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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, 08 October 14
OIL COULD FALL TO USD80 BEFORE SHALE SUPPLY RESPONSE - FITCH
COALspot.com: Brent oil could fall as low as USD80 a barrel before triggering a self-correcting supply response with shale-oil drillers cutting inv ...
Wednesday, 08 October 14
IS THERE ANY BRIGHT SIDE ON THE DRY BULK SEGMENT? - YANNIS OLZIERSKY
In the movie “Life Of Brian”, a character on a nearby cross was singing the famous “Always look on the bright side of life” ...
Tuesday, 07 October 14
TAIPOWER TO IMPORT 525K MT OF LOW ASH AND EXTRA LOW SULFUR SUB-BITUMINOUS COAL
COALspot.com: Taiwan Power Company intends to procure 525,000 metric tons of low ash and extra low sulfur sub-bituminous coal for Taipower thermal ...
Tuesday, 07 October 14
SUB-BIT FOB INDONESIA COAL SWAP SHOWS A FLAT TO WEAK TREND THIS PAST WEEK
COALspot.com: Indonesian coal swaps November 2014 delivery flat week on week and gained US$ 0.10 (-0.20%) per mt day on day. The swap also lost US$ ...
Tuesday, 07 October 14
THE RIO TINTO CONFIRMS THAT NO DISCUSSIONS ARE TAKING PLACE WITH GLENCORE
COALspot.com: The board of Rio Tinto notes the recent press speculation regarding a possible combination of Rio Tinto and Glencore.The Rio Tinto bo ...
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- Directorate General of MIneral and Coal - Indonesia
- SMG Consultants - Indonesia
- Independent Power Producers Association of India
- Central Electricity Authority - India
- PNOC Exploration Corporation - Philippines
- Videocon Industries ltd - India
- Minerals Council of Australia
- Gujarat Sidhee Cement - India
- Ind-Barath Power Infra Limited - India
- Maheswari Brothers Coal Limited - India
- Medco Energi Mining Internasional
- Indika Energy - Indonesia
- Dalmia Cement Bharat India
- Indian Oil Corporation Limited
- Coalindo Energy - Indonesia
- Meenaskhi Energy Private Limited - India
- Eastern Coal Council - USA
- Global Green Power PLC Corporation, Philippines
- Tata Chemicals Ltd - India
- McConnell Dowell - Australia
- SN Aboitiz Power Inc, Philippines
- Global Business Power Corporation, Philippines
- Cement Manufacturers Association - India
- LBH Netherlands Bv - Netherlands
- Merrill Lynch Commodities Europe
- Pendopo Energi Batubara - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Africa Commodities Group - South Africa
- Straits Asia Resources Limited - Singapore
- CNBM International Corporation - China
- Miang Besar Coal Terminal - Indonesia
- Semirara Mining Corp, Philippines
- Binh Thuan Hamico - Vietnam
- Mintek Dendrill Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Coastal Gujarat Power Limited - India
- Billiton Holdings Pty Ltd - Australia
- Karaikal Port Pvt Ltd - India
- Simpson Spence & Young - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bukit Baiduri Energy - Indonesia
- Commonwealth Bank - Australia
- Edison Trading Spa - Italy
- Kobexindo Tractors - Indoneisa
- Australian Coal Association
- Kartika Selabumi Mining - Indonesia
- Chamber of Mines of South Africa
- Uttam Galva Steels Limited - India
- Xindia Steels Limited - India
- Interocean Group of Companies - India
- Malabar Cements Ltd - India
- Meralco Power Generation, Philippines
- Oldendorff Carriers - Singapore
- CIMB Investment Bank - Malaysia
- Indo Tambangraya Megah - Indonesia
- Ambuja Cements Ltd - India
- Aditya Birla Group - India
- Asmin Koalindo Tuhup - Indonesia
- Posco Energy - South Korea
- Ceylon Electricity Board - Sri Lanka
- Kalimantan Lumbung Energi - Indonesia
- New Zealand Coal & Carbon
- Kaltim Prima Coal - Indonesia
- Romanian Commodities Exchange
- Kepco SPC Power Corporation, Philippines
- ASAPP Information Group - India
- IEA Clean Coal Centre - UK
- ICICI Bank Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Chettinad Cement Corporation Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- The State Trading Corporation of India Ltd
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Directorate Of Revenue Intelligence - India
- Goldman Sachs - Singapore
- Bharathi Cement Corporation - India
- London Commodity Brokers - England
- TNB Fuel Sdn Bhd - Malaysia
- GMR Energy Limited - India
- Latin American Coal - Colombia
- TeaM Sual Corporation - Philippines
- Orica Mining Services - Indonesia
- Aboitiz Power Corporation - Philippines
- Wood Mackenzie - Singapore
- Krishnapatnam Port Company Ltd. - India
- Mjunction Services Limited - India
- Bulk Trading Sa - Switzerland
- Samtan Co., Ltd - South Korea
- Antam Resourcindo - Indonesia
- Savvy Resources Ltd - HongKong
