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Thursday, 26 May 16
GIANT ORE CARRIERS SET TO PLAY A BIGGER ROLE IN THE GLOBAL SHIPPING FLEET: CHINA EMBRACES VALEMAXES - RICHARD SCOTT
 Another phase of the giant ships era is approaching. Chinese shipowners placed orders recently for 30 huge ‘valemax’ ore carriers. These vessels, with a 400,000 deadweight tonnes capacity, are the largest carrying dry bulk commodities. When the ships are delivered in 2018 and 2019, a smooth introduction into the China iron ore imports trade is likely, contrasting with the experience of their predecessors.
The new tonnage will join an existing fleet of 34 similar valemax VLOCs (very large ore carriers) built in the past few years, operated by shipowners in several countries. Originally the class was named ‘chinamax’, reflecting the intended destination for most of the iron ore cargoes carried by these ships, supplied from Brazil. A name change to valemax was decided by Brazilian mining company Vale, which developed the concept, when discharging at Chinese ports was blocked, a severe setback. But this difficulty was eventually resolved.
A new bulk carrier class emerges
An unusually long boom in the dry bulk freight market, over several years up to mid-2008, provided motivation for the valemax concept gestation period. High and volatile freight rates for all dry commodities on international routes were experienced. These elevated rates were especially notable in the size group of vessels widely employed within the global iron ore and some other commodity trades, ‘capesize’ ships carrying about 180,000 dwt tonnes.
China had become, since 2003, the world’s largest iron ore importer and annual volumes continued growing rapidly. As a key supplier, Brazil focused on this market with substantial growth potential. Among alternative suppliers, competition with Australia is particularly intense. Australian miners have a big transportation cost advantage when exporting to Asian destinations: a much shorter distance compared with Brazil. The distance to Chinese ports from Western Australia is one-third of that from Brazil to China, resulting in much lower freight rates
Vale’s strategy to improve its competitiveness was massive capital investment in shipping capacity. A new class of many and far larger vessels, under the mining company’s full control, was designed to exploit economies of scale, with the aim of greatly lowering transportation unit costs. Exposure to the heights and variations of the global ocean freight market, and reliance on independent shipowners operating in that market, would be hugely reduced, making the delivered cost of Brazilian iron ore more attractive.
In mid-2008 the strategy profile became clearer. An order for a series of twelve new valemax 400,000 dwt ore carriers was placed at a Chinese shipbuilding yard, and further newbuilding orders followed for similar ships. Also, long-term 20-25 years transportation contracts were agreed by Vale with several independent shipowners based in other countries who, in turn, placed orders for new similar vessels to service the contracts.
An especially notable agreement was made with South Korean shipowners STX Pan Ocean. Reportedly the world’s largest contract of affreightment, valued at $5.8 billion, it covered 300 million tonnes of iron ore from Brazil to China over 25 years, requiring eight valemaxes each carrying an average 12m annually.
The current fleet
Valemax ships are the leviathans of dry bulk shipping, more than twice as big as capesize bulk carriers, typical vessels in the large capacity category. Dimensions of valemaxes are: length 360 metres, beam (width) 65 metres, draft (depth below waterline) 23 metres. The hull is divided into seven cargo holds and productivity is enhanced by ability to be loaded very rapidly. Previous the record holder was a 365,000 dwt ore carrier built thirty years ago and still trading today.
A remarkably large number of valemaxes, 35 in total, was ordered by Vale and its three shipowner partners – STX Pan Ocean, Oman Shipping and Berge Bulk – in this round. Most orders were obtained by shipyards in China, accompanied by some placed in South Korea. Deliveries began in early 2011, and the majority had been completed by the end of 2013.
The table below shows the year of delivery from builders and current owners. One vessel is still under construction, so the present total is 34. Vale originally owned 19, more than half the total. During the past twelve months, Vale sold 12 ships to Chinese operators (China VLOC, China Ore Shipping and ICBC Leasing) following earlier leasing of four ships to another Chinese owner, Shandong Shipping.
Valemaxes are not the only VLOCs operating in the Brazil iron ore export trades. A large number of other big ore carriers is regularly employed. Many of these ships were originally built as tankers to carry crude oil, and were converted to ore carriers.
