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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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Tuesday, 11 November 14
PORT OF NEWCASTLE'S OCTOBER COAL SHIPMENTS SLIPPED 7.40% M-O-M
COALspot.com: The Port of Newcastle, Australia’s major trading ports and the world’s largest coal export port, has shipped $1,115.7 mil ...
Monday, 10 November 14
Q4' 15 FOB INDONESIA COAL SWAP CLOSED LOWER THAN Q1' 15 CLOSING PRICE OF US$ 49.58 ON LAST FRIDAY
COALspot.com: Indonesian coal swaps for delivery Q1' 2015 lost month on month, week on week and day on day.
The Q1 swap has lost just US$ ...
Monday, 10 November 14
SGX'S API 4 FOB RICHARDS BAY COAL SWAP FOR Q1' 2015 DELIVERY CLOSED AT US$ 65.44 ON 7 NOV, LOST 4.08% M-O-M
COALspot.com: API 4 FOB Richards Bay Coal swap for Q1’ 2015 delivery has decreased US$ 2.78 (-4.08%) month over month and US$ 1.41 (-2.11%) w ...
Monday, 10 November 14
MOZAMBIQUE SIGNED CONTRACT WITH ETA STAR OF UAE FOR OPEN CAST COAL MINE IN TETE - AIM
- ETA Star to build slurry pipeline over the 600 kilometers to Beira in Mozambique to transport coal.
- The viability studies show the presence o ...
Monday, 10 November 14
YEAR 2015 CFR SOUTH CHINA COAL SWAP SHOWS A WEAK TREND THIS PAST WEEK
COALspot.com: API 8 CFR South China Coal swap for Q1’ 2015 delivery has decreased US$ 3.74 (-5.63%) month over month and US$ 2.19 (+3.37%) we ...
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- Metalloyd Limited - United Kingdom
- GAC Shipping (India) Pvt Ltd
- Global Coal Blending Company Limited - Australia
- PTC India Limited - India
- Bhatia International Limited - India
- Bharathi Cement Corporation - India
- SN Aboitiz Power Inc, Philippines
- Kumho Petrochemical, South Korea
- Maharashtra Electricity Regulatory Commission - India
- Bhoruka Overseas - Indonesia
- Aboitiz Power Corporation - Philippines
- Posco Energy - South Korea
- Tata Chemicals Ltd - India
- Makarim & Taira - Indonesia
- Central Java Power - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- IEA Clean Coal Centre - UK
- Timah Investasi Mineral - Indoneisa
- Africa Commodities Group - South Africa
- Jindal Steel & Power Ltd - India
- Renaissance Capital - South Africa
- SMG Consultants - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Global Business Power Corporation, Philippines
- MS Steel International - UAE
- Mercuria Energy - Indonesia
- Singapore Mercantile Exchange
- Independent Power Producers Association of India
- Altura Mining Limited, Indonesia
- Sakthi Sugars Limited - India
- Vedanta Resources Plc - India
- Globalindo Alam Lestari - Indonesia
- Australian Coal Association
- Kobexindo Tractors - Indoneisa
- Binh Thuan Hamico - Vietnam
- Georgia Ports Authority, United States
- London Commodity Brokers - England
- Bhushan Steel Limited - India
- Indian Oil Corporation Limited
- Ministry of Finance - Indonesia
- South Luzon Thermal Energy Corporation
- Central Electricity Authority - India
- Kohat Cement Company Ltd. - Pakistan
- Therma Luzon, Inc, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Agrawal Coal Company - India
- Oldendorff Carriers - Singapore
- Samtan Co., Ltd - South Korea
- Krishnapatnam Port Company Ltd. - India
- Grasim Industreis Ltd - India
- Toyota Tsusho Corporation, Japan
- Vizag Seaport Private Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Directorate General of MIneral and Coal - Indonesia
- Port Waratah Coal Services - Australia
- Alfred C Toepfer International GmbH - Germany
- Straits Asia Resources Limited - Singapore
- Billiton Holdings Pty Ltd - Australia
- Indian Energy Exchange, India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Savvy Resources Ltd - HongKong
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Iligan Light & Power Inc, Philippines
- Gujarat Sidhee Cement - India
- Siam City Cement - Thailand
- Goldman Sachs - Singapore
- Manunggal Multi Energi - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Wood Mackenzie - Singapore
- Carbofer General Trading SA - India
- Neyveli Lignite Corporation Ltd, - India
- Asmin Koalindo Tuhup - Indonesia
- Economic Council, Georgia
- The State Trading Corporation of India Ltd
- Sarangani Energy Corporation, Philippines
- Ceylon Electricity Board - Sri Lanka
- Rio Tinto Coal - Australia
- Eastern Coal Council - USA
- Vijayanagar Sugar Pvt Ltd - India
- Bangladesh Power Developement Board
- Indika Energy - Indonesia
- Orica Mining Services - Indonesia
- Thai Mozambique Logistica
- TeaM Sual Corporation - Philippines
- Sinarmas Energy and Mining - Indonesia
- Romanian Commodities Exchange
- Uttam Galva Steels Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Electricity Generating Authority of Thailand
- Holcim Trading Pte Ltd - Singapore
- Interocean Group of Companies - India
- Sindya Power Generating Company Private Ltd
- Medco Energi Mining Internasional
- Standard Chartered Bank - UAE
- PNOC Exploration Corporation - Philippines
- Coal and Oil Company - UAE
- The University of Queensland
- Meralco Power Generation, Philippines
- Xindia Steels Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Global Green Power PLC Corporation, Philippines
- Coalindo Energy - Indonesia
- Ind-Barath Power Infra Limited - India
- Miang Besar Coal Terminal - Indonesia
- SMC Global Power, Philippines
- Videocon Industries ltd - India
- Pendopo Energi Batubara - Indonesia
- Ministry of Transport, Egypt
- LBH Netherlands Bv - Netherlands
- TNB Fuel Sdn Bhd - Malaysia
- Orica Australia Pty. Ltd.
