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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, 01 October 14
ASIAN THERMAL COAL PRICES TO REMAIN WEAK ON OVERSUPPLY - FITCH
COALspot.com: The thermal coal market in Asia will remain oversupplied in the next 12 months, in spite of on-going rationalisation of production, a ...
Wednesday, 01 October 14
PANAMAXES: DEFENSIVE, STRUGGLING TO KEEP ANY FURTHER DECREASES - INTERMODAL
COALspot.com: The Dry Bulk market seemed unable to shake off the trend of the week prior and the BDI remained on a downward slope for the bigger pa ...
Wednesday, 01 October 14
FITCH: GLOBAL ECONOMY FACES MULTI-SPEED RECOVERY, MULTIPLE RISKS
Fitch Ratings says in its latest Global Economic Outlook (GEO) that global growth will pick up in 2015 and 2016, but risks are weighted to the down ...
Tuesday, 30 September 14
COALVIEW TO PARTICIPATE AT MET COKE WORLD SUMMIT 2014 IN CHICAGO
COALspot.com: Coalview Ltd., LLC(“Coalview”) America's leading fully integrated coal technology and fine coal recovery company prov ...
Monday, 29 September 14
INDONESIAN COAL EXPORT VOLUME FALL IN AUGUST
COALspot.com: Indonesia, one of the world's largest coal producers and the global leading multi grade coal exporter shipped around $1.50 ...
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- Borneo Indobara - Indonesia
- Renaissance Capital - South Africa
- Tata Chemicals Ltd - India
- Intertek Mineral Services - Indonesia
- Thai Mozambique Logistica
- SMG Consultants - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Sree Jayajothi Cements Limited - India
- Coastal Gujarat Power Limited - India
- Krishnapatnam Port Company Ltd. - India
- Indo Tambangraya Megah - Indonesia
- Latin American Coal - Colombia
- Lanco Infratech Ltd - India
- Meenaskhi Energy Private Limited - India
- Anglo American - United Kingdom
- The University of Queensland
- Port Waratah Coal Services - Australia
- PNOC Exploration Corporation - Philippines
- Maheswari Brothers Coal Limited - India
- Kobexindo Tractors - Indoneisa
- Coalindo Energy - Indonesia
- Price Waterhouse Coopers - Russia
- Antam Resourcindo - Indonesia
- Ambuja Cements Ltd - India
- Edison Trading Spa - Italy
- Alfred C Toepfer International GmbH - Germany
- Asmin Koalindo Tuhup - Indonesia
- Romanian Commodities Exchange
- Deloitte Consulting - India
- Ministry of Mines - Canada
- Banpu Public Company Limited - Thailand
- Gujarat Electricity Regulatory Commission - India
- Power Finance Corporation Ltd., India
- Rashtriya Ispat Nigam Limited - India
- Goldman Sachs - Singapore
- Sojitz Corporation - Japan
- Kumho Petrochemical, South Korea
- Siam City Cement PLC, Thailand
- Mercuria Energy - Indonesia
- India Bulls Power Limited - India
- Essar Steel Hazira Ltd - India
- Agrawal Coal Company - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- PTC India Limited - India
- Australian Coal Association
- Toyota Tsusho Corporation, Japan
- Sindya Power Generating Company Private Ltd
- Jindal Steel & Power Ltd - India
- Star Paper Mills Limited - India
- Malabar Cements Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bukit Asam (Persero) Tbk - Indonesia
- SN Aboitiz Power Inc, Philippines
- Indian Energy Exchange, India
- Vedanta Resources Plc - India
- Jorong Barutama Greston.PT - Indonesia
- Videocon Industries ltd - India
- Bhatia International Limited - India
- McConnell Dowell - Australia
- Karaikal Port Pvt Ltd - India
- Mjunction Services Limited - India
- MS Steel International - UAE
- LBH Netherlands Bv - Netherlands
- Kaltim Prima Coal - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Karbindo Abesyapradhi - Indoneisa
- Sarangani Energy Corporation, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Indika Energy - Indonesia
- Altura Mining Limited, Indonesia
- Siam City Cement - Thailand
- OPG Power Generation Pvt Ltd - India
- Chamber of Mines of South Africa
- Simpson Spence & Young - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- ICICI Bank Limited - India
- Parliament of New Zealand
- Global Coal Blending Company Limited - Australia
- Salva Resources Pvt Ltd - India
- Dalmia Cement Bharat India
- Cement Manufacturers Association - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Planning Commission, India
- Ministry of Transport, Egypt
- Barasentosa Lestari - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Ceylon Electricity Board - Sri Lanka
- The Treasury - Australian Government
- Cigading International Bulk Terminal - Indonesia
