Global Ports Forum

Atlas Iron Speculation Grows With Australia Port Needs

Atlas Iron Ltd. (AGO), already Australia’s fastest-growing iron-ore producer, is also offering potential acquirers space to load vessels at the world’s busiest port for shipping the mineral.

Atlas posted a 22-fold increase in sales over the past two fiscal years, the biggest surge of any Australian mining company with a market value of more than $1 billion, and projects its iron-ore output will rise more than sevenfold by 2017, according to data compiled by Bloomberg. The $2.7 billion company, which has no debt, trades at 11.9 times earnings, half the average for the Bloomberg World Mining Index, yesterday’s data showed.

While BHP Billiton Ltd. (BHP) needs to build a 4-kilometer (2.5 mile) jetty and dredge a 32-kilometer shipping lane to add capacity at Australia’s Port Hedland, the gateway to Asia from the ore-rich Pilbara region, Atlas already has room for an expansion that may allow it to boost shipments to 46 million metric tons from 6 million without having to build over water. That offers “significant strategic appeal,” said Troy Irvin of Argonaut Securities Pty, and Atlas could lure a bid from BHP or Fortescue Metals Group Ltd. (FMG) that’s as much as 26 percent above its current value, according to EL&C Baillieu Stockbroking Ltd.

“This year is a good year to buy Atlas,” said Trent Barnett, head of research at Hartleys Ltd., a Perth-based stockbroker and corporate advisor. “For a large, Pilbara- producing miner, Atlas’s attraction is probably all to do with ports. If you’re a new entrant into the region, you’d want everything they’ve got.”

Atlas shares today rose 1.7 percent to A$2.99 at the close in Sydney, the highest level in one month. The benchmark S&P/ASX 200 Index gained 0.3 percent.

Trucking Distance

Tony Walsh, the company secretary at Perth-based Atlas, declined to comment on a potential sale.

From a single employee and a market capitalization of less than A$10 million ($10.4 million) in 2004, Atlas expanded to 400 workers and a value of A$3 billion in seven years. With mines within trucking distance of Port Hedland, the company has remained debt free even after more than 20 acquisitions, the largest of which was last year’s purchase of neighboring iron- ore explorer Giralia Resources NL for $758 million in stock, data compiled by Bloomberg show.

The company is amassing resources and port space as it seeks to meet a production target of 46 million tons a year by 2017. With A$377 million in cash at the end of 2011, Atlas will post a second consecutive year of profit in the 12 months ending June 2012, according to analysts’ estimates compiled by Bloomberg. The company’s shares, first sold to the public in December 2004 for 20 cents, closed at A$2.94 each yesterday.

‘Transport Economics’

“Ports are very scarce,” said Irvin, a Perth-based analyst at Argonaut Securities. “Building a portfolio of infrastructure options is difficult and that’s what Atlas has done. It’s a game of transport economics.”

While Atlas estimates that it can rely on trucks alone to double annual output to 12 million tons by June 2013, the company is considering turning to rail transport to tap mines further south to reach 2017 production targets. Atlas Executive Chairman David Flanagan said in Beijing this week that he’s already seeking Chinese investors for projects including rail and port ventures.

Atlas may be easier and cheaper for a buyer to integrate before it makes those decisions, which could happen after this year, according to Hartleys’ Barnett.

“They could start to sign agreements with providers, which might be hard to get out of, and they’ll decide where the railway is going and maybe sign a contract,” he said.

100 Percent Utilized

Port Hedland, named after the captain of the ship that anchored at the mangrove inlet in 1863, is currently the only location from which BHP and Fortescue ship ore that is mined in Western Australia.

The port’s current ability to handle 220 million tons per year in exports is “pretty much 100 percent utilized,” and ongoing expansions may raise total capacity to almost 500 million tons per year in 2015, according to Steed Farrell, a spokesman for the port.

As miners scout for ways to meet Asian demand, Atlas’s harbor-front position at Port Hedland is the key to its appeal, said Argonaut’s Irvin.

“The value they’ve got sits in the infrastructure,” he said. “It offers some of the best leverage to the Chinese growth story.”

World iron ore imports are forecast to rise 40 percent to 1.5 billion metric tons by 2017, with China accounting for more than half of that eventual demand as crude steel production on the mainland surges, according to Australia’s Bureau of Resources and Energy Economics. Australia’s exports may rise to 779 million tons from 407 million tons in fiscal 2011, the agency forecast in a March 21 report.

Dry-Bulk Ships

As part of an $8.4 billion plan to increase iron ore exports, Fortescue is more than doubling its capacity at Port Hedland’s Herb Elliott Port from 55 million tons to 120 million. It’s adding train unloaders, shiploaders, and berths, where dry- bulk ships that carry ore to China can be loaded.

With available land around the narrow, L-shaped harbor limited, BHP plans a development estimated to cost A$14 billion to add as much as 240 million tons of capacity by creating a new outer harbor. The cost projection comes from a 2011 report by Western Australia’s Department of Mines and Petroleum.

The program is “pivotal” for long-term growth objectives, BHP said in a Feb. 2 statement. The first 100 million ton-per- year expansion will start construction in 2016. The first phase of the project calls for building a four-berth wharf as well as new land infrastructure. Constructed in four stages, the whole outer harbor will take eight years to build, according to the port authority.

Spare Capacity

An acquisition of Atlas would give a buyer an immediate 10 million tons of unused capacity, the biggest such space available at Port Hedland, according to Peter Arden, a resources analyst at Ord Minnett in Melbourne. He said Atlas could fetch A$4 a share in a takeover.

In addition, Atlas has the ability to boost its capacity to 46.5 million tons through the South West Creek project being developed in a joint venture with Brockman Resources Ltd. (BRM), at an estimated cost of A$2.5 billion, according to a Feb. 29 presentation to investors.

