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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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Friday, 14 August 20
EIA: COAL PLANTS UNECONOMICAL IN MOST REGIONS - IEEFA
U.S. coal power generation plunged by 30 percent in the first half of 2020 off an already-depressed base, shoved out by natural gas and renewables ...
Thursday, 13 August 20
INDIA SHOULD RECORD A SLIGHT DECREASE IN THERMAL COAL IMPORTS, REACHING A VOLUME OF 167 MILLION TONS BY THE END OF 2020 - ASSOCARBONI
Regarding 2020 thermal coal imports forecasts, Vietnam’s coal imports showed a very strong growth in the first half of 2020 and it is believe ...
Thursday, 13 August 20
INDONESIA REMAINS THE LARGEST EXPORTER OF COAL IN THE WORLD - ASSOCARBONI
According to the last Assocarboni data for 2019, Indonesia remains the largest exporter in the world. Thermal coal exports have in fact reached 456 ...
Wednesday, 12 August 20
VIETNAM WAS THE PROTAGONIST OF A SIGNIFICANT INCREASE IN COAL IMPORTS IN 2019 - ASSOCARBONI
The latest Assocarboni data for 2019 also provide a detailed picture on the trend of the global coal import.
According to Assocarbon ...
Wednesday, 12 August 20
THE COAL MARKET IN ITALY - ASSOCARBONI
Italy, which in 2019 reported a decrease in thermal coal imports, with a volume of 7,5 million tons (-32% compared to 11 million tons in 2018), whi ...
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- Kobexindo Tractors - Indoneisa
- Holcim Trading Pte Ltd - Singapore
- Indian Oil Corporation Limited
- Uttam Galva Steels Limited - India
- Leighton Contractors Pty Ltd - Australia
- Thiess Contractors Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Maharashtra Electricity Regulatory Commission - India
- Ceylon Electricity Board - Sri Lanka
- PNOC Exploration Corporation - Philippines
- South Luzon Thermal Energy Corporation
- The State Trading Corporation of India Ltd
- San Jose City I Power Corp, Philippines
- Borneo Indobara - Indonesia
- Toyota Tsusho Corporation, Japan
- SMG Consultants - Indonesia
- Timah Investasi Mineral - Indoneisa
- Ministry of Mines - Canada
- GAC Shipping (India) Pvt Ltd
- ICICI Bank Limited - India
- TeaM Sual Corporation - Philippines
- Jaiprakash Power Ventures ltd
- Price Waterhouse Coopers - Russia
- Tamil Nadu electricity Board
- Asmin Koalindo Tuhup - Indonesia
- Bangladesh Power Developement Board
- Antam Resourcindo - Indonesia
- Grasim Industreis Ltd - India
- Independent Power Producers Association of India
- International Coal Ventures Pvt Ltd - India
- The University of Queensland
- Bharathi Cement Corporation - India
- LBH Netherlands Bv - Netherlands
- Global Business Power Corporation, Philippines
- GVK Power & Infra Limited - India
- Barasentosa Lestari - Indonesia
- Electricity Authority, New Zealand
- Tata Chemicals Ltd - India
- Wood Mackenzie - Singapore
- Commonwealth Bank - Australia
- Anglo American - United Kingdom
- Salva Resources Pvt Ltd - India
- Iligan Light & Power Inc, Philippines
- Coalindo Energy - Indonesia
- European Bulk Services B.V. - Netherlands
- Kohat Cement Company Ltd. - Pakistan
- TNB Fuel Sdn Bhd - Malaysia
- Minerals Council of Australia
- CNBM International Corporation - China
- Mercuria Energy - Indonesia
- Heidelberg Cement - Germany
- Directorate Of Revenue Intelligence - India
- Sindya Power Generating Company Private Ltd
- Jindal Steel & Power Ltd - India
- Riau Bara Harum - Indonesia
- Larsen & Toubro Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Posco Energy - South Korea
- SN Aboitiz Power Inc, Philippines
- Indogreen Group - Indonesia
- Aditya Birla Group - India
- Cigading International Bulk Terminal - Indonesia
- Bulk Trading Sa - Switzerland
- Bukit Asam (Persero) Tbk - Indonesia
- Vedanta Resources Plc - India
- AsiaOL BioFuels Corp., Philippines
- Bayan Resources Tbk. - Indonesia
- Globalindo Alam Lestari - Indonesia
- Parry Sugars Refinery, India
- Kapuas Tunggal Persada - Indonesia
- Economic Council, Georgia
- Dalmia Cement Bharat India
- Singapore Mercantile Exchange
- Kepco SPC Power Corporation, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Miang Besar Coal Terminal - Indonesia
- Samtan Co., Ltd - South Korea
- Power Finance Corporation Ltd., India
- Ind-Barath Power Infra Limited - India
- Wilmar Investment Holdings
- Directorate General of MIneral and Coal - Indonesia
- Attock Cement Pakistan Limited
- Intertek Mineral Services - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Oldendorff Carriers - Singapore
- Latin American Coal - Colombia
- Medco Energi Mining Internasional
- Ministry of Finance - Indonesia
- Planning Commission, India
- Siam City Cement PLC, Thailand
- Bhoruka Overseas - Indonesia
- Kideco Jaya Agung - Indonesia
- Coastal Gujarat Power Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Star Paper Mills Limited - India
- MS Steel International - UAE
- Trasteel International SA, Italy
- Energy Link Ltd, New Zealand
- Global Green Power PLC Corporation, Philippines
- India Bulls Power Limited - India
- Mintek Dendrill Indonesia
- Vizag Seaport Private Limited - India
- CIMB Investment Bank - Malaysia
- Semirara Mining and Power Corporation, Philippines
- Videocon Industries ltd - India
- Central Electricity Authority - India
- Renaissance Capital - South Africa
- Karbindo Abesyapradhi - Indoneisa
- GMR Energy Limited - India
- McConnell Dowell - Australia
- Global Coal Blending Company Limited - Australia
- GN Power Mariveles Coal Plant, Philippines
- Xindia Steels Limited - India
- Standard Chartered Bank - UAE
- PTC India Limited - India
- Therma Luzon, Inc, Philippines
- Meenaskhi Energy Private Limited - India
- Indonesian Coal Mining Association
- Petrochimia International Co. Ltd.- Taiwan
- Banpu Public Company Limited - Thailand
- Orica Australia Pty. Ltd.
