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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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Monday, 24 August 20
A COMBINATION OF DEVELOPMENTS DROVE THE FALLOFF COAL PRICES - CHIEF ECONOMIST’ OFFICE, AUSTRALIA
China, rising domestic production combined with subdued power demand;
India, a lockdown coupled with government directives that fav ...
Monday, 24 August 20
AUSTRALIA'S THERMAL COAL EXPORTS ARE FORECAST TO DROP FROM AN ESTIMATED $20 BILLION IN 2019-20 TO $16 BILLION IN 2020-21: REPORT
Thermal coal spot prices have fallen sharply as the impact of COVID-19 drives a contraction in seaborne trade for only the second time this century ...
Saturday, 22 August 20
REPORT SEES INDIA’S RELIANCE ON THERMAL POWER DROPPING TO 50% IN 2021, 43% IN 2026 - ET ENERGY | IEEFA
India’s dependence on thermal power will reduce to 50 per cent by 2021-22 and 43 per cent by 2026-27 on the back of renewable energy (RE) cap ...
Friday, 21 August 20
323 MILLION ELECTRIC VEHICLES WILL BE ON THE ROADS BY 2040 - WOOD MACKENZIE
Electric vehicle (EV) sales are expected to reach 45 million units per year by 2040, with a total global EV stock of 323 million, according to new ...
Friday, 21 August 20
BHP COMMITS TO SELLING ITS THERMAL COALMINES WITHIN TWO YEARS - THE GUARDIAN
Move follows pressure from investors but company stops short of full exit from coalmining
BHP has announced it plans to sell off its ...
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- Jaiprakash Power Ventures ltd
- Bayan Resources Tbk. - Indonesia
- Energy Development Corp, Philippines
- GMR Energy Limited - India
- GAC Shipping (India) Pvt Ltd
- Meenaskhi Energy Private Limited - India
- Power Finance Corporation Ltd., India
- Bangladesh Power Developement Board
- Leighton Contractors Pty Ltd - Australia
- Economic Council, Georgia
- Kobexindo Tractors - Indoneisa
- Posco Energy - South Korea
- PowerSource Philippines DevCo
- Karbindo Abesyapradhi - Indoneisa
- Minerals Council of Australia
- Global Business Power Corporation, Philippines
- Aditya Birla Group - India
- Eastern Energy - Thailand
- Bhoruka Overseas - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Globalindo Alam Lestari - Indonesia
- Iligan Light & Power Inc, Philippines
- Kumho Petrochemical, South Korea
- Grasim Industreis Ltd - India
- Indogreen Group - Indonesia
- Medco Energi Mining Internasional
- Standard Chartered Bank - UAE
- Thiess Contractors Indonesia
- Ambuja Cements Ltd - India
- Bharathi Cement Corporation - India
- Binh Thuan Hamico - Vietnam
- Planning Commission, India
- The University of Queensland
- Borneo Indobara - Indonesia
- Malabar Cements Ltd - India
- ICICI Bank Limited - India
- Energy Link Ltd, New Zealand
- Kaltim Prima Coal - Indonesia
- MS Steel International - UAE
- Pipit Mutiara Jaya. PT, Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Cigading International Bulk Terminal - Indonesia
- The Treasury - Australian Government
- Essar Steel Hazira Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- San Jose City I Power Corp, Philippines
- Vedanta Resources Plc - India
- Bukit Makmur.PT - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Sinarmas Energy and Mining - Indonesia
- Metalloyd Limited - United Kingdom
- Salva Resources Pvt Ltd - India
- Thai Mozambique Logistica
- European Bulk Services B.V. - Netherlands
- Kartika Selabumi Mining - Indonesia
- Interocean Group of Companies - India
- South Luzon Thermal Energy Corporation
- Price Waterhouse Coopers - Russia
- Formosa Plastics Group - Taiwan
- Xindia Steels Limited - India
- Kideco Jaya Agung - Indonesia
- Dalmia Cement Bharat India
- Sical Logistics Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Maharashtra Electricity Regulatory Commission - India
- CIMB Investment Bank - Malaysia
- Alfred C Toepfer International GmbH - Germany
- Therma Luzon, Inc, Philippines
- Krishnapatnam Port Company Ltd. - India
- Bhatia International Limited - India
- Heidelberg Cement - Germany
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Chamber of Mines of South Africa
- Independent Power Producers Association of India
- Coal and Oil Company - UAE
- Antam Resourcindo - Indonesia
- Orica Mining Services - Indonesia
- Baramulti Group, Indonesia
- Indonesian Coal Mining Association
- Karaikal Port Pvt Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Tata Chemicals Ltd - India
- Sree Jayajothi Cements Limited - India
- CNBM International Corporation - China
- Global Green Power PLC Corporation, Philippines
- McConnell Dowell - Australia
- IHS Mccloskey Coal Group - USA
- Parliament of New Zealand
