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Monday, 06 October 14
THE IRON ORE SHIPPING BUSINESS IS FACING SOME ROUGH SEAS - EAST ASIA FORUM
 The impact of Chinese demand on global iron ore prices is well known. A less acknowledged consequence of China’s emergence is the transformation of incentive structures in the global shipping market. Dramatic increases in freight rates shifted global iron ore producers’ comparative advantage further in favour of Australian exporters to the detriment of the Brazilians. During the commodities boom, between 2002 and 2008, the freight differential between Brazil–China and Australia–China rates increased to around US$60 per tonne for 150,000–160,000 deadweight tonne (dwt) ships.
Japan’s tenure as dominant market player in the second half of the twentieth century was marked by a gradual evolution of the shipping pricing regime, much of it under Japanese control. In stark contrast, China’s impact on the shipping market has been much more concentrated in time, with an absence of long-term planning and coordination between the Chinese steelmakers and ship owners or operators.
In 2008, to compete with BHP and Rio Tinto over shipping costs, the shipping company Vale commissioned, at a cost of over US$2 billion, a new line of ‘Very Large Ore Carriers’ (VLOCs), dubbed the ‘Valemax’. The Valemax carrier is the largest bulk carrier ever built: over twice as big as Cape-size carriers (400,000 dwt). Current shipping costs from Australia to China stand at around US$10/tonne, whereas it currently costs around US$22/tonne to ship iron ore from Brazil to China. Direct Valemax trips from Brazil to China would bring shipping costs down to about US$15/tonne.
Vale had 24 out of 35 of these huge carriers built in China, and the rest in South Korea. China’s Export-Import Bank and the Bank of China even financed the project to the scale of US$1.3 billion, so Vale was confident that this step was in the interest of iron ore consumers in China and that these cargoes would be welcomed.
But, on 29 January 2012, the Chinese Ministry of Transport issued a notice specifying that cargo ships with a capacity greater than 350,000 dwt could not dock in Chinese ports, citing safety concerns. Interviews confirm that Vale was taken aback, alongside many Chinese iron ore industry insiders.
The blocking of the Valemax carriers was not the result of coordinated, state-led, revisionist behaviour. It was not a directive coming from the central government or the Chinese Iron ore and Steel Association, or even the large steel SOEs, all of whom favoured the Valemax since it would reduce the overall price of Brazilian iron ore. The opposition, and lobbying, came from Chinese ship owners/operators, led by COSCO (China Ocean Shipping Company), who stood to lose shipping business, and held enough sway with the Chinese Ship-owners Association, the port authorities and the Transport Ministry to make this happen. It is testament to China’s weight in global markets that a unilateral move by one Chinese interest group could have such destabilising consequences. The blocking of the Valemax was the result of the fragmentation of China’s iron ore industry, and the high jacking of policy-making by a particular interest group, against broader national priorities.
On 6 December 2011, Shouguo Zhang, Vice Executive Chairman of China Ship owners’ Association, said that ‘Vale is an iron ore producing corporation that obviously lacks experience in ship safety management, ship pollution prevention … [It] holds the cargo to itself and now intends to control shipping tonnage. It is a matter of monopoly and unfair competition which not only harms the shipping interest of mainland China but also that of South Korea, Japan and Taiwan’. It is worth noting that the president of the Chinese Ship-owners Association at the time was Wei Jiafu, also president of COSCO.
The Wall Street Journal has spoken to shipping engineers who said that safety concerns cited by the Chinese Transport Ministry were ‘insufficient to cast serious doubt on the safety of Valemax ships. Valemax vessels have docked at ports in such places as Japan, Italy, the Netherlands and the Philippines’. Ralph Leszczynski, head of research at shipping services firm Banchero Costa, said that COSCO’s reaction is natural as ‘the moment a company like Vale decides to build their own ships they are entering the “business turf” of companies like COSCO and they take those companies’ business away’. The ban has been extremely costly for Vale, as the company has had to transfer cargo to smaller carriers in the Philippines at an extra cost of between US$2 and US$7 a tonne.
