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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, 22 November 23
INDIA: GOVERNMENT PLANS 1.4 BILLION TONNE COAL OUTPUT BY 2027 - LIVEMINT
The Union coal ministry on Monday announced plans to increase India’s coal production to 1.404 billion tonne by 2027, with an eye to further ...
Wednesday, 22 November 23
OBLIGATION. INDONESIA AIMS TO START COLLECTING LEVIES FROM COAL MINERS IN JANUARY - REUTERS
Indonesia plans to start collecting levies from coal miners in January to be used to compensate miners who sell coal to the state utility at lower ...
Tuesday, 21 November 23
INDIAN COAL POWER PLANTS’ CAPACITY UTILISATION WILL IMPROVE TO 65% THIS FISCAL: - CRISIL
Coal-based thermal power units’ plant load factor (PLF) or capacity utilisation will improve to 65 percent in the current fiscal year despite ...
Tuesday, 14 November 23
CAPITAL PRODUCT PARTNERS L.P. ANNOUNCES TRANSFORMATIVE TRANSACTION INCLUDING THE ACQUISITION OF 11 NEWBUILD LNG CARRIERS FOR $3.1 BILLION
Capital Product Partners L.P. announced that it has entered into an umbrella agreement (the “Umbrella Agreement”) with Capital Maritime ...
Tuesday, 14 November 23
COAL INDIA BEATS Q2 PROFIT VIEW ON HIGH POWER DEMAND AMID WEAK MONSOON - REUTERS
Coal India on Friday reported better-than-expected second-quarter profit, helped by high power demand and boosted production amid a weak monsoon.
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- Eastern Coal Council - USA
- Mintek Dendrill Indonesia
- Semirara Mining and Power Corporation, Philippines
- Baramulti Group, Indonesia
- Global Coal Blending Company Limited - Australia
- Singapore Mercantile Exchange
- Bangladesh Power Developement Board
- IEA Clean Coal Centre - UK
- Oldendorff Carriers - Singapore
- Siam City Cement PLC, Thailand
- Pipit Mutiara Jaya. PT, Indonesia
- Antam Resourcindo - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Borneo Indobara - Indonesia
- Global Green Power PLC Corporation, Philippines
- The State Trading Corporation of India Ltd
- Kohat Cement Company Ltd. - Pakistan
- Iligan Light & Power Inc, Philippines
- Attock Cement Pakistan Limited
- Cigading International Bulk Terminal - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Cement Manufacturers Association - India
- Aditya Birla Group - India
- Bayan Resources Tbk. - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Carbofer General Trading SA - India
- Sojitz Corporation - Japan
- Offshore Bulk Terminal Pte Ltd, Singapore
- Bulk Trading Sa - Switzerland
- Anglo American - United Kingdom
- Indian Energy Exchange, India
- Indonesian Coal Mining Association
- ICICI Bank Limited - India
- Dalmia Cement Bharat India
- Energy Link Ltd, New Zealand
- Port Waratah Coal Services - Australia
- Meralco Power Generation, Philippines
- Intertek Mineral Services - Indonesia
- Chamber of Mines of South Africa
- White Energy Company Limited
- Ministry of Mines - Canada
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bhoruka Overseas - Indonesia
- Jindal Steel & Power Ltd - India
- Bukit Baiduri Energy - Indonesia
- Aboitiz Power Corporation - Philippines
- Marubeni Corporation - India
- Videocon Industries ltd - India
- London Commodity Brokers - England
- Ambuja Cements Ltd - India
- Economic Council, Georgia
- Coastal Gujarat Power Limited - India
- Interocean Group of Companies - India
- IHS Mccloskey Coal Group - USA
- South Luzon Thermal Energy Corporation
- Sinarmas Energy and Mining - Indonesia
- Savvy Resources Ltd - HongKong
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Straits Asia Resources Limited - Singapore
- GAC Shipping (India) Pvt Ltd
- Australian Coal Association
- Parry Sugars Refinery, India
- Manunggal Multi Energi - Indonesia
- LBH Netherlands Bv - Netherlands
- Petrochimia International Co. Ltd.- Taiwan
- Kaltim Prima Coal - Indonesia
- CIMB Investment Bank - Malaysia
- Kobexindo Tractors - Indoneisa
- Kumho Petrochemical, South Korea
- Indogreen Group - Indonesia
- International Coal Ventures Pvt Ltd - India
- Essar Steel Hazira Ltd - India
- Coal and Oil Company - UAE
- Rio Tinto Coal - Australia
- Simpson Spence & Young - Indonesia
- Sical Logistics Limited - India
- Bukit Makmur.PT - Indonesia
- Banpu Public Company Limited - Thailand
- Mjunction Services Limited - India
- Sree Jayajothi Cements Limited - India
- Krishnapatnam Port Company Ltd. - India
- Vizag Seaport Private Limited - India
- Formosa Plastics Group - Taiwan
- Directorate General of MIneral and Coal - Indonesia
- Bharathi Cement Corporation - India
- Alfred C Toepfer International GmbH - Germany
