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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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Saturday, 01 August 20
ASIA HOPE FOR LONG-TERM OIL DEMAND - BALTIC BRIEFING
Oil demand in Asia Pacific might be expected to plunge 1.8m barrels per day (bpd) this year, but there are still strong prospects for growth over t ...
Friday, 31 July 20
SHORT-TERM IMPACT ON THE CHEMICAL SHIPPING MARKET IF THE INDIA-CHINA DISPUTE ESCALATES - DREWRY
Due to the India-China dispute, the threat of deteriorating trade relations between the two countries has become real. Meanwhile, we expect freight ...
Friday, 31 July 20
PANAMAX: THE PERIOD MARKET REMAINS QUIET WITH FEW FIXTURES REPORTED - FEARNLEYS
Capesize
After weeks of dropping rates, there are finally some resistance for the Capes. Pacific rounds improving to upper15,000s by the middle ...
Friday, 31 July 20
PANDEMIC SENDING SOUTH AFRICAN COAL INDUSTRY TO EARLIER GRAVE - IEEFA
Could South Africa’s coal export industry, one of the largest in the world, be about to take a severe hit from the coronavirus?
...
Friday, 31 July 20
BOTSWANA PLANS MORE COAL-FIRED POWER AS AFRICAN SOLAR ACCELERATES - IEEFA
An African economic leader like Botswana should embrace solar to reduce subsidies and tariff hikes
As Sub-Saharan solar ambition has ...
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- Grasim Industreis Ltd - India
- Manunggal Multi Energi - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Aditya Birla Group - India
- Altura Mining Limited, Indonesia
- European Bulk Services B.V. - Netherlands
- Kaltim Prima Coal - Indonesia
- Marubeni Corporation - India
- PowerSource Philippines DevCo
- Interocean Group of Companies - India
- Ministry of Transport, Egypt
- New Zealand Coal & Carbon
- Billiton Holdings Pty Ltd - Australia
- Sarangani Energy Corporation, Philippines
- Trasteel International SA, Italy
- Timah Investasi Mineral - Indoneisa
- Kideco Jaya Agung - Indonesia
- Indogreen Group - Indonesia
- Heidelberg Cement - Germany
- Sojitz Corporation - Japan
- Carbofer General Trading SA - India
- Dalmia Cement Bharat India
- Vedanta Resources Plc - India
- Goldman Sachs - Singapore
- Bukit Asam (Persero) Tbk - Indonesia
- GMR Energy Limited - India
- Mercuria Energy - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Edison Trading Spa - Italy
- Economic Council, Georgia
- PNOC Exploration Corporation - Philippines
- Electricity Authority, New Zealand
- TeaM Sual Corporation - Philippines
- The State Trading Corporation of India Ltd
- Kapuas Tunggal Persada - Indonesia
- Kobexindo Tractors - Indoneisa
- Singapore Mercantile Exchange
- Holcim Trading Pte Ltd - Singapore
- London Commodity Brokers - England
- Rashtriya Ispat Nigam Limited - India
- Meenaskhi Energy Private Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Salva Resources Pvt Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Jaiprakash Power Ventures ltd
- Semirara Mining Corp, Philippines
- SMG Consultants - Indonesia
- SMC Global Power, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Bukit Makmur.PT - Indonesia
- Central Java Power - Indonesia
- MS Steel International - UAE
- Eastern Energy - Thailand
- LBH Netherlands Bv - Netherlands
- Bukit Baiduri Energy - Indonesia
- Sree Jayajothi Cements Limited - India
- Petron Corporation, Philippines
- Siam City Cement - Thailand
- Offshore Bulk Terminal Pte Ltd, Singapore
- Barasentosa Lestari - Indonesia
- Parry Sugars Refinery, India
- Oldendorff Carriers - Singapore
- Lanco Infratech Ltd - India
- Siam City Cement PLC, Thailand
- Iligan Light & Power Inc, Philippines
- Electricity Generating Authority of Thailand
- GVK Power & Infra Limited - India
- Tamil Nadu electricity Board
- Chettinad Cement Corporation Ltd - India
- Thiess Contractors Indonesia
- South Luzon Thermal Energy Corporation
- Borneo Indobara - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Banpu Public Company Limited - Thailand
- Ministry of Finance - Indonesia
- Uttam Galva Steels Limited - India
- Globalindo Alam Lestari - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Jindal Steel & Power Ltd - India
- Eastern Coal Council - USA
- Renaissance Capital - South Africa
- Indonesian Coal Mining Association
- Price Waterhouse Coopers - Russia
- International Coal Ventures Pvt Ltd - India
- Bayan Resources Tbk. - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Intertek Mineral Services - Indonesia
- SN Aboitiz Power Inc, Philippines
- Coalindo Energy - Indonesia
- Formosa Plastics Group - Taiwan
