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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 September 20
INDONESIA COAL PRICE REFERENCE DIVES FURTHER IN SEPTEMBER DUE TO SUBDUED DEMAND & GLOBAL OVERSUPPLY
Subdued demand & global oversupply pushed down this month's HBA
COALspot.com: The Indonesia Coal Price Reference ...
Tuesday, 01 September 20
WHY INDIA CAN'T MATCH THE GULF REGION'S RECORD-LOW SOLAR TARIFFS - IEEFA
5-10% annual decline in tariffs estimated for the next decade
A number of countries in the Gulf region have set record-low prices for solar in ...
Tuesday, 01 September 20
COVID-19 PUSHES US LNG INTO A TIGHT SPOT - DREWRY
The pandemic-led weak projections for economic growth will derail US LNG exports in full-year 2020 with the country also losing ground in the long ...
Monday, 31 August 20
DEFECTIVE PASSAGE PLANNING: UNSEAWORTHINESS OR A NAVIGATIONAL DECISION? THE CMA CGM LIBRA QUESTION SAILS ON TO THE UK SUPREME COURT - GARD
KNOWLEDGE TO ELEVATE
The UK Supreme Court has granted leave to appeal the recent decision in Alize 1954 v Allianz Elementar Versicherungs AG ( ...
Sunday, 30 August 20
PANAMAX - THIS WEEK THE DEMAND HAS PICKED UP, BUT THE TONNAGE LIST IS INCREASING DAY BY DAY - FEARNLEYS
Cape Size
More or less flat from previous week, with cape rates moving from US$ 19,500 to 18,900 on average. West Australia however being more ...
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- Global Coal Blending Company Limited - Australia
- Vedanta Resources Plc - India
- Bhatia International Limited - India
- Eastern Energy - Thailand
- Dalmia Cement Bharat India
- Larsen & Toubro Limited - India
- Mercator Lines Limited - India
- Baramulti Group, Indonesia
- Savvy Resources Ltd - HongKong
- Siam City Cement - Thailand
- Central Java Power - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Miang Besar Coal Terminal - Indonesia
- The Treasury - Australian Government
- Ministry of Transport, Egypt
- Billiton Holdings Pty Ltd - Australia
- Sarangani Energy Corporation, Philippines
- White Energy Company Limited
- Semirara Mining and Power Corporation, Philippines
- Malabar Cements Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Kobexindo Tractors - Indoneisa
- Offshore Bulk Terminal Pte Ltd, Singapore
- SMC Global Power, Philippines
- IHS Mccloskey Coal Group - USA
- Deloitte Consulting - India
- ASAPP Information Group - India
- Timah Investasi Mineral - Indoneisa
- Jorong Barutama Greston.PT - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- TeaM Sual Corporation - Philippines
- The State Trading Corporation of India Ltd
- PowerSource Philippines DevCo
- LBH Netherlands Bv - Netherlands
- Vijayanagar Sugar Pvt Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Altura Mining Limited, Indonesia
- Indonesian Coal Mining Association
- Bulk Trading Sa - Switzerland
- PetroVietnam Power Coal Import and Supply Company
- Ministry of Finance - Indonesia
- Romanian Commodities Exchange
- Parry Sugars Refinery, India
- Rio Tinto Coal - Australia
- Goldman Sachs - Singapore
- South Luzon Thermal Energy Corporation
- Jindal Steel & Power Ltd - India
- Ind-Barath Power Infra Limited - India
- Intertek Mineral Services - Indonesia
- Eastern Coal Council - USA
- The University of Queensland
- Grasim Industreis Ltd - India
- Sojitz Corporation - Japan
- Cement Manufacturers Association - India
- Orica Australia Pty. Ltd.