Calculations based on a snapshot view of recent (early May 2016) employment revealed that, excluding the valemaxes, 69 ships of 240,000 dwt and larger were involved in Vale iron ore export trades to China and numerous other destinations. All except one were actually in a range of 247,000 to 327,000 dwt. Converted former tankers numbered 32, almost half the total number, mainly 260,000 to 300,000 dwt, built in the 1990-1995 period and converted between 2008 and 2011.
Trading patterns
Generally, the maxim applicable is that the larger the ship, the more restricted the trading pattern. This basic feature applies to most ship types. Typically there are two constraints: port and berth dimensions and cargo handling facilities (including storage) at loading and discharging ports, and the volume and regularity of cargo flows. Canal restrictions are sometimes another limitation. Valemax 400,000 dwt ore carriers are restricted to a small number of trade routes.
The original rationale for valemax size vessels focused on employment in carrying massive and growing iron ore imports into China. When the current ships were ordered, China was already the dominant iron ore importer, receiving 444 million tonnes in 2008, a 53 percent share of global seaborne iron ore trade, of which Brazil supplied 101mt (23 percent).
Today’s volumes are much higher. China’s total imports reached 953mt in 2015, a 70 percent share of world seaborne iron ore trade. Brazil supplied 192mt, a smaller 20 percent proportion of the China import market, but the actual volume was almost double that seen seven years earlier. The current valemax fleet theoretically could carry about one-quarter of the trade from Brazil to China annually, over 53mt (assuming each vessel completed four trips). Consequently, there is ample potential employment. Moreover, some vessels participate in other trades.
Since valemax ore carriers were introduced, iron ore cargoes from Ponta da Madeira, Tubarao and Guaiba in Brazil carried by these vessels have been received in a number of countries around the world as well as China. Discharge ports include Taranto (Italy), Rotterdam (Netherlands), Sohar (Oman), Oita, Kimitsu and Kashima (Japan), Gwangyang and Dangjin (South Korea), Villanueva (Philippines) and Subic Bay (Philippines). An entirely new port terminal at Teluk Rubiah (Malaysia) started receiving shipments in early 2014.
Delayed role in China’s imports
During the period of almost four years following the introduction of valemaxes in 2011, only a small number of these ships were given permission to discharge in Chinese ports and the cargoes were less than full shiploads. Eventually, in early 2015, problems which had prevented extensive valemax participation in this trade were resolved.
How did the unanticipated prolonged delay in gaining access to Chinese ports occur? Before the first valemax was delivered from the shipbuilders in May 2011, opposition from China was intensifying. Later in that year, the China Shipowners Association expressed their view that employing valemaxes in this trade was monopolistic and represented unfair competition. Concern about port safety also was expressed. In January 2012, the Chinese government announced a formal ban on these vessels using Chinese ports. The competition issue seems to have been the main influence.
Long before the official ban, amid mounting opposition from the Chinese government to the original strategy, Vale had disclosed in October 2010 a modified plan involving transshipments. This plan featured valemaxes carrying iron ore to a port where cargoes could be offloaded into smaller ships acceptable at all final destinations. The regional distribution centre at Teluk Rubiah, Malaysia was designed. A further centre in the Middle East area at Sohar, Oman was planned.
Valemax size shipments started arriving at Sohar in September 2011, with full operations beginning in the following March. Arrangements were made also for another transshipment facility, a floating terminal at Subic Bay, Philippines, where valemax size cargoes could be transferred offshore to smaller bulk carriers. This became operational in February 2012, when the world’s largest dry bulk floating storage vessel (a converted tanker) arrived, and a second floating terminal was added in the next year. The land based distribution hub at Teluk Rubiah began receiving cargoes in early 2014, fully opening later in that year.
Foreshadowing an end to the dispute as opposition from China’s shipowners gradually receded, Chinese shipowning company Shandong Shipping leased four valemaxes from Vale towards the end of 2013. This progress was followed In September 2014 by Cosco signing a provisional cooperation agreement to buy from Vale, and charter back on long term 25-year charters, four vessels of this type. Another provisional contract with China Merchants Group was also agreed.
Eventually, early in 2015, China’s objections were removed and the ban was lifted. Later, several ports were officially permitted to receive the vessels – Dalian, Qingdao, Tangshan and Ningbo-Zhoushan. The first recorded full valemax cargo of iron ore, from Brazil, was received at Dongjiakou (Qingdao) at the end of July 2015.
