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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, 13 October 14
NEWCASTLE COAL SWAP FOR Q1' 2015 DELIVERY CLOSED AT US$ 54.92, SGX DATA SHOWS
COALspot.com: API 5 FOB Newcastle Coal swap for delivery Q4' 2014 decreased US$ 0.80 (-1.46%) month over month and US$ 0.52 (-0.95%) week over ...
Monday, 13 October 14
INDONESIAN COAL SWAPS FOR DELIVERY Q4' 2014 GAINED WEEK ON WEEK AND DAY ON DAY
COALspot.com: Indonesian coal swaps for delivery Q4' 2014 gained week on week and day on day.
The swap lost US$ 0.13 (-0.25%) month on mon ...
Monday, 13 October 14
Q1' 2015 CFR SOUTH CHINA COAL SWAP CLOSED US$ 0.31 PMT HIGHER THAN Q4' 2014 CLOSING
COALspot.com: API 8 CFR South China Coal swap for Q4’ 2014 delivery decreased US$ 0.66 (-1.00%) month over month and US$ 0.40 (-0.61%) ...
Sunday, 12 October 14
INDONESIA TO INDIA FREIGHT RATES ARE EXPECTED TO BE WEAK - VISTAAR
COALspot.com: This week all the segments softened. The BDI down 7.13 pct week on week and closed below 1000 points at 963 points.
The Cape ind ...
Saturday, 11 October 14
COAL PRODUCTION RISES ONLY SLIGHTLY AS GOVT LIMITS MINING OPERATIONS - THE JAKARTA POST
Indonesian coal production rose by only 4 percent in the first nine months of this year, a relatively low increase compared to previous years, as t ...
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- McConnell Dowell - Australia
- Bangladesh Power Developement Board
- Vedanta Resources Plc - India
- Gujarat Electricity Regulatory Commission - India
- Lanco Infratech Ltd - India
- Eastern Energy - Thailand
- Borneo Indobara - Indonesia
- SN Aboitiz Power Inc, Philippines
- Manunggal Multi Energi - Indonesia
- SMC Global Power, Philippines
- Latin American Coal - Colombia
- Siam City Cement - Thailand
- The State Trading Corporation of India Ltd
- Sojitz Corporation - Japan
- Energy Development Corp, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Larsen & Toubro Limited - India
- Kobexindo Tractors - Indoneisa
- Anglo American - United Kingdom
- Simpson Spence & Young - Indonesia
- Banpu Public Company Limited - Thailand
- Iligan Light & Power Inc, Philippines
- TeaM Sual Corporation - Philippines
- Vizag Seaport Private Limited - India
- London Commodity Brokers - England
- Antam Resourcindo - Indonesia
- PNOC Exploration Corporation - Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- PTC India Limited - India
- Krishnapatnam Port Company Ltd. - India
- Rio Tinto Coal - Australia
- Dalmia Cement Bharat India
- Chettinad Cement Corporation Ltd - India
- Africa Commodities Group - South Africa
- Sree Jayajothi Cements Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Electricity Generating Authority of Thailand
- Savvy Resources Ltd - HongKong
- Port Waratah Coal Services - Australia
- Cement Manufacturers Association - India
- Singapore Mercantile Exchange
- San Jose City I Power Corp, Philippines
- Leighton Contractors Pty Ltd - Australia
- Electricity Authority, New Zealand
- Rashtriya Ispat Nigam Limited - India
- Economic Council, Georgia
- Kalimantan Lumbung Energi - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Riau Bara Harum - Indonesia
- Makarim & Taira - Indonesia
- GVK Power & Infra Limited - India
- Madhucon Powers Ltd - India
- Karaikal Port Pvt Ltd - India
- Ambuja Cements Ltd - India
- Edison Trading Spa - Italy
- Mintek Dendrill Indonesia
- Parliament of New Zealand
- Billiton Holdings Pty Ltd - Australia
- Sindya Power Generating Company Private Ltd
- Independent Power Producers Association of India
- Marubeni Corporation - India
- OPG Power Generation Pvt Ltd - India
- Heidelberg Cement - Germany
- GN Power Mariveles Coal Plant, Philippines
- Kapuas Tunggal Persada - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Star Paper Mills Limited - India
- Jaiprakash Power Ventures ltd
- Bahari Cakrawala Sebuku - Indonesia
- LBH Netherlands Bv - Netherlands
- Semirara Mining Corp, Philippines
- Attock Cement Pakistan Limited
- Karbindo Abesyapradhi - Indoneisa
- Kepco SPC Power Corporation, Philippines
- PowerSource Philippines DevCo
- Indogreen Group - Indonesia
- Energy Link Ltd, New Zealand
- Bharathi Cement Corporation - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Pendopo Energi Batubara - Indonesia
- Thai Mozambique Logistica
- Altura Mining Limited, Indonesia
- Agrawal Coal Company - India
- Petrochimia International Co. Ltd.- Taiwan
- Maharashtra Electricity Regulatory Commission - India
- International Coal Ventures Pvt Ltd - India
- IEA Clean Coal Centre - UK
- Ministry of Transport, Egypt
- Minerals Council of Australia
- Coal and Oil Company - UAE
- Xindia Steels Limited - India
- Romanian Commodities Exchange
- Kaltim Prima Coal - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Uttam Galva Steels Limited - India
- GMR Energy Limited - India
- Semirara Mining and Power Corporation, Philippines
- New Zealand Coal & Carbon
- Orica Mining Services - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- CIMB Investment Bank - Malaysia
- Maheswari Brothers Coal Limited - India
- Interocean Group of Companies - India
- Global Green Power PLC Corporation, Philippines
- Gujarat Sidhee Cement - India
- Australian Commodity Traders Exchange
- Sarangani Energy Corporation, Philippines
- Bukit Baiduri Energy - Indonesia
- ICICI Bank Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Chamber of Mines of South Africa
- AsiaOL BioFuels Corp., Philippines
- Ind-Barath Power Infra Limited - India
- SMG Consultants - Indonesia
- Orica Australia Pty. Ltd.
