- PTC India Limited - India
- Semirara Mining Corp, Philippines
- Energy Link Ltd, New Zealand
- Altura Mining Limited, Indonesia
- Sical Logistics Limited - India
- San Jose City I Power Corp, Philippines
- Star Paper Mills Limited - India
- Electricity Authority, New Zealand
- Australian Commodity Traders Exchange
- Indogreen Group - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bhoruka Overseas - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Semirara Mining and Power Corporation, Philippines
- Manunggal Multi Energi - Indonesia
- Savvy Resources Ltd - HongKong
- Orica Mining Services - Indonesia
- Aboitiz Power Corporation - Philippines
- Wood Mackenzie - Singapore
- Ministry of Transport, Egypt
- Georgia Ports Authority, United States
- SN Aboitiz Power Inc, Philippines
- Krishnapatnam Port Company Ltd. - India
- London Commodity Brokers - England
- Kaltim Prima Coal - Indonesia
- Kartika Selabumi Mining - Indonesia
- Deloitte Consulting - India
- Edison Trading Spa - Italy
- Banpu Public Company Limited - Thailand
- Tata Chemicals Ltd - India
- Bukit Makmur.PT - Indonesia
- Iligan Light & Power Inc, Philippines
- Australian Coal Association
- TeaM Sual Corporation - Philippines
- Pendopo Energi Batubara - Indonesia
- Bharathi Cement Corporation - India
- PetroVietnam Power Coal Import and Supply Company
- Karaikal Port Pvt Ltd - India
- Bukit Baiduri Energy - Indonesia
- Malabar Cements Ltd - India
- Bhatia International Limited - India
- Merrill Lynch Commodities Europe
- Coastal Gujarat Power Limited - India
- GAC Shipping (India) Pvt Ltd
- Standard Chartered Bank - UAE
- Metalloyd Limited - United Kingdom
- Karbindo Abesyapradhi - Indoneisa
- Holcim Trading Pte Ltd - Singapore
- Agrawal Coal Company - India
- Straits Asia Resources Limited - Singapore
- Mercator Lines Limited - India
- Coal and Oil Company - UAE
- Simpson Spence & Young - Indonesia
- IEA Clean Coal Centre - UK
- Directorate Of Revenue Intelligence - India
- Economic Council, Georgia
- Bayan Resources Tbk. - Indonesia
- Rio Tinto Coal - Australia
- Latin American Coal - Colombia
- Timah Investasi Mineral - Indoneisa
- Sarangani Energy Corporation, Philippines
- LBH Netherlands Bv - Netherlands
- Goldman Sachs - Singapore
- Africa Commodities Group - South Africa
- Intertek Mineral Services - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Eastern Energy - Thailand
- Ind-Barath Power Infra Limited - India
- Cigading International Bulk Terminal - Indonesia
- India Bulls Power Limited - India
- Indonesian Coal Mining Association
- Vedanta Resources Plc - India
- Eastern Coal Council - USA
- PNOC Exploration Corporation - Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Heidelberg Cement - Germany
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