Like Fortescue’s new capacity, Atlas’s additions will be in the port’s inner harbor, a zone that’s closer to existing rail lines and which Adrian Prendergast, an analyst at EL&C Baillieu in Melbourne, describes as the “prime location” in the port. Compared to what BHP will spend on building the outer harbor, acquiring Atlas would be cheap, he said.

‘Quite Intensive’

“The amount of capital required to build that is quite intensive versus acquiring a smaller producer with a large allocation such as Atlas,” said Prendergast, who estimates the company could fetch A$3.70 a share from BHP or Fortescue in a takeover.

Antonios Papaspiropoulos, a spokesman for Melbourne-based BHP, declined to comment, as did Yvonne Ball at Perth-based Fortescue.

There’s still no guarantee Atlas’s board would entertain an offer, according to Prendergast. Flanagan, who was managing director until February, said in September he had rebuffed several approaches and Atlas wasn’t seeking a buyer. As Atlas shares fetched A$3.41 on Sept. 13, he described the company as a “A$30 stock” and said only a hostile offer could succeed.

“They said they are not up for sale, but if you look at some of their actions they’ve been more promotional than ever,” said Ord Minnett’s Arden. “They need funding and they need someone to build the railway. They’ll struggle on their own to do it.”

Relative Value

With the shares down 14 percent since then, Atlas traded at 11.9 times profit, Bloomberg data showed yesterday. That compared with the average of 24.5 times fetched by companies in the Bloomberg World Mining Index.

Fortescue, which has production and rail infrastructure in the Pilbara region, would be interested in Atlas primarily for its port access, while Anglo American Plc (AAL), Xstrata Plc or a Chinese bidder may also want to own Atlas for its mines, said Barnett at Hartleys. Glencore International Plc (GLEN)’s proposed takeover of Xstrata will create the world’s fourth-biggest miner when the transaction completes in the third quarter.

“Also making it more attractive is the fact that they don’t have their own rail system yet,” said Prendergast at EL&C Baillieu. “If you’re Fortescue and you’ve got your rail network, you wouldn’t really want to buy another player with another rail network.”

Fortescue, with $2.5 billion of cash on its balance sheet at the end of December, plans to increase total iron ore exports to 155 million tons by the middle of next year.

‘Shrinking Pool’

Anglo American, with about $11.7 billion in cash, is always looking for acquisitions, Chief Executive Officer Cynthia Carroll said in September. The London-based company declined to comment on Atlas in an e-mailed reply to questions. A spokeswoman for Xstrata (XTA), which said in 2010 it was seeking deals to build up its iron-ore business, also declined to comment.

Mining companies are looking for additional growth with commodity prices that are still “reasonably robust,” said David Radclyffe, an analyst at Nomura International Plc in London, who ranks Atlas at the top of his list of mid-sized iron ore targets.

“There’s an increasingly shrinking pool of independent iron ore assets around the world and one of the few places where there are assets left would be Australia,” he said.

To contact the reporters on this story: Soraya Permatasari in Melbourne at soraya@bloomberg.net; Angus Whitley in Sydney at awhitley1@bloomberg.net

To contact the editors responsible for this story: Daniel Hauck at dhauck1@bloomberg.net; Katherine Snyder at ksnyder@bloomberg.net; Rebecca Keenan at rkeenan5@bloomberg.net

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December 14, 2011, 8:31 AM
Morgan Stanley Wins Port Botany Mandate
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By Gillian Tan

Morgan Stanley is currently sixth on Dealogic’s 2011 M&A league table but it will start 2012 on the front foot after defeating tested rivals in a competitive tender process.

Reuters
The Australian state of New South Wales has appointed the investment bank as its financial advisor for the long-term lease of Port Botany which has an expected price tag of more than 2 billion Australian dollars (US$2 billion). Funds will be allocated to infrastructure projects across the state, deemed critical.

“The long-term lease of Port Botany to the private sector also presents a huge opportunity to lift the overall productivity of our State,” NSW Treasurer Mike Baird said in a statement. “The combination of critical infrastructure upgrades and improved efficiencies under private management will enhance economic productivity. This will be particularly important to long-term trade growth and the future of our State’s economy, which is why the next scoping phase will be vital,” he added.

Mr. Baird said Morgan Stanley’s first task would be to undertake a scoping study and transaction strategy for Port Botany, which will examine market conditions and stakeholder needs.

The study will be provided to the Government for consideration during the first half of 2012, with a view to completing the transaction by the middle of 2013.

Mr. Baird has also called for Expressions of Interest from advisory firms wishing to provide independent advice on future transactions, asserting the Government would not be favoring particular firms.

“Looking beyond one-off transactions, these established groups of independent experts will work with Treasury to grow and support the long-term financial future of New South Wales,” Mr. Baird added.

Proposals are due on the morning of 24 Jan. 2012.

NSW CONTAINER STRATEGY: DON’T DISMISS NEWCASTLE

Photo courtesy of heraldsun.com.au.

Opinion – Greg Cameron

The NSW government is preparing a container terminal strategy for NSW as part of its ‘scoping study’ for the long-term lease of Port Botany terminal. It is due for release mid-year without public consultation. In December, the NSW government revealed its intention to approve a 350% increase in Port Botany container terminal operations, from 2 million containers a year to 7 million. The only container option the NSW government is studying is continued expansion of Port Botany.

An investigation of the Newcastle container option would include relocating all current and future Port Botany container operations to Newcastle. Sydney airport can be expanded, including a third parallel runway, using the Port Botany terminal site. Since new aircraft are 60% quieter than existing aircraft, sound pollution may no longer be a deciding factor in relation to growth of Sydney airport. The installed infrastructure at Port Botany can be moved by barge to Newcastle.