- PTC India Limited - India
- Ministry of Mines - Canada
- Intertek Mineral Services - Indonesia
- ASAPP Information Group - India
- Merrill Lynch Commodities Europe
- Bukit Baiduri Energy - Indonesia
- Australian Coal Association
- Star Paper Mills Limited - India
- Australian Commodity Traders Exchange
- Larsen & Toubro Limited - India
- Indika Energy - Indonesia
- Maheswari Brothers Coal Limited - India
- Meralco Power Generation, Philippines
- Cement Manufacturers Association - India
- Marubeni Corporation - India
- GN Power Mariveles Coal Plant, Philippines
- Riau Bara Harum - Indonesia
- Rio Tinto Coal - Australia
- Indian Oil Corporation Limited
- Sindya Power Generating Company Private Ltd
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- LBH Netherlands Bv - Netherlands
- Siam City Cement PLC, Thailand
- Aboitiz Power Corporation - Philippines
- Mercuria Energy - Indonesia
- Agrawal Coal Company - India
- Parry Sugars Refinery, India
- Pendopo Energi Batubara - Indonesia
- Makarim & Taira - Indonesia
- Siam City Cement - Thailand
- Indo Tambangraya Megah - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Ceylon Electricity Board - Sri Lanka
- Kepco SPC Power Corporation, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Singapore Mercantile Exchange
- Eastern Coal Council - USA
- Bhushan Steel Limited - India
- Sarangani Energy Corporation, Philippines
- Lanco Infratech Ltd - India
- Semirara Mining Corp, Philippines
- OPG Power Generation Pvt Ltd - India
- PNOC Exploration Corporation - Philippines
- Trasteel International SA, Italy
- New Zealand Coal & Carbon
- Renaissance Capital - South Africa
- Petron Corporation, Philippines
- Miang Besar Coal Terminal - Indonesia
- Straits Asia Resources Limited - Singapore
- Samtan Co., Ltd - South Korea
- Bulk Trading Sa - Switzerland
- Chettinad Cement Corporation Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- SN Aboitiz Power Inc, Philippines
- India Bulls Power Limited - India
- Commonwealth Bank - Australia
- White Energy Company Limited
- Vizag Seaport Private Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Latin American Coal - Colombia
- Semirara Mining and Power Corporation, Philippines
- Goldman Sachs - Singapore
- Indian Energy Exchange, India
- PetroVietnam Power Coal Import and Supply Company
- Ministry of Transport, Egypt
- Romanian Commodities Exchange
- Altura Mining Limited, Indonesia
- Electricity Authority, New Zealand
- Central Electricity Authority - India
- Coalindo Energy - Indonesia
- Barasentosa Lestari - Indonesia
- Carbofer General Trading SA - India
- Mintek Dendrill Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Africa Commodities Group - South Africa
- Savvy Resources Ltd - HongKong
- Coastal Gujarat Power Limited - India
- Uttam Galva Steels Limited - India
- Ind-Barath Power Infra Limited - India
- Rashtriya Ispat Nigam Limited - India
- Gujarat Sidhee Cement - India
- Kalimantan Lumbung Energi - Indonesia
- Sojitz Corporation - Japan
- International Coal Ventures Pvt Ltd - India
- Manunggal Multi Energi - Indonesia
- Deloitte Consulting - India
- Mjunction Services Limited - India
- GVK Power & Infra Limited - India
- IEA Clean Coal Centre - UK
- Bukit Asam (Persero) Tbk - Indonesia
- Georgia Ports Authority, United States
- Wilmar Investment Holdings
- Tamil Nadu electricity Board
- Edison Trading Spa - Italy
- Timah Investasi Mineral - Indoneisa
- Billiton Holdings Pty Ltd - Australia
- Directorate Of Revenue Intelligence - India
- Sakthi Sugars Limited - India
- Neyveli Lignite Corporation Ltd, - India
- London Commodity Brokers - England
- VISA Power Limited - India
- Banpu Public Company Limited - Thailand
- Holcim Trading Pte Ltd - Singapore
- Toyota Tsusho Corporation, Japan
- Videocon Industries ltd - India
- Global Coal Blending Company Limited - Australia
- Jorong Barutama Greston.PT - Indonesia
- Jindal Steel & Power Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- TeaM Sual Corporation - Philippines
- Oldendorff Carriers - Singapore
- SMG Consultants - Indonesia
- Ministry of Finance - Indonesia
- SMC Global Power, Philippines
- Wood Mackenzie - Singapore
- Attock Cement Pakistan Limited
- Madhucon Powers Ltd - India
- Orica Australia Pty. Ltd.
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Simpson Spence & Young - Indonesia
- Electricity Generating Authority of Thailand
- Port Waratah Coal Services - Australia
- Anglo American - United Kingdom
- Mercator Lines Limited - India
- Central Java Power - Indonesia
- The State Trading Corporation of India Ltd
- Directorate General of MIneral and Coal - Indonesia
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