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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, 16 October 14
PANAMAX OWNERS RECEIVE A PREMIUM FOR GOING TO INDIA VIA INDONESIA - FEARNLEYS AS
Handy
The Handy/Supra market continues to slide in both hemispheres, said Fearnleys AS in its latest week report. In the Atlantic we see rates co ...
Thursday, 16 October 14
ARE WE GOING TO SHOOT OURSELVES IN THE FOOT ONCE AGAIN? - PANOS MAKRINOS
As the East part of our globe was coming back from its October holidays last week, everyone expected that the Dry Bulk market would follow suit and ...
Wednesday, 15 October 14
PANAMAX: ACTIVITY IN THE PACIFIC WAS UNIMPRESSIVE
The Dry Bulk market noted another weekly decline last week, while the BDI moved below 1,000 points taking down with it expectations that a post hol ...
Wednesday, 15 October 14
INDONESIAN COAL PRICE REFERENCE FELL TO FRESH MULTI-YEAR LOWS IN OCTOBER
COALspot.com - The Ministry of Energy & Mineral Resources of Indonesia revised down the coal bench mark price once again in October 2014.
...
Wednesday, 15 October 14
DRY BULK SHIPPING: RATE IMPROVEMENTS ARRIVED AS FORECAST, BUT UNCERTAINTY MOUNTS FOR 2015 DEMAND - BIMCO
BIMCO released its latest short term assessment of the dry bulk market, estimating that over the October-November period, the level of Capesize TC ...
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- Meenaskhi Energy Private Limited - India
- Independent Power Producers Association of India
- Malabar Cements Ltd - India
- Dalmia Cement Bharat India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Xindia Steels Limited - India
- Formosa Plastics Group - Taiwan
- Coalindo Energy - Indonesia
- Altura Mining Limited, Indonesia
- Bulk Trading Sa - Switzerland
- Kapuas Tunggal Persada - Indonesia
- Tata Chemicals Ltd - India
- International Coal Ventures Pvt Ltd - India
- Carbofer General Trading SA - India
- Binh Thuan Hamico - Vietnam
- Energy Development Corp, Philippines
- The Treasury - Australian Government
- Heidelberg Cement - Germany
- McConnell Dowell - Australia
- Renaissance Capital - South Africa
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Interocean Group of Companies - India
- SMC Global Power, Philippines
- LBH Netherlands Bv - Netherlands
- AsiaOL BioFuels Corp., Philippines
- Intertek Mineral Services - Indonesia
- Africa Commodities Group - South Africa
- Jorong Barutama Greston.PT - Indonesia
- Manunggal Multi Energi - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Australian Commodity Traders Exchange
- Trasteel International SA, Italy
- Oldendorff Carriers - Singapore
- Makarim & Taira - Indonesia
- White Energy Company Limited
- Sical Logistics Limited - India
- Meralco Power Generation, Philippines
- South Luzon Thermal Energy Corporation
- Neyveli Lignite Corporation Ltd, - India
- Bahari Cakrawala Sebuku - Indonesia
- Standard Chartered Bank - UAE
- Borneo Indobara - Indonesia
- Electricity Generating Authority of Thailand
- Petron Corporation, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Posco Energy - South Korea
- Savvy Resources Ltd - HongKong
- Coastal Gujarat Power Limited - India
- Commonwealth Bank - Australia
- VISA Power Limited - India
- Miang Besar Coal Terminal - Indonesia
- Globalindo Alam Lestari - Indonesia
- Indika Energy - Indonesia
- Parliament of New Zealand
- Bayan Resources Tbk. - Indonesia
- Videocon Industries ltd - India
- Antam Resourcindo - Indonesia
- Sindya Power Generating Company Private Ltd
- Cigading International Bulk Terminal - Indonesia
- Maheswari Brothers Coal Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Directorate General of MIneral and Coal - Indonesia
- Coal and Oil Company - UAE
- Vizag Seaport Private Limited - India
- Energy Link Ltd, New Zealand
- Bukit Asam (Persero) Tbk - Indonesia
- Kumho Petrochemical, South Korea
- Kaltim Prima Coal - Indonesia
- Toyota Tsusho Corporation, Japan
- Mercator Lines Limited - India
- New Zealand Coal & Carbon
- Jaiprakash Power Ventures ltd
- GMR Energy Limited - India
- Lanco Infratech Ltd - India
- Karaikal Port Pvt Ltd - India
- Riau Bara Harum - Indonesia
- Global Coal Blending Company Limited - Australia
- Uttam Galva Steels Limited - India
- Central Java Power - Indonesia
- Iligan Light & Power Inc, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Semirara Mining and Power Corporation, Philippines
- Bukit Makmur.PT - Indonesia
- Jindal Steel & Power Ltd - India
- Bukit Baiduri Energy - Indonesia
- Thai Mozambique Logistica
- Mintek Dendrill Indonesia
- Bharathi Cement Corporation - India
