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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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Thursday, 20 August 20
MINER BHP CONFIRMS PLANS TO EXIT THERMAL COAL SECTOR - THE SYDNEY MORNING HERALD
The head of mining giant BHP has laid out plans for a reshaping of its global operations by seeking to quit thermal coal mining, offload some cokin ...
Thursday, 20 August 20
LONDON RETAINS ARBITER CROWN - BALTIC EXCHANGE | HFW
Fears that the UK’s decision to leave the European Union would dent the reputation of the nation’s capital as the leader in maritime ar ...
Wednesday, 19 August 20
U.S. COAL STOCKPILES STEADILY INCREASE AFTER REACHING LOWEST LEVEL IN A DECADE IN 2019 - EIA
After reaching their lowest level in more than a decade in March 2019, U.S. coal stockpiles steadily increased to 152 million tons in April 2020, r ...
Wednesday, 19 August 20
CHINA TAIYUAN COAL TRANSACTION PRICE INDEX DOWN 0.26 PCT - XINHUA
China Taiyuan coal transaction price index stood at 124.92 points Monday, down 0.26 percent week on week.
The index, released by Chi ...
Wednesday, 19 August 20
COAL INDIA TRADE UNIONS DEFER DAY-LONG STRIKE: PTI
The unions had decided to go on strike against the commercial mining and the proposed divestment or buyback of shares of Coal India Ltd (CIL).
...
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- Kobexindo Tractors - Indoneisa
- Offshore Bulk Terminal Pte Ltd, Singapore
- Siam City Cement - Thailand
- India Bulls Power Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Sojitz Corporation - Japan
- Bhoruka Overseas - Indonesia
- Bhushan Steel Limited - India
- Bhatia International Limited - India
- Orica Mining Services - Indonesia
- Ministry of Transport, Egypt
- Goldman Sachs - Singapore
- Uttam Galva Steels Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Posco Energy - South Korea
- Neyveli Lignite Corporation Ltd, - India
- Indogreen Group - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Timah Investasi Mineral - Indoneisa
- Malabar Cements Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Therma Luzon, Inc, Philippines
- Ind-Barath Power Infra Limited - India
- Jorong Barutama Greston.PT - Indonesia
- MS Steel International - UAE
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Economic Council, Georgia
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- SMG Consultants - Indonesia
- Riau Bara Harum - Indonesia
- Makarim & Taira - Indonesia
- Wilmar Investment Holdings
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- Anglo American - United Kingdom
- Bukit Makmur.PT - Indonesia
- Coal and Oil Company - UAE
- Leighton Contractors Pty Ltd - Australia
- Ceylon Electricity Board - Sri Lanka
- Georgia Ports Authority, United States
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- Larsen & Toubro Limited - India
- CNBM International Corporation - China
- Maheswari Brothers Coal Limited - India
- IEA Clean Coal Centre - UK
- Wood Mackenzie - Singapore
- Iligan Light & Power Inc, Philippines
- Simpson Spence & Young - Indonesia
- VISA Power Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Antam Resourcindo - Indonesia
- Central Electricity Authority - India
- Kartika Selabumi Mining - Indonesia
- Medco Energi Mining Internasional
- Indian Oil Corporation Limited
- White Energy Company Limited
- South Luzon Thermal Energy Corporation
- European Bulk Services B.V. - Netherlands
- Minerals Council of Australia
- Electricity Generating Authority of Thailand
- Kohat Cement Company Ltd. - Pakistan
- SMC Global Power, Philippines
- Edison Trading Spa - Italy
- AsiaOL BioFuels Corp., Philippines
- McConnell Dowell - Australia
- Merrill Lynch Commodities Europe
- Coalindo Energy - Indonesia
- Tamil Nadu electricity Board
- SN Aboitiz Power Inc, Philippines
- Interocean Group of Companies - India
- LBH Netherlands Bv - Netherlands
- ICICI Bank Limited - India
- Jaiprakash Power Ventures ltd
- Star Paper Mills Limited - India
- GVK Power & Infra Limited - India
- Global Green Power PLC Corporation, Philippines
- Siam City Cement PLC, Thailand
- Ministry of Mines - Canada
- Commonwealth Bank - Australia
- Karbindo Abesyapradhi - Indoneisa
- Heidelberg Cement - Germany
- Bank of Tokyo Mitsubishi UFJ Ltd
- New Zealand Coal & Carbon
- Aditya Birla Group - India
- Binh Thuan Hamico - Vietnam
- PetroVietnam Power Coal Import and Supply Company
- Xindia Steels Limited - India
- Globalindo Alam Lestari - Indonesia
- Sakthi Sugars Limited - India
- The Treasury - Australian Government
- Semirara Mining and Power Corporation, Philippines
- Baramulti Group, Indonesia
- PTC India Limited - India
- Tata Chemicals Ltd - India
- Romanian Commodities Exchange
- Eastern Coal Council - USA
- Videocon Industries ltd - India
- Directorate Of Revenue Intelligence - India
- Bayan Resources Tbk. - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- IHS Mccloskey Coal Group - USA
- Petron Corporation, Philippines
- Price Waterhouse Coopers - Russia
- Thiess Contractors Indonesia
- Kaltim Prima Coal - Indonesia
- Energy Development Corp, Philippines
- Bangladesh Power Developement Board
- CIMB Investment Bank - Malaysia
- Rio Tinto Coal - Australia
- Barasentosa Lestari - Indonesia
- Kepco SPC Power Corporation, Philippines
- Pendopo Energi Batubara - Indonesia
- Deloitte Consulting - India
- Alfred C Toepfer International GmbH - Germany
- Meenaskhi Energy Private Limited - India
- Eastern Energy - Thailand
- Orica Australia Pty. Ltd.
