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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, 26 August 20
ASIAN COAL PRICES LIKELY TO REMAIN DEPRESSED SAY TRADERS, ANALYSTS - REUTERS
Asian coal prices, which have fallen around 25% this year as power demand slumped due to the coronavirus outbreak, are unlikely to move higher befo ...
Wednesday, 26 August 20
WORLD COAL EXPORTS: INDONESIAN THERMAL COAL EXPORTS HAVE COME UNDER PRESSURE AS THERMAL COAL PRICES WEAKEN - REPORT
Indonesia’s exports to decline sharply from record highs
Indonesia is the world’s largest thermal coal exporter, sellin ...
Wednesday, 26 August 20
JAPAN'S COAL IMPORTS ARE BEING AFFECTED BY COMPETING INFLUENCES - REPORT
Japan is the world’s third largest thermal coal importer, importing an estimated 135 million tonnes of thermal coal in 2019. The country&rsqu ...
Wednesday, 26 August 20
PENDING SOUTH KOREA LEGISLATION COULD FORCE HALT TO COUNTRY’S COAL PLANT EXPORT DEALS - KOREA ECONOMIC DAILY
South Korea’s parliament looks set to pass new legislation to ban financing on foreign coal power projects, putting all overseas coal-fired p ...
Tuesday, 25 August 20
INDIA'S IMPORTS FALL AS LOCKDOWNS IMPACT THE POWER AND INDUSTRIAL SECTORS - REPORT
India is the world’s second largest thermal coal consumer and importer, importing an estimated 211 million tonnes of thermal coal in 2019.&nb ...
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- New Zealand Coal & Carbon
- Independent Power Producers Association of India
- Bharathi Cement Corporation - India
- Commonwealth Bank - Australia
- South Luzon Thermal Energy Corporation
- Indo Tambangraya Megah - Indonesia
- Ministry of Finance - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Videocon Industries ltd - India
- Semirara Mining and Power Corporation, Philippines
- Sree Jayajothi Cements Limited - India
- Xindia Steels Limited - India
- Holcim Trading Pte Ltd - Singapore
- VISA Power Limited - India
- Alfred C Toepfer International GmbH - Germany
- Lanco Infratech Ltd - India
- Siam City Cement - Thailand
- Gujarat Mineral Development Corp Ltd - India
- Chamber of Mines of South Africa
- Orica Mining Services - Indonesia
- Simpson Spence & Young - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Ambuja Cements Ltd - India
- GAC Shipping (India) Pvt Ltd
- Cement Manufacturers Association - India
- Iligan Light & Power Inc, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Trasteel International SA, Italy
- Bhatia International Limited - India
- Bukit Baiduri Energy - Indonesia
- Semirara Mining Corp, Philippines
- Vizag Seaport Private Limited - India
- Bayan Resources Tbk. - Indonesia
- Tamil Nadu electricity Board
- Eastern Energy - Thailand
- Riau Bara Harum - Indonesia
- Bhushan Steel Limited - India
- Gujarat Electricity Regulatory Commission - India
- Therma Luzon, Inc, Philippines
- Thai Mozambique Logistica
- Intertek Mineral Services - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Malabar Cements Ltd - India
- San Jose City I Power Corp, Philippines
- Merrill Lynch Commodities Europe
- ASAPP Information Group - India
- European Bulk Services B.V. - Netherlands
- Energy Development Corp, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Kideco Jaya Agung - Indonesia
- Ind-Barath Power Infra Limited - India
- Straits Asia Resources Limited - Singapore
- Chettinad Cement Corporation Ltd - India
- McConnell Dowell - Australia
- Sojitz Corporation - Japan
- Uttam Galva Steels Limited - India
- Makarim & Taira - Indonesia
- IEA Clean Coal Centre - UK
- Ceylon Electricity Board - Sri Lanka
- Singapore Mercantile Exchange
- Kohat Cement Company Ltd. - Pakistan
- GVK Power & Infra Limited - India
- Mercator Lines Limited - India
- OPG Power Generation Pvt Ltd - India
- Jindal Steel & Power Ltd - India
- Power Finance Corporation Ltd., India
- Australian Coal Association
- Indian Oil Corporation Limited
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Coastal Gujarat Power Limited - India
- Essar Steel Hazira Ltd - India
- SN Aboitiz Power Inc, Philippines
- Vedanta Resources Plc - India
- CNBM International Corporation - China
- Eastern Coal Council - USA
- Timah Investasi Mineral - Indoneisa
- MS Steel International - UAE
- Planning Commission, India
- Sinarmas Energy and Mining - Indonesia
- Larsen & Toubro Limited - India
- Electricity Generating Authority of Thailand
- Tata Chemicals Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- The State Trading Corporation of India Ltd
- Manunggal Multi Energi - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Agrawal Coal Company - India