Industry analysts have ventured that the only way out for Vale, as a concession to COSCO and other Chinese ship operators, would be for it to agree to a charter or sharing solution with the Chinese shipping companies, by transferring Valemax ships for Chinese ship-owners to operate.
In December 2013, news of one such five-year ‘bareboat charter arrangement’ with Shandong Shipping Alliance was announced by Vale’s Jose Carlos Martin.
On 10 February 2014, the Chinese Ministry of Transport issued a notice reframing coastal berthing regulations. From 1 July 2014, oversized cargo ships have been allowed to dock in Chinese ports with a capacity not exceeding 250,000 dwt, as long as they match their load with the port’s capacity. Some analysts say this new regulation slowly opens the door to Valemax cargoes docking in China, while the China Ship-owners Association reiterated its opposition to 400,000 dwt cargoes ever docking at Chinese ports.
Then on 12 September 2014, in a ground-breaking announcement, Vale revealed that it had reached a ‘framework agreement for strategic cooperation in iron ore shipping’ with COSCO. This is another step towards resolving the almost 3-year-old impasse between the two giants. Following the terms of the agreement, Vale will transfer 4 VLOCs to COSCO and charter them back from the shipping giant for the next 25 years. It also agreed to similar terms regarding 10 more VLOCs to be built by COSCO to transport iron ore from Brazil.
The new agreement between COSCO and Vale will presumably lead to the Chinese Ministry of Transport fully lifting the ban on the Valemax cargoes in the near future.
The Valemax story highlights the role of non-state actors as a determinant of Chinese international procurement behaviour. It also highlights the fact that despite China’s share of global demand, Chinese stakeholders feel powerless in global commodity markets whose rules were established long before Chinese re-emergence. The sheer reach of COSCO’s behaviour demonstrates how important it is to understand Chinese domestic market dynamics, and also points to broader patterns we can expect as China tries to carve itself a position commensurate with its global purchasing power. China’s domestic dynamics have now become a determining feature of the global economy.
Source: East Asia Forum / Hellenic Shipping News
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Thursday, 20 November 14
MOST MAJOR ASIAN ECONOMIES TO BENEFIT FROM LOWER OIL - FITCH
COALspot.com: The 25% drop in the price of oil since July is likely to lift economic growth prospects, improve terms of trade, and have a pot ...
Thursday, 20 November 14
HANDY: INDO ROUNDS ARE BEING FIXED IN REGION OF US$ 10K - FEARNLEYS
Handy
In the Atlantic we have experienced firmer rates this week much lead by the grain activity out of USG. Vsls open in the USG can achieve in ...
Thursday, 20 November 14
DEMAND FOR DRY BULK CARRIERS INCREASES ON THE BACK OF HEIGHTENED FREIGHT RATE MARKET - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
Ship owners are looking to take advantage of favorable market conditions through the acquisition of more dry bulk carriers. According to shipbroker ...
Wednesday, 19 November 14
INDONESIA FUEL-PRICE RISE A CLEAR, POSITIVE REFORM SIGNAL - FITCH
COALspot.com: Indonesia's hike of more than 30% in administered fuel prices, announced on 17 November, provides a clear, positive signal of the ...
Wednesday, 19 November 14
CAPES WERE UNDER PRESSURE; LOST 20% WITHIN A WEEK
COALspot.com: " The negative environment in which the week prior ended, marked this past week as well, which closed off on Friday noting the f ...