In the past twelve months, since the lifting of the ban, China has firmly embraced the giant ore carrier concept. Three major purchases from Vale were finalised. In May 2015 Cosco bought four valemaxes for $445 million, for operation by China Ore Shipping (a new company 51 percent owned by Cosco and 49 percent by China Shipping Group, preceding the merger of the two holding companies). Soon after, in July, China Merchants Energy Shipping bought four valemaxes for $448m and set up a new operating subsidiary, China VLOC. Finally, in December, Industrial and Commercial Bank of China’s ICBC Leasing subsidiary purchased a further four ships for $423m.
What has the valemax strategy achieved?
When Vale’s original strategy became known, it was soon clear that it was industrial bulk shipping on a vast scale, one of the biggest arrangements of its type ever seen in the dry bulk sector. Given the enormous scale of capital investment involved, it is arguable that advantages for the mining company have been modest so far, mostly reflecting a shipping market environment evolving very differently to what was envisaged at the outset.
Varying conditions ranging from subdued to depressed have prevailed, in the dry bulk freight market, during much of the past five years since valemaxes started operating. Low open market rates over a long period diminished the economic justification for mega-size ships, greatly reducing envisaged savings in iron ore transport costs. The differential between freight rates from Brazil and the main export competitor, Australia was compressed, removing more benefit. However, some advantage has been gained by avoiding brief spikes in capesize rates.
Accompanying these general market aspects related to valemax employment, an inability to access Chinese ports regularly with fully-loaded ships for several years was a huge setback. Although a workable alternative plan was quickly put in place, featuring transshipment at various locations, it involved significant extra costs. These additional expenses partly offset gains from lower unit costs of transportation resulting from economies of scale.
Nevertheless there are still, potentially, benefits to be gained in the future over the remaining lifespan of the existing ships, two decades or more. A balanced view will be possible only much later during this period. If another long dry bulk freight market boom occurred, unlikely though that may seem based on present signs, the valemax strategy could prove to have been extraordinarily sound and far-sighted.
A contrasting approach by Vale’s principal competitors in the international iron ore market has been seen. Rio Tinto and BHP Billiton have adopted different strategies. Although Rio Tinto has invested in ore carriers to some extent, these are not the mega-size ships. BHP Billiton has remained focused mainly upon using the open freight market.
Future fleet enlargement
Underlining potential future advantages are plans, recently announced, to almost double the size of the present valemax fleet. This expansion presumably has been informed by performance already experienced, and probably reflects expectations of a fairly subdued freight market evolution in many of the years ahead.
During the past few months it was confirmed that three Chinese shipowners have placed orders with shipbuilders in China for 30 valemaxes to be delivered in 2018 and 2019, as shown in the table below. Reports indicate that Vale is chartering all the ships on long 27 years contracts of affreightment.
Although these orders have added to anxiety about future global bulk carrier fleet expansion, it seems clear that a large proportion of the new capacity is effectively replacement tonnage. Many vessels Vale is currently using, VLOCs converted from tankers, probably will reach or approach their life-cycle end by 2020 or earlier. Among these, numerous ships were built in the years up to 1993, and so will be twenty five or more years old by 2018.
The new valemaxes will assist in providing iron ore transportation on the Brazil to China route at the most economical cost. Enhanced competitiveness with other iron ore suppliers, especially Australia is likely to result. Another aspect is that full possession of the vessels by China-owned shipping companies is consistent with the national strategic aim to carry a higher proportion of the country’s trade in domestically-owned ships.
Article by Richard Scott, visiting lecturer, London universities & MD, Bulk Shipping Analysis | Hellenic Shipping News
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Monday, 27 June 16
THE BDI UP 3.75 PERCENT ; BCI FELL 1.51% WEEK OVER WEEK
COALspot.com: The Baltic Exchange, tracking rates for ships carrying dry bulk commodities rose this past week. The BDI was up 3.75 percent from las ...
Monday, 27 June 16
INDONESIA BANS (AGAIN) SHIPS SAILING TO THE PHILIPPINES FROM INDONESIA
COALspot.com: The Indonesian Transport Ministry strictly prohibited harbour masters issuing permits to all Indonesian-flagged vessels bound for the ...
Friday, 24 June 16
U.S WEEKLY COAL PRODUCTION UP MARGINALLY
COALspot.com – U.S, world’s one of the largest coal producers has produced approximately totalled an estimated 13.4 million short tons ...
