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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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Thursday, 28 April 16
PRICES OF POWER-STATION COAL IN INDONESIA IS INCREASING
COALspot.com: Inquiries for Indonesian 4200 - 4400 Kcal/kg GAR thermal coal cargoes from India suddenly increase recent days.
A Jakarta-based ...
Thursday, 28 April 16
KOMIPO TO IMPORT 710K MT OF BITUMINOUS COAL DURING JULY - SEPTEMBER 2016
COALspot.com: South Korea state-owned utility Korea Midland Power (KOMIPO) issued a new tender for 710,000 Metric Tons of Bituminous Coal for its B ...
Thursday, 28 April 16
CAPE: BIT MORE OPTIMISM IN THE MARKET; SUPRAMAX: FORWARD CURVE IS FALLING - FEARNLEYS
Cape
A bit of a slower week. Activity level has dropped, though the rates do still remain firm, says Fearnleys in its latest weekly report.
...
Wednesday, 27 April 16
THE OCEAN SHIPPING EXPERIENCED DRAMATIC VOLATILITY IN THE BEGINNING OF 2016 - PANOS TSILINGIRIS
Shipping’s new (ab)normal
The global economy and ocean shipping experienced dramatic volatility in the beginning of 2016 and as the glob ...
Wednesday, 27 April 16
INDONESIAN COAL MINER KIDECO REPORTED NET PROFIT OF US$138.1 MILLION IN 2015
COALspot.com: Kideco Jaya Agung, one of the Indonesia's leading coal miners has reported net profit of US$138.1 million on revenue of US$1.65 b ...
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- Metalloyd Limited - United Kingdom
- Ministry of Finance - Indonesia
- European Bulk Services B.V. - Netherlands
- Chamber of Mines of South Africa
- Bahari Cakrawala Sebuku - Indonesia
- Romanian Commodities Exchange
- Electricity Authority, New Zealand
- Parliament of New Zealand
- Independent Power Producers Association of India
- Kumho Petrochemical, South Korea
- Leighton Contractors Pty Ltd - Australia
- Semirara Mining Corp, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Chettinad Cement Corporation Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Indian Oil Corporation Limited
- Maheswari Brothers Coal Limited - India
- Binh Thuan Hamico - Vietnam
- Alfred C Toepfer International GmbH - Germany
- Kobexindo Tractors - Indoneisa
- LBH Netherlands Bv - Netherlands
- Vijayanagar Sugar Pvt Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Georgia Ports Authority, United States
- Standard Chartered Bank - UAE
- Bhushan Steel Limited - India
- Riau Bara Harum - Indonesia
- Borneo Indobara - Indonesia
- Singapore Mercantile Exchange
- Orica Mining Services - Indonesia
- MS Steel International - UAE
- Central Electricity Authority - India
- Intertek Mineral Services - Indonesia
- Electricity Generating Authority of Thailand
- Maharashtra Electricity Regulatory Commission - India
- Sakthi Sugars Limited - India
- Ind-Barath Power Infra Limited - India
- Sree Jayajothi Cements Limited - India
- Madhucon Powers Ltd - India
- Miang Besar Coal Terminal - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Kepco SPC Power Corporation, Philippines
- Global Business Power Corporation, Philippines
- Gujarat Sidhee Cement - India
- Oldendorff Carriers - Singapore
- Gujarat Mineral Development Corp Ltd - India
- Energy Development Corp, Philippines
- Bangladesh Power Developement Board
- Wilmar Investment Holdings
- New Zealand Coal & Carbon
- Bukit Asam (Persero) Tbk - Indonesia
- Directorate Of Revenue Intelligence - India
- Anglo American - United Kingdom
- TeaM Sual Corporation - Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Ambuja Cements Ltd - India
- The University of Queensland
- Kaltim Prima Coal - Indonesia
- Indonesian Coal Mining Association
- Wood Mackenzie - Singapore
- Goldman Sachs - Singapore
- Bhoruka Overseas - Indonesia
- Salva Resources Pvt Ltd - India
- Heidelberg Cement - Germany
- Merrill Lynch Commodities Europe
- Trasteel International SA, Italy
- The State Trading Corporation of India Ltd
- Bank of Tokyo Mitsubishi UFJ Ltd
- Therma Luzon, Inc, Philippines
- Rio Tinto Coal - Australia
- Bulk Trading Sa - Switzerland
- Vizag Seaport Private Limited - India
- Sinarmas Energy and Mining - Indonesia
- Antam Resourcindo - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- GVK Power & Infra Limited - India
- Marubeni Corporation - India
- Posco Energy - South Korea
- CNBM International Corporation - China
- Petrochimia International Co. Ltd.- Taiwan
- Aboitiz Power Corporation - Philippines
- International Coal Ventures Pvt Ltd - India
- Indika Energy - Indonesia
- Iligan Light & Power Inc, Philippines
- Essar Steel Hazira Ltd - India
- Energy Link Ltd, New Zealand
- Bukit Makmur.PT - Indonesia
