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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, 16 September 14
INDONESIAN GOVERNMENT DECLARED HBA SUFFERED ANOTHER SETBACK IN SEPTEMBER
COALspot.com - The Ministry of Energy & Mineral Resources of Indonesia revised down the coal bench mark price once again in September. HBA for ...
Tuesday, 16 September 14
INDONESIAN COAL OUTPUT WON'T EXCEED 421M TONS: GOVT - JP
The government is optimistic that it will meet its coal production target for this year, which caps nationwide production at a flat number compared ...
Monday, 15 September 14
CHINA'S COAL PROPOSALS LEAVE SOME HOPE FOR EXPORTERS - DAILY NEWS
When the best thing you can say about new policies is that they aren’t as bad as they could have been, then you know your industry is in deep ...
Monday, 15 September 14
SUB-BIT FOB INDONESIA COAL SWAP, JANUARY 2015 DELIVERY GAINED DAY ON DAY AND WEEK ON WEEK
COALspot.com: Indonesian coal swaps for average October 2014 increased US$ 0.40 (+0.78%) day on day and US$ 0.55 (+1.08%) per mt week on week. The ...
Monday, 15 September 14
CFR SOUTH CHINA COAL SWAP GAINED DAY ON DAY AND WEEK ON WEEK
COALspot.com: API 8 CFR South China Coal swap for delivery in October 2014 decreased US$ 2.30 (-3.36%) month over month, but increased day on day a ...
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- White Energy Company Limited
- The State Trading Corporation of India Ltd
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- Latin American Coal - Colombia
- Gujarat Mineral Development Corp Ltd - India
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- Cigading International Bulk Terminal - Indonesia
- Sojitz Corporation - Japan
- Wood Mackenzie - Singapore
- Georgia Ports Authority, United States
- Deloitte Consulting - India
- Indian Oil Corporation Limited
- Energy Development Corp, Philippines
- Kobexindo Tractors - Indoneisa
- Chamber of Mines of South Africa
- Indogreen Group - Indonesia
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- LBH Netherlands Bv - Netherlands
- Essar Steel Hazira Ltd - India
- Romanian Commodities Exchange
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- Malabar Cements Ltd - India
- Australian Coal Association
- Alfred C Toepfer International GmbH - Germany
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- Indika Energy - Indonesia
- Globalindo Alam Lestari - Indonesia
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- Tata Chemicals Ltd - India
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- SMC Global Power, Philippines
- Ministry of Transport, Egypt
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- TeaM Sual Corporation - Philippines
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- Manunggal Multi Energi - Indonesia
- GVK Power & Infra Limited - India
- Minerals Council of Australia
- Asmin Koalindo Tuhup - Indonesia
- Semirara Mining Corp, Philippines
- Interocean Group of Companies - India
- Global Business Power Corporation, Philippines
- Ambuja Cements Ltd - India
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- Mercuria Energy - Indonesia
- IEA Clean Coal Centre - UK
- Merrill Lynch Commodities Europe
- IHS Mccloskey Coal Group - USA
- Global Coal Blending Company Limited - Australia
- CIMB Investment Bank - Malaysia
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- Bangladesh Power Developement Board
- ICICI Bank Limited - India
- Agrawal Coal Company - India
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- Karbindo Abesyapradhi - Indoneisa
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- Indonesian Coal Mining Association
- Metalloyd Limited - United Kingdom
- Power Finance Corporation Ltd., India
- Gujarat Sidhee Cement - India
- Global Green Power PLC Corporation, Philippines
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- Sarangani Energy Corporation, Philippines
- Thiess Contractors Indonesia
- Siam City Cement - Thailand
- South Luzon Thermal Energy Corporation
- OPG Power Generation Pvt Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Kartika Selabumi Mining - Indonesia
- PTC India Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Bharathi Cement Corporation - India
- McConnell Dowell - Australia
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- Energy Link Ltd, New Zealand
- Jaiprakash Power Ventures ltd
- Maheswari Brothers Coal Limited - India
- VISA Power Limited - India
- Kumho Petrochemical, South Korea
- Sakthi Sugars Limited - India
- Kapuas Tunggal Persada - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Ministry of Mines - Canada
- Meralco Power Generation, Philippines
- Riau Bara Harum - Indonesia
- SMG Consultants - Indonesia
- New Zealand Coal & Carbon
- MS Steel International - UAE
- Anglo American - United Kingdom
- Kideco Jaya Agung - Indonesia
- Thai Mozambique Logistica
- Samtan Co., Ltd - South Korea
- Pendopo Energi Batubara - Indonesia
- Indian Energy Exchange, India
- European Bulk Services B.V. - Netherlands
- Bulk Trading Sa - Switzerland
- Larsen & Toubro Limited - India
- Savvy Resources Ltd - HongKong
- PowerSource Philippines DevCo
- Bukit Baiduri Energy - Indonesia
- International Coal Ventures Pvt Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Orica Australia Pty. Ltd.
