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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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Friday, 10 October 14
INDONESIA TO DEVELOP DOWNSTREAM COAL INDUSTRY - JP
The government is planning to launch a program to develop the downstream coal industry to increase the commodity’s added value, an official h ...
Friday, 10 October 14
U.S. PRODUCED 83.2 MMST OF COAL IN SEPTEMBER, SAYS EIA
COALspot.com – United States the world's one of largest coal producers, produced approximately 18.6 million short tons (mmst) of coal in ...
Thursday, 09 October 14
CAPESIZE MARKET HAS CONTINUED TO SHOW WEAKNESS - FEARNLEYS
Handy
We mentioned last week that after several weeks of rate increase for the Supras, the bigger Panamaxes started to snap up better paying Supr ...
Thursday, 09 October 14
SHIPPING REMAINS CHALLENGED AS GLOBAL GROWTH DISAPPOINTS - BIMCO
The global shipping industry finds no grace from much stronger economic activity going forward, as the global recovery remains fragile and uneven. ...
Wednesday, 08 October 14
CAPES RATE FOR THE W. AUSTRALIA TO CHINA VOYAGE MOVED TO BELOW $8/MT - INTERMODAL
The Dry Bulk market remained under pressure last week, with rates for Capes remaining on the red while those for Panamaxes managed to outperform th ...
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- IHS Mccloskey Coal Group - USA
- Coastal Gujarat Power Limited - India
- Thiess Contractors Indonesia
- Standard Chartered Bank - UAE
- Jaiprakash Power Ventures ltd
- Wilmar Investment Holdings
- Aditya Birla Group - India
- Latin American Coal - Colombia
- Price Waterhouse Coopers - Russia
- Trasteel International SA, Italy
- Siam City Cement - Thailand
- Carbofer General Trading SA - India
- Bukit Makmur.PT - Indonesia
- MS Steel International - UAE
- CIMB Investment Bank - Malaysia
- Kobexindo Tractors - Indoneisa
- Indo Tambangraya Megah - Indonesia
- Sojitz Corporation - Japan
- Bharathi Cement Corporation - India
- Bhoruka Overseas - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Kumho Petrochemical, South Korea
- Energy Development Corp, Philippines
- Orica Mining Services - Indonesia
- Siam City Cement PLC, Thailand
- Ind-Barath Power Infra Limited - India
- Kideco Jaya Agung - Indonesia
- Global Coal Blending Company Limited - Australia
- AsiaOL BioFuels Corp., Philippines
- Electricity Authority, New Zealand
- Thai Mozambique Logistica
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- Neyveli Lignite Corporation Ltd, - India
- LBH Netherlands Bv - Netherlands
- Power Finance Corporation Ltd., India
- Sarangani Energy Corporation, Philippines
- Pendopo Energi Batubara - Indonesia
- Chamber of Mines of South Africa
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- Sakthi Sugars Limited - India
- Coal and Oil Company - UAE
- Salva Resources Pvt Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Indian Energy Exchange, India
- Banpu Public Company Limited - Thailand
- Wood Mackenzie - Singapore
- New Zealand Coal & Carbon
- Attock Cement Pakistan Limited
- London Commodity Brokers - England
- Central Java Power - Indonesia
- Timah Investasi Mineral - Indoneisa
- Coalindo Energy - Indonesia
- Meenaskhi Energy Private Limited - India
- Bhatia International Limited - India
- Kalimantan Lumbung Energi - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- GMR Energy Limited - India
- Vedanta Resources Plc - India
- ICICI Bank Limited - India
- Global Business Power Corporation, Philippines
- The Treasury - Australian Government
- Simpson Spence & Young - Indonesia
- Maheswari Brothers Coal Limited - India
- Alfred C Toepfer International GmbH - Germany
- Aboitiz Power Corporation - Philippines
- Electricity Generating Authority of Thailand
- Jorong Barutama Greston.PT - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Miang Besar Coal Terminal - Indonesia
- Ministry of Finance - Indonesia
- Samtan Co., Ltd - South Korea
- Rashtriya Ispat Nigam Limited - India
- Edison Trading Spa - Italy
- Directorate Of Revenue Intelligence - India
- Independent Power Producers Association of India
- Ambuja Cements Ltd - India
- Indonesian Coal Mining Association
- Bulk Trading Sa - Switzerland
- Bayan Resources Tbk. - Indonesia
- Merrill Lynch Commodities Europe
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Posco Energy - South Korea
- Energy Link Ltd, New Zealand
- Africa Commodities Group - South Africa
- Orica Australia Pty. Ltd.