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- Uttam Galva Steels Limited - India
- Sical Logistics Limited - India
- Renaissance Capital - South Africa
- Sakthi Sugars Limited - India
- Australian Coal Association
- Cement Manufacturers Association - India
- Videocon Industries ltd - India
- IHS Mccloskey Coal Group - USA
- Gujarat Sidhee Cement - India
- Ambuja Cements Ltd - India
- Wood Mackenzie - Singapore
- Kepco SPC Power Corporation, Philippines
- Miang Besar Coal Terminal - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Port Waratah Coal Services - Australia
- Coalindo Energy - Indonesia
- Metalloyd Limited - United Kingdom
- LBH Netherlands Bv - Netherlands
- Australian Commodity Traders Exchange
- Gujarat Mineral Development Corp Ltd - India
- Jindal Steel & Power Ltd - India
- Jaiprakash Power Ventures ltd
- Alfred C Toepfer International GmbH - Germany
- Mercuria Energy - Indonesia
- Orica Australia Pty. Ltd.
- Medco Energi Mining Internasional
- Africa Commodities Group - South Africa
- Kohat Cement Company Ltd. - Pakistan
- Grasim Industreis Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Krishnapatnam Port Company Ltd. - India
- Minerals Council of Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- MS Steel International - UAE
- Madhucon Powers Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- PTC India Limited - India
- Interocean Group of Companies - India
- Karbindo Abesyapradhi - Indoneisa
- Thiess Contractors Indonesia
- Straits Asia Resources Limited - Singapore
- Borneo Indobara - Indonesia
- OPG Power Generation Pvt Ltd - India
- Baramulti Group, Indonesia
- Eastern Energy - Thailand
- Ministry of Finance - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Siam City Cement - Thailand
- Gujarat Electricity Regulatory Commission - India
- Price Waterhouse Coopers - Russia
- Edison Trading Spa - Italy
- Orica Mining Services - Indonesia
- Agrawal Coal Company - India
- International Coal Ventures Pvt Ltd - India
- Coastal Gujarat Power Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Intertek Mineral Services - Indonesia
- Ministry of Mines - Canada
- Indo Tambangraya Megah - Indonesia
- Simpson Spence & Young - Indonesia
- PNOC Exploration Corporation - Philippines
- Chamber of Mines of South Africa
- Semirara Mining Corp, Philippines
- Indonesian Coal Mining Association
- Indian Oil Corporation Limited
- Bayan Resources Tbk. - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Binh Thuan Hamico - Vietnam
- South Luzon Thermal Energy Corporation
- Essar Steel Hazira Ltd - India
- Mjunction Services Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Georgia Ports Authority, United States
- Sree Jayajothi Cements Limited - India
- Sojitz Corporation - Japan
- Lanco Infratech Ltd - India
- Bukit Baiduri Energy - Indonesia
- Bukit Makmur.PT - Indonesia
- Globalindo Alam Lestari - Indonesia
- Vedanta Resources Plc - India
- The State Trading Corporation of India Ltd
- Attock Cement Pakistan Limited
- Chettinad Cement Corporation Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Manunggal Multi Energi - Indonesia
- Energy Link Ltd, New Zealand
- Global Coal Blending Company Limited - Australia
- Dalmia Cement Bharat India
- GVK Power & Infra Limited - India
- Kapuas Tunggal Persada - Indonesia
- Makarim & Taira - Indonesia
- Siam City Cement PLC, Thailand
- Power Finance Corporation Ltd., India
- SMG Consultants - Indonesia
- Bhushan Steel Limited - India
- Rashtriya Ispat Nigam Limited - India
- Energy Development Corp, Philippines
- Posco Energy - South Korea
- Parliament of New Zealand
- Merrill Lynch Commodities Europe
- Holcim Trading Pte Ltd - Singapore
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Anglo American - United Kingdom
- Electricity Generating Authority of Thailand
- Pipit Mutiara Jaya. PT, Indonesia
- Planning Commission, India
- Meenaskhi Energy Private Limited - India
- Kaltim Prima Coal - Indonesia