- Economic Council, Georgia
- Tamil Nadu electricity Board
- Altura Mining Limited, Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Attock Cement Pakistan Limited
- Savvy Resources Ltd - HongKong
- Sarangani Energy Corporation, Philippines
- Australian Coal Association
- Planning Commission, India
- Indian Energy Exchange, India
- GMR Energy Limited - India
- Kartika Selabumi Mining - Indonesia
- Minerals Council of Australia
- Larsen & Toubro Limited - India
- Siam City Cement - Thailand
- SMG Consultants - Indonesia
- OPG Power Generation Pvt Ltd - India
- Mjunction Services Limited - India
- Tata Chemicals Ltd - India
- White Energy Company Limited
- Holcim Trading Pte Ltd - Singapore
- Mercator Lines Limited - India
- Simpson Spence & Young - Indonesia
- Cement Manufacturers Association - India
- Thai Mozambique Logistica
- Malabar Cements Ltd - India
- Global Green Power PLC Corporation, Philippines
- Port Waratah Coal Services - Australia
- GN Power Mariveles Coal Plant, Philippines
- Coastal Gujarat Power Limited - India
- CIMB Investment Bank - Malaysia
- Semirara Mining and Power Corporation, Philippines
- PNOC Exploration Corporation - Philippines
- Coalindo Energy - Indonesia
- Dalmia Cement Bharat India
- SN Aboitiz Power Inc, Philippines
- Meralco Power Generation, Philippines
- Coal and Oil Company - UAE
- Uttam Galva Steels Limited - India
- PetroVietnam Power Coal Import and Supply Company
- ICICI Bank Limited - India
- Bukit Baiduri Energy - Indonesia
- Banpu Public Company Limited - Thailand
- Grasim Industreis Ltd - India
- Mintek Dendrill Indonesia
- Commonwealth Bank - Australia
- Straits Asia Resources Limited - Singapore
- IHS Mccloskey Coal Group - USA
- GAC Shipping (India) Pvt Ltd
- Toyota Tsusho Corporation, Japan
- PowerSource Philippines DevCo
- Baramulti Group, Indonesia
- Timah Investasi Mineral - Indoneisa
- Africa Commodities Group - South Africa
- McConnell Dowell - Australia
- Directorate General of MIneral and Coal - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Indo Tambangraya Megah - Indonesia
- Thiess Contractors Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Lanco Infratech Ltd - India
- Orica Australia Pty. Ltd.
- Central Java Power - Indonesia
- Carbofer General Trading SA - India
- Cigading International Bulk Terminal - Indonesia
- Renaissance Capital - South Africa
- Samtan Co., Ltd - South Korea
- Mercuria Energy - Indonesia
- Manunggal Multi Energi - Indonesia
- PTC India Limited - India
- Sindya Power Generating Company Private Ltd
- Bhatia International Limited - India
- Jorong Barutama Greston.PT - Indonesia
- IEA Clean Coal Centre - UK
- Latin American Coal - Colombia
- Globalindo Alam Lestari - Indonesia
- Ministry of Mines - Canada
- Meenaskhi Energy Private Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Star Paper Mills Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Petron Corporation, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Aditya Birla Group - India
- VISA Power Limited - India
- San Jose City I Power Corp, Philippines
- Karaikal Port Pvt Ltd - India
- Australian Commodity Traders Exchange
- ASAPP Information Group - India
- Eastern Coal Council - USA
- Bharathi Cement Corporation - India
- Agrawal Coal Company - India
- Bayan Resources Tbk. - Indonesia
- Price Waterhouse Coopers - Russia
- Global Coal Blending Company Limited - Australia
- India Bulls Power Limited - India
- South Luzon Thermal Energy Corporation
- Ministry of Transport, Egypt
- Medco Energi Mining Internasional
- Kideco Jaya Agung - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Formosa Plastics Group - Taiwan
- Pendopo Energi Batubara - Indonesia
- Jindal Steel & Power Ltd - India
- Sojitz Corporation - Japan
- Jaiprakash Power Ventures ltd
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Eastern Energy - Thailand
- The Treasury - Australian Government
- Kapuas Tunggal Persada - Indonesia
- Videocon Industries ltd - India
- Barasentosa Lestari - Indonesia
- Vedanta Resources Plc - India
- Parry Sugars Refinery, India
- SMC Global Power, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Makarim & Taira - Indonesia
- Siam City Cement PLC, Thailand
- Power Finance Corporation Ltd., India
- AsiaOL BioFuels Corp., Philippines
- Sical Logistics Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Xindia Steels Limited - India
- London Commodity Brokers - England
- Billiton Holdings Pty Ltd - Australia
- Interocean Group of Companies - India
- Indogreen Group - Indonesia
- Edison Trading Spa - Italy
- Deloitte Consulting - India
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