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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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Wednesday, 29 October 14
GOOD REASON WHY Q4 CAPESIZE OUTLOOK WAS SO BULLISH AT START OF THE YEAR - COMMODORE RESEARCH
COALspot.com: There was good reason why so many analysts' capesize outlook for Q4 was so very strong at the start of this year. Brazilian ...
Tuesday, 28 October 14
SGX'S FOB RICHARDS BAY COAL SWAP FOR DELIVERY Q1' 2015 CLOSED AT $ 68.07 ON 24 OCT
COALspot.com: API 4 FOB Richards Bay coal swap for Q4’ 2014 delivery decreased US$ 0.65 (-0.96%) month over month and increased US$ 1.79 (+2. ...
Tuesday, 28 October 14
SUB-BIT FOB INDONESIA COAL SWAP FOR Q1' 15 DELIVERY CLOSED 3.68% LOWER MONTH ON MONTH
COALspot.com: Indonesian coal swaps for delivery Q4' 2014 lost month on month and gained day on day and week on week.
The swap has lost US ...
Monday, 27 October 14
GOVT PROMISES TO EASE LICENSING PROCEDURES IN MINING SECTOR - THE JAKARTA POST
The Energy and Mineral Resources Ministry’s directorate general for mineral and coal plans to simplify the complicated licensing procedures i ...
Monday, 27 October 14
FOB NEWCASTLE COAL SWAP FOR Q1' 15 DELIVERY CLOSED $ 0.10 LESSER THAN Q4' 14 CLOSING OF $ 53.27 PMT
COALspot.com: API 5 FOB Newcastle Coal swap for Q4’ 2014 delivery decreased US$ 1.43 (-2.61%) month over month and increased US$ 0.05 (+0.09% ...
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- Banpu Public Company Limited - Thailand
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- Bank of Tokyo Mitsubishi UFJ Ltd
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- Eastern Coal Council - USA
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- Coalindo Energy - Indonesia
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- AsiaOL BioFuels Corp., Philippines
- Chamber of Mines of South Africa
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- Indian Energy Exchange, India
- Samtan Co., Ltd - South Korea
- International Coal Ventures Pvt Ltd - India
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- Directorate General of MIneral and Coal - Indonesia
- Goldman Sachs - Singapore
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- Sindya Power Generating Company Private Ltd
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- Metalloyd Limited - United Kingdom
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- Africa Commodities Group - South Africa
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- Global Green Power PLC Corporation, Philippines
- Australian Coal Association
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- Bhushan Steel Limited - India
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- Parliament of New Zealand
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- Agrawal Coal Company - India
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- Deloitte Consulting - India
- Simpson Spence & Young - Indonesia
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- Orica Mining Services - Indonesia
- Binh Thuan Hamico - Vietnam
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- ICICI Bank Limited - India
- Sinarmas Energy and Mining - Indonesia
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- Kaltim Prima Coal - Indonesia
- Salva Resources Pvt Ltd - India
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- Kumho Petrochemical, South Korea
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- Thai Mozambique Logistica
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- Malabar Cements Ltd - India
- Larsen & Toubro Limited - India
- Kobexindo Tractors - Indoneisa
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- Electricity Authority, New Zealand
- Semirara Mining and Power Corporation, Philippines
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- Oldendorff Carriers - Singapore
- Independent Power Producers Association of India
- Petron Corporation, Philippines
- Bhatia International Limited - India
- Posco Energy - South Korea
- LBH Netherlands Bv - Netherlands
- Indo Tambangraya Megah - Indonesia
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- Semirara Mining Corp, Philippines
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- Indian Oil Corporation Limited
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- Savvy Resources Ltd - HongKong
- Power Finance Corporation Ltd., India
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- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Mercuria Energy - Indonesia
- Georgia Ports Authority, United States
- PowerSource Philippines DevCo
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- Kartika Selabumi Mining - Indonesia
- Xindia Steels Limited - India
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- Altura Mining Limited, Indonesia
- London Commodity Brokers - England
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- Cement Manufacturers Association - India
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- Tamil Nadu electricity Board
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- GN Power Mariveles Coal Plant, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- VISA Power Limited - India
- Toyota Tsusho Corporation, Japan
- Latin American Coal - Colombia
- Central Java Power - Indonesia
- Grasim Industreis Ltd - India
- SMG Consultants - Indonesia
- Intertek Mineral Services - Indonesia
- White Energy Company Limited
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- Romanian Commodities Exchange
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- Globalindo Alam Lestari - Indonesia
- Global Business Power Corporation, Philippines
- Ambuja Cements Ltd - India
- Australian Commodity Traders Exchange
- The State Trading Corporation of India Ltd
- Bharathi Cement Corporation - India
- GMR Energy Limited - India
- Merrill Lynch Commodities Europe
- Therma Luzon, Inc, Philippines
- Edison Trading Spa - Italy
- Truba Alam Manunggal Engineering.Tbk - Indonesia
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- Iligan Light & Power Inc, Philippines
- Energy Link Ltd, New Zealand
- SN Aboitiz Power Inc, Philippines
- Energy Development Corp, Philippines
- Economic Council, Georgia
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- Ministry of Transport, Egypt
- Bukit Baiduri Energy - Indonesia
- Timah Investasi Mineral - Indoneisa
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- Ceylon Electricity Board - Sri Lanka
- Vedanta Resources Plc - India
- Medco Energi Mining Internasional
- Karbindo Abesyapradhi - Indoneisa
- PNOC Exploration Corporation - Philippines
- Asmin Koalindo Tuhup - Indonesia
- The University of Queensland
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- Sarangani Energy Corporation, Philippines
- Attock Cement Pakistan Limited
- Krishnapatnam Port Company Ltd. - India
- Singapore Mercantile Exchange
- Manunggal Multi Energi - Indonesia
- Trasteel International SA, Italy
- Bulk Trading Sa - Switzerland
- The Treasury - Australian Government
- Baramulti Group, Indonesia
- Port Waratah Coal Services - Australia
- Coastal Gujarat Power Limited - India
- Riau Bara Harum - Indonesia
- European Bulk Services B.V. - Netherlands
- ASAPP Information Group - India
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- Jorong Barutama Greston.PT - Indonesia
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- Minerals Council of Australia
- Parry Sugars Refinery, India
- South Luzon Thermal Energy Corporation
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- Asia Pacific Energy Resources Ventures Inc, Philippines
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- Star Paper Mills Limited - India
- Siam City Cement PLC, Thailand
- Price Waterhouse Coopers - Russia
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