- Petron Corporation, Philippines
- Maheswari Brothers Coal Limited - India
- SN Aboitiz Power Inc, Philippines
- San Jose City I Power Corp, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Independent Power Producers Association of India
- IEA Clean Coal Centre - UK
- Standard Chartered Bank - UAE
- Asia Pacific Energy Resources Ventures Inc, Philippines
- SMC Global Power, Philippines
- Bangladesh Power Developement Board
- Vizag Seaport Private Limited - India
- Star Paper Mills Limited - India
- The Treasury - Australian Government
- GMR Energy Limited - India
- GAC Shipping (India) Pvt Ltd
- Parry Sugars Refinery, India
- Rio Tinto Coal - Australia
- Ind-Barath Power Infra Limited - India
- Sarangani Energy Corporation, Philippines
- Singapore Mercantile Exchange
- Bharathi Cement Corporation - India
- Banpu Public Company Limited - Thailand
- Sinarmas Energy and Mining - Indonesia
- Eastern Coal Council - USA
- Ministry of Transport, Egypt
- Xindia Steels Limited - India
- Ceylon Electricity Board - Sri Lanka
- ASAPP Information Group - India
- Barasentosa Lestari - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Formosa Plastics Group - Taiwan
- Indian Energy Exchange, India
- Indogreen Group - Indonesia
- Electricity Authority, New Zealand
- Deloitte Consulting - India
- CIMB Investment Bank - Malaysia
- Petrochimia International Co. Ltd.- Taiwan
- Oldendorff Carriers - Singapore
- Salva Resources Pvt Ltd - India
- Malabar Cements Ltd - India
- Mercator Lines Limited - India
- Directorate Of Revenue Intelligence - India
- Latin American Coal - Colombia
- Karaikal Port Pvt Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Sindya Power Generating Company Private Ltd
- Toyota Tsusho Corporation, Japan
- Riau Bara Harum - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Samtan Co., Ltd - South Korea
- ICICI Bank Limited - India
- Kobexindo Tractors - Indoneisa
- Directorate General of MIneral and Coal - Indonesia
- Trasteel International SA, Italy
- Thai Mozambique Logistica
- New Zealand Coal & Carbon
- Aditya Birla Group - India
- Tamil Nadu electricity Board
- Mintek Dendrill Indonesia
- Maharashtra Electricity Regulatory Commission - India
- White Energy Company Limited
- Romanian Commodities Exchange
- Timah Investasi Mineral - Indoneisa
- CNBM International Corporation - China
- Central Electricity Authority - India
- Semirara Mining and Power Corporation, Philippines
- Bulk Trading Sa - Switzerland
- Leighton Contractors Pty Ltd - Australia
- Commonwealth Bank - Australia
- Larsen & Toubro Limited - India
- Therma Luzon, Inc, Philippines
- Coal and Oil Company - UAE
- Marubeni Corporation - India
- European Bulk Services B.V. - Netherlands
- Bhoruka Overseas - Indonesia
- Goldman Sachs - Singapore
- Global Business Power Corporation, Philippines
- Kartika Selabumi Mining - Indonesia
- Economic Council, Georgia
- Indika Energy - Indonesia
- Iligan Light & Power Inc, Philippines
- Billiton Holdings Pty Ltd - Australia
- McConnell Dowell - Australia
- Antam Resourcindo - Indonesia
- London Commodity Brokers - England
- The University of Queensland
- Carbofer General Trading SA - India
- PowerSource Philippines DevCo
- Altura Mining Limited, Indonesia
- Central Java Power - Indonesia
- India Bulls Power Limited - India
- Kideco Jaya Agung - Indonesia
- VISA Power Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Global Green Power PLC Corporation, Philippines
- Bhatia International Limited - India
- Aboitiz Power Corporation - Philippines
- TeaM Sual Corporation - Philippines
- Pendopo Energi Batubara - Indonesia
- Wilmar Investment Holdings
- Meralco Power Generation, Philippines
- Savvy Resources Ltd - HongKong
- Heidelberg Cement - Germany
- Cigading International Bulk Terminal - Indonesia
- Kumho Petrochemical, South Korea
- Tata Chemicals Ltd - India
- Asmin Koalindo Tuhup - Indonesia
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