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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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Tuesday, 07 October 14
API 8 CFR SOUTH CHINA COAL SWAP HEADED SOUTH
COALspot.com: API 8 CFR South China Coal swap for delivery in November 2014 decreased US$ 1.10 (-1.64%) month over month and US$ 0.25 (-0.38%) ...
Monday, 06 October 14
' COAL-BY-WIRE' FROM SUMATRA TO JAVA - THE JAKARTA POST
Coal from the island of Sumatra accounts for most of Indonesia’s low-grade lignite, a low-quality coal that receives a poor price in internat ...
Sunday, 05 October 14
BALTIC DRY INDEX SLIPS 1.14%; BALTIC PANAMAX INDEX GAINED 9.91% WEEK ON WEEK
COALspot.com: The BDI was down by 1.14 pct and closed at 1037 points this Friday.
The Cape index was down significantly week on week or lost 5 ...
Friday, 03 October 14
U.S. WEEKLY COAL PRODUCTION UP 5.8% TO 19.9 MMST
COALspot.com – United States the world's one of largest coal producers, produced approximately 19.9 million short tons (mmst) of co ...
Thursday, 02 October 14
CAPESIZE - DULL AND WITHOUT MUCH DIRECTION AS IRON ORE AND COAL VOLUMES FAIL TO LIVE UP EXPECTATIONS
Handy
After the recent weeks´ rate increase in the Atlantic we see Panamaxes snapping up handymax and Supra cargoes at much lower levels, p ...
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- Ind-Barath Power Infra Limited - India
- Baramulti Group, Indonesia
- Madhucon Powers Ltd - India
- London Commodity Brokers - England
- South Luzon Thermal Energy Corporation
- Sical Logistics Limited - India
- Altura Mining Limited, Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- SMG Consultants - Indonesia
- MS Steel International - UAE
- Energy Development Corp, Philippines
- Toyota Tsusho Corporation, Japan
- Chamber of Mines of South Africa
- McConnell Dowell - Australia
- Petron Corporation, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Aboitiz Power Corporation - Philippines
- Port Waratah Coal Services - Australia
- Trasteel International SA, Italy
- Vizag Seaport Private Limited - India
- Bhatia International Limited - India
- Orica Australia Pty. Ltd.
- Bharathi Cement Corporation - India
- Interocean Group of Companies - India
- Ministry of Finance - Indonesia
- The University of Queensland
- Bhoruka Overseas - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Xindia Steels Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Kaltim Prima Coal - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Cement Manufacturers Association - India
- Essar Steel Hazira Ltd - India
- Latin American Coal - Colombia
- AsiaOL BioFuels Corp., Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Power Finance Corporation Ltd., India
- Globalindo Alam Lestari - Indonesia
- Directorate Of Revenue Intelligence - India
- Therma Luzon, Inc, Philippines
- Binh Thuan Hamico - Vietnam
- Renaissance Capital - South Africa
- Timah Investasi Mineral - Indoneisa
- TNB Fuel Sdn Bhd - Malaysia
- Simpson Spence & Young - Indonesia
- Bayan Resources Tbk. - Indonesia
- Makarim & Taira - Indonesia
- Commonwealth Bank - Australia
- Central Java Power - Indonesia
- Semirara Mining Corp, Philippines
- Parry Sugars Refinery, India
- PowerSource Philippines DevCo
- Star Paper Mills Limited - India
- San Jose City I Power Corp, Philippines
- Kartika Selabumi Mining - Indonesia
- Sarangani Energy Corporation, Philippines
- Bulk Trading Sa - Switzerland
- Mjunction Services Limited - India
- The State Trading Corporation of India Ltd
- Goldman Sachs - Singapore
- Coalindo Energy - Indonesia
- Romanian Commodities Exchange
- Siam City Cement - Thailand
- Larsen & Toubro Limited - India
- Indo Tambangraya Megah - Indonesia
- Indian Energy Exchange, India
- Deloitte Consulting - India
- Edison Trading Spa - Italy
- Energy Link Ltd, New Zealand
- PetroVietnam Power Coal Import and Supply Company
- Eastern Coal Council - USA
- SMC Global Power, Philippines
- Barasentosa Lestari - Indonesia
- New Zealand Coal & Carbon
- Kalimantan Lumbung Energi - Indonesia
- OPG Power Generation Pvt Ltd - India
- Thai Mozambique Logistica
- Tata Chemicals Ltd - India
- Gujarat Sidhee Cement - India
- Mercuria Energy - Indonesia
- Iligan Light & Power Inc, Philippines
- Global Business Power Corporation, Philippines
- Intertek Mineral Services - Indonesia
- Malabar Cements Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- SN Aboitiz Power Inc, Philippines
- Merrill Lynch Commodities Europe
- Bukit Asam (Persero) Tbk - Indonesia
- Parliament of New Zealand
- ASAPP Information Group - India
