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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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Tuesday, 28 September 21
THE MAIDEN EDITION OF DIVE TECHNOLOGY SUMMIT 2021 CONCLUDES SUCCESSFULLY
Press Release: DIVE TECHNOLOGY SUMMIT 2021, a one-day conference on the recent technological advancements in the Industrial Diving industry conclud ...
Monday, 27 September 21
CHINESE COAL FIRMS MEET TO ADDRESS WINTER SUPPLY CHALLENGES - CNBC
Major Chinese coal producers are trying to resolve supply shortages and curb price rises as the country’s winter consumption peak approaches, ...
Saturday, 25 September 21
HIGH STAKES FOR ASIAN DEVELOPMENT BANK’S AMBITIOUS COAL POWER RETIREMENT PLAN - IEEFA
Implementation challenges could block funding for other equally important high impact clean energy funding strategies
In the lead up ...
Thursday, 23 September 21
LONGER COAL CONTRACTS MAY REIN IN PRICES - ECNS
In China’s coal sector that has been marred recently by price surges, regional authorities and related enterprises should ensure the fuel con ...
Thursday, 23 September 21
BALTIC INDEX HITS 12-YEAR PEAK ON FIRMER VESSELS RATES - REUTERS
The Baltic Exchange’s main dry bulk sea freight index rose for a fourth straight session on Wednesday to a 12-year high, buoyed by higher rat ...
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- The Treasury - Australian Government
- Aboitiz Power Corporation - Philippines
- Sree Jayajothi Cements Limited - India
- Jaiprakash Power Ventures ltd
- Binh Thuan Hamico - Vietnam
- Planning Commission, India
- Mjunction Services Limited - India
- Grasim Industreis Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Rashtriya Ispat Nigam Limited - India
- Ambuja Cements Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Uttam Galva Steels Limited - India
- Attock Cement Pakistan Limited
- Straits Asia Resources Limited - Singapore
- Orica Australia Pty. Ltd.
- AsiaOL BioFuels Corp., Philippines
- Sojitz Corporation - Japan
- Rio Tinto Coal - Australia
- Kobexindo Tractors - Indoneisa
- Lanco Infratech Ltd - India
- Georgia Ports Authority, United States
- Marubeni Corporation - India
- Posco Energy - South Korea
- Kartika Selabumi Mining - Indonesia
- Larsen & Toubro Limited - India
- Kohat Cement Company Ltd. - Pakistan
- India Bulls Power Limited - India
- Bukit Baiduri Energy - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Coal and Oil Company - UAE
- Semirara Mining Corp, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Kalimantan Lumbung Energi - Indonesia
- Orica Mining Services - Indonesia
- Borneo Indobara - Indonesia
- Romanian Commodities Exchange
- Directorate Of Revenue Intelligence - India
- IHS Mccloskey Coal Group - USA
- Miang Besar Coal Terminal - Indonesia
- Therma Luzon, Inc, Philippines
- London Commodity Brokers - England
- Mintek Dendrill Indonesia
- Ministry of Mines - Canada
- LBH Netherlands Bv - Netherlands
- Barasentosa Lestari - Indonesia
- Xindia Steels Limited - India
- Mercator Lines Limited - India
- Meenaskhi Energy Private Limited - India
- Star Paper Mills Limited - India
- Holcim Trading Pte Ltd - Singapore
- Electricity Generating Authority of Thailand
- Timah Investasi Mineral - Indoneisa
- Maharashtra Electricity Regulatory Commission - India
- Asmin Koalindo Tuhup - Indonesia
- Mercuria Energy - Indonesia
- Banpu Public Company Limited - Thailand
- ICICI Bank Limited - India
- Indo Tambangraya Megah - Indonesia
- Bharathi Cement Corporation - India
- Goldman Sachs - Singapore
- Port Waratah Coal Services - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Deloitte Consulting - India
- Bayan Resources Tbk. - Indonesia
- PTC India Limited - India
- Minerals Council of Australia
- Meralco Power Generation, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Ind-Barath Power Infra Limited - India
- Thai Mozambique Logistica
- Sical Logistics Limited - India
- Salva Resources Pvt Ltd - India
- Energy Link Ltd, New Zealand
- Bahari Cakrawala Sebuku - Indonesia
- Indian Oil Corporation Limited
- Interocean Group of Companies - India
- CNBM International Corporation - China
- Renaissance Capital - South Africa
- Tamil Nadu electricity Board
- Jorong Barutama Greston.PT - Indonesia
- Videocon Industries ltd - India
- Australian Coal Association
- Eastern Energy - Thailand
- Bhoruka Overseas - Indonesia
- Indonesian Coal Mining Association
- Sinarmas Energy and Mining - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Ministry of Finance - Indonesia
- Bhushan Steel Limited - India
