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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, 02 December 20
MARKET INSIGHT - INTERMODAL
It has been another busy week in the dry bulk secondhand market; a healthy number of sales reported predominantly from Japanese owners while owner& ...
Thursday, 26 November 20
DECLINE IN COAL EXPORTS ADDS TO NAVAJO-OWNED COMPANY'S PROBLEMS - IEEFA U.S.
Weak demand and low prices are likely creating steep losses for NTEC
U.S. coal exports to Asia—once heralded as the saving gra ...
Thursday, 26 November 20
COAL FINANCING QUICKLY DRYING UP WORLDWIDE - ANALYSTS : REUTERS
Financing for coal projects is drying up at ever increasing rates as more countries target zero carbon emissions amid an energy transition sweeping ...
Wednesday, 25 November 20
LIBOR REPLACEMENT AND SHIP FINANCE - WHERE IS IT HEADING? - WFW
The likely replacement of the LIBOR at the end of 2021 creates difficult technical and practical issues for all sectors of business and finance. Th ...
Wednesday, 25 November 20
DRY BULK SHIPPING: CHINA REMAINS THE DRIVING FACTOR, BUT COAL POLICY IS DISRUPTING THE MARKET - PETER SAND, BIMCO
The second half of the year has provided some cheer for the dry bulk market, with all ships in the spot market averaging earnings above the break-e ...
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Showing 721 to 725 news of total 6871 |
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- Sakthi Sugars Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Energy Link Ltd, New Zealand
- Coalindo Energy - Indonesia
- Planning Commission, India
- Barasentosa Lestari - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Grasim Industreis Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Lanco Infratech Ltd - India
- Orica Australia Pty. Ltd.
- Rio Tinto Coal - Australia
- Bayan Resources Tbk. - Indonesia
- Oldendorff Carriers - Singapore
- Bhatia International Limited - India
- Mercuria Energy - Indonesia
- Chettinad Cement Corporation Ltd - India
- Kaltim Prima Coal - Indonesia
- Ind-Barath Power Infra Limited - India
- GVK Power & Infra Limited - India
- Xindia Steels Limited - India
- Iligan Light & Power Inc, Philippines
- Deloitte Consulting - India
- Commonwealth Bank - Australia
- Neyveli Lignite Corporation Ltd, - India
- Trasteel International SA, Italy
- Agrawal Coal Company - India
- Jorong Barutama Greston.PT - Indonesia
- Minerals Council of Australia
- Bangladesh Power Developement Board
- Petron Corporation, Philippines
- Georgia Ports Authority, United States
- Indian Oil Corporation Limited
- Latin American Coal - Colombia
- Bhoruka Overseas - Indonesia
- International Coal Ventures Pvt Ltd - India
- Romanian Commodities Exchange
- Semirara Mining Corp, Philippines
- Marubeni Corporation - India
- Indonesian Coal Mining Association
- Mercator Lines Limited - India
- Eastern Coal Council - USA
- Miang Besar Coal Terminal - Indonesia
- The Treasury - Australian Government
- Sojitz Corporation - Japan
- Offshore Bulk Terminal Pte Ltd, Singapore
- Makarim & Taira - Indonesia
- The State Trading Corporation of India Ltd
- Karaikal Port Pvt Ltd - India
- Mjunction Services Limited - India
- Global Green Power PLC Corporation, Philippines
- ICICI Bank Limited - India
- Ambuja Cements Ltd - India
- Posco Energy - South Korea
- Mintek Dendrill Indonesia
- MS Steel International - UAE
- Parliament of New Zealand
- Singapore Mercantile Exchange
- Timah Investasi Mineral - Indoneisa
- India Bulls Power Limited - India
- Borneo Indobara - Indonesia
- Dalmia Cement Bharat India
- European Bulk Services B.V. - Netherlands
- Bahari Cakrawala Sebuku - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Eastern Energy - Thailand
- Independent Power Producers Association of India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Kumho Petrochemical, South Korea
- Jaiprakash Power Ventures ltd
- Indogreen Group - Indonesia
- Manunggal Multi Energi - Indonesia
- Bukit Makmur.PT - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Interocean Group of Companies - India
- Formosa Plastics Group - Taiwan
- Australian Commodity Traders Exchange
- Indika Energy - Indonesia
- Siam City Cement - Thailand
- TNB Fuel Sdn Bhd - Malaysia
- Antam Resourcindo - Indonesia
- Indo Tambangraya Megah - Indonesia
- Cement Manufacturers Association - India
- Australian Coal Association
- CNBM International Corporation - China
- IHS Mccloskey Coal Group - USA
- Gujarat Mineral Development Corp Ltd - India
- Banpu Public Company Limited - Thailand
- Directorate General of MIneral and Coal - Indonesia
