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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, 08 December 20
PANAMAX: THE OVERALL MARKET SEEMS TO BE UNDER NEGATIVE PRESSURE - ALLIED
Capesize
A rather indifferent week for the Capesize market, with BCI 5TC figure finishing the week with slight losses of 0.8%. The Atlantic enj ...
Friday, 04 December 20
CHINA'S BENCHMARK POWER COAL PRICE EDGES UP - XINHUA
China’s benchmark power coal price rose slightly during the past week.
The Bohai-Rim Steam-Coal Price Index (BSPI), a gauge of ...
Friday, 04 December 20
THE INDONESIA COAL PRICE REFERENCE REACHES THREE MONTH HIGH ON IMPROVING DEMAND OUTLOOK
COALspot.com: The Indonesia Coal Price Reference reaches three month high on improving demand outlook . The Indonesia Coal Price Reference rose by& ...
Wednesday, 02 December 20
GLOBAL MINING SECTOR OUTLOOK STABLE DUE TO CHINA'S RECOVERY - FITCH RATINGS
China’s post-pandemic economic recovery and sizeable infrastructure-focused government stimulus boosted global metals and mining prices, help ...
Wednesday, 02 December 20
INDONESIA CONSIDERING CLOSING 3,400MW SURALAYA COAL PLANT - THE JAKARTA POST
The government is considering to shut down the aging Suralaya coal-fired power plant (PLTU) in Cilegon, Banten, and replace it with green energy, a ...
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- Mjunction Services Limited - India
- Aditya Birla Group - India
- PNOC Exploration Corporation - Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Formosa Plastics Group - Taiwan
- Cigading International Bulk Terminal - Indonesia
- The University of Queensland
- Toyota Tsusho Corporation, Japan
- Borneo Indobara - Indonesia
- SN Aboitiz Power Inc, Philippines
- Energy Link Ltd, New Zealand
- Agrawal Coal Company - India
- ICICI Bank Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Australian Commodity Traders Exchange
- London Commodity Brokers - England
- Attock Cement Pakistan Limited
- Salva Resources Pvt Ltd - India
- Ministry of Mines - Canada
- Binh Thuan Hamico - Vietnam
- Bahari Cakrawala Sebuku - Indonesia
- McConnell Dowell - Australia
- Meralco Power Generation, Philippines
- Carbofer General Trading SA - India
- New Zealand Coal & Carbon
- Indika Energy - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Bukit Baiduri Energy - Indonesia
- LBH Netherlands Bv - Netherlands
- Krishnapatnam Port Company Ltd. - India
- Asmin Koalindo Tuhup - Indonesia
- Directorate Of Revenue Intelligence - India
- Riau Bara Harum - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Billiton Holdings Pty Ltd - Australia
- The Treasury - Australian Government
- Wood Mackenzie - Singapore
- Economic Council, Georgia
- Thiess Contractors Indonesia
- Commonwealth Bank - Australia
- Semirara Mining and Power Corporation, Philippines
- Kideco Jaya Agung - Indonesia
- IHS Mccloskey Coal Group - USA
- OPG Power Generation Pvt Ltd - India
- Sarangani Energy Corporation, Philippines
- Mercator Lines Limited - India
- Samtan Co., Ltd - South Korea
- Madhucon Powers Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Oldendorff Carriers - Singapore
- Port Waratah Coal Services - Australia
- Sojitz Corporation - Japan
- Kumho Petrochemical, South Korea
- Anglo American - United Kingdom
- Edison Trading Spa - Italy
- European Bulk Services B.V. - Netherlands
- Intertek Mineral Services - Indonesia
- Videocon Industries ltd - India
- Energy Development Corp, Philippines
- Xindia Steels Limited - India
- Bulk Trading Sa - Switzerland
- Barasentosa Lestari - Indonesia
- Ministry of Finance - Indonesia
- Posco Energy - South Korea
- Mintek Dendrill Indonesia
- Meenaskhi Energy Private Limited - India
- Bukit Makmur.PT - Indonesia
- CNBM International Corporation - China
- Dalmia Cement Bharat India
- Banpu Public Company Limited - Thailand
- Orica Australia Pty. Ltd.
