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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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Thursday, 10 September 20
DRY BULK SHIPPING: CHINA'S DEMAND KEEPING THE DRY BULK MARKET GOING - PETER SAND | BIMCO
Overview
An impressive recovery in Chinese dry bulk imports has protected the industry from the effects of falling demand in the rest of the wo ...
Thursday, 10 September 20
TANKER SHIPPING: FREIGHT RATES BACK AT LOSS-MAKING LEVELS AFTER 12 VERY PROFITABLE MONTHS - BIMCO
Overview
A stunningly strong 12 months for the tanker shipping industry is now being replaced by lower freight rates, as lower oil product ...
Thursday, 10 September 20
INDIA'S COAL IMPORTS STUMBLE IN AUGUST, RAISING RISK OF SLOW RECOVERY - REFINITIV | BANCHERO COSTA
After posting a mild recovery in July, India's coal imports have stumbled in August as the South Asian nation battles to restart it ...
Thursday, 10 September 20
THE FIRST 8 MONTHS OF 2020, INDONESIA EXPORTED 217.4 MLN TONNES OF COAL BASED ON REFINITIV - BANCHERO COSTA
The coal market has been hit by a weaker global economy as a result of COVID-19 pandemic and falling industrial electricity demand ...
Wednesday, 09 September 20
MARKET INSIGHT - INTERMODAL
The uneventful summer lull which is coming to an end soon has left its stigma on the newbuilding market, which has already been devastated by the g ...
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- Vizag Seaport Private Limited - India
- Port Waratah Coal Services - Australia
- Mercator Lines Limited - India
- Indika Energy - Indonesia
- Aditya Birla Group - India
- Bangladesh Power Developement Board
- Madhucon Powers Ltd - India
- Independent Power Producers Association of India
- Interocean Group of Companies - India
- Iligan Light & Power Inc, Philippines
- Therma Luzon, Inc, Philippines
- Thai Mozambique Logistica
- South Luzon Thermal Energy Corporation
- Krishnapatnam Port Company Ltd. - India
- IEA Clean Coal Centre - UK
- Merrill Lynch Commodities Europe
- Salva Resources Pvt Ltd - India
- Xindia Steels Limited - India
- Orica Australia Pty. Ltd.
- Indogreen Group - Indonesia
- Binh Thuan Hamico - Vietnam
- Posco Energy - South Korea
- Samtan Co., Ltd - South Korea
- Deloitte Consulting - India
- Uttam Galva Steels Limited - India
- Gujarat Electricity Regulatory Commission - India
- Renaissance Capital - South Africa
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Leighton Contractors Pty Ltd - Australia
- European Bulk Services B.V. - Netherlands
- Sakthi Sugars Limited - India
- Minerals Council of Australia
- PTC India Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Sindya Power Generating Company Private Ltd
- CNBM International Corporation - China
- Semirara Mining and Power Corporation, Philippines
- SMG Consultants - Indonesia
- Africa Commodities Group - South Africa
- Semirara Mining Corp, Philippines
- Riau Bara Harum - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Kartika Selabumi Mining - Indonesia
- Kumho Petrochemical, South Korea
- PNOC Exploration Corporation - Philippines
- Marubeni Corporation - India
- Directorate Of Revenue Intelligence - India
- Kaltim Prima Coal - Indonesia
- GVK Power & Infra Limited - India
- Karaikal Port Pvt Ltd - India
- GMR Energy Limited - India
- Parry Sugars Refinery, India
- Mercuria Energy - Indonesia
- Electricity Authority, New Zealand
- Ceylon Electricity Board - Sri Lanka
- GAC Shipping (India) Pvt Ltd
- Altura Mining Limited, Indonesia
- Bhoruka Overseas - Indonesia
- Tata Chemicals Ltd - India
- Carbofer General Trading SA - India
- Jorong Barutama Greston.PT - Indonesia
- Medco Energi Mining Internasional
- IHS Mccloskey Coal Group - USA
- Australian Commodity Traders Exchange
- Standard Chartered Bank - UAE
- Australian Coal Association
- ICICI Bank Limited - India
- Coastal Gujarat Power Limited - India
- Bayan Resources Tbk. - Indonesia
- Bharathi Cement Corporation - India
- Planning Commission, India
- Larsen & Toubro Limited - India
- Global Green Power PLC Corporation, Philippines
- Energy Development Corp, Philippines
- Parliament of New Zealand
- Kepco SPC Power Corporation, Philippines
- Lanco Infratech Ltd - India
- Wood Mackenzie - Singapore
- PowerSource Philippines DevCo
- Essar Steel Hazira Ltd - India
- Baramulti Group, Indonesia
- Star Paper Mills Limited - India
- Intertek Mineral Services - Indonesia
- Cement Manufacturers Association - India
- SN Aboitiz Power Inc, Philippines
- Indian Oil Corporation Limited
- Karbindo Abesyapradhi - Indoneisa