- Carbofer General Trading SA - India
- Savvy Resources Ltd - HongKong
- Neyveli Lignite Corporation Ltd, - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Central Java Power - Indonesia
- Kaltim Prima Coal - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- VISA Power Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Australian Commodity Traders Exchange
- Goldman Sachs - Singapore
- Kumho Petrochemical, South Korea
- Aboitiz Power Corporation - Philippines
- Malabar Cements Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Sarangani Energy Corporation, Philippines
- New Zealand Coal & Carbon
- Indika Energy - Indonesia
- Ambuja Cements Ltd - India
- Manunggal Multi Energi - Indonesia
- Merrill Lynch Commodities Europe
- Alfred C Toepfer International GmbH - Germany
- IEA Clean Coal Centre - UK
- Deloitte Consulting - India
- Altura Mining Limited, Indonesia
- Straits Asia Resources Limited - Singapore
- Bukit Baiduri Energy - Indonesia
- Port Waratah Coal Services - Australia
- Baramulti Group, Indonesia
- Cement Manufacturers Association - India
- Agrawal Coal Company - India
- Chettinad Cement Corporation Ltd - India
- Siam City Cement - Thailand
- Krishnapatnam Port Company Ltd. - India
- Semirara Mining Corp, Philippines
- Coal and Oil Company - UAE
- Formosa Plastics Group - Taiwan
- London Commodity Brokers - England
- Chamber of Mines of South Africa
- Gujarat Electricity Regulatory Commission - India
- Thai Mozambique Logistica
- Billiton Holdings Pty Ltd - Australia
- Pipit Mutiara Jaya. PT, Indonesia
- Australian Coal Association
- Eastern Energy - Thailand
- Lanco Infratech Ltd - India
- OPG Power Generation Pvt Ltd - India
- Sojitz Corporation - Japan
- Offshore Bulk Terminal Pte Ltd, Singapore
- Sical Logistics Limited - India
- Maheswari Brothers Coal Limited - India
- Marubeni Corporation - India
- Bhatia International Limited - India
- Makarim & Taira - Indonesia
- Bhushan Steel Limited - India
- IHS Mccloskey Coal Group - USA
- Petron Corporation, Philippines
- Madhucon Powers Ltd - India
- Edison Trading Spa - Italy
- Georgia Ports Authority, United States
- ASAPP Information Group - India
- Interocean Group of Companies - India
- Orica Mining Services - Indonesia
- Rio Tinto Coal - Australia
- Indian Energy Exchange, India
- Gujarat Mineral Development Corp Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Parliament of New Zealand
- Kalimantan Lumbung Energi - Indonesia
- Simpson Spence & Young - Indonesia
- Mjunction Services Limited - India
- Sakthi Sugars Limited - India
- Pendopo Energi Batubara - Indonesia
- Mercator Lines Limited - India
- Ministry of Transport, Egypt
- Karaikal Port Pvt Ltd - India
- White Energy Company Limited
- Romanian Commodities Exchange
- Africa Commodities Group - South Africa
- Kartika Selabumi Mining - Indonesia
- Gujarat Sidhee Cement - India
- Indo Tambangraya Megah - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Binh Thuan Hamico - Vietnam
- Energy Development Corp, Philippines
- Sinarmas Energy and Mining - Indonesia
- Metalloyd Limited - United Kingdom
- SMC Global Power, Philippines
- The Treasury - Australian Government
- Meralco Power Generation, Philippines
- Eastern Coal Council - USA
- Bukit Makmur.PT - Indonesia
- PowerSource Philippines DevCo
- Electricity Generating Authority of Thailand
- Essar Steel Hazira Ltd - India
- Sree Jayajothi Cements Limited - India
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