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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, 29 July 20
2019 U.S. COAL PRODUCTION FALLS TO ITS LOWEST LEVEL SINCE 1978 - EIA
In 2019, U.S. coal production totaled 706 million short tons (MMst), a 7% decrease from the 756 MMst mined in 2018. Last year’s production wa ...
Wednesday, 29 July 20
MARKET INSIGHT - INTERMODAL
The dry bulk sector is beginning to recover from reduced SnP activity recorded in the first quarter of 2020. The table below illustrates that appro ...
Tuesday, 28 July 20
DEUTSCHE BANK TO END GLOBAL BUSINESS ACTIVITIES IN COAL MINING BY 2025 - REUTERS
Deutsche Bank, in a revamp of its policies for fossil fuels, said on Monday that it would end business activities worldwide related to coal mining ...
Monday, 27 July 20
IEEFA ENERGY FINANCE CONFERENCE 2020: COAL, LNG, PETROCHEMICAL SECTORS FACE POOR OUTLOOK AND UPHILL BATTLE FOR INVESTORS
Fossil fuel industries were becoming less financially attractive even before the global coronavirus pandemic
Three major fossil fuel ...
Friday, 24 July 20
IPA: THERMAL COAL IMPORTS AT MAJOR PORTS DECLINE 35 PC TO 17.71 MT IN APR TO JUNE - ECONOMIC TIMES
These ports had handled 27.13 MT of thermal coal and 14.95 MT of coking coal in the April-June period of the previous financial year
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- Iligan Light & Power Inc, Philippines
- GVK Power & Infra Limited - India
- Chettinad Cement Corporation Ltd - India
- Attock Cement Pakistan Limited
- Medco Energi Mining Internasional
- Marubeni Corporation - India
- Bhoruka Overseas - Indonesia
- Makarim & Taira - Indonesia
- Mercator Lines Limited - India
- Deloitte Consulting - India
- Baramulti Group, Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- India Bulls Power Limited - India
- Star Paper Mills Limited - India
- Sakthi Sugars Limited - India
- Sical Logistics Limited - India
- CIMB Investment Bank - Malaysia
- Jorong Barutama Greston.PT - Indonesia
- Electricity Authority, New Zealand
- MS Steel International - UAE
- Siam City Cement PLC, Thailand
- Xindia Steels Limited - India
- Coastal Gujarat Power Limited - India
- Kaltim Prima Coal - Indonesia
- Indo Tambangraya Megah - Indonesia
- Jaiprakash Power Ventures ltd
- Kalimantan Lumbung Energi - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Edison Trading Spa - Italy
- Minerals Council of Australia
- Pipit Mutiara Jaya. PT, Indonesia
- Sarangani Energy Corporation, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Altura Mining Limited, Indonesia
- Central Java Power - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Vizag Seaport Private Limited - India
- Samtan Co., Ltd - South Korea
- Electricity Generating Authority of Thailand
- TeaM Sual Corporation - Philippines
- Kohat Cement Company Ltd. - Pakistan
- Mercuria Energy - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Toyota Tsusho Corporation, Japan
- McConnell Dowell - Australia
- PowerSource Philippines DevCo
- European Bulk Services B.V. - Netherlands
- Energy Link Ltd, New Zealand
- Holcim Trading Pte Ltd - Singapore
- Semirara Mining and Power Corporation, Philippines
- Barasentosa Lestari - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Cement Manufacturers Association - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Therma Luzon, Inc, Philippines
- Tamil Nadu electricity Board
- Indian Oil Corporation Limited
- Orica Mining Services - Indonesia
- PNOC Exploration Corporation - Philippines
- Orica Australia Pty. Ltd.