- Vizag Seaport Private Limited - India
- Simpson Spence & Young - Indonesia
- Coal and Oil Company - UAE
- Global Coal Blending Company Limited - Australia
- Standard Chartered Bank - UAE
- Straits Asia Resources Limited - Singapore
- Karbindo Abesyapradhi - Indoneisa
- Bhushan Steel Limited - India
- Africa Commodities Group - South Africa
- GN Power Mariveles Coal Plant, Philippines
- Sree Jayajothi Cements Limited - India
- Heidelberg Cement - Germany
- Port Waratah Coal Services - Australia
- Ministry of Mines - Canada
- Carbofer General Trading SA - India
- Tamil Nadu electricity Board
- Kideco Jaya Agung - Indonesia
- Attock Cement Pakistan Limited
- Pendopo Energi Batubara - Indonesia
- SMG Consultants - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- AsiaOL BioFuels Corp., Philippines
- Indian Energy Exchange, India
- Sical Logistics Limited - India
- Kobexindo Tractors - Indoneisa
- Renaissance Capital - South Africa
- New Zealand Coal & Carbon
- Kapuas Tunggal Persada - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Salva Resources Pvt Ltd - India
- Ministry of Finance - Indonesia
- Savvy Resources Ltd - HongKong
- Riau Bara Harum - Indonesia
- McConnell Dowell - Australia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- PetroVietnam Power Coal Import and Supply Company
- Wood Mackenzie - Singapore
- Star Paper Mills Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Power Finance Corporation Ltd., India
- Aboitiz Power Corporation - Philippines
- Chamber of Mines of South Africa
- Meenaskhi Energy Private Limited - India
- Kartika Selabumi Mining - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Central Java Power - Indonesia
- Bukit Baiduri Energy - Indonesia
- IEA Clean Coal Centre - UK
- Videocon Industries ltd - India
- GAC Shipping (India) Pvt Ltd
- Sindya Power Generating Company Private Ltd
- Anglo American - United Kingdom
- Goldman Sachs - Singapore
- Price Waterhouse Coopers - Russia
- London Commodity Brokers - England
- Central Electricity Authority - India
- Asmin Koalindo Tuhup - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- TeaM Sual Corporation - Philippines
- Orica Mining Services - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Uttam Galva Steels Limited - India
- OPG Power Generation Pvt Ltd - India
- Aditya Birla Group - India
- Vijayanagar Sugar Pvt Ltd - India
- Altura Mining Limited, Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Wilmar Investment Holdings
- Electricity Authority, New Zealand
- Sarangani Energy Corporation, Philippines
- Directorate Of Revenue Intelligence - India
- Tata Chemicals Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- ASAPP Information Group - India
- SN Aboitiz Power Inc, Philippines
- Vedanta Resources Plc - India
- Gujarat Sidhee Cement - India
- Intertek Mineral Services - Indonesia
- Metalloyd Limited - United Kingdom
- Bharathi Cement Corporation - India
- San Jose City I Power Corp, Philippines
- Meralco Power Generation, Philippines
- Toyota Tsusho Corporation, Japan
- PTC India Limited - India
- PowerSource Philippines DevCo
- White Energy Company Limited
- Krishnapatnam Port Company Ltd. - India
- Ministry of Transport, Egypt
- Economic Council, Georgia
- Jindal Steel & Power Ltd - India
- Global Business Power Corporation, Philippines
- Larsen & Toubro Limited - India
- Energy Development Corp, Philippines
- Therma Luzon, Inc, Philippines
- South Luzon Thermal Energy Corporation
- Madhucon Powers Ltd - India
- PNOC Exploration Corporation - Philippines
- VISA Power Limited - India
- Bulk Trading Sa - Switzerland
- Leighton Contractors Pty Ltd - Australia
- The University of Queensland
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Parry Sugars Refinery, India
- LBH Netherlands Bv - Netherlands
- Siam City Cement PLC, Thailand
- Merrill Lynch Commodities Europe
- Medco Energi Mining Internasional
- Essar Steel Hazira Ltd - India
- Globalindo Alam Lestari - Indonesia
- Ceylon Electricity Board - Sri Lanka
- SMC Global Power, Philippines
- Malabar Cements Ltd - India
- Edison Trading Spa - Italy
- Coastal Gujarat Power Limited - India
- Electricity Generating Authority of Thailand
- Thai Mozambique Logistica
- Binh Thuan Hamico - Vietnam
- Thiess Contractors Indonesia
- Samtan Co., Ltd - South Korea
- Baramulti Group, Indonesia
- Maheswari Brothers Coal Limited - India
- Billiton Holdings Pty Ltd - Australia
- Sinarmas Energy and Mining - Indonesia
- Kepco SPC Power Corporation, Philippines
- GMR Energy Limited - India
- CIMB Investment Bank - Malaysia
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