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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, 22 September 14
CFR SOUTH CHINA COAL SWAPS LOST ON DAY, WEEK AND MONTH
COALspot.com: API 8 CFR South China Coal swap for delivery in October 2014 decreased US$ 3.10 (-4.50%) month over month and $ 0.95 PT MT week over ...
Monday, 22 September 14
INDONESIAN COAL SWAPS LOST WEEK ON WEEK AND MONTH OVER MONTH
COALspot.com: Indonesian coal swaps for average October 2014 increased US$ 0.35 (+0.69%) day on day and lost US$ 0.30 (-0.58%) per mt week on week. ...
Sunday, 21 September 14
CAPE INDEX LOST 17% W-O-W ; BALTIC DRY PLUNGES 106 POINTS
COALspot.com: This week the freight market softened a bit compared to last week.
BDI fell 8.97% week on week and closed BDI at 1075 points on ...
Friday, 19 September 14
U.S. WEEKLY COAL PRODUCTION RELATIVELY FLAT AT +0.1% - EIA
COALspot.com – United States the world's second largest coal producer, produced approximately 19.20 million short tons (mmst) of coal in ...
Friday, 19 September 14
PRICES FOR DRY BULK CARRIERS HAVEN'T CORRECTED ENOUGH, DESPITE LOWER THAN EXPECTED FREIGHT RATES - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
A lot has been said and written about the looming dry bulk market recovery over the past few months. However, even if this hasn’t been materi ...
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- Ministry of Mines - Canada
- Kumho Petrochemical, South Korea
- Kepco SPC Power Corporation, Philippines
- Australian Coal Association
- Sakthi Sugars Limited - India
- CIMB Investment Bank - Malaysia
- London Commodity Brokers - England
- Xindia Steels Limited - India
- Gujarat Electricity Regulatory Commission - India
- MS Steel International - UAE
- Sinarmas Energy and Mining - Indonesia
- Jaiprakash Power Ventures ltd
- Holcim Trading Pte Ltd - Singapore
- Indogreen Group - Indonesia
- Singapore Mercantile Exchange
- Gujarat Mineral Development Corp Ltd - India
- Coal and Oil Company - UAE
- Makarim & Taira - Indonesia
- Chamber of Mines of South Africa
- CNBM International Corporation - China
- Savvy Resources Ltd - HongKong
- Ministry of Finance - Indonesia
- Coastal Gujarat Power Limited - India
- Global Coal Blending Company Limited - Australia
- Coalindo Energy - Indonesia
- Sojitz Corporation - Japan
- Miang Besar Coal Terminal - Indonesia
- Malabar Cements Ltd - India
- ASAPP Information Group - India
- Alfred C Toepfer International GmbH - Germany
- LBH Netherlands Bv - Netherlands
- Cement Manufacturers Association - India
- Heidelberg Cement - Germany
- Karbindo Abesyapradhi - Indoneisa
- Global Green Power PLC Corporation, Philippines
- Ambuja Cements Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Salva Resources Pvt Ltd - India
- The Treasury - Australian Government
- GN Power Mariveles Coal Plant, Philippines
- GAC Shipping (India) Pvt Ltd
- Eastern Coal Council - USA
- The University of Queensland
- SMG Consultants - Indonesia
- Energy Link Ltd, New Zealand
- Toyota Tsusho Corporation, Japan
- Manunggal Multi Energi - Indonesia
- South Luzon Thermal Energy Corporation
- Oldendorff Carriers - Singapore
- Parry Sugars Refinery, India
- Samtan Co., Ltd - South Korea
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Edison Trading Spa - Italy
- Simpson Spence & Young - Indonesia
- Petron Corporation, Philippines
- Iligan Light & Power Inc, Philippines
- Ministry of Transport, Egypt
- McConnell Dowell - Australia
- Economic Council, Georgia
- Globalindo Alam Lestari - Indonesia
- Chettinad Cement Corporation Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Kalimantan Lumbung Energi - Indonesia
- New Zealand Coal & Carbon
- Meralco Power Generation, Philippines
- Leighton Contractors Pty Ltd - Australia
- Anglo American - United Kingdom
- Bhushan Steel Limited - India
- Bukit Baiduri Energy - Indonesia
- Georgia Ports Authority, United States
- GMR Energy Limited - India
- Karaikal Port Pvt Ltd - India
- Gujarat Sidhee Cement - India
- Global Business Power Corporation, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Metalloyd Limited - United Kingdom
- Posco Energy - South Korea
- Intertek Mineral Services - Indonesia
- Mercator Lines Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Baramulti Group, Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Energy Development Corp, Philippines
- Power Finance Corporation Ltd., India
- Africa Commodities Group - South Africa
- Ceylon Electricity Board - Sri Lanka
- Straits Asia Resources Limited - Singapore
- Deloitte Consulting - India
- Ind-Barath Power Infra Limited - India