- Chettinad Cement Corporation Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Globalindo Alam Lestari - Indonesia
- Mintek Dendrill Indonesia
- White Energy Company Limited
- IEA Clean Coal Centre - UK
- Bahari Cakrawala Sebuku - Indonesia
- San Jose City I Power Corp, Philippines
- Iligan Light & Power Inc, Philippines
- TeaM Sual Corporation - Philippines
- Energy Link Ltd, New Zealand
- Sakthi Sugars Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Bukit Baiduri Energy - Indonesia
- Merrill Lynch Commodities Europe
- Bulk Trading Sa - Switzerland
- Timah Investasi Mineral - Indoneisa
- Tamil Nadu electricity Board
- Ministry of Finance - Indonesia
- Bayan Resources Tbk. - Indonesia
- PowerSource Philippines DevCo
- Rio Tinto Coal - Australia
- Wilmar Investment Holdings
- GMR Energy Limited - India
- Trasteel International SA, Italy
- VISA Power Limited - India
- New Zealand Coal & Carbon
- Therma Luzon, Inc, Philippines
- Wood Mackenzie - Singapore
- Kohat Cement Company Ltd. - Pakistan
- Eastern Energy - Thailand
- Oldendorff Carriers - Singapore
- Heidelberg Cement - Germany
- Eastern Coal Council - USA
- Attock Cement Pakistan Limited
- Kartika Selabumi Mining - Indonesia
- Minerals Council of Australia
- Meralco Power Generation, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Medco Energi Mining Internasional
- Global Business Power Corporation, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Baramulti Group, Indonesia
- The State Trading Corporation of India Ltd
- Australian Commodity Traders Exchange
- Central Electricity Authority - India
- Madhucon Powers Ltd - India
- Bhushan Steel Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Uttam Galva Steels Limited - India
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- Grasim Industreis Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- AsiaOL BioFuels Corp., Philippines
- Miang Besar Coal Terminal - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Indian Oil Corporation Limited
- Parry Sugars Refinery, India
- Manunggal Multi Energi - Indonesia
- Economic Council, Georgia
- Energy Development Corp, Philippines
- Semirara Mining and Power Corporation, Philippines
- GAC Shipping (India) Pvt Ltd
- Central Java Power - Indonesia
- Indonesian Coal Mining Association
- Leighton Contractors Pty Ltd - Australia
- Standard Chartered Bank - UAE
- Semirara Mining Corp, Philippines
- GVK Power & Infra Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- CIMB Investment Bank - Malaysia
- SMC Global Power, Philippines
- Binh Thuan Hamico - Vietnam
- Kalimantan Lumbung Energi - Indonesia
- Petron Corporation, Philippines
- Coal and Oil Company - UAE
- Orica Australia Pty. Ltd.
- Kideco Jaya Agung - Indonesia
- Bharathi Cement Corporation - India
- Pendopo Energi Batubara - Indonesia
- Mercator Lines Limited - India
- IHS Mccloskey Coal Group - USA
- Posco Energy - South Korea
- Commonwealth Bank - Australia
- South Luzon Thermal Energy Corporation
- Savvy Resources Ltd - HongKong
- Aditya Birla Group - India
- Sical Logistics Limited - India
- European Bulk Services B.V. - Netherlands
- Indogreen Group - Indonesia
- Vizag Seaport Private Limited - India
- Formosa Plastics Group - Taiwan
- Thiess Contractors Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- London Commodity Brokers - England
- Larsen & Toubro Limited - India
- International Coal Ventures Pvt Ltd - India
- Georgia Ports Authority, United States
- Makarim & Taira - Indonesia
- ASAPP Information Group - India
- Bhoruka Overseas - Indonesia
- Straits Asia Resources Limited - Singapore
- Gujarat Sidhee Cement - India
- Neyveli Lignite Corporation Ltd, - India
- Carbofer General Trading SA - India
- Orica Mining Services - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Riau Bara Harum - Indonesia
- Interocean Group of Companies - India
- Bangladesh Power Developement Board
- Ind-Barath Power Infra Limited - India
- Xindia Steels Limited - India
- Directorate Of Revenue Intelligence - India
- Kepco SPC Power Corporation, Philippines
- Africa Commodities Group - South Africa
- CNBM International Corporation - China
- Aboitiz Power Corporation - Philippines
- Electricity Authority, New Zealand
- Independent Power Producers Association of India
- Bukit Makmur.PT - Indonesia
- Jaiprakash Power Ventures ltd
- Metalloyd Limited - United Kingdom
- Electricity Generating Authority of Thailand
- Singapore Mercantile Exchange
- Gujarat Mineral Development Corp Ltd - India
- Marubeni Corporation - India
- Samtan Co., Ltd - South Korea
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