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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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Thursday, 25 September 14
LACK OF COAL BUSINESS PUSHING DOWN PANAMAX EARNINGS IN PACIFIC
Handy
In the Atlantic we see rates steady climbing upwards. More coal cargoes out of USG and USEC are helping the TA market which is up some USD ...
Wednesday, 24 September 14
ADARO AGREED TO REDUCE ITS CONCESSION AREA TO 31,379.8 HECTARES
COALspot.com: PT Adaro Energy Tbk (Adaro Energy) today announced that, PT Adaro Indonesia (AI), its wholly owned subsidiary, entered into a M ...
Wednesday, 24 September 14
CAPESIZE: ACTIVITY IN BOTH BASINS WAS UNIMPRESSIVE
COALspot.com: The end of the week prior seems to have marked the tone for the days that followed, with the Dry Bulk market giving up a significant ...
Tuesday, 23 September 14
MEDCO TO INCREASE ITS COAL PRODUCTION NEXT YEAR
COALspot.com: PT Medco Energi Internasional is looking to increase its coal production next year, supported by the launch of operations at its Duta ...
Monday, 22 September 14
COAL SECTOR CHAOS - GENESIS TO REVELATION - DIPESH DIPU
COALspot.com: “Let there be light”, intends the government of India but the fuel side of the story paints a blackout. The recent Suprem ...
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- Larsen & Toubro Limited - India
- European Bulk Services B.V. - Netherlands
- MS Steel International - UAE
- Cement Manufacturers Association - India
- Minerals Council of Australia
- Sical Logistics Limited - India
- Parliament of New Zealand
- The Treasury - Australian Government
- McConnell Dowell - Australia
- Miang Besar Coal Terminal - Indonesia
- Agrawal Coal Company - India
- Jorong Barutama Greston.PT - Indonesia
- Salva Resources Pvt Ltd - India
- Wilmar Investment Holdings
- Pipit Mutiara Jaya. PT, Indonesia
- Grasim Industreis Ltd - India
- IHS Mccloskey Coal Group - USA
- Maheswari Brothers Coal Limited - India
- Singapore Mercantile Exchange
- Petrochimia International Co. Ltd.- Taiwan
- Ministry of Transport, Egypt
- Electricity Generating Authority of Thailand
- Bharathi Cement Corporation - India
- CIMB Investment Bank - Malaysia
- Savvy Resources Ltd - HongKong
- Xindia Steels Limited - India
- SMC Global Power, Philippines
- Commonwealth Bank - Australia
- Renaissance Capital - South Africa
- Carbofer General Trading SA - India
- Bangladesh Power Developement Board
- Indo Tambangraya Megah - Indonesia
- Oldendorff Carriers - Singapore
- PTC India Limited - India
- Billiton Holdings Pty Ltd - Australia
- Jindal Steel & Power Ltd - India
- South Luzon Thermal Energy Corporation
- Binh Thuan Hamico - Vietnam
- Manunggal Multi Energi - Indonesia
- Romanian Commodities Exchange
- Barasentosa Lestari - Indonesia
- Coal and Oil Company - UAE
- Antam Resourcindo - Indonesia
- Petron Corporation, Philippines
- Sinarmas Energy and Mining - Indonesia
- Timah Investasi Mineral - Indoneisa
- Ambuja Cements Ltd - India
- Heidelberg Cement - Germany
- Goldman Sachs - Singapore
- Indogreen Group - Indonesia
- India Bulls Power Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- PNOC Exploration Corporation - Philippines
- Indian Oil Corporation Limited
- Semirara Mining Corp, Philippines
- Mercuria Energy - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Therma Luzon, Inc, Philippines
- Georgia Ports Authority, United States
- Sojitz Corporation - Japan
- Central Electricity Authority - India
- Kalimantan Lumbung Energi - Indonesia
- Attock Cement Pakistan Limited
- Power Finance Corporation Ltd., India
- Bukit Makmur.PT - Indonesia
- CNBM International Corporation - China
- International Coal Ventures Pvt Ltd - India
- Mercator Lines Limited - India
- Bhoruka Overseas - Indonesia
- TeaM Sual Corporation - Philippines
- Latin American Coal - Colombia
- Vijayanagar Sugar Pvt Ltd - India
- Globalindo Alam Lestari - Indonesia
- Karaikal Port Pvt Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Bahari Cakrawala Sebuku - Indonesia
- Altura Mining Limited, Indonesia
- Bhatia International Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Chamber of Mines of South Africa
- Wood Mackenzie - Singapore
- Semirara Mining and Power Corporation, Philippines
- Maharashtra Electricity Regulatory Commission - India
- PowerSource Philippines DevCo
- Merrill Lynch Commodities Europe
- Orica Australia Pty. Ltd.