- Samtan Co., Ltd - South Korea
- Cigading International Bulk Terminal - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Vijayanagar Sugar Pvt Ltd - India
- Power Finance Corporation Ltd., India
- Krishnapatnam Port Company Ltd. - India
- Ministry of Finance - Indonesia
- Marubeni Corporation - India
- Global Business Power Corporation, Philippines
- Singapore Mercantile Exchange
- Meralco Power Generation, Philippines
- Sarangani Energy Corporation, Philippines
- GMR Energy Limited - India
- Energy Link Ltd, New Zealand
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Manunggal Multi Energi - Indonesia
- Attock Cement Pakistan Limited
- Africa Commodities Group - South Africa
- Sindya Power Generating Company Private Ltd
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- Vizag Seaport Private Limited - India
- Sinarmas Energy and Mining - Indonesia
- Independent Power Producers Association of India
- Port Waratah Coal Services - Australia
- International Coal Ventures Pvt Ltd - India
- Cement Manufacturers Association - India
- Standard Chartered Bank - UAE
- OPG Power Generation Pvt Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Bharathi Cement Corporation - India
- Salva Resources Pvt Ltd - India
- Bulk Trading Sa - Switzerland
- Banpu Public Company Limited - Thailand
- ASAPP Information Group - India
- Renaissance Capital - South Africa
- Parry Sugars Refinery, India
- Mintek Dendrill Indonesia
- Vedanta Resources Plc - India
- Mercator Lines Limited - India
- Mjunction Services Limited - India
- Global Coal Blending Company Limited - Australia
- Gujarat Electricity Regulatory Commission - India
- Chettinad Cement Corporation Ltd - India
- Trasteel International SA, Italy
- Coastal Gujarat Power Limited - India
- London Commodity Brokers - England
- The University of Queensland
- Australian Coal Association
- Indonesian Coal Mining Association
- Australian Commodity Traders Exchange
- Metalloyd Limited - United Kingdom
- Planning Commission, India
- Asmin Koalindo Tuhup - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Chamber of Mines of South Africa
- The State Trading Corporation of India Ltd
- Straits Asia Resources Limited - Singapore
- Indo Tambangraya Megah - Indonesia
- Aboitiz Power Corporation - Philippines
- Grasim Industreis Ltd - India
- Gujarat Sidhee Cement - India
- Jindal Steel & Power Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- TeaM Sual Corporation - Philippines
- Intertek Mineral Services - Indonesia
- Indian Energy Exchange, India
- Formosa Plastics Group - Taiwan
- Lanco Infratech Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Bukit Baiduri Energy - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Altura Mining Limited, Indonesia
- Miang Besar Coal Terminal - Indonesia
- Mercuria Energy - Indonesia
- Thai Mozambique Logistica
- PowerSource Philippines DevCo
- Parliament of New Zealand
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- Indika Energy - Indonesia
- Latin American Coal - Colombia
- Rashtriya Ispat Nigam Limited - India
- Carbofer General Trading SA - India
- Kumho Petrochemical, South Korea
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Madhucon Powers Ltd - India
- Karaikal Port Pvt Ltd - India
- Semirara Mining Corp, Philippines
- GAC Shipping (India) Pvt Ltd
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- PNOC Exploration Corporation - Philippines
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- Dalmia Cement Bharat India
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