Wednesday, 22 June 16
SMALL RISE IN SHIPPING CONFIDENCE - MOORE STEPHENS
In May 2016, the average confidence level expressed by respondents in the markets in which they operate was 5.1 on a scale of 1 (low) to 10 (high). ...
Wednesday, 22 June 16
SHIPPING MARKET INSIGHT - NASSOS SOULAKIS
Stagnation- With the BDI stuck in the low 600 points for almost a month now, if we had to choose a word to describe the state of the Dry Bulk freig ...
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- Commonwealth Bank - Australia
- Planning Commission, India
- GVK Power & Infra Limited - India
- Heidelberg Cement - Germany
- Maharashtra Electricity Regulatory Commission - India
- Economic Council, Georgia
- Sical Logistics Limited - India
- PTC India Limited - India
- Attock Cement Pakistan Limited
- Manunggal Multi Energi - Indonesia
- Bhoruka Overseas - Indonesia
- Baramulti Group, Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Semirara Mining Corp, Philippines
- Ministry of Transport, Egypt
- Gujarat Sidhee Cement - India
- Marubeni Corporation - India
- CIMB Investment Bank - Malaysia
- PNOC Exploration Corporation - Philippines
- Indo Tambangraya Megah - Indonesia
- Star Paper Mills Limited - India
- SMG Consultants - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Sarangani Energy Corporation, Philippines
- Samtan Co., Ltd - South Korea
- Electricity Authority, New Zealand
- Australian Commodity Traders Exchange
- The Treasury - Australian Government
- Ind-Barath Power Infra Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Riau Bara Harum - Indonesia
- Metalloyd Limited - United Kingdom
- CNBM International Corporation - China
- Formosa Plastics Group - Taiwan
- VISA Power Limited - India
- Altura Mining Limited, Indonesia
- Salva Resources Pvt Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Essar Steel Hazira Ltd - India
- Jaiprakash Power Ventures ltd
- Sindya Power Generating Company Private Ltd
- Kobexindo Tractors - Indoneisa
- International Coal Ventures Pvt Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Orica Mining Services - Indonesia
- Savvy Resources Ltd - HongKong
- Indogreen Group - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- White Energy Company Limited
- Rashtriya Ispat Nigam Limited - India
- Directorate Of Revenue Intelligence - India
- Energy Development Corp, Philippines
- Karaikal Port Pvt Ltd - India
- Parliament of New Zealand
- Siam City Cement PLC, Thailand
- Interocean Group of Companies - India
- Bukit Makmur.PT - Indonesia
- Ministry of Finance - Indonesia
- Energy Link Ltd, New Zealand
- Parry Sugars Refinery, India
- Karbindo Abesyapradhi - Indoneisa
- Banpu Public Company Limited - Thailand
- ICICI Bank Limited - India
- Iligan Light & Power Inc, Philippines
- Wilmar Investment Holdings
- Semirara Mining and Power Corporation, Philippines
- Globalindo Alam Lestari - Indonesia
- Toyota Tsusho Corporation, Japan
- Borneo Indobara - Indonesia
- McConnell Dowell - Australia
- Trasteel International SA, Italy
- Miang Besar Coal Terminal - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Bangladesh Power Developement Board
- LBH Netherlands Bv - Netherlands
- PowerSource Philippines DevCo
- Lanco Infratech Ltd - India
- South Luzon Thermal Energy Corporation
- Asmin Koalindo Tuhup - Indonesia
- Thai Mozambique Logistica
- Eastern Coal Council - USA
- Port Waratah Coal Services - Australia
- Orica Australia Pty. Ltd.
