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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, 21 October 20
MARKET INSIGHT - INTERMODAL
The second wave of COVID-19 is now a reality; offices are closing again, and stricter rules and regulations are being implemented in public spaces. ...
Tuesday, 20 October 20
CHINA TAIYUAN COAL TRANSACTION PRICE INDEX UP 0.82 PCT - XINHUA
China Taiyuan coal transaction price index stood at 127.49 points Monday, up 0.82 percent week on week.
The index, released by China ...
Tuesday, 20 October 20
BIMCO 'SHIPLEASE' TERM SHEET - WATSON FARLEY & WILLIAMS
KNOWLEDGE TO ELEVATE
The ever-growing importance of sale and leaseback transactions as an alternative to financing ships by way of loan, makes ...
Friday, 16 October 20
KOMIPO ON BEHALF OF K GENCO'S INVITED BIDS FOR TOTAL 715,000 MT MIN. 5,700 NAR COAL FOR DECEMBER
COALspot.com: Korea Midland Power Co., Ltd (KOMIPO) on behalf of EWP, KOSPO, KOSEP and KOWEPO has issued an international tender for total 715,000& ...
Wednesday, 14 October 20
CHINA COKING COAL FUTURES RALLY ON REPORTED BAN ON AUSTRALIA CARGOES - REUTERS
Dalian coking coal futures rallied for a sixth straight session on Tuesday after reports surfaced that China had stopped buying coal from Australia ...
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- Indian Energy Exchange, India
- Metalloyd Limited - United Kingdom
- PetroVietnam Power Coal Import and Supply Company
- Indogreen Group - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Medco Energi Mining Internasional
- Merrill Lynch Commodities Europe
- Energy Development Corp, Philippines
- Chamber of Mines of South Africa
- Antam Resourcindo - Indonesia
- The State Trading Corporation of India Ltd
- Savvy Resources Ltd - HongKong
- Semirara Mining and Power Corporation, Philippines
- Australian Coal Association
- Kaltim Prima Coal - Indonesia
- Latin American Coal - Colombia
- Sojitz Corporation - Japan
- Goldman Sachs - Singapore
- Indian Oil Corporation Limited
- Kumho Petrochemical, South Korea
- Central Electricity Authority - India
- Miang Besar Coal Terminal - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- PNOC Exploration Corporation - Philippines
- Pendopo Energi Batubara - Indonesia
- Orica Mining Services - Indonesia
- Larsen & Toubro Limited - India
- Bhoruka Overseas - Indonesia
- Tata Chemicals Ltd - India
- Bayan Resources Tbk. - Indonesia
- Edison Trading Spa - Italy
- Wood Mackenzie - Singapore
- Siam City Cement PLC, Thailand
- Meralco Power Generation, Philippines
- Meenaskhi Energy Private Limited - India
- Siam City Cement - Thailand
- Maharashtra Electricity Regulatory Commission - India
- Bulk Trading Sa - Switzerland
- International Coal Ventures Pvt Ltd - India
- Directorate Of Revenue Intelligence - India
- Borneo Indobara - Indonesia
- Central Java Power - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Ministry of Mines - Canada
- Karaikal Port Pvt Ltd - India
- LBH Netherlands Bv - Netherlands
- IEA Clean Coal Centre - UK
- Semirara Mining Corp, Philippines
- Sindya Power Generating Company Private Ltd
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Thiess Contractors Indonesia
- Renaissance Capital - South Africa
- Independent Power Producers Association of India
- Mjunction Services Limited - India
- Interocean Group of Companies - India
- Sinarmas Energy and Mining - Indonesia
- Grasim Industreis Ltd - India
- Gujarat Sidhee Cement - India
- Coalindo Energy - Indonesia
- MS Steel International - UAE
- Straits Asia Resources Limited - Singapore
- European Bulk Services B.V. - Netherlands
- The Treasury - Australian Government
- Baramulti Group, Indonesia
- Kapuas Tunggal Persada - Indonesia
- Oldendorff Carriers - Singapore
- Formosa Plastics Group - Taiwan
- Xindia Steels Limited - India
- Therma Luzon, Inc, Philippines
- Mercuria Energy - Indonesia
- GAC Shipping (India) Pvt Ltd
- Georgia Ports Authority, United States
- Chettinad Cement Corporation Ltd - India
- Sarangani Energy Corporation, Philippines
- Heidelberg Cement - Germany
- Petrochimia International Co. Ltd.- Taiwan
- OPG Power Generation Pvt Ltd - India
- Simpson Spence & Young - Indonesia
- ASAPP Information Group - India
- Kobexindo Tractors - Indoneisa
- Kideco Jaya Agung - Indonesia
- ICICI Bank Limited - India
- Aditya Birla Group - India
- Parliament of New Zealand
- Thai Mozambique Logistica
- Kalimantan Lumbung Energi - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Kartika Selabumi Mining - Indonesia
- Global Coal Blending Company Limited - Australia