The decision to reject Newcastle for a container terminal is long-standing. After the NSW government assumed ownership of the former BHP steelworks site in 2000, it based all feasibility studies on the existing Newcastle urban rail system. However, it was known in 1998 that the existing system was unsuitable for rail freight. When BHP proposed a rail freight by-pass of Newcastle, from Fassifern to Hexham, it was rejected by the NSW government.

The NSW government’s decision to reject the Newcastle option is based on the assumption that the Fassifern to Hexham rail by-pass will never be built. Surely the assumption is false?

The Fassifern to Hexham by-pass is economically viable. Instead of spending $200 million to upgrade the rail freight line from Port Botany, the funds can be re-allocated towards the cost of the Fassifern to Hexham line. By reducing travel time between Sydney and Brisbane by up to 35 minutes, the line permanently contributes to lower freight costs. By allowing the Newcastle urban system to be re-developed using light rail, significant urban development opportunities are enabled. Empty containers – currently 50% of all containers are exported empty – can be railed into northern NSW for back loading through Newcastle with coal, agricultural products and, in time, value added products. An optimally designed Newcastle terminal will deliver containers into Sydney at a competitive cost compared with Port Botany. A container terminal at Newcastle provides most regional areas of NSW with cost-effective access to a container terminal, for the first time.

Any strategic economic examination of a Newcastle terminal would include an intermodal terminal. Newcastle’s advantage is that 100% of containers will be railed to an intermodal terminal north of Sydney. This compares with shipping the containers to Port Botany and moving them by truck and rail to Moorebank, 30km west of Port Botany. At present, 86% of containers from Port Botany are trucked. The NSW government’s plan is to reduce that to 72% within 10 years. The Newcastle option clearly benefits Sydney’s road system.

Is there evidence to support the NSW government’s assertion that the Newcastle container terminal option is unviable? If so, where is this evidence?

It would make good economic sense to rigorously investigate the costs and benefits to the NSW economy of a container terminal at Newcastle, before decisions are taken.

Greg Cameron is a former BHP manager and specialises in economic modelling.
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Published March 23, 2012

Maersk unit to develop port in Costa Rica

(COPENHAGEN) APM Terminals, the port operating arm of Danish oil and shipping group A P Moller-Maersk yesterday said it had won a concession in Costa Rica to develop a port, carrying an investment of about US$992 million.

The 33-year concession was agreed with the government of Costa Rica for the design, finance, construction, operation and maintenance of the container terminal in the Caribbean port of Moin, APM Terminals said.

The port handles up to 80 per cent of the country’s international commerce, and is located 10 hours by sea from the Panama Canal.

The new port development comes at a time when the canal is being expanded to handle the larger vessels cascading into the region, the company said.

Inauguration of the first phase was expected in the fourth quarter of 2016, it added. — Reuters

Netanyahu Sees Red Sea-Negev Rail Spurring China Trade

March 7 (Bloomberg) — Israel is planning a train link between its Red Sea and Mediterranean ports intended to serve as an overland alternative to the Suez Canal and to spur increased trade from China, India and other Asian countries.

The cabinet approved on Feb. 5 a 350-kilometer (218-mile) line to link the city of Eilat, Israel’s sole Asian-waters port, to the existing rail system, connecting to the Ashdod port. The project may start as early as this year.

To Prime Minister Benjamin Netanyahu, the link is a means to increase trade with the expanding economies of Asia, reducing dependence on Israel’s traditional export markets in Europe and the U.S. and transforming Israel into a Middle East trading hub. The premier says having an overland cargo route to the Mediterranean will boost the country’s value as a strategic partner to China and India and would be “useful” in case “problems” arose with the Suez Canal.

“How can we get the great Asian economies interested?” Netanyahu asked during an interview with Bloomberg News in Tel Aviv on Feb. 20. “We can build a train line from the Red Sea to Ashdod to link Asia and Europe.” The project “will help open up markets.”

Israeli officials in recent discussions with Chinese and Indian counterparts have raised the possibility of companies from there taking part in building and operating the estimated 8.6 billion shekel ($2.3 billion) project, expected by the government to take five years once construction gets under way.

Chemical Exports

The government estimates the rail link will multiply cargo traffic at the Eilat port, which primarily handles chemical exports to, and merchandise imports from, Asian markets. According to a Ministry of Transport study, chemical exports from Eilat that totaled 2.4 million tons in 2008 may rise to as much as 5.4 million tons in 2020. Shipping containers could increase from 2,000 20-foot containers, or TEU, to 210,000 TEU.

The government is selling the port to private owners and expects to complete the process this year. Five companies — Maman Cargo Terminals and Handling Ltd., Gadot Chemicals Tankers and Terminals Ltd., Papo Maritime Ltd., Mifalei Tovala Ltd. and Gold Bond Group Ltd. — have reached an advanced stage in the sale, the Finance Ministry announced on Feb. 21. In two months, after the government works out provisions to safeguard the interests of port workers, the contenders can submit bids.

Mifalei Tovala is a subsidiary of publicly traded Israel Chemicals Ltd., which extracts minerals from the Dead Sea to make potash and fertilizers. Acquiring the port may help it contain labor actions and other contingencies that have sometimes delayed its exports to Asia, said Joseph Wolf, an equity analyst at Barclays Capital in Tel Aviv.

Sustaining Edge

“One of Israel Chemicals’ biggest advantages over their rivals is their time-to-market shipping to India and China,” Wolf said in a phone interview. “Controlling transportation and making sure that edge is sustained is an important part of their strategy.”

Israel Chemicals shares are down 0.8 percent this year in Tel Aviv; Potash Corporation of Saskatchewan Inc., the world’s largest fertilizer producer by market value, is up 5.8 percent in New York trading over the same period.

