I'm sure you've all read the interesting rumours regarding VLBCs (and/or Chinamaxes) and VLCCs. What puts these behemoths in the "Top News" sections is that the sheer volume of cargo they carry and the economies of scale that they allow, can do nothing other than cause a shift in the market. So let's put these rumours to rest and see what the facts say:
Tankers:
With 102 VLCCs available for the next 30 days in the Arabian Gulf, I think it is safe to say that it is a bit overcrowded. In the AG - Far East route, VLCCs were making around $31,000/day more 2 weeks ago, and now they can make around $17,000/day more in the West Africa - U.S. route, than what they are making today. This explains why at least 5 vessels have made their way to West Africa, in ballast conditions no less, and upon hearing a WS77.5 on that route, other owners are also considering it a viable option. This action will no doubt push the West Africa market, while tightening the Arabian Gulf one, hopefully balancing out the oversupply issues that exist.
Bulk Carriers:
Capesizes are the ones that usually lead the market, since the volume they carry has a big impact on commodities. But this looks like it's changing, leaving a big question mark as to whether or not the Capesize vessels will survive. Akis Tsirigakis of Nasdaq-listed Star Bulk Carriers has put in an order for Capes, 2 of which will be delivered next year. He believes that economies of scale will move people to order larger vessels. On that note, Vale is expecting their first of 30 VLBCs (around 400,000dwt) in 2011. Even their competitor Rio Tinto has gone that route, and they want to make a "Brazil - China Highway" for Iron Ore (to begin with). Their argument is that these are expected to cost around $20/ton freight, whereas Capes cost close to $29/ton. This makes one wonder if the Capes will be "marginalised" out of the market.
In a world with price-driven demand promoting economies of scale, it looks like more and more owners are going "big", and proof of that is that the order book contains 166 dry cargo vessels larger than 200,000dwt, 74 of which are over 280,000dwt.
So will owners follow the markets and go "big", or will they look left when everyone is looking right?
Best Regards,
Theo Scholiadis - S&P Broker
Main articles used (list not exhaustive):
- Vale Threat to Cape Owners
[Source: TradeWinds] [Date: 18/11/2010]
- Does Size Matter?
[Source: TradeWinds] [Date: 18/11/2010]
- Supertankers May Sail Empty to West Africa for Oil
[Source: Bloomberg] [Date: 18/11/2010]
Dear Theo,
ReplyDeleteInteresting ruminations/question...Thank you!
It seems to me that if one has the ability/means to own or substaintially control
(thru'shareholding) the whole supply chain,( as the Chinese, in many cases, do)- the supplier
( mine/mill) the ships and the end users
( steel/Mills) and , further, they 'make the market' themselves... then it makes sense for the Chinese to invest in these huge vessels to realise economies of scale...since they
( overtly or covertly) control the total supply chain and have ' captive' business, so to speak.
But, to be outside such a chain and to speculate with buying such huge assets/units, in such a volatile market.....not for the faint of heart!
Give me the versatility of ' handy size/handy max' any day ( box hold, well craned,log stancheons, shallow draft...might as well ask for everything!) for maximum flexibility/versatility to survive ' dips' in the market...something the behemoths can't do.
Why compete against the Chinese? Their economy drives this market!
To quote Courage Marine Chairman Mr. Hsu Chih Chien " Dry Bulk shipping is a highly leveraged play on Chinese property construction, as China makes up almost 50% of global steel production; over 50% of which is used in construction"-Scource Tradewinds.
Regards
Bernard
Dear Bernard,
ReplyDeleteI agree with you in that Handys and Handymaxes are more versatile, but they do not usually haul cargo from Brazil to China or any other very long-haul trips.
Similarly with Oil Majors, the mining companies will probably not own a fleet that will meet their full requirements. It will most likely be a fleet that meets just over the core requirements, outsourcing the rest. Those shipping companies that will want to join this "dance" (if they are not already in it) will have to meet the cost targets, whether this is by spot trading or long-term time charters.
As far as China is concerned, as long as they are building, they will import. How long that will last, though, is another matter altogether.
Best Regards,
Theo Scholiadis - S&P Broker
Hello Theo,
ReplyDeleteI think I am with Bernard on this one. The largest vessels can only take advantage of the economies of scale when they are laden. An exporter in China will be hard pressed to explain to his big brother (Government) why they would charter any vessel other than Chinese if any Chinese subsidized vessel is available. As the national fleet size continues to grow they soon will be in a position to handle most imports internally.
Should not your post and Bernard’s astute comments have been e-mailed to the blogs followers? I thought I had gotten notice in the past
Best Regards
Ski
Dear Ski,
ReplyDeleteI do understand that China looks after China. However, even though the Brazilian exporters are the ones buying the Chinamaxes at the moment, it doesn't mean that Chinese owners won't follow. They tend to follow purchasing trends, not set them.
In addition, I wanted to point out that China is indeed invested in Brazil, and rumours say that Vale has Chinese backed financing (please note that this is not confirmed). In an article published in the "Washington Post" on the 26th of July 2010 (find link below), China has financed Porto Du Acu, a little off Rio de Janeiro in Brazil, in order to accommodate Chinamaxes. This shows that China is the one behind the "Brazil - China Highway", trying to make use of those economies of scale.
As for the emails, as far as I know, they are sent when someone "subscribes by email". I will, however, confirm this and make the appropriate changes where necessary.
Best Regards,
Theo Scholiadis - S&P Broker
Washington Post article: "China invests heavily in Brazil, elsewhere in pursuit of political heft" (http://www.washingtonpost.com/wp-dyn/content/article/2010/07/25/AR2010072502979.html?hpid=topnews)
Hi Theo,
ReplyDeleteThe two comments today about CSDC in Tradewinds, (for example), with respect to my earlier comments about my uneasiness concerning ' asset speculation' with such large ships, concern me since China Inc. have such deep pockets and capability to lock upthe total supply chain.
I enjoy your informed column. Keep up
the good work!
Bernard
Thank you Bernard,
ReplyDeleteBest Regards,
Theo Scholiadis - S&P Broker
Dear Theo:
ReplyDeleteThe big three miners will find out that their math may be correct, but whether or not owning many VLOC's at a horrendous cost in the presence of large numbers of available capes makes good business sense is another matter. In a few years from now cape owners will fight over freight, driving down rates and minimizing the cost advantage of VLOC's. Either party may be well advised to analyse this business a little more before spending more money on vessels.
Please say "Hello" to John from me and keep up the good work.
Hans
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ReplyDelete