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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, 19 August 20
MISC MARKS ITS MAIDEN FORAY INTO MAJOR DEEP-WATER PROJECT IN LATIN AMERICA WITH MERO 3 FPSO
MISC Berhad (MISC) is pleased to announce its acceptance of Letter of Intent (LOI) from Petróleo Brasileiro S.A. (Petrobras) for the provisi ...
Wednesday, 19 August 20
MARKET INSIGHT - GEORGE LAIOS | INTERMODAL
Since the Covid-19 outbreak, governments and central banks around the globe have been using their ammunition and stimulus packages to keep their ec ...
Wednesday, 19 August 20
INDIA SAW A SHARP DECLINE IN ENERGY COAL IMPORTS IN JANUARY - JUNE 2020; –27 PER CENT YOY - BHP
Energy coal prices were weak in the second half of financial year 2020, BHP says in its Economic and Commodity Outlook FY20.
Accordi ...
Wednesday, 19 August 20
COAL PRICES TO REMAIN SUBDUED THIS FISCAL AMID WEAK DEMAND, HIGH INVENTORY - THE HINDU BUSINESS LINE
Coal offtake is improving gradually as lockdown eases
Coal prices are expected to remain subdued to weak demand and high inventory l ...
Tuesday, 18 August 20
BLACKBALLED: WILL COAL BOUNCE BACK FROM SLUMP OR IS IT TERMINAL? - SYDNEY MORNING HERALD
Even by the standards of this miserable year, 2020 has been a shocker for the global coal industry.
As the lockdown kicked in demand ...
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- Aditya Birla Group - India
- Meralco Power Generation, Philippines
- Price Waterhouse Coopers - Russia
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- Asmin Koalindo Tuhup - Indonesia
- ASAPP Information Group - India
- Jindal Steel & Power Ltd - India
- Bukit Baiduri Energy - Indonesia
- SN Aboitiz Power Inc, Philippines
- European Bulk Services B.V. - Netherlands
- PNOC Exploration Corporation - Philippines
- Posco Energy - South Korea
- Bayan Resources Tbk. - Indonesia
- Dalmia Cement Bharat India
- Minerals Council of Australia
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- The State Trading Corporation of India Ltd
- Vijayanagar Sugar Pvt Ltd - India
- Eastern Coal Council - USA
- SMC Global Power, Philippines
- Makarim & Taira - Indonesia
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- TeaM Sual Corporation - Philippines
- Grasim Industreis Ltd - India
- Samtan Co., Ltd - South Korea
- Alfred C Toepfer International GmbH - Germany
- The Treasury - Australian Government
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- Uttam Galva Steels Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Bangladesh Power Developement Board
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- Pipit Mutiara Jaya. PT, Indonesia
- Oldendorff Carriers - Singapore
- Renaissance Capital - South Africa
- Edison Trading Spa - Italy
- PetroVietnam Power Coal Import and Supply Company
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Indian Energy Exchange, India
- Metalloyd Limited - United Kingdom
- McConnell Dowell - Australia
- Intertek Mineral Services - Indonesia
- Latin American Coal - Colombia
- Australian Commodity Traders Exchange
- Marubeni Corporation - India
- Kartika Selabumi Mining - Indonesia
- Indian Oil Corporation Limited
- Eastern Energy - Thailand
- GVK Power & Infra Limited - India
- Interocean Group of Companies - India
- Economic Council, Georgia
- Directorate General of MIneral and Coal - Indonesia
- OPG Power Generation Pvt Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Ministry of Finance - Indonesia
- Tamil Nadu electricity Board
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- SMG Consultants - Indonesia
- Gujarat Sidhee Cement - India
- Central Java Power - Indonesia
- Iligan Light & Power Inc, Philippines
- Malabar Cements Ltd - India
- Antam Resourcindo - Indonesia
- Siam City Cement PLC, Thailand
- Kapuas Tunggal Persada - Indonesia
- Rio Tinto Coal - Australia
- Coastal Gujarat Power Limited - India
- Coal and Oil Company - UAE
- Larsen & Toubro Limited - India
- Rashtriya Ispat Nigam Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sinarmas Energy and Mining - Indonesia
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- Kepco SPC Power Corporation, Philippines
- Ministry of Transport, Egypt
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- Sakthi Sugars Limited - India
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- Coalindo Energy - Indonesia
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- Miang Besar Coal Terminal - Indonesia
- Karbindo Abesyapradhi - Indoneisa
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- Indonesian Coal Mining Association
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- Jaiprakash Power Ventures ltd
- Trasteel International SA, Italy
- Aboitiz Power Corporation - Philippines
- Mercuria Energy - Indonesia
- Sical Logistics Limited - India
- Sindya Power Generating Company Private Ltd
- Therma Luzon, Inc, Philippines
- Parliament of New Zealand
- Heidelberg Cement - Germany
- Electricity Authority, New Zealand
- VISA Power Limited - India
- IEA Clean Coal Centre - UK
- The University of Queensland
- Bhatia International Limited - India
- Indo Tambangraya Megah - Indonesia
- Chettinad Cement Corporation Ltd - India
- Port Waratah Coal Services - Australia
- Tata Chemicals Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Orica Mining Services - Indonesia
- Mjunction Services Limited - India
- Ambuja Cements Ltd - India
- Kumho Petrochemical, South Korea
- Sree Jayajothi Cements Limited - India
- Parry Sugars Refinery, India
- Directorate Of Revenue Intelligence - India
- Madhucon Powers Ltd - India
- Timah Investasi Mineral - Indoneisa
- Petrochimia International Co. Ltd.- Taiwan
- Essar Steel Hazira Ltd - India
- Globalindo Alam Lestari - Indonesia
- South Luzon Thermal Energy Corporation
- Wood Mackenzie - Singapore
- Global Coal Blending Company Limited - Australia
- Kalimantan Lumbung Energi - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Bharathi Cement Corporation - India
- Banpu Public Company Limited - Thailand
- Kideco Jaya Agung - Indonesia
- India Bulls Power Limited - India
- Cigading International Bulk Terminal - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- ICICI Bank Limited - India
- Bhushan Steel Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Cement Manufacturers Association - India
- Manunggal Multi Energi - Indonesia
- Binh Thuan Hamico - Vietnam
- Planning Commission, India
- Krishnapatnam Port Company Ltd. - India
- White Energy Company Limited
- Pendopo Energi Batubara - Indonesia
- Singapore Mercantile Exchange
- Global Business Power Corporation, Philippines
- Ceylon Electricity Board - Sri Lanka
- Bukit Asam (Persero) Tbk - Indonesia
- GAC Shipping (India) Pvt Ltd
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- Petron Corporation, Philippines
- Baramulti Group, Indonesia
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- Energy Link Ltd, New Zealand
- Sojitz Corporation - Japan
- Wilmar Investment Holdings
- Commonwealth Bank - Australia
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- London Commodity Brokers - England
- Attock Cement Pakistan Limited
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- PTC India Limited - India
- Electricity Generating Authority of Thailand
- Bhoruka Overseas - Indonesia
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- TNB Fuel Sdn Bhd - Malaysia
- Kobexindo Tractors - Indoneisa
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