Linking Eilat by rail to Ashdod, along a route used in ancient times by caravans bringing spices and incense from Arabia and India to Europe, has been contemplated for decades. It was first promoted by Netanyahu while he was finance minister in 2003. He revived the idea after becoming prime minister in 2009 as part of a nationwide rail development program.

Southern Negev

For Israel, the link isn’t just an economic investment. Netanyahu has stressed its importance in spurring development of the country’s southern Negev desert and possibly strengthening relations with Jordan. Its Aqaba port sits adjacent to Eilat and could also be connected to a Mediterranean rail link.

“There is no reason it can’t be an Eilat-Aqaba-Ashdod line,” Netanyahu told parliament last March. “This will advance prosperity, stability and peace in the region.”

The total amount of cargo loaded and unloaded at Eilat in the first three quarters of 2011 was 1.6 million tons. At Ashdod it was 14.4 million tons, according to Israel’s Central Bureau of Statistics.

Those amounts pale next to the Suez Canal, used to carry about 8 percent of global annual seaborne trade. In January alone, 81.5 million net tons passed through the Egypt-controlled waterway.

The canal has remained open during the past year of political upheaval, which forced the resignation of Egyptian President Hosni Mubarak. It was closed for four months in 1956- 1957 as Egypt and Israel fought the Sinai War. It shut again for eight years after the 1967 War as Egyptian and Israeli forces occasionally fired at each other from positions on either bank.

‘Second Option’

“It’s always important in terms of risk management to have a second option,” said Philip Damas, director of liner shipping at Drewry Shipping Consultant Ltd. in London. “In terms of cost, between having the cargo delivered by rail to a Mediterranean port of Israel, as compared to having it go all the way by ship, I’m a little skeptical of it being competitive.”

The Ministry of Transportation has issued a non-binding “Request for Information” packet outlining the project. Last year more than 80 interested bodies, including Siemens AG, Alstom SA, Samsung Engineering Co Ltd. and Veolia Transportation Inc., asked for it, the ministry said.

“It is important for China and India to have another route of connection for their exports to Europe in addition to the Suez Canal,” Israeli Finance Minister Yuval Steinitz told Bloomberg News during a visit to Beijing on Feb. 29.

‘Extra Insurance’

The Eilat-Ashdod port link will be “extra insurance” for Asian exporters in uncertain times and during periods of crowding in the Suez Canal, Steinitz said, adding that initial discussions have started with Chinese officials on possible participation in the project. The China Civil Engineering Construction Corp. is already involved in building another rail line in Israel to connect the cities of Haifa and Karmiel.

India is interested in participating in the building of the link, said an official at the Ministry of External Affairs who declined to allow his name to be used as is standard practice in his ministry. Discussions have taken place, he said.

“Once this project is formed and the road map is clear, Indian companies will evaluate their participation, but I do see good Indian interest in this,” Urban Development Minister Kamal Nath told The Hindu Daily on Feb. 14, after discussing it with Trade Minister Israel Katz during a visit to Israel.

In addition to boosting Israel’s economic and strategic standing, the link will be “useful in case there are queues or lines or other problems with the sea route of the Suez Canal,” Netanyahu said in a Jerusalem speech on Feb. 19. “We will connect Eilat to Ashdod and Eilat to Tel Aviv and this changes Israel.”

To contact the reporter on this story: Calev Ben-David in Jerusalem at cbendavid@bloomberg.net .

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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Slowing Chinese Growth Means Ore-Vessel Rates at Lowest in Decade
By Isaac Arnsdorf
December 29, 2011 7:01 PM EST

