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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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Saturday, 29 August 20
COAL INDIA'S FUEL SUPPLY TO POWER SECTOR DROPS ABOUT 20% IN APR-JUL: PTI
State-owned Coal India”s fuel supply to the power sector registered a decline of 19.5 per cent to 126.30 million tonnes (MT) in the April-Jul ...
Saturday, 29 August 20
SOUTH KOREAN BROKERAGE FIRM KOREA INVESTMENT & SECURITIES TO STOP ALL COAL BUSINESS - KOREA HERALD
South Korean brokerage firm Korea Investment & Securities has decided to stop its investments in coal, in line with the Moon Jae-in administrat ...
Thursday, 27 August 20
KOREAN GENCOS INVITED BIDS FOR TOTAL 985,000 TONS OF BITUMINOUS COAL FOR NOVEMBER 2020 LOADING
COALspot.com: Korea Midland Power Co., Ltd (KOMIPO) on behalf of EWP, KOSPO, KOSEP and KOWEPO has issued an international tender for total 985,000 ...
Thursday, 27 August 20
SOUTHEAST ASIAN NATIONS SET REGION-WIDE RENEWABLE ENERGY GOAL OF 23 PERCENT BY 2025 - ASEAN POST
The Association of Southeast Asian Nations (ASEAN) has set an ambitious target of securing 23 percent of its primary energy from renewable so ...
Thursday, 27 August 20
BANGLADESH POWER MINISTRY SEEKING AUTHORITY TO CANCEL 13,000 MW OF PROPOSED COAL-FIRED CAPACITY - BUSINESS STANDARD
In a bid to move away from dirty energy, the Ministry of Power, Energy and Mineral Resources is seeking the prime minister’s approval to conv ...
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Showing 806 to 810 news of total 6871 |
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- Billiton Holdings Pty Ltd - Australia
- Bukit Asam (Persero) Tbk - Indonesia
- Makarim & Taira - Indonesia
- GVK Power & Infra Limited - India
- Chettinad Cement Corporation Ltd - India
- IEA Clean Coal Centre - UK
- South Luzon Thermal Energy Corporation
- Sical Logistics Limited - India
- Xindia Steels Limited - India
- Toyota Tsusho Corporation, Japan
- Metalloyd Limited - United Kingdom
- Bulk Trading Sa - Switzerland
- MS Steel International - UAE
- VISA Power Limited - India
- Indika Energy - Indonesia
- Electricity Authority, New Zealand
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Jaiprakash Power Ventures ltd
- Krishnapatnam Port Company Ltd. - India
- Karaikal Port Pvt Ltd - India
- Anglo American - United Kingdom
- Straits Asia Resources Limited - Singapore
- Ambuja Cements Ltd - India
- Coal and Oil Company - UAE
- ICICI Bank Limited - India
- TeaM Sual Corporation - Philippines
- White Energy Company Limited
- Cigading International Bulk Terminal - Indonesia
- Binh Thuan Hamico - Vietnam
- Antam Resourcindo - Indonesia
- Energy Link Ltd, New Zealand
- Minerals Council of Australia
- Simpson Spence & Young - Indonesia
- San Jose City I Power Corp, Philippines
- Georgia Ports Authority, United States
- SN Aboitiz Power Inc, Philippines
- Borneo Indobara - Indonesia
- Manunggal Multi Energi - Indonesia
- Dalmia Cement Bharat India
- Romanian Commodities Exchange
- Larsen & Toubro Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Kepco SPC Power Corporation, Philippines
- Sojitz Corporation - Japan
- Africa Commodities Group - South Africa
- Coastal Gujarat Power Limited - India
- Miang Besar Coal Terminal - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Grasim Industreis Ltd - India
- Sindya Power Generating Company Private Ltd
- Samtan Co., Ltd - South Korea
- Lanco Infratech Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Vedanta Resources Plc - India
- Kapuas Tunggal Persada - Indonesia
- Renaissance Capital - South Africa
- Bukit Baiduri Energy - Indonesia
- Mjunction Services Limited - India
- Star Paper Mills Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kumho Petrochemical, South Korea
- Vizag Seaport Private Limited - India
- LBH Netherlands Bv - Netherlands
- Mercuria Energy - Indonesia
- Australian Commodity Traders Exchange
- European Bulk Services B.V. - Netherlands
- Trasteel International SA, Italy
- Independent Power Producers Association of India
- Petrochimia International Co. Ltd.- Taiwan
- Sarangani Energy Corporation, Philippines
- Oldendorff Carriers - Singapore
- Bayan Resources Tbk. - Indonesia
- Siam City Cement PLC, Thailand
- Gujarat Sidhee Cement - India
- Mintek Dendrill Indonesia
- PNOC Exploration Corporation - Philippines
- Meenaskhi Energy Private Limited - India
- Petron Corporation, Philippines
- ASAPP Information Group - India
- Pipit Mutiara Jaya. PT, Indonesia
- Videocon Industries ltd - India
- Rio Tinto Coal - Australia
- Eastern Energy - Thailand
- Standard Chartered Bank - UAE
- Savvy Resources Ltd - HongKong