- Energy Link Ltd, New Zealand
- Coal and Oil Company - UAE
- PTC India Limited - India
- Deloitte Consulting - India
- Central Java Power - Indonesia
- Makarim & Taira - Indonesia
- Bangladesh Power Developement Board
- Offshore Bulk Terminal Pte Ltd, Singapore
- Indogreen Group - Indonesia
- Holcim Trading Pte Ltd - Singapore
- The University of Queensland
- Singapore Mercantile Exchange
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Metalloyd Limited - United Kingdom
- Planning Commission, India
- Sindya Power Generating Company Private Ltd
- Siam City Cement - Thailand
- AsiaOL BioFuels Corp., Philippines
- Marubeni Corporation - India
- Electricity Generating Authority of Thailand
- Carbofer General Trading SA - India
- Globalindo Alam Lestari - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- VISA Power Limited - India
- Vedanta Resources Plc - India
- Electricity Authority, New Zealand
- Leighton Contractors Pty Ltd - Australia
- Parliament of New Zealand
- Sojitz Corporation - Japan
- Therma Luzon, Inc, Philippines
- Formosa Plastics Group - Taiwan
- Borneo Indobara - Indonesia
- Vizag Seaport Private Limited - India
- Jaiprakash Power Ventures ltd
- Thiess Contractors Indonesia
- GVK Power & Infra Limited - India
- Ministry of Finance - Indonesia
- Banpu Public Company Limited - Thailand
- Indonesian Coal Mining Association
- Salva Resources Pvt Ltd - India
- Bhatia International Limited - India
- Power Finance Corporation Ltd., India
- Madhucon Powers Ltd - India
- European Bulk Services B.V. - Netherlands
- Semirara Mining and Power Corporation, Philippines
- South Luzon Thermal Energy Corporation
- Kapuas Tunggal Persada - Indonesia
- Lanco Infratech Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Bhushan Steel Limited - India
- Sinarmas Energy and Mining - Indonesia
- Baramulti Group, Indonesia
- Riau Bara Harum - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Parry Sugars Refinery, India
- Orica Australia Pty. Ltd.
- Cigading International Bulk Terminal - Indonesia
- Thai Mozambique Logistica
- Anglo American - United Kingdom
- Eastern Energy - Thailand
- Bukit Makmur.PT - Indonesia
- Gujarat Electricity Regulatory Commission - India
- OPG Power Generation Pvt Ltd - India
- Standard Chartered Bank - UAE
- Australian Commodity Traders Exchange
- Wilmar Investment Holdings
- MS Steel International - UAE
- Barasentosa Lestari - Indonesia
- Ministry of Transport, Egypt
- Agrawal Coal Company - India
- Pipit Mutiara Jaya. PT, Indonesia
- IHS Mccloskey Coal Group - USA
- Bahari Cakrawala Sebuku - Indonesia
- Jindal Steel & Power Ltd - India
- Renaissance Capital - South Africa
- Price Waterhouse Coopers - Russia
- Energy Development Corp, Philippines
- Trasteel International SA, Italy
- Port Waratah Coal Services - Australia
- Bayan Resources Tbk. - Indonesia
- Ministry of Mines - Canada
- The Treasury - Australian Government
- San Jose City I Power Corp, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Mercuria Energy - Indonesia
- Timah Investasi Mineral - Indoneisa
- Sree Jayajothi Cements Limited - India
- Rashtriya Ispat Nigam Limited - India
- Star Paper Mills Limited - India
- Global Coal Blending Company Limited - Australia
- Sakthi Sugars Limited - India
- Indian Energy Exchange, India
- Intertek Mineral Services - Indonesia
- Manunggal Multi Energi - Indonesia
- Altura Mining Limited, Indonesia
- Essar Steel Hazira Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Heidelberg Cement - Germany
- GN Power Mariveles Coal Plant, Philippines
- Grasim Industreis Ltd - India
- Bhoruka Overseas - Indonesia
- Kideco Jaya Agung - Indonesia
- SMC Global Power, Philippines
- International Coal Ventures Pvt Ltd - India
- Iligan Light & Power Inc, Philippines
- Attock Cement Pakistan Limited
- Tamil Nadu electricity Board
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Sical Logistics Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Sarangani Energy Corporation, Philippines
- Maharashtra Electricity Regulatory Commission - India
- India Bulls Power Limited - India
- Toyota Tsusho Corporation, Japan
- White Energy Company Limited
- Petron Corporation, Philippines
- Economic Council, Georgia
- Siam City Cement PLC, Thailand
- GAC Shipping (India) Pvt Ltd
- PowerSource Philippines DevCo
- Rio Tinto Coal - Australia
- Mercator Lines Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Georgia Ports Authority, United States
- Kumho Petrochemical, South Korea
- Larsen & Toubro Limited - India
- Alfred C Toepfer International GmbH - Germany
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