- IHS Mccloskey Coal Group - USA
- Indian Oil Corporation Limited
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Aditya Birla Group - India
- Maheswari Brothers Coal Limited - India
- San Jose City I Power Corp, Philippines
- International Coal Ventures Pvt Ltd - India
- Thiess Contractors Indonesia
- Bayan Resources Tbk. - Indonesia
- Larsen & Toubro Limited - India
- Meenaskhi Energy Private Limited - India
- Kideco Jaya Agung - Indonesia
- Indo Tambangraya Megah - Indonesia
- OPG Power Generation Pvt Ltd - India
- Kobexindo Tractors - Indoneisa
- Aboitiz Power Corporation - Philippines
- Uttam Galva Steels Limited - India
- Attock Cement Pakistan Limited
- Bhatia International Limited - India
- European Bulk Services B.V. - Netherlands
- Bank of Tokyo Mitsubishi UFJ Ltd
- Marubeni Corporation - India
- Thai Mozambique Logistica
- ICICI Bank Limited - India
- Formosa Plastics Group - Taiwan
- Indika Energy - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Bangladesh Power Developement Board
- Asmin Koalindo Tuhup - Indonesia
- Kaltim Prima Coal - Indonesia
- TeaM Sual Corporation - Philippines
- Electricity Authority, New Zealand
- Bhoruka Overseas - Indonesia
- Parliament of New Zealand
- Banpu Public Company Limited - Thailand
- Dalmia Cement Bharat India
- Indonesian Coal Mining Association
- Bukit Asam (Persero) Tbk - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Timah Investasi Mineral - Indoneisa
- Port Waratah Coal Services - Australia
- Tamil Nadu electricity Board
- Trasteel International SA, Italy
- Pipit Mutiara Jaya. PT, Indonesia
- Semirara Mining Corp, Philippines
- IEA Clean Coal Centre - UK
- Bharathi Cement Corporation - India
- Jindal Steel & Power Ltd - India
- Pendopo Energi Batubara - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Barasentosa Lestari - Indonesia
- Sindya Power Generating Company Private Ltd
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Mintek Dendrill Indonesia
- Vedanta Resources Plc - India
- Goldman Sachs - Singapore
- Mjunction Services Limited - India
- Medco Energi Mining Internasional
- Orica Australia Pty. Ltd.
- Sical Logistics Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Agrawal Coal Company - India
- Commonwealth Bank - Australia
- Siam City Cement - Thailand
- Essar Steel Hazira Ltd - India
- Lanco Infratech Ltd - India
- White Energy Company Limited
- Bukit Makmur.PT - Indonesia
- Antam Resourcindo - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Star Paper Mills Limited - India
- Tata Chemicals Ltd - India
- Siam City Cement PLC, Thailand
- Bulk Trading Sa - Switzerland
- Madhucon Powers Ltd - India
- Orica Mining Services - Indonesia
- India Bulls Power Limited - India
- Videocon Industries ltd - India
- Sree Jayajothi Cements Limited - India
- Australian Commodity Traders Exchange
- Planning Commission, India
- Binh Thuan Hamico - Vietnam
- Kapuas Tunggal Persada - Indonesia
- Kartika Selabumi Mining - Indonesia
- Interocean Group of Companies - India
- Rashtriya Ispat Nigam Limited - India
- Carbofer General Trading SA - India
- Romanian Commodities Exchange
- Mercuria Energy - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Latin American Coal - Colombia
- PowerSource Philippines DevCo
- Altura Mining Limited, Indonesia
- The State Trading Corporation of India Ltd
- Electricity Generating Authority of Thailand
- Wilmar Investment Holdings
- GVK Power & Infra Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- VISA Power Limited - India
- Central Java Power - Indonesia
- Directorate Of Revenue Intelligence - India
- Semirara Mining and Power Corporation, Philippines
- Central Electricity Authority - India
- Independent Power Producers Association of India
- Rio Tinto Coal - Australia
- Kohat Cement Company Ltd. - Pakistan
- Merrill Lynch Commodities Europe
- SN Aboitiz Power Inc, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Therma Luzon, Inc, Philippines
- Vizag Seaport Private Limited - India
- Sarangani Energy Corporation, Philippines
- Krishnapatnam Port Company Ltd. - India
- SMC Global Power, Philippines
- Eastern Energy - Thailand
- Price Waterhouse Coopers - Russia
- Borneo Indobara - Indonesia
- Indian Energy Exchange, India
- PTC India Limited - India
- PNOC Exploration Corporation - Philippines
- Riau Bara Harum - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Renaissance Capital - South Africa
- Vijayanagar Sugar Pvt Ltd - India
- Grasim Industreis Ltd - India
- Wood Mackenzie - Singapore
- Standard Chartered Bank - UAE
- Minerals Council of Australia
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