- Heidelberg Cement - Germany
- Petron Corporation, Philippines
- Semirara Mining and Power Corporation, Philippines
- Coal and Oil Company - UAE
- Jorong Barutama Greston.PT - Indonesia
- Aboitiz Power Corporation - Philippines
- Coastal Gujarat Power Limited - India
- Central Java Power - Indonesia
- Miang Besar Coal Terminal - Indonesia
- India Bulls Power Limited - India
- Meenaskhi Energy Private Limited - India
- Grasim Industreis Ltd - India
- Bukit Makmur.PT - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Chettinad Cement Corporation Ltd - India
- Eastern Coal Council - USA
- Straits Asia Resources Limited - Singapore
- Makarim & Taira - Indonesia
- Trasteel International SA, Italy
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- Pipit Mutiara Jaya. PT, Indonesia
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- Economic Council, Georgia
- CNBM International Corporation - China
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- Siam City Cement PLC, Thailand
- Orica Mining Services - Indonesia
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- Vedanta Resources Plc - India
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- Sree Jayajothi Cements Limited - India
- Mintek Dendrill Indonesia
- Sindya Power Generating Company Private Ltd
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- PNOC Exploration Corporation - Philippines
- Africa Commodities Group - South Africa
- Antam Resourcindo - Indonesia
- Sical Logistics Limited - India
- Vizag Seaport Private Limited - India
- Oldendorff Carriers - Singapore
- Madhucon Powers Ltd - India
- Timah Investasi Mineral - Indoneisa
- Intertek Mineral Services - Indonesia
- Planning Commission, India
- Price Waterhouse Coopers - Russia
- GN Power Mariveles Coal Plant, Philippines
- Krishnapatnam Port Company Ltd. - India
- Tamil Nadu electricity Board
- The Treasury - Australian Government
- Eastern Energy - Thailand
- Aditya Birla Group - India
- Kaltim Prima Coal - Indonesia
- Australian Commodity Traders Exchange
- Leighton Contractors Pty Ltd - Australia
- Renaissance Capital - South Africa
- TNB Fuel Sdn Bhd - Malaysia
- Bhoruka Overseas - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Xindia Steels Limited - India
- Standard Chartered Bank - UAE
- Indo Tambangraya Megah - Indonesia
- San Jose City I Power Corp, Philippines
- Marubeni Corporation - India
- Parliament of New Zealand
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bayan Resources Tbk. - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Cement Manufacturers Association - India
- Ministry of Finance - Indonesia
- GAC Shipping (India) Pvt Ltd
- SN Aboitiz Power Inc, Philippines
- GMR Energy Limited - India
- Posco Energy - South Korea
- Singapore Mercantile Exchange
- Kalimantan Lumbung Energi - Indonesia
- Coalindo Energy - Indonesia
- Jindal Steel & Power Ltd - India
- Electricity Generating Authority of Thailand
- Electricity Authority, New Zealand
- Bank of Tokyo Mitsubishi UFJ Ltd
- Medco Energi Mining Internasional
- Vijayanagar Sugar Pvt Ltd - India
- Mjunction Services Limited - India
- Sinarmas Energy and Mining - Indonesia
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- Banpu Public Company Limited - Thailand
- PetroVietnam Power Coal Import and Supply Company
- Directorate General of MIneral and Coal - Indonesia
- Carbofer General Trading SA - India
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