- Latin American Coal - Colombia
- Interocean Group of Companies - India
- Wilmar Investment Holdings
- Banpu Public Company Limited - Thailand
- Directorate General of MIneral and Coal - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Coalindo Energy - Indonesia
- Indika Energy - Indonesia
- Pendopo Energi Batubara - Indonesia
- Global Green Power PLC Corporation, Philippines
- TeaM Sual Corporation - Philippines
- Jaiprakash Power Ventures ltd
- PNOC Exploration Corporation - Philippines
- Jorong Barutama Greston.PT - Indonesia
- Baramulti Group, Indonesia
- Kartika Selabumi Mining - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Barasentosa Lestari - Indonesia
- Minerals Council of Australia
- Cigading International Bulk Terminal - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- SMG Consultants - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Kapuas Tunggal Persada - Indonesia
- The University of Queensland
- Bukit Makmur.PT - Indonesia
- Indian Energy Exchange, India
- Globalindo Alam Lestari - Indonesia
- The Treasury - Australian Government
- London Commodity Brokers - England
- Grasim Industreis Ltd - India
- Madhucon Powers Ltd - India
- Meralco Power Generation, Philippines
- Star Paper Mills Limited - India
- Romanian Commodities Exchange
- Marubeni Corporation - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Attock Cement Pakistan Limited
- Medco Energi Mining Internasional
- International Coal Ventures Pvt Ltd - India
- Coal and Oil Company - UAE
- Australian Commodity Traders Exchange
- Sindya Power Generating Company Private Ltd
- Borneo Indobara - Indonesia
- Aboitiz Power Corporation - Philippines
- Toyota Tsusho Corporation, Japan
- Kaltim Prima Coal - Indonesia
- Kumho Petrochemical, South Korea
- Bangladesh Power Developement Board
- Petron Corporation, Philippines
- Global Coal Blending Company Limited - Australia
- India Bulls Power Limited - India
- Rio Tinto Coal - Australia
- Posco Energy - South Korea
- Miang Besar Coal Terminal - Indonesia
- Siam City Cement PLC, Thailand
- Savvy Resources Ltd - HongKong
- PTC India Limited - India
- Edison Trading Spa - Italy
- AsiaOL BioFuels Corp., Philippines
- Port Waratah Coal Services - Australia
- Sical Logistics Limited - India
- Aditya Birla Group - India
- Binh Thuan Hamico - Vietnam
- Africa Commodities Group - South Africa
- Antam Resourcindo - Indonesia
- Sarangani Energy Corporation, Philippines
- Samtan Co., Ltd - South Korea
- White Energy Company Limited
- CIMB Investment Bank - Malaysia
- Bhoruka Overseas - Indonesia
- SMC Global Power, Philippines
- Thiess Contractors Indonesia
- PowerSource Philippines DevCo
- GMR Energy Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Meenaskhi Energy Private Limited - India
- Anglo American - United Kingdom
- Maheswari Brothers Coal Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Heidelberg Cement - Germany
- Gujarat Sidhee Cement - India
- Renaissance Capital - South Africa
- Orica Australia Pty. Ltd.
- Leighton Contractors Pty Ltd - Australia
- Parliament of New Zealand
- LBH Netherlands Bv - Netherlands
- Ministry of Mines - Canada
- Energy Link Ltd, New Zealand
- Parry Sugars Refinery, India
- Karbindo Abesyapradhi - Indoneisa
- Mercuria Energy - Indonesia
- Electricity Authority, New Zealand
- Bank of Tokyo Mitsubishi UFJ Ltd
- Formosa Plastics Group - Taiwan
- Deloitte Consulting - India
- Altura Mining Limited, Indonesia
- Bulk Trading Sa - Switzerland
- Offshore Bulk Terminal Pte Ltd, Singapore
- Dalmia Cement Bharat India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Ministry of Transport, Egypt
- Standard Chartered Bank - UAE
- Karaikal Port Pvt Ltd - India
- Carbofer General Trading SA - India
- IHS Mccloskey Coal Group - USA
- Georgia Ports Authority, United States
- PetroVietnam Power Coal Import and Supply Company
- Central Electricity Authority - India
- Pipit Mutiara Jaya. PT, Indonesia
- Economic Council, Georgia
- Kepco SPC Power Corporation, Philippines
- Goldman Sachs - Singapore
- Directorate Of Revenue Intelligence - India
- Price Waterhouse Coopers - Russia
- Indonesian Coal Mining Association
- Sakthi Sugars Limited - India
- Oldendorff Carriers - Singapore
- Central Java Power - Indonesia
- Kobexindo Tractors - Indoneisa
- Wood Mackenzie - Singapore
- Indogreen Group - Indonesia
- ICICI Bank Limited - India
- Metalloyd Limited - United Kingdom
- Bukit Asam (Persero) Tbk - Indonesia
- Salva Resources Pvt Ltd - India
- Global Business Power Corporation, Philippines
- Mintek Dendrill Indonesia
- Mjunction Services Limited - India
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