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- IHS Mccloskey Coal Group - USA
- Aditya Birla Group - India
- CNBM International Corporation - China
- Kumho Petrochemical, South Korea
- Power Finance Corporation Ltd., India
- Timah Investasi Mineral - Indoneisa
- GAC Shipping (India) Pvt Ltd
- Tamil Nadu electricity Board
- Price Waterhouse Coopers - Russia
- Jindal Steel & Power Ltd - India
- Aboitiz Power Corporation - Philippines
- Mjunction Services Limited - India
- Merrill Lynch Commodities Europe
- Wood Mackenzie - Singapore
- Bhatia International Limited - India
- Cigading International Bulk Terminal - Indonesia
- VISA Power Limited - India
- Posco Energy - South Korea
- Bhushan Steel Limited - India
- Barasentosa Lestari - Indonesia
- Wilmar Investment Holdings
- Oldendorff Carriers - Singapore
- European Bulk Services B.V. - Netherlands
- Ministry of Finance - Indonesia
- MS Steel International - UAE
- Intertek Mineral Services - Indonesia
- Indian Energy Exchange, India
- Eastern Coal Council - USA
- Offshore Bulk Terminal Pte Ltd, Singapore
- Sical Logistics Limited - India
- Renaissance Capital - South Africa
- Planning Commission, India
- Trasteel International SA, Italy
- Alfred C Toepfer International GmbH - Germany
- Vijayanagar Sugar Pvt Ltd - India
- White Energy Company Limited
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Ministry of Mines - Canada
- Formosa Plastics Group - Taiwan
- Bayan Resources Tbk. - Indonesia
- Straits Asia Resources Limited - Singapore
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Georgia Ports Authority, United States
- Meralco Power Generation, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Deloitte Consulting - India
- Therma Luzon, Inc, Philippines
- Meenaskhi Energy Private Limited - India
- The Treasury - Australian Government
- Central Electricity Authority - India
- Pipit Mutiara Jaya. PT, Indonesia
- Australian Coal Association
- Kideco Jaya Agung - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Parry Sugars Refinery, India
- Essar Steel Hazira Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Sakthi Sugars Limited - India
- Kartika Selabumi Mining - Indonesia
- Metalloyd Limited - United Kingdom
- Central Java Power - Indonesia
- Baramulti Group, Indonesia
- Directorate Of Revenue Intelligence - India
- Petron Corporation, Philippines
- Coastal Gujarat Power Limited - India
- Tata Chemicals Ltd - India
- Malabar Cements Ltd - India
- ASAPP Information Group - India
- Coalindo Energy - Indonesia
- India Bulls Power Limited - India
- Bukit Makmur.PT - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Bhoruka Overseas - Indonesia
- Mercuria Energy - Indonesia
- Indian Oil Corporation Limited
- Bulk Trading Sa - Switzerland
- Siam City Cement PLC, Thailand
- Global Coal Blending Company Limited - Australia
- Commonwealth Bank - Australia
- The University of Queensland
- South Luzon Thermal Energy Corporation
- Standard Chartered Bank - UAE
- Medco Energi Mining Internasional
- Globalindo Alam Lestari - Indonesia
- Indika Energy - Indonesia
- Mercator Lines Limited - India
- Goldman Sachs - Singapore
- Videocon Industries ltd - India
- Thiess Contractors Indonesia
- Indo Tambangraya Megah - Indonesia
- Toyota Tsusho Corporation, Japan
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Indonesian Coal Mining Association
- Grasim Industreis Ltd - India
- Global Business Power Corporation, Philippines
- Binh Thuan Hamico - Vietnam
- Kohat Cement Company Ltd. - Pakistan
- Samtan Co., Ltd - South Korea
- Carbofer General Trading SA - India
- Salva Resources Pvt Ltd - India
- Asmin Koalindo Tuhup - Indonesia
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