- Mintek Dendrill Indonesia
- Chamber of Mines of South Africa
- Deloitte Consulting - India
- Madhucon Powers Ltd - India
- Videocon Industries ltd - India
- The University of Queensland
- TNB Fuel Sdn Bhd - Malaysia
- Medco Energi Mining Internasional
- Commonwealth Bank - Australia
- Central Electricity Authority - India
- Vizag Seaport Private Limited - India
- Gujarat Electricity Regulatory Commission - India
- Bangladesh Power Developement Board
- Australian Coal Association
- Energy Development Corp, Philippines
- Savvy Resources Ltd - HongKong
- Wood Mackenzie - Singapore
- Neyveli Lignite Corporation Ltd, - India
- IEA Clean Coal Centre - UK
- McConnell Dowell - Australia
- Australian Commodity Traders Exchange
- OPG Power Generation Pvt Ltd - India
- Straits Asia Resources Limited - Singapore
- GN Power Mariveles Coal Plant, Philippines
- Cigading International Bulk Terminal - Indonesia
- IHS Mccloskey Coal Group - USA
- Ministry of Mines - Canada
- Karbindo Abesyapradhi - Indoneisa
- Indika Energy - Indonesia
- Sical Logistics Limited - India
- Ambuja Cements Ltd - India
- Aboitiz Power Corporation - Philippines
- Romanian Commodities Exchange
- Therma Luzon, Inc, Philippines
- AsiaOL BioFuels Corp., Philippines
- Antam Resourcindo - Indonesia
- Karaikal Port Pvt Ltd - India
- Attock Cement Pakistan Limited
- Makarim & Taira - Indonesia
- Indian Energy Exchange, India
- GAC Shipping (India) Pvt Ltd
- Bhushan Steel Limited - India
- Parliament of New Zealand
- Malabar Cements Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Vijayanagar Sugar Pvt Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Latin American Coal - Colombia
- Cement Manufacturers Association - India
- Mjunction Services Limited - India
- ASAPP Information Group - India
- Planning Commission, India
- Directorate Of Revenue Intelligence - India
- Essar Steel Hazira Ltd - India
- PTC India Limited - India
- Ind-Barath Power Infra Limited - India
- CNBM International Corporation - China
- Bharathi Cement Corporation - India
- Global Business Power Corporation, Philippines
- Bhoruka Overseas - Indonesia
- Energy Link Ltd, New Zealand
- Semirara Mining and Power Corporation, Philippines
- Xindia Steels Limited - India
- The Treasury - Australian Government
- Alfred C Toepfer International GmbH - Germany
- Binh Thuan Hamico - Vietnam
- Coastal Gujarat Power Limited - India
- Port Waratah Coal Services - Australia
- Toyota Tsusho Corporation, Japan
- Global Green Power PLC Corporation, Philippines
- Minerals Council of Australia
- CIMB Investment Bank - Malaysia
- Sakthi Sugars Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Krishnapatnam Port Company Ltd. - India
- Orica Mining Services - Indonesia
- Metalloyd Limited - United Kingdom
- Star Paper Mills Limited - India
- Orica Australia Pty. Ltd.
- Maheswari Brothers Coal Limited - India
- White Energy Company Limited
- Anglo American - United Kingdom
- ICICI Bank Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Standard Chartered Bank - UAE
- Miang Besar Coal Terminal - Indonesia
- Meralco Power Generation, Philippines
- Posco Energy - South Korea
- Larsen & Toubro Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Merrill Lynch Commodities Europe
- Rio Tinto Coal - Australia
- Kumho Petrochemical, South Korea
- Indian Oil Corporation Limited
- Kohat Cement Company Ltd. - Pakistan
- San Jose City I Power Corp, Philippines
- Thai Mozambique Logistica
- Ceylon Electricity Board - Sri Lanka
- Pendopo Energi Batubara - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Global Coal Blending Company Limited - Australia
- Baramulti Group, Indonesia
- Tata Chemicals Ltd - India
- India Bulls Power Limited - India
- Mercator Lines Limited - India
- Coal and Oil Company - UAE
- Power Finance Corporation Ltd., India
- Agrawal Coal Company - India
- Georgia Ports Authority, United States
- PetroVietnam Power Coal Import and Supply Company
- Kepco SPC Power Corporation, Philippines
- Independent Power Producers Association of India
- Pipit Mutiara Jaya. PT, Indonesia
- Wilmar Investment Holdings
- Kartika Selabumi Mining - Indonesia
- Sindya Power Generating Company Private Ltd
- Bhatia International Limited - India
- VISA Power Limited - India
- Bulk Trading Sa - Switzerland
- Indo Tambangraya Megah - Indonesia
- Gujarat Sidhee Cement - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Simpson Spence & Young - Indonesia
- Samtan Co., Ltd - South Korea
- Riau Bara Harum - Indonesia
- Africa Commodities Group - South Africa
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