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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, 14 November 23
CHINA'S BELT AND ROAD INITIATIVE TURNS AWAY FROM COAL - WOOD MACKENZIE
Ambitious, contentious and big spending, China’s Belt and Road Initiative (BRI) is 10 years old. In that time, China has splashed more than U ...
Friday, 10 November 23
THE COMMODITIES FEED: OIL UNDER PRESSURE - ING
Energy – Brent plummets
The oil market came under significant pressure yesterday. ICE Brent settled 4.19% lower on the day and ...
Friday, 10 November 23
COAL USE AT U.S. POWER PLANTS CONTINUES DOWNWARD SPIRAL; FULL IMPACT ON MINES TO BE FELT IN 2024 - IEEFA
This year, the use of coal by the U.S.’s power producers has been so anemic that the fuel has not achieved a 20% market share in any month so ...
Friday, 10 November 23
INDIA: NATIONAL COAL INDEX RISES 3.83 POINTS IN SEPTEMBER AMID HIGHER DEMAND - LIVEMINT
The National Coal Index (NCI) rose 3.83 points to 143.91 in September amid growing demand for coal.
The union coal ministry on Tuesd ...
Thursday, 09 November 23
WE'RE PRODUCING TOO MUCH COAL, OIL AND GAS, REPORT SAYS - WSJ
World leaders pledged in 2015 to reduce emissions in a combined effort to limit climate change.
Now they are stepping up production ...
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- Economic Council, Georgia
- Ministry of Transport, Egypt
- Toyota Tsusho Corporation, Japan
- The Treasury - Australian Government
- Vizag Seaport Private Limited - India
- Makarim & Taira - Indonesia
- San Jose City I Power Corp, Philippines
- Uttam Galva Steels Limited - India
- Merrill Lynch Commodities Europe
- Leighton Contractors Pty Ltd - Australia
- South Luzon Thermal Energy Corporation
- Directorate General of MIneral and Coal - Indonesia
- Simpson Spence & Young - Indonesia
- Rio Tinto Coal - Australia
- Formosa Plastics Group - Taiwan
- Videocon Industries ltd - India
- GMR Energy Limited - India
- Global Coal Blending Company Limited - Australia
- International Coal Ventures Pvt Ltd - India
- Lanco Infratech Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Coal and Oil Company - UAE
- PowerSource Philippines DevCo
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- India Bulls Power Limited - India
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- Marubeni Corporation - India
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- Kapuas Tunggal Persada - Indonesia
- Global Green Power PLC Corporation, Philippines
- Sinarmas Energy and Mining - Indonesia
- Singapore Mercantile Exchange
- Riau Bara Harum - Indonesia
- Bayan Resources Tbk. - Indonesia
- Xindia Steels Limited - India
- Coastal Gujarat Power Limited - India
- Africa Commodities Group - South Africa
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Indogreen Group - Indonesia
- CIMB Investment Bank - Malaysia
- Minerals Council of Australia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Parliament of New Zealand
- Carbofer General Trading SA - India
- IHS Mccloskey Coal Group - USA
- Wood Mackenzie - Singapore
- Sical Logistics Limited - India
- Australian Commodity Traders Exchange
- Mercuria Energy - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Binh Thuan Hamico - Vietnam
- The University of Queensland
- Tata Chemicals Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Renaissance Capital - South Africa
- Holcim Trading Pte Ltd - Singapore
- Edison Trading Spa - Italy
- Iligan Light & Power Inc, Philippines
- Kumho Petrochemical, South Korea
- Energy Development Corp, Philippines
- Samtan Co., Ltd - South Korea
- PTC India Limited - India
- SMC Global Power, Philippines
- Interocean Group of Companies - India
- Siam City Cement - Thailand
- Electricity Generating Authority of Thailand
- Bhushan Steel Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Timah Investasi Mineral - Indoneisa
- Petron Corporation, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Heidelberg Cement - Germany
- Wilmar Investment Holdings
- Indonesian Coal Mining Association
- Kideco Jaya Agung - Indonesia
- Thiess Contractors Indonesia
- Ceylon Electricity Board - Sri Lanka
- TeaM Sual Corporation - Philippines
- Georgia Ports Authority, United States
- Semirara Mining and Power Corporation, Philippines
- ICICI Bank Limited - India
- AsiaOL BioFuels Corp., Philippines
- Oldendorff Carriers - Singapore
- Malabar Cements Ltd - India
- Port Waratah Coal Services - Australia
- Indian Energy Exchange, India
- Orica Australia Pty. Ltd.