- Medco Energi Mining Internasional
- Chettinad Cement Corporation Ltd - India
- Indika Energy - Indonesia
- VISA Power Limited - India
- Timah Investasi Mineral - Indoneisa
- PetroVietnam Power Coal Import and Supply Company
- Tata Chemicals Ltd - India
- New Zealand Coal & Carbon
- Agrawal Coal Company - India
- Price Waterhouse Coopers - Russia
- Riau Bara Harum - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Kartika Selabumi Mining - Indonesia
- Sakthi Sugars Limited - India
- Goldman Sachs - Singapore
- Holcim Trading Pte Ltd - Singapore
- McConnell Dowell - Australia
- Wilmar Investment Holdings
- Xindia Steels Limited - India
- Kapuas Tunggal Persada - Indonesia
- Romanian Commodities Exchange
- PNOC Exploration Corporation - Philippines
- PowerSource Philippines DevCo
- Wood Mackenzie - Singapore
- Bhatia International Limited - India
- Karaikal Port Pvt Ltd - India
- Mercuria Energy - Indonesia
- San Jose City I Power Corp, Philippines
- Grasim Industreis Ltd - India
- Indo Tambangraya Megah - Indonesia
- GMR Energy Limited - India
- Ministry of Finance - Indonesia
- Larsen & Toubro Limited - India
- Sindya Power Generating Company Private Ltd
- Rashtriya Ispat Nigam Limited - India
- Pendopo Energi Batubara - Indonesia
- Bhushan Steel Limited - India
- Kepco SPC Power Corporation, Philippines
- Posco Energy - South Korea
- Vedanta Resources Plc - India
- Independent Power Producers Association of India
- TeaM Sual Corporation - Philippines
- Neyveli Lignite Corporation Ltd, - India
- SMC Global Power, Philippines
- Thai Mozambique Logistica
- Merrill Lynch Commodities Europe
- Australian Commodity Traders Exchange
- Ceylon Electricity Board - Sri Lanka
- OPG Power Generation Pvt Ltd - India
- Latin American Coal - Colombia
- PTC India Limited - India
- Minerals Council of Australia
- Billiton Holdings Pty Ltd - Australia
- Bahari Cakrawala Sebuku - Indonesia
- Ministry of Transport, Egypt
- Power Finance Corporation Ltd., India
- Central Electricity Authority - India
- SMG Consultants - Indonesia
- Globalindo Alam Lestari - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- ASAPP Information Group - India
- Energy Development Corp, Philippines
- Parliament of New Zealand
- Gujarat Electricity Regulatory Commission - India
- Electricity Authority, New Zealand
- MS Steel International - UAE
- Commonwealth Bank - Australia
- Semirara Mining Corp, Philippines
- Trasteel International SA, Italy
- Petron Corporation, Philippines
- AsiaOL BioFuels Corp., Philippines
- Ind-Barath Power Infra Limited - India
- Toyota Tsusho Corporation, Japan
- Heidelberg Cement - Germany
- Indian Oil Corporation Limited
- Thiess Contractors Indonesia
- CNBM International Corporation - China
- Samtan Co., Ltd - South Korea
- SN Aboitiz Power Inc, Philippines
- Kideco Jaya Agung - Indonesia
- Madhucon Powers Ltd - India
- Edison Trading Spa - Italy
- Siam City Cement - Thailand
- Planning Commission, India
- Binh Thuan Hamico - Vietnam
- Lanco Infratech Ltd - India
- European Bulk Services B.V. - Netherlands
- Maharashtra Electricity Regulatory Commission - India
- The Treasury - Australian Government
- Maheswari Brothers Coal Limited - India
- Directorate Of Revenue Intelligence - India
- Metalloyd Limited - United Kingdom
- Malabar Cements Ltd - India
- Sarangani Energy Corporation, Philippines
- Leighton Contractors Pty Ltd - Australia
- Central Java Power - Indonesia
- Deloitte Consulting - India
- Altura Mining Limited, Indonesia
- Tamil Nadu electricity Board
- Barasentosa Lestari - Indonesia
- Global Business Power Corporation, Philippines
- Makarim & Taira - Indonesia
- Orica Mining Services - Indonesia
- Orica Australia Pty. Ltd.
- Jaiprakash Power Ventures ltd
- Bank of Tokyo Mitsubishi UFJ Ltd
- Coalindo Energy - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Uttam Galva Steels Limited - India
- Gujarat Sidhee Cement - India
- The University of Queensland
- India Bulls Power Limited - India
- Standard Chartered Bank - UAE
- Renaissance Capital - South Africa
- Mercator Lines Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Electricity Generating Authority of Thailand
- GVK Power & Infra Limited - India
- Meenaskhi Energy Private Limited - India
- Eastern Energy - Thailand
- Africa Commodities Group - South Africa
- Asmin Koalindo Tuhup - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Salva Resources Pvt Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Star Paper Mills Limited - India
- Georgia Ports Authority, United States
- Therma Luzon, Inc, Philippines
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