The weakest growth in demand in at least a decade for shipments of iron ore, the second-biggest commodity cargo after crude oil, means rates for the largest vessels will plunge to the lowest level since 2002.
Capesizes, each hauling about 160,000 metric tons of ore, will earn an average of $15,000 a day next year, about 4 percent less than in 2011, the median estimate in a Bloomberg survey of 10 analysts shows. While that implies losses for ship owners and investors in their companies, speculators can profit because forward freight agreements, handled by brokers and used to bet on transport costs, are anticipating an average of $16,367, according to data from the London-based Baltic Exchange.
Owners are contending with the biggest fleet in history as vessels ordered when rates reached $233,988 in 2008 continue to leave ship yards. The glut may widen because trade in iron ore will expand 2.5 percent next year as the number of capesizes rises 9.8 percent, according to Clarkson Plc, the world’s biggest shipbroker. Economic growth in China, whose steel mills consume 65 percent of all seaborne ore, will slow to the weakest since 2001, economist estimates compiled by Bloomberg show.
“The question for ship owners now is how are you going to hang on, how long are you going to hang on, and when is the light at the end of the tunnel?” said Andreas Vergottis, the Hong Kong-based research director at Tufton Oceanic Ltd., whose $1.45 billion shipping hedge fund is the world’s largest. “There is definitely no light in the 2012 tunnel.”
Freight Costs
Rates (BCAVRT) for capesizes averaged $15,639 this year, down from $33,298 in 2010, according to the exchange, which publishes freight costs for more than 50 maritime routes. The 1,000-foot- long ships need about $20,000 a day to break even, Oslo-based Arctic Securities ASA estimates.
The combined earnings of the 14-company Bloomberg Pure Play Dry Bulk Shipping Index (BPG4DBS) will drop 82 percent this year, analyst predictions compiled by Bloomberg show. Eight of the companies will report even lower profit or losses for 2012. Kawasaki Kisen Kaisha Ltd. (9107), based in Tokyo and the top capesize operator, will lose money this fiscal year and next.
Chinese growth will drop to 8.5 percent next year, compared with 9.2 percent in 2011, the median of 14 economist estimates compiled by Bloomberg shows. Steel production in the country, which accounts for about 44 percent of the world total, fell in each of the six months through November, according to the Brussels-based World Steel Association. China will import 5.8 percent more iron ore next year, against 10 percent in 2011, Clarkson estimates.
Container Shipping
A rally in capesize rates that began in August and lifted charter costs to $32,889 on Dec. 12 is already fading, declining 16 percent to $27,512 since then, according to the exchange. FFAs anticipate a further drop to $15,096 in the first quarter, bourse data show. The market for the contracts, which also covers oil tankers and container shipping, was valued at $24 billion in 2010, according to the exchange.
Rates may rebound should Chinese growth exceed economists’ expectations. Clarkson, based in London, raised its estimate for 2011 Chinese iron-ore imports three times this year, increasing the forecast by 4.8 percentage points overall. The nation’s economy expanded 10.4 percent in 2010, more than the 9.5 percent anticipated by economists surveyed by Bloomberg in January.
Slumping rates and values for secondhand (BESPCAPE) ships may also spur owners to scrap older vessels. The difference between the price of a 20-year-old capesize and its demolition value declined 47 percent to $3.1 million this year, Clarkson data show. Eleven percent of the fleet is at least 20 years old.
Biggest Cost
Owners may also seek to boost earnings by slowing ships down to burn less fuel, their biggest cost. Capesize speeds averaged 9.6 knots this year, compared with almost 10.7 knots in 2010, ship-tracking data compiled by Bloomberg show. Speed cuts mean vessels take longer to complete voyages and seek new business, effectively reducing the fleet’s capacity.
The number (VESLCPIS) of capesizes has risen 58 percent to 1,186 since the end of 2007 and outstanding orders at yards equate to 27 percent of existing capacity, according to data from Redhill, England-based IHS Fairplay.
There are also gluts beyond so-called dry-bulk commodity shipping. Returns from hauling Saudi Arabian crude to Japan, the industry’s benchmark route, fell 53 percent to $12,445 a day this year, according to the exchange. That’s less than the $30,200 that Hamilton, Bermuda-based Frontline Ltd. (FRO), the biggest operator of supertankers, says it needs to break even.
Trading Route
An index (CTEXIDEX) reflecting charges for six types of containers slid 43 percent since the start of April, according to the Hamburg Shipbrokers’ Association. Volumes of steel boxes carrying everything from televisions to furniture to the U.S. from Asia, the biggest inter-regional trading route, dropped for the first time in almost two years in the third quarter, according to Newark, New Jersey-based PIERS, which operates a database of U.S. waterborne trade activity.
It’s not just capesize owners suffering within dry-bulk shipping. Panamaxes (BPRATCR), which carry about half as much cargo, will earn $13,250 a day in 2012, compared with an average of $14,000 this year, the Bloomberg survey of analysts shows.
The Bloomberg Dry Bulk Pure Play Index, which also includes shipping companies that operate panamaxes, plunged 45 percent this year, compared with a 10 percent decline by the MSCI All- Country World Index of equities. Treasuries returned 9.7 percent, a Bank of America Corp. index shows.
Kawasaki Kisen, which has 82 capesizes, will report a net loss of 33.2 billion yen ($427 million) for the fiscal year ending in March, compared with net income (9107) of 30.6 billion yen in the prior period, the mean of 17 analysts’ estimates shows. The loss will shrink to 11.6 billion yen in the following year. Shares of the company, which also operates other vessel types, fell 61 percent this year in Tokyo trading.
“Dry bulk has a massive demand driver in China,” said Erik Nikolai Stavseth, an analyst at Arctic Securities in Oslo whose recommendations on shipping companies returned 12 percent in the past year. “But as vessels keep being built, you basically need another China to mop up all the ships.”
To contact the reporter on this story: Isaac Arnsdorf in London at iarnsdorf@bloomberg.net
To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net

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Indonesia’s massive port investment could hold the key to drive down spiraling shipping costs
Dr. Mark Yong, Associate Director for BMT Asia Pacific, speaks to Construction IQ Editor Bryan Camoens and outlines the current challenges in the Indonesian Port sector. He also explains how the success of Indonesian could reduce shipping costs.
Full speed ahead for Indonesian ports as 12 million TEU by 2021 looks likely
David Wignall founder of David Wignall Associates took the time to speak to Bryan Camoens about the moves being taken to boost the Indonesian port sector. He also gives us a very good explanation on why the investment into Indonesia’s infrastructure is one of the best in the region for a long time.

Trieste Threatens Hamburg as Southern Ports Deploy Rail

By Niklas Magnusson and Boris Cerni
December 23, 2011 1:42 AM EST

(Updates with comparison of import figures in fifth paragraph, change in focus of European trade in 10th.)

Dec. 22 (Bloomberg) — Mediterranean ports are luring trade from Hamburg and Rotterdam as upgraded rail links allow shipping lines to unload containers earlier in the journey from Asia and complete deliveries overland.
Trieste on the Adriatic is 22.5 days sail from Singapore, Asia’s No. 2 port, or a week closer than Hamburg, according to A.P. Moeller-Maersk A/S, owner of the No. 1 container line. The rail journey from the Italian port takes a few more days.
Mediterranean harbors, which vessels transporting goods from Asia encounter first after passing through the Suez Canal, are becoming competitive even for consignments headed further north as shippers slow sailing speeds to reduce diesel costs. The trend may accelerate as south European governments eager to encourage economic growth spend more on rail infrastructure.

“Northern Europe’s market share could be under threat in coming years as more cargo shifts south,” said Mike Garratt, director of Box Trade Intelligence, which monitors 20 global trade lanes. The time saved compared with a journey to the North Sea via Gibraltar can cut transit times or allow even slower sailings, paring fuel use without impacting deliveries.