- Billiton Holdings Pty Ltd - Australia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Indika Energy - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- IHS Mccloskey Coal Group - USA
- Kideco Jaya Agung - Indonesia
- Indonesian Coal Mining Association
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- CNBM International Corporation - China
- Bhushan Steel Limited - India
- Central Electricity Authority - India
- Wood Mackenzie - Singapore
- Mercator Lines Limited - India
- Kumho Petrochemical, South Korea
- Wilmar Investment Holdings
- Ceylon Electricity Board - Sri Lanka
- Ambuja Cements Ltd - India
- Riau Bara Harum - Indonesia
- Savvy Resources Ltd - HongKong
- Jindal Steel & Power Ltd - India
- Posco Energy - South Korea
- Karaikal Port Pvt Ltd - India
- Chettinad Cement Corporation Ltd - India
- Indian Oil Corporation Limited
- Sojitz Corporation - Japan
- Anglo American - United Kingdom
- GVK Power & Infra Limited - India
- Jaiprakash Power Ventures ltd
- Videocon Industries ltd - India
- Australian Coal Association
- Australian Commodity Traders Exchange
- Price Waterhouse Coopers - Russia
- The Treasury - Australian Government
- Pendopo Energi Batubara - Indonesia
- PTC India Limited - India
- Standard Chartered Bank - UAE
- Planning Commission, India
- Alfred C Toepfer International GmbH - Germany
- Ministry of Mines - Canada
- Jorong Barutama Greston.PT - Indonesia
- Ministry of Transport, Egypt
- Singapore Mercantile Exchange
- Uttam Galva Steels Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Economic Council, Georgia
- Global Green Power PLC Corporation, Philippines
- Thiess Contractors Indonesia
- Directorate General of MIneral and Coal - Indonesia
- ICICI Bank Limited - India
- Semirara Mining and Power Corporation, Philippines
- Straits Asia Resources Limited - Singapore
- GAC Shipping (India) Pvt Ltd
- Independent Power Producers Association of India
- Africa Commodities Group - South Africa
- Gujarat Electricity Regulatory Commission - India
- Meenaskhi Energy Private Limited - India
- Vedanta Resources Plc - India
- Kepco SPC Power Corporation, Philippines
- Minerals Council of Australia
- India Bulls Power Limited - India
- Global Coal Blending Company Limited - Australia
- IEA Clean Coal Centre - UK
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Salva Resources Pvt Ltd - India
- CIMB Investment Bank - Malaysia
- Maharashtra Electricity Regulatory Commission - India
- Krishnapatnam Port Company Ltd. - India
- VISA Power Limited - India
- Bangladesh Power Developement Board
- Holcim Trading Pte Ltd - Singapore
- International Coal Ventures Pvt Ltd - India
- Siam City Cement PLC, Thailand
- Leighton Contractors Pty Ltd - Australia
- Sinarmas Energy and Mining - Indonesia
- Carbofer General Trading SA - India
- Sakthi Sugars Limited - India
- Electricity Authority, New Zealand
- Aditya Birla Group - India
- Samtan Co., Ltd - South Korea
- European Bulk Services B.V. - Netherlands
- Kapuas Tunggal Persada - Indonesia
- Antam Resourcindo - Indonesia
- Sindya Power Generating Company Private Ltd
- Banpu Public Company Limited - Thailand
- Mintek Dendrill Indonesia
- Grasim Industreis Ltd - India
- Manunggal Multi Energi - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Neyveli Lignite Corporation Ltd, - India
- Marubeni Corporation - India
- GMR Energy Limited - India
- Rio Tinto Coal - Australia
- Coastal Gujarat Power Limited - India
- White Energy Company Limited
- Sree Jayajothi Cements Limited - India
- Rashtriya Ispat Nigam Limited - India
- Cigading International Bulk Terminal - Indonesia
- Eastern Energy - Thailand
- Dalmia Cement Bharat India
- Coal and Oil Company - UAE
- Kohat Cement Company Ltd. - Pakistan
- Lanco Infratech Ltd - India
- Oldendorff Carriers - Singapore
- Orica Mining Services - Indonesia
- Formosa Plastics Group - Taiwan
- Agrawal Coal Company - India
- Meralco Power Generation, Philippines
- Miang Besar Coal Terminal - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Bukit Baiduri Energy - Indonesia
- Electricity Generating Authority of Thailand
- Tamil Nadu electricity Board
- Heidelberg Cement - Germany
- Georgia Ports Authority, United States
- Metalloyd Limited - United Kingdom
- Maheswari Brothers Coal Limited - India
- Borneo Indobara - Indonesia
- Bukit Makmur.PT - Indonesia
- LBH Netherlands Bv - Netherlands
- Kobexindo Tractors - Indoneisa
- PNOC Exploration Corporation - Philippines
- TeaM Sual Corporation - Philippines
- Indogreen Group - Indonesia
- Attock Cement Pakistan Limited
- Medco Energi Mining Internasional
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