- Price Waterhouse Coopers - Russia
- MS Steel International - UAE
- Siam City Cement PLC, Thailand
- Tata Chemicals Ltd - India
- Planning Commission, India
- Carbofer General Trading SA - India
- GAC Shipping (India) Pvt Ltd
- Mercuria Energy - Indonesia
- Bhushan Steel Limited - India
- Thiess Contractors Indonesia
- Mjunction Services Limited - India
- Xindia Steels Limited - India
- Bangladesh Power Developement Board
- Wood Mackenzie - Singapore
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Ceylon Electricity Board - Sri Lanka
- Tamil Nadu electricity Board
- Electricity Authority, New Zealand
- Aditya Birla Group - India
- Indogreen Group - Indonesia
- Binh Thuan Hamico - Vietnam
- Interocean Group of Companies - India
- Edison Trading Spa - Italy
- Videocon Industries ltd - India
- Maheswari Brothers Coal Limited - India
- Latin American Coal - Colombia
- Indika Energy - Indonesia
- Banpu Public Company Limited - Thailand
- Neyveli Lignite Corporation Ltd, - India
- OPG Power Generation Pvt Ltd - India
- Toyota Tsusho Corporation, Japan
- Commonwealth Bank - Australia
- Merrill Lynch Commodities Europe
- Sical Logistics Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Pendopo Energi Batubara - Indonesia
- Petron Corporation, Philippines
- Cigading International Bulk Terminal - Indonesia
- Coal and Oil Company - UAE
- Star Paper Mills Limited - India
- Marubeni Corporation - India
- Power Finance Corporation Ltd., India
- Orica Mining Services - Indonesia
- Standard Chartered Bank - UAE
- Indian Energy Exchange, India
- Electricity Generating Authority of Thailand
- Directorate Of Revenue Intelligence - India
- Singapore Mercantile Exchange
- New Zealand Coal & Carbon
- Bharathi Cement Corporation - India
- Bayan Resources Tbk. - Indonesia
- Iligan Light & Power Inc, Philippines
- Chettinad Cement Corporation Ltd - India
- Karaikal Port Pvt Ltd - India
- Kartika Selabumi Mining - Indonesia
- Energy Link Ltd, New Zealand
- IEA Clean Coal Centre - UK
- Barasentosa Lestari - Indonesia
- Ministry of Mines - Canada
- Australian Commodity Traders Exchange
- Krishnapatnam Port Company Ltd. - India
- Therma Luzon, Inc, Philippines
- Bukit Baiduri Energy - Indonesia
- Gujarat Sidhee Cement - India
- Antam Resourcindo - Indonesia
- Kumho Petrochemical, South Korea
- Kapuas Tunggal Persada - Indonesia
- Port Waratah Coal Services - Australia
- Sinarmas Energy and Mining - Indonesia
- Energy Development Corp, Philippines
- Renaissance Capital - South Africa
- Bukit Makmur.PT - Indonesia
- Heidelberg Cement - Germany
- Sree Jayajothi Cements Limited - India
- Parliament of New Zealand
- CNBM International Corporation - China
- CIMB Investment Bank - Malaysia
- Rashtriya Ispat Nigam Limited - India
- Trasteel International SA, Italy
- Gujarat Electricity Regulatory Commission - India
- Makarim & Taira - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Gujarat Mineral Development Corp Ltd - India
- Wilmar Investment Holdings
- Minerals Council of Australia
- Globalindo Alam Lestari - Indonesia
- Global Business Power Corporation, Philippines
- Leighton Contractors Pty Ltd - Australia
- Metalloyd Limited - United Kingdom
- Bhoruka Overseas - Indonesia
- Lanco Infratech Ltd - India
- European Bulk Services B.V. - Netherlands
- Kepco SPC Power Corporation, Philippines
- Thai Mozambique Logistica
- Alfred C Toepfer International GmbH - Germany
- Semirara Mining Corp, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Central Electricity Authority - India
- Chamber of Mines of South Africa
- India Bulls Power Limited - India
- Mintek Dendrill Indonesia
- Salva Resources Pvt Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- ICICI Bank Limited - India
- Kaltim Prima Coal - Indonesia
- Independent Power Producers Association of India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- PTC India Limited - India
- Aboitiz Power Corporation - Philippines
- Holcim Trading Pte Ltd - Singapore
- Bahari Cakrawala Sebuku - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Ambuja Cements Ltd - India
- VISA Power Limited - India
- Samtan Co., Ltd - South Korea
- Essar Steel Hazira Ltd - India
- Madhucon Powers Ltd - India
- Straits Asia Resources Limited - Singapore
- McConnell Dowell - Australia
- Indian Oil Corporation Limited
- Indo Tambangraya Megah - Indonesia
- PNOC Exploration Corporation - Philippines
- Coastal Gujarat Power Limited - India
- Simpson Spence & Young - Indonesia
- Manunggal Multi Energi - Indonesia
- Kideco Jaya Agung - Indonesia
- Posco Energy - South Korea
- Sindya Power Generating Company Private Ltd
- GN Power Mariveles Coal Plant, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Meenaskhi Energy Private Limited - India
- Jaiprakash Power Ventures ltd
- London Commodity Brokers - England
- Sakthi Sugars Limited - India
- Oldendorff Carriers - Singapore
- International Coal Ventures Pvt Ltd - India
- Vizag Seaport Private Limited - India
- SN Aboitiz Power Inc, Philippines
- Borneo Indobara - Indonesia
- Uttam Galva Steels Limited - India
- GMR Energy Limited - India
- Formosa Plastics Group - Taiwan
- Meralco Power Generation, Philippines
- Anglo American - United Kingdom
- Australian Coal Association
- Coalindo Energy - Indonesia
- Attock Cement Pakistan Limited
- SMG Consultants - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Agrawal Coal Company - India
- Economic Council, Georgia
- Global Green Power PLC Corporation, Philippines
- Georgia Ports Authority, United States
- Directorate General of MIneral and Coal - Indonesia
- Medco Energi Mining Internasional
- San Jose City I Power Corp, Philippines
- Riau Bara Harum - Indonesia
- GVK Power & Infra Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Africa Commodities Group - South Africa
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