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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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Monday, 27 October 14
CFR SOUTH CHINA COAL SWAPS PERFORMED POSITIVE THIS PAST WEEK
COALspot.com: API 8 CFR South China Coal swap for Q4’ 2014 delivery decreased US$ 1.68 (-2.55%) month over month and increased US$ 0.87 (+1.3 ...
Sunday, 26 October 14
CAPE'S STRONG PERFORMANCE PUSHES BDI INDEX UPWARDS
COALspot.com: The BDI was up by 26.27 pct and closed at 1192 points week and week. The Cape size performance has pushed up BDI and Cape size index ...
Friday, 24 October 14
WEEKLY U.S COAL PRODUCTION DOWN 2.7% FOR THE WEEK ENDING OCTOBER 18
COALspot.com – United States the world's one of largest coal producers, produced approximately 18.7 million short tons (mmst) of coal in ...
Thursday, 23 October 14
THE BEARS, HOWEVER, STILL CRY; FOR HOW LONG WILL IT LAST? - FEARNLEYS
Handy
"We experience a typical oversupply of ships in the Atlantic which causing rates to slide. In the USG it is just enough cargoes to kee ...
Wednesday, 22 October 14
MARKET INSIGHT - THEODORE NTALAKOS, INTERMODAL
ECO designs - revisited
The ECO vessels are already here but the oil and bunker prices are plummeting to their cheapest level since 2010. Is this ...
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- Kepco SPC Power Corporation, Philippines
- AsiaOL BioFuels Corp., Philippines
- Petron Corporation, Philippines
- Lanco Infratech Ltd - India
- Indian Energy Exchange, India
- Central Java Power - Indonesia
- GVK Power & Infra Limited - India
- Rashtriya Ispat Nigam Limited - India
- Leighton Contractors Pty Ltd - Australia
- Karbindo Abesyapradhi - Indoneisa
- India Bulls Power Limited - India
- Intertek Mineral Services - Indonesia
- Bhatia International Limited - India
- Merrill Lynch Commodities Europe
- Agrawal Coal Company - India
- Pendopo Energi Batubara - Indonesia
- SMG Consultants - Indonesia
- Salva Resources Pvt Ltd - India
- Energy Development Corp, Philippines
- Kartika Selabumi Mining - Indonesia
- IHS Mccloskey Coal Group - USA
- Cement Manufacturers Association - India
- VISA Power Limited - India
- White Energy Company Limited
- Mercator Lines Limited - India
- Vizag Seaport Private Limited - India
- European Bulk Services B.V. - Netherlands
- South Luzon Thermal Energy Corporation
- PowerSource Philippines DevCo
- Videocon Industries ltd - India
- Bukit Baiduri Energy - Indonesia
- Essar Steel Hazira Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Singapore Mercantile Exchange
- Billiton Holdings Pty Ltd - Australia
- Gujarat Mineral Development Corp Ltd - India
- Thiess Contractors Indonesia
- Ambuja Cements Ltd - India
- Star Paper Mills Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Krishnapatnam Port Company Ltd. - India
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- SMC Global Power, Philippines
- Kobexindo Tractors - Indoneisa
- OPG Power Generation Pvt Ltd - India
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- CNBM International Corporation - China
- Asmin Koalindo Tuhup - Indonesia
- Meralco Power Generation, Philippines
- Bayan Resources Tbk. - Indonesia
- Australian Coal Association
- Ind-Barath Power Infra Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Orica Australia Pty. Ltd.