- Global Business Power Corporation, Philippines
- European Bulk Services B.V. - Netherlands
- Antam Resourcindo - Indonesia
- Aditya Birla Group - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Indika Energy - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Indogreen Group - Indonesia
- Electricity Authority, New Zealand
- Global Coal Blending Company Limited - Australia
- Cement Manufacturers Association - India
- Siam City Cement PLC, Thailand
- South Luzon Thermal Energy Corporation
- Commonwealth Bank - Australia
- Carbofer General Trading SA - India
- Trasteel International SA, Italy
- Savvy Resources Ltd - HongKong
- Australian Commodity Traders Exchange
- Ceylon Electricity Board - Sri Lanka
- Karaikal Port Pvt Ltd - India
- Altura Mining Limited, Indonesia
- Heidelberg Cement - Germany
- Petron Corporation, Philippines
- GMR Energy Limited - India
- Gujarat Sidhee Cement - India
- Sarangani Energy Corporation, Philippines
- Kumho Petrochemical, South Korea
- Anglo American - United Kingdom
- Vijayanagar Sugar Pvt Ltd - India
- Essar Steel Hazira Ltd - India
- MS Steel International - UAE
- ASAPP Information Group - India
- SN Aboitiz Power Inc, Philippines
- Iligan Light & Power Inc, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Merrill Lynch Commodities Europe
- IEA Clean Coal Centre - UK
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Globalindo Alam Lestari - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Price Waterhouse Coopers - Russia
- Toyota Tsusho Corporation, Japan
- Kideco Jaya Agung - Indonesia
- The University of Queensland
- Directorate General of MIneral and Coal - Indonesia
- Tata Chemicals Ltd - India
- TeaM Sual Corporation - Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Parry Sugars Refinery, India
- Agrawal Coal Company - India
- Standard Chartered Bank - UAE
- New Zealand Coal & Carbon
- Manunggal Multi Energi - Indonesia
- CIMB Investment Bank - Malaysia
- Vedanta Resources Plc - India
- Eastern Coal Council - USA
- Central Electricity Authority - India
- Vizag Seaport Private Limited - India
- Intertek Mineral Services - Indonesia
- SMC Global Power, Philippines
- Coastal Gujarat Power Limited - India
- Pendopo Energi Batubara - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Maheswari Brothers Coal Limited - India
- VISA Power Limited - India
- Formosa Plastics Group - Taiwan
- Bukit Makmur.PT - Indonesia
- Simpson Spence & Young - Indonesia
- Economic Council, Georgia
- Edison Trading Spa - Italy
- Power Finance Corporation Ltd., India
- Africa Commodities Group - South Africa
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kapuas Tunggal Persada - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Metalloyd Limited - United Kingdom
- Malabar Cements Ltd - India
- Makarim & Taira - Indonesia
- Riau Bara Harum - Indonesia
- Thiess Contractors Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bhatia International Limited - India
- Kaltim Prima Coal - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Baramulti Group, Indonesia
- McConnell Dowell - Australia
- GVK Power & Infra Limited - India
- San Jose City I Power Corp, Philippines
- Singapore Mercantile Exchange
- Cigading International Bulk Terminal - Indonesia
- Wood Mackenzie - Singapore
- SMG Consultants - Indonesia
- Chettinad Cement Corporation Ltd - India
- Parliament of New Zealand
- Madhucon Powers Ltd - India
- Central Java Power - Indonesia
- Sakthi Sugars Limited - India
- GAC Shipping (India) Pvt Ltd
- Samtan Co., Ltd - South Korea
- White Energy Company Limited
- Kepco SPC Power Corporation, Philippines
- PNOC Exploration Corporation - Philippines
- Krishnapatnam Port Company Ltd. - India
- Ministry of Transport, Egypt
- Sindya Power Generating Company Private Ltd
- Jindal Steel & Power Ltd - India
- Latin American Coal - Colombia
- Wilmar Investment Holdings
- Medco Energi Mining Internasional
- PowerSource Philippines DevCo
- Bangladesh Power Developement Board
- Oldendorff Carriers - Singapore
- Indian Energy Exchange, India
- Global Green Power PLC Corporation, Philippines
- Bulk Trading Sa - Switzerland
- Chamber of Mines of South Africa
- Billiton Holdings Pty Ltd - Australia
- Siam City Cement - Thailand
- Dalmia Cement Bharat India
- The State Trading Corporation of India Ltd
- Energy Development Corp, Philippines
- OPG Power Generation Pvt Ltd - India
- Coalindo Energy - Indonesia
- Independent Power Producers Association of India
- International Coal Ventures Pvt Ltd - India
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