- Holcim Trading Pte Ltd - Singapore
- Price Waterhouse Coopers - Russia
- Altura Mining Limited, Indonesia
- Bharathi Cement Corporation - India
- Marubeni Corporation - India
- Eastern Energy - Thailand
- Sindya Power Generating Company Private Ltd
- Aboitiz Power Corporation - Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Thai Mozambique Logistica
- Jorong Barutama Greston.PT - Indonesia
- Vizag Seaport Private Limited - India
- Heidelberg Cement - Germany
- Parry Sugars Refinery, India
- Renaissance Capital - South Africa
- MS Steel International - UAE
- Timah Investasi Mineral - Indoneisa
- Goldman Sachs - Singapore
- Global Green Power PLC Corporation, Philippines
- ASAPP Information Group - India
- India Bulls Power Limited - India
- Kaltim Prima Coal - Indonesia
- Therma Luzon, Inc, Philippines
- Georgia Ports Authority, United States
- Trasteel International SA, Italy
- Siam City Cement - Thailand
- Directorate General of MIneral and Coal - Indonesia
- Kartika Selabumi Mining - Indonesia
- Petron Corporation, Philippines
- VISA Power Limited - India
- SMC Global Power, Philippines
- Sakthi Sugars Limited - India
- Indonesian Coal Mining Association
- Jaiprakash Power Ventures ltd
- Offshore Bulk Terminal Pte Ltd, Singapore
- Cement Manufacturers Association - India
- TeaM Sual Corporation - Philippines
- IEA Clean Coal Centre - UK
- Pendopo Energi Batubara - Indonesia
- Siam City Cement PLC, Thailand
- Metalloyd Limited - United Kingdom
- Deloitte Consulting - India
- Coastal Gujarat Power Limited - India
- Baramulti Group, Indonesia
- The State Trading Corporation of India Ltd
- Global Coal Blending Company Limited - Australia
- CIMB Investment Bank - Malaysia
- Kalimantan Lumbung Energi - Indonesia
- GVK Power & Infra Limited - India
- Chettinad Cement Corporation Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Kohat Cement Company Ltd. - Pakistan
- Orica Mining Services - Indonesia
- Indian Energy Exchange, India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Merrill Lynch Commodities Europe
- Power Finance Corporation Ltd., India
- Bayan Resources Tbk. - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Semirara Mining Corp, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Maheswari Brothers Coal Limited - India
- Grasim Industreis Ltd - India
- San Jose City I Power Corp, Philippines
- Manunggal Multi Energi - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Ind-Barath Power Infra Limited - India
- Alfred C Toepfer International GmbH - Germany
- Kapuas Tunggal Persada - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Essar Steel Hazira Ltd - India
- Rio Tinto Coal - Australia
- Independent Power Producers Association of India
- Sical Logistics Limited - India
- Mercuria Energy - Indonesia
- Kepco SPC Power Corporation, Philippines
- Star Paper Mills Limited - India
- Central Java Power - Indonesia
- Straits Asia Resources Limited - Singapore
- Neyveli Lignite Corporation Ltd, - India
- Larsen & Toubro Limited - India
- Antam Resourcindo - Indonesia
- Tamil Nadu electricity Board
- Vedanta Resources Plc - India
- Planning Commission, India
- Leighton Contractors Pty Ltd - Australia
- Electricity Generating Authority of Thailand
- Uttam Galva Steels Limited - India
- Australian Coal Association
- Savvy Resources Ltd - HongKong
- Indo Tambangraya Megah - Indonesia
- Malabar Cements Ltd - India
- Sree Jayajothi Cements Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Lanco Infratech Ltd - India
- Jindal Steel & Power Ltd - India
- Singapore Mercantile Exchange
- PowerSource Philippines DevCo
- Interocean Group of Companies - India
- Wilmar Investment Holdings
- Rashtriya Ispat Nigam Limited - India
- Bhatia International Limited - India
- Kobexindo Tractors - Indoneisa
- Bangladesh Power Developement Board
- Indogreen Group - Indonesia
- Bhushan Steel Limited - India
- Minerals Council of Australia
- Indian Oil Corporation Limited
- Romanian Commodities Exchange
- Karaikal Port Pvt Ltd - India
- Latin American Coal - Colombia
- Africa Commodities Group - South Africa
- White Energy Company Limited
- Bhoruka Overseas - Indonesia
- SMG Consultants - Indonesia
- South Luzon Thermal Energy Corporation
- Petrochimia International Co. Ltd.- Taiwan
- Sinarmas Energy and Mining - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Electricity Authority, New Zealand
- Gujarat Electricity Regulatory Commission - India
- Ministry of Transport, Egypt
- Medco Energi Mining Internasional
- Eastern Coal Council - USA
- Standard Chartered Bank - UAE
- Coal and Oil Company - UAE
- Miang Besar Coal Terminal - Indonesia
- International Coal Ventures Pvt Ltd - India
- GAC Shipping (India) Pvt Ltd
- Makarim & Taira - Indonesia
- Central Electricity Authority - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Iligan Light & Power Inc, Philippines
- Global Business Power Corporation, Philippines
- Parliament of New Zealand
- Tata Chemicals Ltd - India
- Ambuja Cements Ltd - India
- Chamber of Mines of South Africa
- PTC India Limited - India
- Gujarat Sidhee Cement - India
- GMR Energy Limited - India
- AsiaOL BioFuels Corp., Philippines
- Simpson Spence & Young - Indonesia
- Coalindo Energy - Indonesia
- Globalindo Alam Lestari - Indonesia
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