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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, 06 August 20
SUPRAMAX MARKET CONTINUED SIDEWAYS TREND, AND LITTLE INSPIRING NEWS APPEAR - FEARNLEYS
Capesize
There is presently a small correction in rates, but overall levels are up from previous week mainly due to increased demand in the Eas ...
Thursday, 06 August 20
KOREA SOUTH-EAST POWER INVITING BIDS FOR MIN 3,600-MAX 3,800 NCV COAL
COALspot.com: South Korea’s KOREA SOUTH-EAST POWER CO., LTD. (KOEN) inviting bids for 80,000 Tons (MT) Min 3,600~Max 3,800 kcal/kg NCV coal f ...
Wednesday, 05 August 20
NO NEW MINING LICENSES - A REMINDER TO GOVERNORS IN INDONESIA - SSEK
Indonesia’s acting Director General of Mining and Coal (“DGMC”) has issued a letter to the country’s provincial Governors t ...
Wednesday, 05 August 20
AUGUST 2020 HBA HITTING ITS LOWEST LEVELS IN HISTORY
COALspot.com: The Indonesia Coal Price Reference for the month of August plunged 30.73% YoY, hitting its lowest levels in history and highlighting ...
Wednesday, 05 August 20
SLUMP IN OIL REVENUE CHALLENGES MIDDLE EAST OIL EXPORTERS - INTERMODAL
The Covid-19 pandemic has had far-reaching consequences on the global capital markets. Despite the US government’s efforts for a quick and de ...
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- Rashtriya Ispat Nigam Limited - India
- MS Steel International - UAE
- Kumho Petrochemical, South Korea
- Economic Council, Georgia
- Ambuja Cements Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Globalindo Alam Lestari - Indonesia
- Karaikal Port Pvt Ltd - India
- Merrill Lynch Commodities Europe
- Antam Resourcindo - Indonesia
- Sical Logistics Limited - India
- Indian Oil Corporation Limited
- Manunggal Multi Energi - Indonesia
- Bulk Trading Sa - Switzerland
- Bangladesh Power Developement Board
- Bhatia International Limited - India
- Miang Besar Coal Terminal - Indonesia
- Ministry of Transport, Egypt
- OPG Power Generation Pvt Ltd - India
- Eastern Coal Council - USA
- Oldendorff Carriers - Singapore
- Vijayanagar Sugar Pvt Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Orica Australia Pty. Ltd.
- Latin American Coal - Colombia
- Electricity Authority, New Zealand
- GVK Power & Infra Limited - India
- PNOC Exploration Corporation - Philippines
- Jaiprakash Power Ventures ltd
- Africa Commodities Group - South Africa
- Maheswari Brothers Coal Limited - India
- Deloitte Consulting - India
- Electricity Generating Authority of Thailand
- San Jose City I Power Corp, Philippines
- Directorate Of Revenue Intelligence - India
- Larsen & Toubro Limited - India
- Cigading International Bulk Terminal - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- ICICI Bank Limited - India
- Mercator Lines Limited - India
- Intertek Mineral Services - Indonesia
- Romanian Commodities Exchange
- Pendopo Energi Batubara - Indonesia
- Sarangani Energy Corporation, Philippines
- McConnell Dowell - Australia
- Coalindo Energy - Indonesia
- Vedanta Resources Plc - India
- CNBM International Corporation - China
- TNB Fuel Sdn Bhd - Malaysia
- Bayan Resources Tbk. - Indonesia
- Edison Trading Spa - Italy
- GN Power Mariveles Coal Plant, Philippines
- Kartika Selabumi Mining - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- GMR Energy Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Australian Commodity Traders Exchange
- Riau Bara Harum - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Coal and Oil Company - UAE
- GAC Shipping (India) Pvt Ltd
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- New Zealand Coal & Carbon
- Standard Chartered Bank - UAE
- Baramulti Group, Indonesia
- Anglo American - United Kingdom
- Carbofer General Trading SA - India
- Semirara Mining and Power Corporation, Philippines
- Central Electricity Authority - India
- Salva Resources Pvt Ltd - India
- Eastern Energy - Thailand
- Commonwealth Bank - Australia
- Pipit Mutiara Jaya. PT, Indonesia
- SN Aboitiz Power Inc, Philippines
- Semirara Mining Corp, Philippines
- Global Green Power PLC Corporation, Philippines
- London Commodity Brokers - England
- Price Waterhouse Coopers - Russia
- Bukit Baiduri Energy - Indonesia
- Georgia Ports Authority, United States
- Rio Tinto Coal - Australia
- Bhushan Steel Limited - India
- VISA Power Limited - India
- Port Waratah Coal Services - Australia
- ASAPP Information Group - India
- PetroVietnam Power Coal Import and Supply Company
- Power Finance Corporation Ltd., India
- Banpu Public Company Limited - Thailand
- Videocon Industries ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Medco Energi Mining Internasional