- South Luzon Thermal Energy Corporation
- Bukit Baiduri Energy - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Port Waratah Coal Services - Australia
- CIMB Investment Bank - Malaysia
- Asmin Koalindo Tuhup - Indonesia
- Australian Commodity Traders Exchange
- Dalmia Cement Bharat India
- India Bulls Power Limited - India
- Economic Council, Georgia
- Posco Energy - South Korea
- Sakthi Sugars Limited - India
- Cigading International Bulk Terminal - Indonesia
- Indo Tambangraya Megah - Indonesia
- Planning Commission, India
- Makarim & Taira - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Indonesian Coal Mining Association
- Minerals Council of Australia
- Kepco SPC Power Corporation, Philippines
- Bhushan Steel Limited - India
- Maheswari Brothers Coal Limited - India
- Mintek Dendrill Indonesia
- Cement Manufacturers Association - India
- White Energy Company Limited
- Africa Commodities Group - South Africa
- Attock Cement Pakistan Limited
- Toyota Tsusho Corporation, Japan
- Vizag Seaport Private Limited - India
- Jaiprakash Power Ventures ltd
- Romanian Commodities Exchange
- CNBM International Corporation - China
- SN Aboitiz Power Inc, Philippines
- Ministry of Transport, Egypt
- Coal and Oil Company - UAE
- Sree Jayajothi Cements Limited - India
- Kohat Cement Company Ltd. - Pakistan
- GN Power Mariveles Coal Plant, Philippines
- Trasteel International SA, Italy
- London Commodity Brokers - England
- Jindal Steel & Power Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Tamil Nadu electricity Board
- The University of Queensland
- PowerSource Philippines DevCo
- Ministry of Finance - Indonesia
- Deloitte Consulting - India
- Binh Thuan Hamico - Vietnam
- Carbofer General Trading SA - India
- Star Paper Mills Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- GVK Power & Infra Limited - India
- Directorate General of MIneral and Coal - Indonesia
- McConnell Dowell - Australia
- Barasentosa Lestari - Indonesia
- Ind-Barath Power Infra Limited - India
- Marubeni Corporation - India
- Leighton Contractors Pty Ltd - Australia
- New Zealand Coal & Carbon
- Uttam Galva Steels Limited - India
- Ceylon Electricity Board - Sri Lanka
- Energy Link Ltd, New Zealand
- Offshore Bulk Terminal Pte Ltd, Singapore
- TeaM Sual Corporation - Philippines
- Agrawal Coal Company - India
- Banpu Public Company Limited - Thailand
- Manunggal Multi Energi - Indonesia
- Anglo American - United Kingdom
- Essar Steel Hazira Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Coastal Gujarat Power Limited - India
- Bhatia International Limited - India
- Power Finance Corporation Ltd., India
- Madhucon Powers Ltd - India
- Salva Resources Pvt Ltd - India
- Singapore Mercantile Exchange
- Rio Tinto Coal - Australia
- Global Business Power Corporation, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Samtan Co., Ltd - South Korea
- Electricity Authority, New Zealand
- Billiton Holdings Pty Ltd - Australia
- Eastern Energy - Thailand
- Ambuja Cements Ltd - India
- Indika Energy - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- San Jose City I Power Corp, Philippines
- Altura Mining Limited, Indonesia
- SMG Consultants - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Price Waterhouse Coopers - Russia
- Aboitiz Power Corporation - Philippines
- Globalindo Alam Lestari - Indonesia
- Lanco Infratech Ltd - India
- Alfred C Toepfer International GmbH - Germany
- PTC India Limited - India
- Orica Australia Pty. Ltd.
- Global Green Power PLC Corporation, Philippines
- Mercator Lines Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Malabar Cements Ltd - India
- Bharathi Cement Corporation - India
- Pipit Mutiara Jaya. PT, Indonesia
- Bangladesh Power Developement Board
- Riau Bara Harum - Indonesia
- VISA Power Limited - India
- Commonwealth Bank - Australia
- Iligan Light & Power Inc, Philippines
- IHS Mccloskey Coal Group - USA
- Wilmar Investment Holdings
- Eastern Coal Council - USA
- Petron Corporation, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Electricity Generating Authority of Thailand
- Intertek Mineral Services - Indonesia
- Timah Investasi Mineral - Indoneisa
- Parry Sugars Refinery, India
- Videocon Industries ltd - India
- SMC Global Power, Philippines
- Sical Logistics Limited - India
- AsiaOL BioFuels Corp., Philippines
- Standard Chartered Bank - UAE
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- GMR Energy Limited - India
- Bukit Makmur.PT - Indonesia
- Vedanta Resources Plc - India
- Bukit Asam (Persero) Tbk - Indonesia
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