Deep-sea imports through Italy and the Balkans have risen 115 percent over the past 15 years, while Germany, Belgium, Denmark and the Netherlands posted a 69 percent gain, figures compiled by Box Trade Intelligence show.

Deep Water
Shipping lines are exploring all options as vessels bought when demand was higher enter service, hurting freight rates and margins. European box shipments rose 4.5 percent in the first 10 months, trailing an 8 percent gain in capacity, data from Container Trade Statistics shows. Volumes in 2012 may rise 3.1 percent and capacity 10 by percent, according to Alphaliner.
Trieste, located on the open sea 70 miles (113 kilometers) from Venice, has a harbor that’s 18 meters (60 feet) deep and able to handle the largest container ships at full load, unlike northern rivals Hamburg, Bremerhaven and Antwerp, which are situated on river estuaries and rely on regular dredging.

The Italian port has more than 100 container-train services a week provided by Societa Alpe Adria SpA to destinations in Germany, Austria, Hungary, Slovakia and the Czech Republic, and is targeting countries as distant as Poland, one of the main markets for Hamburg, as it benefits from 334 million euros ($436 million) in spending on docks and infrastructure by 2017.

BMW Bid
A near-term aim is to capture flows from Munich in southern Germany, home to Bayerische Motoren Werke AG, Siemens AG and truckmaker MAN SE. The Bavarian city is situated 322 kilometers from Trieste, or about half the distance to Hamburg and Rotterdam, a 12-hour journey for a container train.

In addition to improved rail links, Trieste also sits 71 kilometers closer to the “center of gravity” for the region’s ports compared with 1996 as demand grows faster in Central and Eastern Europe than further west, while Rotterdam is relatively more distant, according to Box Trade Intelligence.

Just around a headland to the south of Trieste, Luka Koper, the only port on Slovenia’s 30-mile coastline, already forwards two-thirds of the goods it handles to Hungary, Italy, Slovakia, south Germany and Austria, for which it’s the No. 1 coastal entry and exit point, with a bigger market share than Rotterdam.
Luka Koper ranks as the Adriatic’s busiest container dock, handling an estimated 600,000 boxes this year, and is one of the biggest Mediterranean auto terminals, spokesman Sebastjan Sik said, with links to Alpine rail routes to be upgraded next year.

Paris Link
Clients include Italy’s Sermar Line Srl and Shipping Corp. of India, or SCI, which said October they’d establish a joint service linking Koper and Venice and Ravenna in Italy with the Indian ports of Nava Sheva and Mundra, easing the transport of exports from the subcontinent to central and eastern Europe.
Marseille Fos, Europe’s fifth-biggest port and the world’s third-largest crude oil terminal, will begin operating extra- long 850-meter container trains to Valenton in the suburbs of Paris next year. It also plans to start services connecting with a truck-on-train “rolling motorway” between Perpignan, close to the Spanish border, and Bettembourg in Luxembourg from 2015.
Total cargo handled at France’s top port rose 1 percent in the first nine months on increased shipments of liquefied gas, fertilizers and cereals as container traffic shrank 6 percent.
Piraeus Potential
Harbors in other countries hurt by Europe’s sovereign-debt crisis might reap similar gains given infrastructure improvements. Vessels operated by CMA CGM SA, the world’s No. 3 container line, take 26 days to reach Piraeus, near Athens, from Taiwan, versus 33 days to Rotterdam and 35 to Hamburg.
Southern ports have suffered most as the crisis crimps growth. Box numbers fell 0.7 percent in Gioia Tauro, Italy, in the first half and rose 3.9 percent in Algeciras, Spain, versus gains of 9.8 percent in Rotterdam and 17 percent in Hamburg.
The latter has the biggest hinterland among European ports in terms of containers moved by train, truck and barge, serving Germany, Poland, the Czech Republic, Austria and Denmark, and is taking steps to safeguard its market share.
Container numbers moved by train this year rose 9 percent to 2.1 million, the Hamburg Port Authority estimates. Rail traffic to Poland and the Czech Republic will double by 2020, with 400 trains a day versus 1,200 a week today, it said Nov. 29 in a presentation at the Intermodal Europe 2011 conference.

–Editors: Chris Jasper, Heather Harris.
To contact the reporters on this story: Niklas Magnusson in Hamburg at nmagnusson1@bloomberg.net; Boris Cerni in Ljubljana, Slovenia, at bcerni@bloomberg.net
To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net; Angela Cullen at acullen8@bloomberg.net; James M. Gomez at jagomez@bloomberg.net

Putin’s Goal of Benchmark Urals Seen in Rotterdam Terminal Tanks
By Jake Rudnitsky
December 29, 2011 6:14 AM EST