- White Energy Company Limited
- Essar Steel Hazira Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Siam City Cement PLC, Thailand
- Petron Corporation, Philippines
- Parry Sugars Refinery, India
- Kaltim Prima Coal - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Star Paper Mills Limited - India
- Trasteel International SA, Italy
- Petrochimia International Co. Ltd.- Taiwan
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kepco SPC Power Corporation, Philippines
- India Bulls Power Limited - India
- Sojitz Corporation - Japan
- McConnell Dowell - Australia
- Kalimantan Lumbung Energi - Indonesia
- Mjunction Services Limited - India
- Larsen & Toubro Limited - India
- International Coal Ventures Pvt Ltd - India
- Commonwealth Bank - Australia
- Bukit Baiduri Energy - Indonesia
- Deloitte Consulting - India
- Marubeni Corporation - India
- Power Finance Corporation Ltd., India
- Maheswari Brothers Coal Limited - India
- Sical Logistics Limited - India
- Bukit Makmur.PT - Indonesia
- Malabar Cements Ltd - India
- Bulk Trading Sa - Switzerland
- AsiaOL BioFuels Corp., Philippines
- Jorong Barutama Greston.PT - Indonesia
- Mintek Dendrill Indonesia
- GVK Power & Infra Limited - India
- Anglo American - United Kingdom
- Indonesian Coal Mining Association
- Thiess Contractors Indonesia
- Salva Resources Pvt Ltd - India
- ASAPP Information Group - India
- ICICI Bank Limited - India
- Heidelberg Cement - Germany
- Energy Development Corp, Philippines
- Minerals Council of Australia
- Borneo Indobara - Indonesia
- Chamber of Mines of South Africa
- Directorate Of Revenue Intelligence - India
- Karbindo Abesyapradhi - Indoneisa
- Energy Link Ltd, New Zealand
- Bank of Tokyo Mitsubishi UFJ Ltd
- Leighton Contractors Pty Ltd - Australia
- Dalmia Cement Bharat India
- Riau Bara Harum - Indonesia
- San Jose City I Power Corp, Philippines
- Aditya Birla Group - India
- European Bulk Services B.V. - Netherlands
- Baramulti Group, Indonesia
- Ambuja Cements Ltd - India
- Banpu Public Company Limited - Thailand
- Lanco Infratech Ltd - India
- Coastal Gujarat Power Limited - India
- Eastern Energy - Thailand
- Edison Trading Spa - Italy
- PetroVietnam Power Coal Import and Supply Company
- Indogreen Group - Indonesia
- Tamil Nadu electricity Board
- Attock Cement Pakistan Limited
- Intertek Mineral Services - Indonesia
- Barasentosa Lestari - Indonesia
- OPG Power Generation Pvt Ltd - India
- The Treasury - Australian Government
- Parliament of New Zealand
- Bayan Resources Tbk. - Indonesia
- Electricity Authority, New Zealand
- Kartika Selabumi Mining - Indonesia
- Antam Resourcindo - Indonesia
- Karaikal Port Pvt Ltd - India
- CNBM International Corporation - China
- Latin American Coal - Colombia
- Kapuas Tunggal Persada - Indonesia
- Mercator Lines Limited - India
- Planning Commission, India
- Cement Manufacturers Association - India
- IHS Mccloskey Coal Group - USA
- Indo Tambangraya Megah - Indonesia
- New Zealand Coal & Carbon
- VISA Power Limited - India
- Kideco Jaya Agung - Indonesia
- Australian Commodity Traders Exchange
- Price Waterhouse Coopers - Russia
- Semirara Mining Corp, Philippines
- Ministry of Mines - Canada
- Merrill Lynch Commodities Europe
- Simpson Spence & Young - Indonesia
- Jaiprakash Power Ventures ltd
- GMR Energy Limited - India
- Sree Jayajothi Cements Limited - India
- Wilmar Investment Holdings
- PowerSource Philippines DevCo
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Chettinad Cement Corporation Ltd - India
- Formosa Plastics Group - Taiwan
- CIMB Investment Bank - Malaysia
- Meenaskhi Energy Private Limited - India
- Cigading International Bulk Terminal - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Madhucon Powers Ltd - India
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