- Goldman Sachs - Singapore
- Indika Energy - Indonesia
- Dalmia Cement Bharat India
- Jindal Steel & Power Ltd - India
- The University of Queensland
- Parry Sugars Refinery, India
- Sindya Power Generating Company Private Ltd
- Billiton Holdings Pty Ltd - Australia
- Essar Steel Hazira Ltd - India
- Meralco Power Generation, Philippines
- Kapuas Tunggal Persada - Indonesia
- LBH Netherlands Bv - Netherlands
- Meenaskhi Energy Private Limited - India
- The State Trading Corporation of India Ltd
- Madhucon Powers Ltd - India
- SMG Consultants - Indonesia
- Makarim & Taira - Indonesia
- Barasentosa Lestari - Indonesia
- CIMB Investment Bank - Malaysia
- Energy Development Corp, Philippines
- Ind-Barath Power Infra Limited - India
- Energy Link Ltd, New Zealand
- IHS Mccloskey Coal Group - USA
- Bhoruka Overseas - Indonesia
- Toyota Tsusho Corporation, Japan
- European Bulk Services B.V. - Netherlands
- Tamil Nadu electricity Board
- Planning Commission, India
- Gujarat Mineral Development Corp Ltd - India
- Kobexindo Tractors - Indoneisa
- Sojitz Corporation - Japan
- Vizag Seaport Private Limited - India
- Binh Thuan Hamico - Vietnam
- Savvy Resources Ltd - HongKong
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Heidelberg Cement - Germany
- Wood Mackenzie - Singapore
- Central Java Power - Indonesia
- Marubeni Corporation - India
- Bharathi Cement Corporation - India
- South Luzon Thermal Energy Corporation
- PowerSource Philippines DevCo
- Ministry of Finance - Indonesia
- Xindia Steels Limited - India
- PTC India Limited - India
- Orica Mining Services - Indonesia
- Global Coal Blending Company Limited - Australia
- Siam City Cement PLC, Thailand
- Iligan Light & Power Inc, Philippines
- The Treasury - Australian Government
- Aditya Birla Group - India
- Aboitiz Power Corporation - Philippines
- Coastal Gujarat Power Limited - India
- Agrawal Coal Company - India
- Altura Mining Limited, Indonesia
- Holcim Trading Pte Ltd - Singapore
- Interocean Group of Companies - India
- Wilmar Investment Holdings
- Star Paper Mills Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Mercuria Energy - Indonesia
- Trasteel International SA, Italy
- SMC Global Power, Philippines
- Kaltim Prima Coal - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Independent Power Producers Association of India
- Jorong Barutama Greston.PT - Indonesia
- Formosa Plastics Group - Taiwan
- Petrochimia International Co. Ltd.- Taiwan
- Directorate General of MIneral and Coal - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Australian Coal Association
- Singapore Mercantile Exchange
- Mintek Dendrill Indonesia
- Gujarat Sidhee Cement - India
- Indo Tambangraya Megah - Indonesia
- Thai Mozambique Logistica
- Siam City Cement - Thailand
- Chettinad Cement Corporation Ltd - India
- Attock Cement Pakistan Limited
- Samtan Co., Ltd - South Korea
- Lanco Infratech Ltd - India
- Minerals Council of Australia
- TeaM Sual Corporation - Philippines
- Straits Asia Resources Limited - Singapore
- Offshore Bulk Terminal Pte Ltd, Singapore
- Bahari Cakrawala Sebuku - Indonesia
- Indian Energy Exchange, India
- Petron Corporation, Philippines
- Kepco SPC Power Corporation, Philippines
- Bukit Makmur.PT - Indonesia
- IEA Clean Coal Centre - UK
- Parliament of New Zealand
- Sakthi Sugars Limited - India
- Gujarat Electricity Regulatory Commission - India
- Borneo Indobara - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Kideco Jaya Agung - Indonesia
- Indonesian Coal Mining Association
- Indogreen Group - Indonesia
- Malabar Cements Ltd - India
- Thiess Contractors Indonesia
- Cement Manufacturers Association - India
- Maharashtra Electricity Regulatory Commission - India
- Karbindo Abesyapradhi - Indoneisa
- Tata Chemicals Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Uttam Galva Steels Limited - India
- Ministry of Mines - Canada
- Posco Energy - South Korea
- Metalloyd Limited - United Kingdom
- Alfred C Toepfer International GmbH - Germany
- Simpson Spence & Young - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Kohat Cement Company Ltd. - Pakistan
- Grasim Industreis Ltd - India
- Global Business Power Corporation, Philippines
- International Coal Ventures Pvt Ltd - India
- Renaissance Capital - South Africa
- Mjunction Services Limited - India
- Chamber of Mines of South Africa
- Timah Investasi Mineral - Indoneisa
- India Bulls Power Limited - India
- Sree Jayajothi Cements Limited - India
- Therma Luzon, Inc, Philippines
- White Energy Company Limited
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