- Sojitz Corporation - Japan
- AsiaOL BioFuels Corp., Philippines
- Siam City Cement PLC, Thailand
- Electricity Generating Authority of Thailand
- Petron Corporation, Philippines
- Bukit Baiduri Energy - Indonesia
- Banpu Public Company Limited - Thailand
- GN Power Mariveles Coal Plant, Philippines
- Jindal Steel & Power Ltd - India
- Romanian Commodities Exchange
- Grasim Industreis Ltd - India
- Price Waterhouse Coopers - Russia
- Bhatia International Limited - India
- Bukit Makmur.PT - Indonesia
- Chettinad Cement Corporation Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Goldman Sachs - Singapore
- International Coal Ventures Pvt Ltd - India
- Central Java Power - Indonesia
- San Jose City I Power Corp, Philippines
- Maheswari Brothers Coal Limited - India
- CIMB Investment Bank - Malaysia
- Globalindo Alam Lestari - Indonesia
- Sical Logistics Limited - India
- Videocon Industries ltd - India
- Billiton Holdings Pty Ltd - Australia
- Kalimantan Lumbung Energi - Indonesia
- Singapore Mercantile Exchange
- Barasentosa Lestari - Indonesia
- Sarangani Energy Corporation, Philippines
- Power Finance Corporation Ltd., India
- Borneo Indobara - Indonesia
- Rio Tinto Coal - Australia
- The State Trading Corporation of India Ltd
- Latin American Coal - Colombia
- Simpson Spence & Young - Indonesia
- Trasteel International SA, Italy
- Indian Energy Exchange, India
- Directorate General of MIneral and Coal - Indonesia
- Economic Council, Georgia
- Ministry of Finance - Indonesia
- Sree Jayajothi Cements Limited - India
- Jaiprakash Power Ventures ltd
- Toyota Tsusho Corporation, Japan
- OPG Power Generation Pvt Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Orica Mining Services - Indonesia
- McConnell Dowell - Australia
- Vedanta Resources Plc - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Georgia Ports Authority, United States
- Makarim & Taira - Indonesia
- Anglo American - United Kingdom
- LBH Netherlands Bv - Netherlands
- Heidelberg Cement - Germany
- Offshore Bulk Terminal Pte Ltd, Singapore
- Antam Resourcindo - Indonesia
- Malabar Cements Ltd - India
- TeaM Sual Corporation - Philippines
- Mjunction Services Limited - India
- Commonwealth Bank - Australia
- Formosa Plastics Group - Taiwan
- Ministry of Transport, Egypt
- Eastern Energy - Thailand
- Rashtriya Ispat Nigam Limited - India
- Central Electricity Authority - India
- Asmin Koalindo Tuhup - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- VISA Power Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Coal and Oil Company - UAE
- SMC Global Power, Philippines
- Thiess Contractors Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Meenaskhi Energy Private Limited - India
- New Zealand Coal & Carbon
- Indonesian Coal Mining Association
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- MS Steel International - UAE
- Miang Besar Coal Terminal - Indonesia
- Ministry of Mines - Canada
- Gujarat Sidhee Cement - India
- Savvy Resources Ltd - HongKong
- TNB Fuel Sdn Bhd - Malaysia
- The Treasury - Australian Government
- Kideco Jaya Agung - Indonesia
- Aboitiz Power Corporation - Philippines
- Chamber of Mines of South Africa
- Gujarat Mineral Development Corp Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Indo Tambangraya Megah - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Metalloyd Limited - United Kingdom
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Edison Trading Spa - Italy
- Eastern Coal Council - USA
- Wilmar Investment Holdings
- Meralco Power Generation, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- ASAPP Information Group - India
- Attock Cement Pakistan Limited
- Global Business Power Corporation, Philippines
- Tamil Nadu electricity Board
- Straits Asia Resources Limited - Singapore
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Bulk Trading Sa - Switzerland
- Dalmia Cement Bharat India
- White Energy Company Limited
- Oldendorff Carriers - Singapore
- Agrawal Coal Company - India
- Kobexindo Tractors - Indoneisa
- Energy Link Ltd, New Zealand
- India Bulls Power Limited - India
- Bhushan Steel Limited - India
- Coalindo Energy - Indonesia
- Pendopo Energi Batubara - Indonesia
- London Commodity Brokers - England
- Ind-Barath Power Infra Limited - India
- Mintek Dendrill Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Manunggal Multi Energi - Indonesia
- Global Coal Blending Company Limited - Australia
- The University of Queensland
- Siam City Cement - Thailand
- Timah Investasi Mineral - Indoneisa
- Ambuja Cements Ltd - India
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