- Pendopo Energi Batubara - Indonesia
- Tata Chemicals Ltd - India
- Indian Energy Exchange, India
- Thiess Contractors Indonesia
- Standard Chartered Bank - UAE
- SMG Consultants - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Bayan Resources Tbk. - Indonesia
- Singapore Mercantile Exchange
- Africa Commodities Group - South Africa
- Malabar Cements Ltd - India
- Borneo Indobara - Indonesia
- Eastern Coal Council - USA
- Simpson Spence & Young - Indonesia
- Price Waterhouse Coopers - Russia
- IEA Clean Coal Centre - UK
- Rashtriya Ispat Nigam Limited - India
- Sinarmas Energy and Mining - Indonesia
- CNBM International Corporation - China
- PTC India Limited - India
- Intertek Mineral Services - Indonesia
- Bukit Baiduri Energy - Indonesia
- Grasim Industreis Ltd - India
- Rio Tinto Coal - Australia
- Central Electricity Authority - India
- Siam City Cement - Thailand
- Sindya Power Generating Company Private Ltd
- Asia Pacific Energy Resources Ventures Inc, Philippines
- International Coal Ventures Pvt Ltd - India
- Port Waratah Coal Services - Australia
- Larsen & Toubro Limited - India
- Bhushan Steel Limited - India
- Kumho Petrochemical, South Korea
- San Jose City I Power Corp, Philippines
- Metalloyd Limited - United Kingdom
- Karaikal Port Pvt Ltd - India
- Sojitz Corporation - Japan
- White Energy Company Limited
- ASAPP Information Group - India
- Neyveli Lignite Corporation Ltd, - India
- Wood Mackenzie - Singapore
- Directorate General of MIneral and Coal - Indonesia
- Krishnapatnam Port Company Ltd. - India
- IHS Mccloskey Coal Group - USA
- Timah Investasi Mineral - Indoneisa
- Lanco Infratech Ltd - India
- Salva Resources Pvt Ltd - India
- Global Business Power Corporation, Philippines
- Sree Jayajothi Cements Limited - India
- Jindal Steel & Power Ltd - India
- Kepco SPC Power Corporation, Philippines
- OPG Power Generation Pvt Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Energy Development Corp, Philippines
- Mjunction Services Limited - India
- Riau Bara Harum - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Power Finance Corporation Ltd., India
- Straits Asia Resources Limited - Singapore
- Aditya Birla Group - India
- Kobexindo Tractors - Indoneisa
- Commonwealth Bank - Australia
- SN Aboitiz Power Inc, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Indonesian Coal Mining Association
- Essar Steel Hazira Ltd - India
- Bhatia International Limited - India
- Merrill Lynch Commodities Europe
- Economic Council, Georgia
- Ministry of Transport, Egypt
- Heidelberg Cement - Germany
- Ceylon Electricity Board - Sri Lanka
- Parry Sugars Refinery, India
- LBH Netherlands Bv - Netherlands
- Ministry of Mines - Canada
- Karbindo Abesyapradhi - Indoneisa
- Meenaskhi Energy Private Limited - India
- Meralco Power Generation, Philippines
- London Commodity Brokers - England
- Carbofer General Trading SA - India
- Billiton Holdings Pty Ltd - Australia
- Global Coal Blending Company Limited - Australia
- Uttam Galva Steels Limited - India
- Ambuja Cements Ltd - India
- Planning Commission, India
- The Treasury - Australian Government
- Gujarat Sidhee Cement - India
- SMC Global Power, Philippines
- Agrawal Coal Company - India
- Latin American Coal - Colombia
- Petron Corporation, Philippines
- Asmin Koalindo Tuhup - Indonesia
- South Luzon Thermal Energy Corporation
- Oldendorff Carriers - Singapore
- PetroVietnam Power Coal Import and Supply Company
- GMR Energy Limited - India
- Videocon Industries ltd - India
- Bangladesh Power Developement Board
- Interocean Group of Companies - India
- Mintek Dendrill Indonesia
- Renaissance Capital - South Africa
- Bahari Cakrawala Sebuku - Indonesia
- Globalindo Alam Lestari - Indonesia
- Georgia Ports Authority, United States
- GAC Shipping (India) Pvt Ltd
- Posco Energy - South Korea
- Parliament of New Zealand
- Formosa Plastics Group - Taiwan
- Indika Energy - Indonesia
- Savvy Resources Ltd - HongKong
- Directorate Of Revenue Intelligence - India
- Ministry of Finance - Indonesia
- Cigading International Bulk Terminal - Indonesia
- ICICI Bank Limited - India
- Wilmar Investment Holdings
- Bukit Makmur.PT - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Aboitiz Power Corporation - Philippines
- Dalmia Cement Bharat India
- Alfred C Toepfer International GmbH - Germany
- Romanian Commodities Exchange
- VISA Power Limited - India
- Ind-Barath Power Infra Limited - India
- Manunggal Multi Energi - Indonesia
- Kartika Selabumi Mining - Indonesia
- Banpu Public Company Limited - Thailand
- New Zealand Coal & Carbon
- Independent Power Producers Association of India
- Coal and Oil Company - UAE
- Leighton Contractors Pty Ltd - Australia
- Coalindo Energy - Indonesia
- Semirara Mining Corp, Philippines
- Binh Thuan Hamico - Vietnam
- Chamber of Mines of South Africa
- Global Green Power PLC Corporation, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Goldman Sachs - Singapore
- Gujarat Electricity Regulatory Commission - India
- Madhucon Powers Ltd - India
- The State Trading Corporation of India Ltd
- Bulk Trading Sa - Switzerland
- Australian Coal Association
- Gujarat Mineral Development Corp Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Vedanta Resources Plc - India
- Kideco Jaya Agung - Indonesia
- Maheswari Brothers Coal Limited - India
- Anglo American - United Kingdom
- The University of Queensland
- Trasteel International SA, Italy
- Australian Commodity Traders Exchange
- Bharathi Cement Corporation - India
- Thai Mozambique Logistica
- Indogreen Group - Indonesia
- Antam Resourcindo - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Eastern Energy - Thailand
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