- Maharashtra Electricity Regulatory Commission - India
- SN Aboitiz Power Inc, Philippines
- VISA Power Limited - India
- Intertek Mineral Services - Indonesia
- Attock Cement Pakistan Limited
- Antam Resourcindo - Indonesia
- New Zealand Coal & Carbon
- Energy Link Ltd, New Zealand
- Jorong Barutama Greston.PT - Indonesia
- Indian Oil Corporation Limited
- Meenaskhi Energy Private Limited - India
- Agrawal Coal Company - India
- Commonwealth Bank - Australia
- Semirara Mining Corp, Philippines
- Central Electricity Authority - India
- Star Paper Mills Limited - India
- The State Trading Corporation of India Ltd
- Price Waterhouse Coopers - Russia
- ASAPP Information Group - India
- Trasteel International SA, Italy
- OPG Power Generation Pvt Ltd - India
- PNOC Exploration Corporation - Philippines
- Coalindo Energy - Indonesia
- Bukit Makmur.PT - Indonesia
- Directorate Of Revenue Intelligence - India
- Anglo American - United Kingdom
- Manunggal Multi Energi - Indonesia
- Central Java Power - Indonesia
- Bukit Baiduri Energy - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Borneo Indobara - Indonesia
- Therma Luzon, Inc, Philippines
- Kepco SPC Power Corporation, Philippines
- Electricity Authority, New Zealand
- Altura Mining Limited, Indonesia
- Globalindo Alam Lestari - Indonesia
- GVK Power & Infra Limited - India
- Barasentosa Lestari - Indonesia
- Ministry of Finance - Indonesia
- SMG Consultants - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kaltim Prima Coal - Indonesia
- Bangladesh Power Developement Board
- Vedanta Resources Plc - India
- Bharathi Cement Corporation - India
- Gujarat Sidhee Cement - India
- Parry Sugars Refinery, India
- Pendopo Energi Batubara - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Mjunction Services Limited - India
- Romanian Commodities Exchange
- Cigading International Bulk Terminal - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Mercator Lines Limited - India
- Indika Energy - Indonesia
- Jaiprakash Power Ventures ltd
- MS Steel International - UAE
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Goldman Sachs - Singapore
- Thai Mozambique Logistica
- Mintek Dendrill Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Eastern Coal Council - USA
- Savvy Resources Ltd - HongKong
- Sree Jayajothi Cements Limited - India
- Independent Power Producers Association of India
- CNBM International Corporation - China
- Sarangani Energy Corporation, Philippines
- Metalloyd Limited - United Kingdom
- Medco Energi Mining Internasional
- Chettinad Cement Corporation Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Cement Manufacturers Association - India
- Bhoruka Overseas - Indonesia
- Tamil Nadu electricity Board
- Sindya Power Generating Company Private Ltd
- Bulk Trading Sa - Switzerland
- Baramulti Group, Indonesia
- Grasim Industreis Ltd - India
- Essar Steel Hazira Ltd - India
- London Commodity Brokers - England
- Gujarat Electricity Regulatory Commission - India
- Gujarat Mineral Development Corp Ltd - India
- Latin American Coal - Colombia
- Planning Commission, India
- European Bulk Services B.V. - Netherlands
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Madhucon Powers Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Standard Chartered Bank - UAE
- Orica Mining Services - Indonesia
- Salva Resources Pvt Ltd - India
- Posco Energy - South Korea
- Kobexindo Tractors - Indoneisa
- McConnell Dowell - Australia
- Meralco Power Generation, Philippines
- Karaikal Port Pvt Ltd - India
- Eastern Energy - Thailand
- White Energy Company Limited
- Larsen & Toubro Limited - India
- Ministry of Mines - Canada
- Global Business Power Corporation, Philippines
- Power Finance Corporation Ltd., India
- Jindal Steel & Power Ltd - India
- Dalmia Cement Bharat India
- Vijayanagar Sugar Pvt Ltd - India
- Siam City Cement PLC, Thailand
- Kohat Cement Company Ltd. - Pakistan
- Maheswari Brothers Coal Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Sakthi Sugars Limited - India
- Deloitte Consulting - India
- Sojitz Corporation - Japan
- Ambuja Cements Ltd - India
- Banpu Public Company Limited - Thailand
- Offshore Bulk Terminal Pte Ltd, Singapore
- Straits Asia Resources Limited - Singapore
- Karbindo Abesyapradhi - Indoneisa
- Indo Tambangraya Megah - Indonesia
- Australian Coal Association
- Pipit Mutiara Jaya. PT, Indonesia
- Rashtriya Ispat Nigam Limited - India
- Chamber of Mines of South Africa
- GAC Shipping (India) Pvt Ltd
- IEA Clean Coal Centre - UK
- Aboitiz Power Corporation - Philippines
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