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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, 11 September 21
CIL STEPS UP SUPPLY COAL TO POWER SECTOR; PER-DAY AVERAGE 20 PC HIGHER THAN LAST YEAR - PTI
State-owned CIL on Friday said it has stepped up the supply of coal to the power sector in the first eight days of the current month, with an avera ...
Saturday, 11 September 21
RECORD CHINESE COAL FUTURES SIGNAL NEED TO BOOST OUTPUT - REUTERS
China’s coal prices have climbed to a record high, signaling the need for more production in the short term, even as the government tries to ...
Saturday, 11 September 21
IN 2022, EIA EXPECTS U.S. COAL PRODUCTION TO INCREASE BY 47 MMST TO 648 MMST
U.S. Coal production accordng to EIA's forecast, totals 601 million short tons (MMst) in 2021, 66 MMst more than in 2020, EIA's Short-Term ...
Wednesday, 08 September 21
FITCH RATINGS RAISES THERMAL COAL PRICE ASSUMPTIONS ON TIGHT SUPPLY
Fitch Ratings has increased all its Qinhuangdao 5,500kcal/kg price assumptions and short- and medium-term Newcastle 6,000kcal/kg price assumptions ...
Wednesday, 08 September 21
COAL IS STILL KING; INDONESIAN COAL PRICE REFERENCE ABOVE $150 FOR FIRST TIME IN HISTORY
COALspot.com: The Indonesian Coal Price Reference rose dramatically from US$ 127.05 in February 2011, to a peak of US$ 150.03 in September 2021, be ...
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- Medco Energi Mining Internasional
- Coal and Oil Company - UAE
- Electricity Authority, New Zealand
- Mercator Lines Limited - India
- Jindal Steel & Power Ltd - India
- Madhucon Powers Ltd - India
- Aditya Birla Group - India
- Australian Commodity Traders Exchange
- PTC India Limited - India
- Trasteel International SA, Italy
- Sical Logistics Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- ASAPP Information Group - India
- Gujarat Mineral Development Corp Ltd - India
- Barasentosa Lestari - Indonesia
- Directorate Of Revenue Intelligence - India
- Indo Tambangraya Megah - Indonesia
- Coastal Gujarat Power Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Indogreen Group - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Commonwealth Bank - Australia
- Star Paper Mills Limited - India
- Anglo American - United Kingdom
- Straits Asia Resources Limited - Singapore
- Mercuria Energy - Indonesia
- Indian Oil Corporation Limited
- Bank of Tokyo Mitsubishi UFJ Ltd
- New Zealand Coal & Carbon
- Alfred C Toepfer International GmbH - Germany
- SMG Consultants - Indonesia
- Attock Cement Pakistan Limited
- Grasim Industreis Ltd - India
- London Commodity Brokers - England
- PowerSource Philippines DevCo
- Directorate General of MIneral and Coal - Indonesia
- Deloitte Consulting - India
- Bukit Makmur.PT - Indonesia
- Aboitiz Power Corporation - Philippines
- Indika Energy - Indonesia
- Essar Steel Hazira Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Riau Bara Harum - Indonesia
- Electricity Generating Authority of Thailand
- The State Trading Corporation of India Ltd
- Karaikal Port Pvt Ltd - India
- Kumho Petrochemical, South Korea
- TeaM Sual Corporation - Philippines
- Kapuas Tunggal Persada - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Baramulti Group, Indonesia
- Bharathi Cement Corporation - India
- Parliament of New Zealand
- Orica Australia Pty. Ltd.