- Timah Investasi Mineral - Indoneisa
- Orica Mining Services - Indonesia
- Wood Mackenzie - Singapore
- Alfred C Toepfer International GmbH - Germany
- Kideco Jaya Agung - Indonesia
- Medco Energi Mining Internasional
- Kalimantan Lumbung Energi - Indonesia
- Thai Mozambique Logistica
- Semirara Mining Corp, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- CNBM International Corporation - China
- GMR Energy Limited - India
- Ministry of Mines - Canada
- Eastern Coal Council - USA
- Holcim Trading Pte Ltd - Singapore
- Ceylon Electricity Board - Sri Lanka
- Coalindo Energy - Indonesia
- The University of Queensland
- Indo Tambangraya Megah - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Salva Resources Pvt Ltd - India
- Semirara Mining and Power Corporation, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Aditya Birla Group - India
- CIMB Investment Bank - Malaysia
- IHS Mccloskey Coal Group - USA
- Formosa Plastics Group - Taiwan
- Meralco Power Generation, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Attock Cement Pakistan Limited
- Vijayanagar Sugar Pvt Ltd - India
- SMG Consultants - Indonesia
- Posco Energy - South Korea
- Agrawal Coal Company - India
- Maheswari Brothers Coal Limited - India
- OPG Power Generation Pvt Ltd - India
- Thiess Contractors Indonesia
- PTC India Limited - India
- Globalindo Alam Lestari - Indonesia
- Edison Trading Spa - Italy
- Indonesian Coal Mining Association
- The Treasury - Australian Government
- Deloitte Consulting - India
- Malabar Cements Ltd - India
- SMC Global Power, Philippines
- New Zealand Coal & Carbon
- Merrill Lynch Commodities Europe
- Energy Development Corp, Philippines
- Uttam Galva Steels Limited - India
- Iligan Light & Power Inc, Philippines
- Central Java Power - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Carbofer General Trading SA - India
- Tata Chemicals Ltd - India
- Ministry of Transport, Egypt
- Latin American Coal - Colombia
- Interocean Group of Companies - India
- Heidelberg Cement - Germany
- Commonwealth Bank - Australia
- GAC Shipping (India) Pvt Ltd
- Kartika Selabumi Mining - Indonesia
- Power Finance Corporation Ltd., India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Chamber of Mines of South Africa
- Bhushan Steel Limited - India
- Goldman Sachs - Singapore
- Pendopo Energi Batubara - Indonesia
- Ind-Barath Power Infra Limited - India
- Kaltim Prima Coal - Indonesia
- Indian Energy Exchange, India
- Leighton Contractors Pty Ltd - Australia
- Intertek Mineral Services - Indonesia
- Marubeni Corporation - India
- Jorong Barutama Greston.PT - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Wilmar Investment Holdings
- Siam City Cement - Thailand
- Indian Oil Corporation Limited
- Barasentosa Lestari - Indonesia
- London Commodity Brokers - England
- PowerSource Philippines DevCo
- Electricity Generating Authority of Thailand
- Jindal Steel & Power Ltd - India
- Bharathi Cement Corporation - India
- Banpu Public Company Limited - Thailand
- The State Trading Corporation of India Ltd
- Cement Manufacturers Association - India
- Global Coal Blending Company Limited - Australia
- Karbindo Abesyapradhi - Indoneisa
- Indogreen Group - Indonesia
- Orica Australia Pty. Ltd.
- Bukit Makmur.PT - Indonesia
- Altura Mining Limited, Indonesia
- Port Waratah Coal Services - Australia
- Baramulti Group, Indonesia
- Central Electricity Authority - India
- Sree Jayajothi Cements Limited - India
- Therma Luzon, Inc, Philippines
- Madhucon Powers Ltd - India
- Riau Bara Harum - Indonesia
- Bangladesh Power Developement Board
- Kobexindo Tractors - Indoneisa
- Bhatia International Limited - India
- Bhoruka Overseas - Indonesia
- Economic Council, Georgia
- Directorate Of Revenue Intelligence - India
- Tamil Nadu electricity Board
- Rashtriya Ispat Nigam Limited - India
- Essar Steel Hazira Ltd - India
- Mercator Lines Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- International Coal Ventures Pvt Ltd - India
- Global Business Power Corporation, Philippines
- McConnell Dowell - Australia
- Sakthi Sugars Limited - India
- Sinarmas Energy and Mining - Indonesia
- Global Green Power PLC Corporation, Philippines
- Ministry of Finance - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- India Bulls Power Limited - India
- Singapore Mercantile Exchange
- Parliament of New Zealand
- Maharashtra Electricity Regulatory Commission - India
- Aboitiz Power Corporation - Philippines
- Australian Coal Association
- Parry Sugars Refinery, India
- Gujarat Mineral Development Corp Ltd - India
- Price Waterhouse Coopers - Russia
- Planning Commission, India
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