- Kepco SPC Power Corporation, Philippines
- Heidelberg Cement - Germany
- Marubeni Corporation - India
- Central Electricity Authority - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Interocean Group of Companies - India
- Australian Commodity Traders Exchange
- Cement Manufacturers Association - India
- OPG Power Generation Pvt Ltd - India
- Parry Sugars Refinery, India
- SMC Global Power, Philippines
- Dalmia Cement Bharat India
- Kartika Selabumi Mining - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- PTC India Limited - India
- Bangladesh Power Developement Board
- Bahari Cakrawala Sebuku - Indonesia
- Economic Council, Georgia
- Maharashtra Electricity Regulatory Commission - India
- ASAPP Information Group - India
- India Bulls Power Limited - India
- McConnell Dowell - Australia
- Lanco Infratech Ltd - India
- Toyota Tsusho Corporation, Japan
- Australian Coal Association
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- PetroVietnam Power Coal Import and Supply Company
- Gujarat Mineral Development Corp Ltd - India
- International Coal Ventures Pvt Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- The State Trading Corporation of India Ltd
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- Chettinad Cement Corporation Ltd - India
- Formosa Plastics Group - Taiwan
- Borneo Indobara - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Romanian Commodities Exchange
- Vizag Seaport Private Limited - India
- The University of Queensland
- Globalindo Alam Lestari - Indonesia
- Barasentosa Lestari - Indonesia
- Georgia Ports Authority, United States
- GVK Power & Infra Limited - India
- Bhushan Steel Limited - India
- Goldman Sachs - Singapore
- Mercator Lines Limited - India
- Minerals Council of Australia
- Meralco Power Generation, Philippines
- South Luzon Thermal Energy Corporation
- Renaissance Capital - South Africa
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- GN Power Mariveles Coal Plant, Philippines
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- Tamil Nadu electricity Board
- Binh Thuan Hamico - Vietnam
- Deloitte Consulting - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Mjunction Services Limited - India
- Grasim Industreis Ltd - India
- Indogreen Group - Indonesia
- Commonwealth Bank - Australia
- Eastern Coal Council - USA
- Videocon Industries ltd - India
- Semirara Mining Corp, Philippines
- Kaltim Prima Coal - Indonesia
- Indika Energy - Indonesia
- Therma Luzon, Inc, Philippines
- Savvy Resources Ltd - HongKong
- Iligan Light & Power Inc, Philippines
- VISA Power Limited - India
- Medco Energi Mining Internasional
- Bukit Asam (Persero) Tbk - Indonesia
- Planning Commission, India
- SMG Consultants - Indonesia
- IEA Clean Coal Centre - UK
- PowerSource Philippines DevCo
- PNOC Exploration Corporation - Philippines
- Star Paper Mills Limited - India
- Kapuas Tunggal Persada - Indonesia
- Metalloyd Limited - United Kingdom
- Karbindo Abesyapradhi - Indoneisa
- Billiton Holdings Pty Ltd - Australia
- San Jose City I Power Corp, Philippines
- Xindia Steels Limited - India
- SN Aboitiz Power Inc, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- White Energy Company Limited
- Pipit Mutiara Jaya. PT, Indonesia
- Ceylon Electricity Board - Sri Lanka
- Madhucon Powers Ltd - India
- Sree Jayajothi Cements Limited - India
- Gujarat Sidhee Cement - India
- Ministry of Mines - Canada
- Karaikal Port Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- Global Green Power PLC Corporation, Philippines
- Parliament of New Zealand
- Intertek Mineral Services - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Mercuria Energy - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Rio Tinto Coal - Australia
- GAC Shipping (India) Pvt Ltd
- Jindal Steel & Power Ltd - India
- Port Waratah Coal Services - Australia
- Uttam Galva Steels Limited - India
- Sical Logistics Limited - India
- Baramulti Group, Indonesia
- Krishnapatnam Port Company Ltd. - India
- CNBM International Corporation - China
- Eastern Energy - Thailand
- Sindya Power Generating Company Private Ltd
- Agrawal Coal Company - India
- Makarim & Taira - Indonesia
- Manunggal Multi Energi - Indonesia
- Singapore Mercantile Exchange
- Indian Oil Corporation Limited
- Petron Corporation, Philippines
- Bukit Baiduri Energy - Indonesia
- Altura Mining Limited, Indonesia
- Tata Chemicals Ltd - India
- Riau Bara Harum - Indonesia
- Oldendorff Carriers - Singapore
- Cigading International Bulk Terminal - Indonesia
- TeaM Sual Corporation - Philippines
- Straits Asia Resources Limited - Singapore
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Mintek Dendrill Indonesia
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