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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, 29 September 14
INDONESIAN COAL SWAPS LOST WEEK ON WEEK AND MONTH OVER MONTH
COALspot.com: Indonesian coal swaps for average November 2014 flat day on day and lost US$ 0.85 (-1.66%) per mt week on week. The swap also lost US ...
Monday, 29 September 14
CFR SOUTH CHINA COAL LOST AROUND 5% MONTH ON MONTH
COALspot.com: API 8 CFR South China Coal swap for delivery in November 2014 decreased US$ 3.55 (-5.10%) month over month and flat week over week.
...
Sunday, 28 September 14
FREIGHT RATES FROM INDONESIA TO INDIA IS EXPECTED TO BE FIRM NEXT WEEK - CAPT. REDDY
COALspot.com: The freight market shows a bit weak trend this week.
The BDI was lost 2.42% week on week and closed at 1049 points on 26 Se ...
Sunday, 28 September 14
BERAU AGREES DEAL WITH GOVT, MINING AREA REDUCED - THE JAKARTA POST
Coal miner PT Berau Coal, a subsidiary of Jakarta-listed PT Berau Coal Energy (BRAU), has signed a memorandum of understanding (MoU) with the gover ...
Saturday, 27 September 14
OIL MARKET CONTANGO: SPECULATION ON FUTURE PRICES CAN BE A RISKY MOVE, EVEN FOR TANKER OWNERS HELLENIC SHIPPING NEWS
Despite the fact that tanker owners can easily use their vessels as floating storage units for oil, in a bid to exploit the current oil market dyna ...
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- Wood Mackenzie - Singapore
- PTC India Limited - India
- Barasentosa Lestari - Indonesia
- Energy Development Corp, Philippines
- Thiess Contractors Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- LBH Netherlands Bv - Netherlands
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Binh Thuan Hamico - Vietnam
- GVK Power & Infra Limited - India
- Bharathi Cement Corporation - India
- Aditya Birla Group - India
- Oldendorff Carriers - Singapore
- Interocean Group of Companies - India
- Posco Energy - South Korea
- Vedanta Resources Plc - India
- Semirara Mining and Power Corporation, Philippines
- Intertek Mineral Services - Indonesia
- McConnell Dowell - Australia
- Madhucon Powers Ltd - India
- Aboitiz Power Corporation - Philippines
- Wilmar Investment Holdings
- Rio Tinto Coal - Australia
- Sinarmas Energy and Mining - Indonesia
- Parry Sugars Refinery, India
- Grasim Industreis Ltd - India
- Indika Energy - Indonesia
- Global Business Power Corporation, Philippines
- Mercator Lines Limited - India
- International Coal Ventures Pvt Ltd - India
- VISA Power Limited - India
- Kaltim Prima Coal - Indonesia
- Vizag Seaport Private Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Bukit Makmur.PT - Indonesia
- IHS Mccloskey Coal Group - USA
- Malabar Cements Ltd - India
- Petron Corporation, Philippines
- Baramulti Group, Indonesia
- Global Green Power PLC Corporation, Philippines
- Heidelberg Cement - Germany
- Anglo American - United Kingdom
- The Treasury - Australian Government
- CIMB Investment Bank - Malaysia
- Cement Manufacturers Association - India
- Salva Resources Pvt Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Essar Steel Hazira Ltd - India
- Economic Council, Georgia
- Energy Link Ltd, New Zealand
- Jindal Steel & Power Ltd - India
- Carbofer General Trading SA - India
- Pipit Mutiara Jaya. PT, Indonesia
- Ministry of Finance - Indonesia
- Coalindo Energy - Indonesia
- Sree Jayajothi Cements Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Petrochimia International Co. Ltd.- Taiwan
- Planning Commission, India
- Leighton Contractors Pty Ltd - Australia
- Indian Oil Corporation Limited
- Meenaskhi Energy Private Limited - India
- Indo Tambangraya Megah - Indonesia
- Bhatia International Limited - India
- Gujarat Sidhee Cement - India
- Metalloyd Limited - United Kingdom
- Semirara Mining Corp, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Electricity Authority, New Zealand
- Singapore Mercantile Exchange
- Pendopo Energi Batubara - Indonesia
- Sakthi Sugars Limited - India
- Riau Bara Harum - Indonesia
- New Zealand Coal & Carbon
- London Commodity Brokers - England
- PowerSource Philippines DevCo
- Power Finance Corporation Ltd., India
- Mercuria Energy - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Ind-Barath Power Infra Limited - India
- Siam City Cement - Thailand
- Bhoruka Overseas - Indonesia
- Ministry of Mines - Canada
- Price Waterhouse Coopers - Russia
- Australian Coal Association
- Altura Mining Limited, Indonesia
- Medco Energi Mining Internasional
- Sical Logistics Limited - India
- Bulk Trading Sa - Switzerland