Prime Minister Vladimir Putin has been calling for Russia, the world’s largest oil producer, to narrow the price gap (EUCSURNW) between its Urals export crude and the Brent benchmark since 2005. A $1 billion terminal in Rotterdam may help achieve that goal.
Summa Group, a shareholder in Russia’s biggest oil-export terminals, in Novorossiysk and Primorsk, is investing in a 3 million-cubic-meter facility. It will expand liquids capacity at Europe’s largest port by about 10 percent, said Summa First Vice President Alexander Vinokurov. Vitol Group, the world’s biggest independent oil trader, is a partner in the project.
The Rotterdam terminal will create a European trading hub for Urals crude, providing deliveries directly to the port and contributing supply stability. Vinokurov said that will be a key step for Urals in becoming an international benchmark, at a time when the world’s most prominent benchmark, Dated Brent (EUCRBRDT), faces declining output and supply disruptions.
“The physical market for Brent is narrowing and risks are becoming too volatile,” Mikhail Temnichenko, a vice president for the St. Petersburg International Mercantile Exchange, said Dec. 26. “Urals is the most obvious alternative benchmark, offering large, stable volumes from a variety of market participants.”
The Rotterdam terminal is evidence that competition is “heating up” as crude oil benchmarks evolve, Platts, the energy-pricing division of New York-based McGraw Hill Cos. (MHP), said in a November presentation. On Jan. 6 Platts will broaden the base for Brent pricing by extending the length of time over which cargoes are measured.
Joint Ownership
The terminal could help develop a futures market for Urals, which is necessary to become a benchmark, said Olivier Jakob, managing director at Petromatrix GmbH, a Zug, Switzerland-based oil-market researcher.
“It makes sense to create a hub in Rotterdam for Russian crude,” Jakob said by telephone yesterday. “We need to see who has access to the barrels. If it’s like Cushing with lots of participants, a market could develop in time,” he said, referring to the delivery point for New York Mercantile Exchange oil futures in Oklahoma.
The terminal’s 3 million cubic-meter capacity is nine times larger than that of an average supertanker, which would normally haul more than 2 million barrels of cargo, according to data from Redhill, England-based IHS Fairplay. Two thirds of the volume will be for crude and the rest will hold oil products, Vinokurov said.
Export Volumes
The hub may also help ensure export volumes from the Primorsk terminal, owned by Novorossiysk Commercial Sea Port (NMTP), as Russian oil pipeline operator OAO Transneft (TRNFP) works to open a new facility on the Baltic Sea, said Denis Vorchik, an analyst at UralSib Financial Corp. in Moscow. Transneft and Summa jointly own 50.1 percent of Novorossiysk, which rose 0.4 percent to 3 rubles at yesterday’s close, the highest level in a week.
“There are not many opportunities to enter the European market and given Russia is a major crude exporter to that market, it makes sense,” Mikhail Ganelin, an analyst at Troika Dialog in Moscow, said Dec. 26.
Under an “ambitious” schedule, the terminal may be commissioned by 2013 or 2014, earlier than the initially planned 2015 deadline, Vinokurov said in a Dec. 16 interview.
Russia is the biggest supplier of oil to the European Union. Urals, a blend of crudes from the Volga region and western Siberia, accounts for about 80 percent of Russia’s 5.6 million barrels a day of exports (RUCUCRUD).
Output of the crudes used to price Dated Brent, the benchmark for more than half of the world’s oil including Urals, has fallen from 1.5 million barrels a day in December 2007 to 1.1 million barrels this month, according to a Bloomberg assessment of loading schedules (LOSDBFOT).
Longer Period
Platts is considering lengthening the cargo-measuring period even further in 2015 or 2016 and may include more grades of crude into its Brent assessment, according to a Sept. 16 statement. The assessment is based on a blend of several types of crude pumped in the North Sea, including Brent, Forties, Oseberg and Ekofisk.
The Brent benchmark has required regular adjustments since production went into decline in the 1990s. Forties and Oseberg crude were added to the benchmark (EUCRBRDT) in 2002 and Ekofisk in 2007.
Very Unfair
Urals in northwest Europe has had an average discount (EUCSURNW) to Brent of $1.79 over the past two decades. Putin called the gap “very unfair” in an address when he was president in 2005. In response, the government introduced a national oil exchange and brand, calling it Russian export-blend crude oil, or Rebco.
The Russian crude traded at a 40-cent premium to Brent, its biggest ever, on Dec. 1 to Dec. 6 as the EU weighed tougher sanctions against Iran. It was at a $1.10 discount today.
Summa expects the Rotterdam facility to add stability to Urals supplies by creating accessible volumes outside Russia. This may help create a market for the Urals forward market and futures contracts, Temnichenko said by phone in Moscow.
“Urals will be more visible to traders and this could contribute to it becoming a price indicator,” Temnichenko said.
Futures contracts for Urals have been sold on the Nymex, the world’s largest energy futures marketplace, since October 2006 under Rebco name. Allan Schoenberg, a spokesman for Nymex parent CME Group Inc. (CME), said no Rebco contracts have traded in the past two years.
Reduced Deliveries
Transneft and state-controlled gas export monopoly OAO Gazprom (GAZP) have cut energy deliveries to neighboring transit countries during supply and transportation pricing disputes, disrupting shipments to Europe.
Gazprom has twice in the past six years cut gas deliveries to Ukraine on New Year’s Day. Transneft halted oil deliveries to Belarus for almost a month on Jan. 1, rerouting about 650,000 metric tons.
Transneft built the Baltic Pipeline System-2 oil link to the Gulf of Finland as Russia expands transportation capacity away from transit countries.
“This Rotterdam terminal could ensure volumes from Primorsk” in the face of competition from the new Ust-Luga crude terminal, UralSib’s Vorchik said by phone Dec. 26. Ust- Luga has been delayed for as much as three months from its expected Dec. 1 start because of engineering difficulties, Transneft said in last month.
Ust-Luga is being built by Vitol’s competitor, Gunvor Group Ltd., at the end of Transneft’s Baltic Pipeline System-2 oil link. The pipeline has a capacity of 38 million metric tons a year, or 451,000 barrels a day, while Primorsk handles about 70 million metric tons of crude a year.
Floating Pipeline
Buyers will be able to purchase Urals to be loaded in Rotterdam using a “floating pipeline” that relies on icebreaking shuttle tankers shipping crude from Primorsk on the Baltic Sea, Vinokurov said.
Urals in Rotterdam could become a benchmark with the development of forward and futures markets, Summa said in an Oct. 20 presentation.
“A case could be made for it to be a benchmark if there was a stable supply in the heart of Europe,” Vinokurov said. “We have an aggressive schedule.”
To contact the reporter on this story: Jake Rudnitsky in Moscow at jrudnitsky@bloomberg.net
To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

Mozambique Ports Grow With Rio Tinto Appetite for Coal
By Jana Marais
December 13, 2011 5:00 PM EST