- Makarim & Taira - Indonesia
- Aditya Birla Group - India
- Malabar Cements Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Eastern Energy - Thailand
- Renaissance Capital - South Africa
- Indonesian Coal Mining Association
- Uttam Galva Steels Limited - India
- Aboitiz Power Corporation - Philippines
- PetroVietnam Power Coal Import and Supply Company
- Mercator Lines Limited - India
- Mercuria Energy - Indonesia
- The State Trading Corporation of India Ltd
- Agrawal Coal Company - India
- Kalimantan Lumbung Energi - Indonesia
- Petron Corporation, Philippines
- Jindal Steel & Power Ltd - India
- India Bulls Power Limited - India
- Kideco Jaya Agung - Indonesia
- Rio Tinto Coal - Australia
- Oldendorff Carriers - Singapore
- Therma Luzon, Inc, Philippines
- Australian Coal Association
- Bahari Cakrawala Sebuku - Indonesia
- Meenaskhi Energy Private Limited - India
- Timah Investasi Mineral - Indoneisa
- Bhatia International Limited - India
- GMR Energy Limited - India
- Standard Chartered Bank - UAE
- Coalindo Energy - Indonesia
- San Jose City I Power Corp, Philippines
- Latin American Coal - Colombia
- Sojitz Corporation - Japan
- MS Steel International - UAE
- Cigading International Bulk Terminal - Indonesia
- Deloitte Consulting - India
- OPG Power Generation Pvt Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Bhushan Steel Limited - India
- Kartika Selabumi Mining - Indonesia
- Medco Energi Mining Internasional
- Carbofer General Trading SA - India
- Ambuja Cements Ltd - India
- Chettinad Cement Corporation Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Independent Power Producers Association of India
- Cement Manufacturers Association - India
- Bukit Asam (Persero) Tbk - Indonesia
- Grasim Industreis Ltd - India
- Tata Chemicals Ltd - India
- Mintek Dendrill Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Indika Energy - Indonesia
- London Commodity Brokers - England
- Price Waterhouse Coopers - Russia
- Goldman Sachs - Singapore
- Simpson Spence & Young - Indonesia
- Wood Mackenzie - Singapore
- Intertek Mineral Services - Indonesia
- Antam Resourcindo - Indonesia
- Kepco SPC Power Corporation, Philippines
- Larsen & Toubro Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Anglo American - United Kingdom
- AsiaOL BioFuels Corp., Philippines
- Mjunction Services Limited - India
- Xindia Steels Limited - India
- Videocon Industries ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Vizag Seaport Private Limited - India
- European Bulk Services B.V. - Netherlands
- Power Finance Corporation Ltd., India
- IHS Mccloskey Coal Group - USA
- Barasentosa Lestari - Indonesia
- Leighton Contractors Pty Ltd - Australia
- GAC Shipping (India) Pvt Ltd
- Pendopo Energi Batubara - Indonesia
- Global Business Power Corporation, Philippines
- Bukit Baiduri Energy - Indonesia
- Global Coal Blending Company Limited - Australia
- Coal and Oil Company - UAE
- Chamber of Mines of South Africa
- New Zealand Coal & Carbon
- Thiess Contractors Indonesia
- Sree Jayajothi Cements Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Alfred C Toepfer International GmbH - Germany
- Ministry of Mines - Canada
- Coastal Gujarat Power Limited - India
- Vedanta Resources Plc - India
- Straits Asia Resources Limited - Singapore
- SN Aboitiz Power Inc, Philippines
- The University of Queensland
- Georgia Ports Authority, United States
- TeaM Sual Corporation - Philippines
- Indian Oil Corporation Limited
- Meralco Power Generation, Philippines
- Sinarmas Energy and Mining - Indonesia
- Maheswari Brothers Coal Limited - India
- Siam City Cement - Thailand
- Minerals Council of Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Singapore Mercantile Exchange
- Sakthi Sugars Limited - India
- Madhucon Powers Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Central Electricity Authority - India
- Binh Thuan Hamico - Vietnam
- Kaltim Prima Coal - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Bharathi Cement Corporation - India
- Bayan Resources Tbk. - Indonesia
- SMC Global Power, Philippines
- Billiton Holdings Pty Ltd - Australia
- Edison Trading Spa - Italy
- Africa Commodities Group - South Africa
- Tamil Nadu electricity Board
- Romanian Commodities Exchange
- Central Java Power - Indonesia
- Merrill Lynch Commodities Europe
- Posco Energy - South Korea
- Ceylon Electricity Board - Sri Lanka
- Indian Energy Exchange, India
- IEA Clean Coal Centre - UK
- Global Green Power PLC Corporation, Philippines
- Kapuas Tunggal Persada - Indonesia
- Bulk Trading Sa - Switzerland
- Dalmia Cement Bharat India
- Electricity Generating Authority of Thailand
- ASAPP Information Group - India
- Directorate General of MIneral and Coal - Indonesia
- Kumho Petrochemical, South Korea
- Dong Bac Coal Mineral Investment Coporation - Vietnam
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