- Directorate Of Revenue Intelligence - India
- Kumho Petrochemical, South Korea
- Indo Tambangraya Megah - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Medco Energi Mining Internasional
- Rio Tinto Coal - Australia
- Romanian Commodities Exchange
- The State Trading Corporation of India Ltd
- Miang Besar Coal Terminal - Indonesia
- Global Coal Blending Company Limited - Australia
- The Treasury - Australian Government
- Parry Sugars Refinery, India
- Grasim Industreis Ltd - India
- Georgia Ports Authority, United States
- Semirara Mining and Power Corporation, Philippines
- Semirara Mining Corp, Philippines
- Kideco Jaya Agung - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Sojitz Corporation - Japan
- Central Electricity Authority - India
- Riau Bara Harum - Indonesia
- Simpson Spence & Young - Indonesia
- Ministry of Transport, Egypt
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Formosa Plastics Group - Taiwan
- Wilmar Investment Holdings
- Alfred C Toepfer International GmbH - Germany
- Antam Resourcindo - Indonesia
- Bhoruka Overseas - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Global Green Power PLC Corporation, Philippines
- Tata Chemicals Ltd - India
- MS Steel International - UAE
- Karaikal Port Pvt Ltd - India
- McConnell Dowell - Australia
- Indogreen Group - Indonesia
- Sarangani Energy Corporation, Philippines
- Jindal Steel & Power Ltd - India
- Indian Oil Corporation Limited
- Indika Energy - Indonesia
- Baramulti Group, Indonesia
- Mjunction Services Limited - India
- Coal and Oil Company - UAE
- Standard Chartered Bank - UAE
- Thai Mozambique Logistica
- Manunggal Multi Energi - Indonesia
- Siam City Cement - Thailand
- Goldman Sachs - Singapore
- Iligan Light & Power Inc, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Renaissance Capital - South Africa
- Savvy Resources Ltd - HongKong
- Globalindo Alam Lestari - Indonesia
- Chamber of Mines of South Africa
- Commonwealth Bank - Australia
- GMR Energy Limited - India
- Edison Trading Spa - Italy
- Bahari Cakrawala Sebuku - Indonesia
- Toyota Tsusho Corporation, Japan
- Global Business Power Corporation, Philippines
- Mintek Dendrill Indonesia
- Xindia Steels Limited - India
- Binh Thuan Hamico - Vietnam
- Vedanta Resources Plc - India
- Aditya Birla Group - India
- Maheswari Brothers Coal Limited - India
- ASAPP Information Group - India
- Directorate General of MIneral and Coal - Indonesia
- Marubeni Corporation - India
- Straits Asia Resources Limited - Singapore
- International Coal Ventures Pvt Ltd - India
- Sical Logistics Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Altura Mining Limited, Indonesia
- Siam City Cement PLC, Thailand
- Makarim & Taira - Indonesia
- Tamil Nadu electricity Board
- Gujarat Electricity Regulatory Commission - India
- Indonesian Coal Mining Association
- Metalloyd Limited - United Kingdom
- Anglo American - United Kingdom
- PetroVietnam Power Coal Import and Supply Company
- The University of Queensland
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- SN Aboitiz Power Inc, Philippines
- New Zealand Coal & Carbon
- Therma Luzon, Inc, Philippines
- GAC Shipping (India) Pvt Ltd
- Petrochimia International Co. Ltd.- Taiwan
- Orica Mining Services - Indonesia
- Deloitte Consulting - India
- Maharashtra Electricity Regulatory Commission - India
- Bulk Trading Sa - Switzerland
- Coastal Gujarat Power Limited - India
- Sindya Power Generating Company Private Ltd
- Parliament of New Zealand
- Jaiprakash Power Ventures ltd
- Mercuria Energy - Indonesia
- Port Waratah Coal Services - Australia
- Electricity Generating Authority of Thailand
- Electricity Authority, New Zealand
- Planning Commission, India
- Bangladesh Power Developement Board
- Africa Commodities Group - South Africa
- San Jose City I Power Corp, Philippines
- Posco Energy - South Korea
- TeaM Sual Corporation - Philippines
- Barasentosa Lestari - Indonesia
- Eastern Coal Council - USA
- Energy Link Ltd, New Zealand
- Coalindo Energy - Indonesia
- Ministry of Finance - Indonesia
- Uttam Galva Steels Limited - India
- PNOC Exploration Corporation - Philippines
- Kaltim Prima Coal - Indonesia
- LBH Netherlands Bv - Netherlands
- Minerals Council of Australia
- Trasteel International SA, Italy
- ICICI Bank Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Heidelberg Cement - Germany
- London Commodity Brokers - England
- Interocean Group of Companies - India
- Banpu Public Company Limited - Thailand
- Australian Commodity Traders Exchange
- Sakthi Sugars Limited - India
- Sree Jayajothi Cements Limited - India
- Wood Mackenzie - Singapore
- Chettinad Cement Corporation Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Carbofer General Trading SA - India
- Kohat Cement Company Ltd. - Pakistan
- Gujarat Sidhee Cement - India
- Meenaskhi Energy Private Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Samtan Co., Ltd - South Korea
- Sinarmas Energy and Mining - Indonesia
- Attock Cement Pakistan Limited
- Madhucon Powers Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Bukit Makmur.PT - Indonesia
- PTC India Limited - India
- IEA Clean Coal Centre - UK
- Borneo Indobara - Indonesia
- Dalmia Cement Bharat India
- Timah Investasi Mineral - Indoneisa
- Eastern Energy - Thailand
- Ministry of Mines - Canada
- Latin American Coal - Colombia
- Kapuas Tunggal Persada - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Oldendorff Carriers - Singapore
- Independent Power Producers Association of India
- Economic Council, Georgia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Aboitiz Power Corporation - Philippines
- Bharathi Cement Corporation - India
- Larsen & Toubro Limited - India
- Price Waterhouse Coopers - Russia
- CIMB Investment Bank - Malaysia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kalimantan Lumbung Energi - Indonesia
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