Roads were little more than rubble and there was barely enough working equipment to load cargo at Maputo port in 2003. Then Mozambique brought in Grindrod Ltd. (GND) and DP World Ltd. (DPW) to operate the harbor.
Since then, a coal-mining boom has fueled expansion at the southern African nation’s harbors. Rio Tinto Plc (RIO) bought Sydney- based Riversdale Mining Ltd. (RIV) for A$3.4 billion ($3.4 billion) in July to add 25 million tons of Mozambican coal to its annual output.
“Rio Tinto has been buying up a lot of assets in Mozambique, and they stand to be one of the significant beneficiaries there,” Clinton Duncan, resource analyst at Avior Research (Pty) Ltd. in Johannesburg, said in a phone interview.
The number of ships docking at Maputo has almost doubled to 1,030 a year since 2003, while coal exports have climbed from 1.5 million metric tons to more than 4 million tons and chrome shipments are set to reach about 2 million tons, a five-fold increase, said Ricardo Roberts, commercial manager of the port.
Mozambique is attracting exporters, such as Rio Tinto and Sappi Ltd. (SAP), from neighboring South Africa, which is burdened with high port costs and a lack of rail capacity.
Grindrod, Africa’s largest shipping company, has gained 9.5 percent since Aug. 15, paring its drop this year to 23 percent, compared with a 0.3 percent increase in the benchmark FTSE/JSE Africa All Share Index. The median estimate of four analysts surveyed by Bloomberg is for the shares to gain 5.5 percent to 15.40 rand in the next 12 months.
Coal Boom
“If you look at the infrastructure development in Mozambique, Grindrod is directly involved and will benefit from any developments at the port and the area around it,” said Patrice Rassou, head of equities at Sanlam Investment Management, in a phone interview from Cape Town. Sanlam, the country’s third-largest private money-manager, holds the stock.
Exxaro Resources Ltd. (EXX) and Coal of Africa Ltd. (CZA) are bringing shipments from mines in northern South Africa to Maputo as the miners face restrictions in using South Africa’s Richards Bay port.
A coal-mining boom is fueling development in the southern African nation after a 16-year civil war that ended in 1992 destroyed infrastructure. Durban, South Africa-based Grindrod is spending as much as $800 million to boost capacity by 20 million tons at the coal terminal in the next four years.
Cargo-handling capacity at the Maputo port, 286 miles north of Durban harbor, is set to climb to 50 million tons by 2030 from about 13 million tons currently, according to David Rennie, Grindrod’s executive director of ports and terminals. Grindrod and DP World of Dubai have a 25 percent stake each in the port and the government owns the rest.
‘Unlock Potential’
“It’s important for Mozambique to maximize capacity at the ports to be trade enablers,” Rennie said. “If we do our job properly, it will unlock potential for exporters and generate economic growth and jobs.”
Rio Tinto and Rio de Janeiro-based Vale SA (VALE5) are investing in Beira and Nacala ports, north of Maputo, to serve their mines in the central region of the country.
A former Portuguese colony, Mozambique has stabilized its economy since the end of a civil war that killed almost 1 million people, benefiting from debt relief and investment in large projects. The Mozal aluminum smelter, for instance, is 47 percent owned by BHP Billiton Ltd. (BIL), the world’s largest mining company. The economy has expanded an average 8 percent a year in the past decade and is forecast to grow 7.2 percent in 2011, according to the International Monetary Fund.
China Power
India and China are ramping up power and steel production to meet demands of growing populations, driving coal production in Mozambique. Annual output of the fuel in the southern African nation is forecast to reach 20 million tons by 2015, about 8 percent of South Africa’s output, from 35,700 tons last year, according to Frost & Sullivan, a San Antonio research firm.
Foreign investment in mining is set to reach $14 billion in the next four years, $9.5 billion of which is earmarked for coal.
“Economic reforms, attractive mining sector policies and increasing infrastructure development have generated sustained economic growth rates in Mozambique,” Christy Tawii, research associate at Frost & Sullivan in Cape Town, said on its website.
Rio Tinto declined to comment on its plans, Johannesburg- based spokesman Gugulakhe Lourie said in an e-mail. The stock has gained 13 percent in London since the beginning of October, paring its decline this year to 29 percent.
Sappi Exports
Coal production in landlocked Botswana and Zimbabwe is also helping to drive the expansion of Mozambique’s harbors. Hwange Colliery Ltd. (HWANGE), Zimbabwe’s largest coal miner, plans to ship 30,000 to 50,000 tons of coal through Maputo early next year, Oliver Maponga, business development manager, said on Oct. 18.
For South African coal miners, Maputo has become an alternative to get their exports to the east. South Africa’s Richard’s Bay Coal Terminal, Africa’s biggest export facility for the fuel, restricts access to smaller producers because it’s operated by shareholders including Anglo American Plc (AAL) and Xstrata Plc. (XTA)
“Recent developments with Grindrod for the future development of the Maputo port are encouraging and our volume growth is aligned to the planned expansion in the rail and portside capacity,” Coal of Africa Chief Executive Officer John Wallington said in an e-mail.
The improvement at Maputo is not just benefiting miners. Johannesburg-based Sappi, the world’s largest maker of glossy paper, is considering using Maputo for shipments from its Nelspruit mill, located in South Africa’s northeastern Mpumalanga province bordering Mozambique. That’s cheaper and more efficient than South African ports, which are owned and operated by the government, Glenn Adriaanse, Sappi’s export manager, said in a phone interview from Durban on Nov. 21.
“We are seriously looking at ramping up production at our Nelspruit mill for export purposes,” said Adriaanse. “Mozambique is a serious option.”
To contact the reporter on this story: Jana Marais in Johannesburg at jmarais@bloomberg.net
To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net