- Marubeni Corporation - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- McConnell Dowell - Australia
- Larsen & Toubro Limited - India
- SMC Global Power, Philippines
- Metalloyd Limited - United Kingdom
- Bhoruka Overseas - Indonesia
- Sindya Power Generating Company Private Ltd
- Global Business Power Corporation, Philippines
- Pendopo Energi Batubara - Indonesia
- Manunggal Multi Energi - Indonesia
- Heidelberg Cement - Germany
- Cement Manufacturers Association - India
- The University of Queensland
- Kalimantan Lumbung Energi - Indonesia
- Mintek Dendrill Indonesia
- Videocon Industries ltd - India
- Global Coal Blending Company Limited - Australia
- Power Finance Corporation Ltd., India
- Binh Thuan Hamico - Vietnam
- IHS Mccloskey Coal Group - USA
- Oldendorff Carriers - Singapore
- Bangladesh Power Developement Board
- Tamil Nadu electricity Board
- Georgia Ports Authority, United States
- Kartika Selabumi Mining - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Chamber of Mines of South Africa
- Karbindo Abesyapradhi - Indoneisa
- ICICI Bank Limited - India
- Thiess Contractors Indonesia
- Borneo Indobara - Indonesia
- Dalmia Cement Bharat India
- Mjunction Services Limited - India
- Timah Investasi Mineral - Indoneisa
- Bayan Resources Tbk. - Indonesia
- European Bulk Services B.V. - Netherlands
- Holcim Trading Pte Ltd - Singapore
- Semirara Mining Corp, Philippines
- Central Java Power - Indonesia
- Chettinad Cement Corporation Ltd - India
- PNOC Exploration Corporation - Philippines
- Iligan Light & Power Inc, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Siam City Cement PLC, Thailand
- MS Steel International - UAE
- Indonesian Coal Mining Association
- Standard Chartered Bank - UAE
- Salva Resources Pvt Ltd - India
- White Energy Company Limited
- Coalindo Energy - Indonesia
- Vizag Seaport Private Limited - India
- Meralco Power Generation, Philippines
- The Treasury - Australian Government
- Globalindo Alam Lestari - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Energy Development Corp, Philippines
- Eastern Energy - Thailand
- Price Waterhouse Coopers - Russia
- Ind-Barath Power Infra Limited - India
- Krishnapatnam Port Company Ltd. - India
- Siam City Cement - Thailand
- Rashtriya Ispat Nigam Limited - India
- SN Aboitiz Power Inc, Philippines
- Tata Chemicals Ltd - India
- GMR Energy Limited - India
- Port Waratah Coal Services - Australia
- Goldman Sachs - Singapore
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sree Jayajothi Cements Limited - India
- Lanco Infratech Ltd - India
- CIMB Investment Bank - Malaysia
- Romanian Commodities Exchange
- Bhatia International Limited - India
- Energy Link Ltd, New Zealand
- GVK Power & Infra Limited - India
- Intertek Mineral Services - Indonesia
- Kaltim Prima Coal - Indonesia
- India Bulls Power Limited - India
- Kepco SPC Power Corporation, Philippines
- Economic Council, Georgia
- Sakthi Sugars Limited - India
- Leighton Contractors Pty Ltd - Australia
- GN Power Mariveles Coal Plant, Philippines
- Makarim & Taira - Indonesia
- Merrill Lynch Commodities Europe
- Formosa Plastics Group - Taiwan
- Simpson Spence & Young - Indonesia
- Banpu Public Company Limited - Thailand
- Bulk Trading Sa - Switzerland
- Minerals Council of Australia
- Vedanta Resources Plc - India
- OPG Power Generation Pvt Ltd - India
- Uttam Galva Steels Limited - India
- Eastern Coal Council - USA
- Rio Tinto Coal - Australia
- Edison Trading Spa - Italy
- VISA Power Limited - India
- LBH Netherlands Bv - Netherlands
- Altura Mining Limited, Indonesia
- Central Electricity Authority - India
- Singapore Mercantile Exchange
- Bhushan Steel Limited - India
- Therma Luzon, Inc, Philippines
- Savvy Resources Ltd - HongKong
- Independent Power Producers Association of India
- South Luzon Thermal Energy Corporation
- Toyota Tsusho Corporation, Japan
- Sinarmas Energy and Mining - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Posco Energy - South Korea
- Billiton Holdings Pty Ltd - Australia
- Kohat Cement Company Ltd. - Pakistan
- Malabar Cements Ltd - India
- Ministry of Finance - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Renaissance Capital - South Africa
- Cigading International Bulk Terminal - Indonesia
- Sojitz Corporation - Japan
- PetroVietnam Power Coal Import and Supply Company
- Kobexindo Tractors - Indoneisa
- Africa Commodities Group - South Africa
- Indian Energy Exchange, India
- Carbofer General Trading SA - India
- IEA Clean Coal Centre - UK
- Xindia Steels Limited - India
- Planning Commission, India
- Wilmar Investment Holdings
- CNBM International Corporation - China
- Petron Corporation, Philippines
- Maheswari Brothers Coal Limited - India
- Antam Resourcindo - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Ministry of Transport, Egypt
- Bukit Baiduri Energy - Indonesia
- Samtan Co., Ltd - South Korea
- Agrawal Coal Company - India
- Parry Sugars Refinery, India
- Wood Mackenzie - Singapore
- Ministry of Mines - Canada
- Offshore Bulk Terminal Pte Ltd, Singapore
- Petrochimia International Co. Ltd.- Taiwan
- Orica Mining Services - Indonesia
- Gujarat Sidhee Cement - India
- AsiaOL BioFuels Corp., Philippines
- San Jose City I Power Corp, Philippines
- International Coal Ventures Pvt Ltd - India
- Kideco Jaya Agung - Indonesia
- GAC Shipping (India) Pvt Ltd
- Latin American Coal - Colombia
- Meenaskhi Energy Private Limited - India
- Miang Besar Coal Terminal - Indonesia
- Australian Coal Association
- Asmin Koalindo Tuhup - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Global Green Power PLC Corporation, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Thai Mozambique Logistica
- Ambuja Cements Ltd - India
- Jaiprakash Power Ventures ltd
- Interocean Group of Companies - India
- Sarangani Energy Corporation, Philippines
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