- Medco Energi Mining Internasional
- Parry Sugars Refinery, India
- Interocean Group of Companies - India
- IEA Clean Coal Centre - UK
- Coalindo Energy - Indonesia
- Indonesian Coal Mining Association
- Ministry of Finance - Indonesia
- Kartika Selabumi Mining - Indonesia
- Indian Energy Exchange, India
- White Energy Company Limited
- ASAPP Information Group - India
- Gujarat Sidhee Cement - India
- Bhushan Steel Limited - India
- Makarim & Taira - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Jaiprakash Power Ventures ltd
- Aditya Birla Group - India
- GMR Energy Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Coastal Gujarat Power Limited - India
- Bukit Baiduri Energy - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Holcim Trading Pte Ltd - Singapore
- The State Trading Corporation of India Ltd
- Port Waratah Coal Services - Australia
- Global Green Power PLC Corporation, Philippines
- Meralco Power Generation, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Planning Commission, India
- Sree Jayajothi Cements Limited - India
- Economic Council, Georgia
- Baramulti Group, Indonesia
- Thiess Contractors Indonesia
- Eastern Energy - Thailand
- SN Aboitiz Power Inc, Philippines
- Meenaskhi Energy Private Limited - India
- Rashtriya Ispat Nigam Limited - India
- Global Business Power Corporation, Philippines
- Cigading International Bulk Terminal - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Mintek Dendrill Indonesia
- Gujarat Electricity Regulatory Commission - India
- LBH Netherlands Bv - Netherlands
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Metalloyd Limited - United Kingdom
- Kohat Cement Company Ltd. - Pakistan
- Karbindo Abesyapradhi - Indoneisa
- ICICI Bank Limited - India
- Africa Commodities Group - South Africa
- GN Power Mariveles Coal Plant, Philippines
- Rio Tinto Coal - Australia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bayan Resources Tbk. - Indonesia
- Electricity Authority, New Zealand
- Vedanta Resources Plc - India
- Sarangani Energy Corporation, Philippines
- Mjunction Services Limited - India
- Intertek Mineral Services - Indonesia
- Price Waterhouse Coopers - Russia
- Indika Energy - Indonesia
- Standard Chartered Bank - UAE
- Central Java Power - Indonesia
- Siam City Cement - Thailand
- Tata Chemicals Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Iligan Light & Power Inc, Philippines
- Trasteel International SA, Italy
- Kumho Petrochemical, South Korea
- AsiaOL BioFuels Corp., Philippines
- Edison Trading Spa - Italy
- GAC Shipping (India) Pvt Ltd
- San Jose City I Power Corp, Philippines
- Vizag Seaport Private Limited - India
- Dalmia Cement Bharat India
- Videocon Industries ltd - India
- Star Paper Mills Limited - India
- Kepco SPC Power Corporation, Philippines
- Straits Asia Resources Limited - Singapore
- Directorate Of Revenue Intelligence - India
- Australian Commodity Traders Exchange
- Ministry of Mines - Canada
- Asmin Koalindo Tuhup - Indonesia
- London Commodity Brokers - England
- Posco Energy - South Korea
- Sindya Power Generating Company Private Ltd
- Lanco Infratech Ltd - India
- Toyota Tsusho Corporation, Japan
- VISA Power Limited - India
- Malabar Cements Ltd - India
- Thai Mozambique Logistica
- PetroVietnam Power Coal Import and Supply Company
- SMG Consultants - Indonesia
- Kideco Jaya Agung - Indonesia
- Tamil Nadu electricity Board
- The University of Queensland
- Borneo Indobara - Indonesia
- Australian Coal Association
- Kaltim Prima Coal - Indonesia
- Ind-Barath Power Infra Limited - India
- Madhucon Powers Ltd - India
- Bulk Trading Sa - Switzerland
- Neyveli Lignite Corporation Ltd, - India
- Uttam Galva Steels Limited - India
- Sakthi Sugars Limited - India
- Anglo American - United Kingdom
- Aboitiz Power Corporation - Philippines
- Alfred C Toepfer International GmbH - Germany
- Energy Link Ltd, New Zealand
- Leighton Contractors Pty Ltd - Australia
- Marubeni Corporation - India
- Chettinad Cement Corporation Ltd - India
- Pendopo Energi Batubara - Indonesia
- Samtan Co., Ltd - South Korea
- Eastern Coal Council - USA
- OPG Power Generation Pvt Ltd - India
- Formosa Plastics Group - Taiwan
- Energy Development Corp, Philippines
- Ceylon Electricity Board - Sri Lanka
- Essar Steel Hazira Ltd - India
- Kobexindo Tractors - Indoneisa
- Orica Mining Services - Indonesia
- Independent Power Producers Association of India
- New Zealand Coal & Carbon
- Global Coal Blending Company Limited - Australia
- Simpson Spence & Young - Indonesia
- Riau Bara Harum - Indonesia
- GVK Power & Infra Limited - India
- Siam City Cement PLC, Thailand
- Banpu Public Company Limited - Thailand
- Deloitte Consulting - India
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