- Mintek Dendrill Indonesia
- GAC Shipping (India) Pvt Ltd
- TeaM Sual Corporation - Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- India Bulls Power Limited - India
- Africa Commodities Group - South Africa
- Makarim & Taira - Indonesia
- Meralco Power Generation, Philippines
- MS Steel International - UAE
- OPG Power Generation Pvt Ltd - India
- Sindya Power Generating Company Private Ltd
- Georgia Ports Authority, United States
- Merrill Lynch Commodities Europe
- Videocon Industries ltd - India
- Trasteel International SA, Italy
- Kepco SPC Power Corporation, Philippines
- Indogreen Group - Indonesia
- White Energy Company Limited
- South Luzon Thermal Energy Corporation
- Borneo Indobara - Indonesia
- Kartika Selabumi Mining - Indonesia
- Global Coal Blending Company Limited - Australia
- Directorate Of Revenue Intelligence - India
- SMC Global Power, Philippines
- Deloitte Consulting - India
- Indian Energy Exchange, India
- Australian Commodity Traders Exchange
- Billiton Holdings Pty Ltd - Australia
- Formosa Plastics Group - Taiwan
- Antam Resourcindo - Indonesia
- Mjunction Services Limited - India
- Tata Chemicals Ltd - India
- Lanco Infratech Ltd - India
- Romanian Commodities Exchange
- Neyveli Lignite Corporation Ltd, - India
- Port Waratah Coal Services - Australia
- PetroVietnam Power Coal Import and Supply Company
- Xindia Steels Limited - India
- Bayan Resources Tbk. - Indonesia
- Uttam Galva Steels Limited - India
- Toyota Tsusho Corporation, Japan
- Sarangani Energy Corporation, Philippines
- San Jose City I Power Corp, Philippines
- Indonesian Coal Mining Association
- Timah Investasi Mineral - Indoneisa
- Kapuas Tunggal Persada - Indonesia
- Holcim Trading Pte Ltd - Singapore
- CNBM International Corporation - China
- Edison Trading Spa - Italy
- Bangladesh Power Developement Board
- Globalindo Alam Lestari - Indonesia
- SN Aboitiz Power Inc, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Bukit Asam (Persero) Tbk - Indonesia
- Chamber of Mines of South Africa
- Rashtriya Ispat Nigam Limited - India
- Attock Cement Pakistan Limited
- Savvy Resources Ltd - HongKong
- Latin American Coal - Colombia
- Independent Power Producers Association of India
- Bahari Cakrawala Sebuku - Indonesia
- GMR Energy Limited - India
- European Bulk Services B.V. - Netherlands
- Star Paper Mills Limited - India
- Siam City Cement PLC, Thailand
- ASAPP Information Group - India
- Orica Mining Services - Indonesia
- Minerals Council of Australia
- Central Java Power - Indonesia
- Manunggal Multi Energi - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Goldman Sachs - Singapore
- Electricity Generating Authority of Thailand
- Alfred C Toepfer International GmbH - Germany
- Commonwealth Bank - Australia
- Simpson Spence & Young - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Agrawal Coal Company - India
- Karaikal Port Pvt Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Banpu Public Company Limited - Thailand
- The University of Queensland
- Central Electricity Authority - India
- The State Trading Corporation of India Ltd
- Therma Luzon, Inc, Philippines
- Coal and Oil Company - UAE
- Bhushan Steel Limited - India
- Renaissance Capital - South Africa
- SMG Consultants - Indonesia
- Ambuja Cements Ltd - India
- ICICI Bank Limited - India
- Kideco Jaya Agung - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- PNOC Exploration Corporation - Philippines
- Standard Chartered Bank - UAE
- Bukit Baiduri Energy - Indonesia
- Straits Asia Resources Limited - Singapore
- Sojitz Corporation - Japan
- Thai Mozambique Logistica
- Krishnapatnam Port Company Ltd. - India
- Iligan Light & Power Inc, Philippines
- Eastern Energy - Thailand
- Orica Australia Pty. Ltd.
- Bank of Tokyo Mitsubishi UFJ Ltd
- Tamil Nadu electricity Board
- Parliament of New Zealand
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Chettinad Cement Corporation Ltd - India
- Samtan Co., Ltd - South Korea
- Kalimantan Lumbung Energi - Indonesia
- Jaiprakash Power Ventures ltd
- Asmin Koalindo Tuhup - Indonesia
- Maheswari Brothers Coal Limited - India
- Kobexindo Tractors - Indoneisa
- Larsen & Toubro Limited - India
- Eastern Coal Council - USA
- Marubeni Corporation - India
- Kumho Petrochemical, South Korea
- Dalmia Cement Bharat India
- IEA Clean Coal Centre - UK
- TNB Fuel Sdn Bhd - Malaysia
- Ministry of Transport, Egypt
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Coastal Gujarat Power Limited - India
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