- Romanian Commodities Exchange
- PowerSource Philippines DevCo
- San Jose City I Power Corp, Philippines
- Indonesian Coal Mining Association
- Sojitz Corporation - Japan
- Larsen & Toubro Limited - India
- Rio Tinto Coal - Australia
- Global Green Power PLC Corporation, Philippines
- Metalloyd Limited - United Kingdom
- European Bulk Services B.V. - Netherlands
- Siam City Cement - Thailand
- Straits Asia Resources Limited - Singapore
- Kideco Jaya Agung - Indonesia
- Banpu Public Company Limited - Thailand
- Thiess Contractors Indonesia
- Port Waratah Coal Services - Australia
- Ministry of Transport, Egypt
- Anglo American - United Kingdom
- Therma Luzon, Inc, Philippines
- PTC India Limited - India
- Simpson Spence & Young - Indonesia
- Essar Steel Hazira Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Kepco SPC Power Corporation, Philippines
- Kobexindo Tractors - Indoneisa
- Bhoruka Overseas - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Attock Cement Pakistan Limited
- Maharashtra Electricity Regulatory Commission - India
- Mercuria Energy - Indonesia
- Indogreen Group - Indonesia
- Gujarat Sidhee Cement - India
- Edison Trading Spa - Italy
- Aboitiz Power Corporation - Philippines
- Karbindo Abesyapradhi - Indoneisa
- Power Finance Corporation Ltd., India
- Merrill Lynch Commodities Europe
- The State Trading Corporation of India Ltd
- Madhucon Powers Ltd - India
- SN Aboitiz Power Inc, Philippines
- Salva Resources Pvt Ltd - India
- PNOC Exploration Corporation - Philippines
- Price Waterhouse Coopers - Russia
- Mjunction Services Limited - India
- Chamber of Mines of South Africa
- CIMB Investment Bank - Malaysia
- Sree Jayajothi Cements Limited - India
- Latin American Coal - Colombia
- Global Business Power Corporation, Philippines
- Eastern Coal Council - USA
- Economic Council, Georgia
- Ind-Barath Power Infra Limited - India
- Star Paper Mills Limited - India
- MS Steel International - UAE
- Cement Manufacturers Association - India
- Kartika Selabumi Mining - Indonesia
- Deloitte Consulting - India
- Gujarat Electricity Regulatory Commission - India
- Agrawal Coal Company - India
- Orica Mining Services - Indonesia
- Timah Investasi Mineral - Indoneisa
- Ministry of Mines - Canada
- Ministry of Finance - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Minerals Council of Australia
- Aditya Birla Group - India
- Grasim Industreis Ltd - India
- Siam City Cement PLC, Thailand
- Vedanta Resources Plc - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bhushan Steel Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Singapore Mercantile Exchange
- Semirara Mining Corp, Philippines
- IHS Mccloskey Coal Group - USA
- Medco Energi Mining Internasional
- Central Electricity Authority - India
- Alfred C Toepfer International GmbH - Germany
- Petrochimia International Co. Ltd.- Taiwan
- Barasentosa Lestari - Indonesia
- Pendopo Energi Batubara - Indonesia
- TeaM Sual Corporation - Philippines
- Indian Oil Corporation Limited
- IEA Clean Coal Centre - UK
- TNB Fuel Sdn Bhd - Malaysia
- Offshore Bulk Terminal Pte Ltd, Singapore
- GAC Shipping (India) Pvt Ltd
- Orica Australia Pty. Ltd.
- Ambuja Cements Ltd - India
- Indian Energy Exchange, India
- Georgia Ports Authority, United States
- Ceylon Electricity Board - Sri Lanka
- Sinarmas Energy and Mining - Indonesia
- ICICI Bank Limited - India
- Electricity Authority, New Zealand
- Wood Mackenzie - Singapore
- Samtan Co., Ltd - South Korea
- Marubeni Corporation - India
- Planning Commission, India
- GVK Power & Infra Limited - India
- OPG Power Generation Pvt Ltd - India
- Eastern Energy - Thailand
- India Bulls Power Limited - India
- Sarangani Energy Corporation, Philippines
- Chettinad Cement Corporation Ltd - India
- ASAPP Information Group - India
- Baramulti Group, Indonesia
- Directorate Of Revenue Intelligence - India
- Krishnapatnam Port Company Ltd. - India
- Goldman Sachs - Singapore
- Bangladesh Power Developement Board
- CNBM International Corporation - China
- Rashtriya Ispat Nigam Limited - India
- Australian Coal Association
- Bhatia International Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Sakthi Sugars Limited - India
- London Commodity Brokers - England
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Wilmar Investment Holdings
- SMG Consultants - Indonesia
- The University of Queensland
- Parry Sugars Refinery, India
- Indo Tambangraya Megah - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Tamil Nadu electricity Board
- Holcim Trading Pte Ltd - Singapore
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