Congestion in China jumps as restrictions imposed

  • Bulk carrier congestion in China hit a 5-year high of 50.5m dwt over the weekend, rising by 24% YoY as new restrictions were put in place in ports across the country.
  • Current queues are 76% above the 5-year average as COVID-19-related protocols affect all sectors of the dry bulk market.
  • More specifically, queues of laden Capesizes in China increased by 166% WoW to 15.6m dwt, though this partially reflects a low base last week when vessels were cleared from anchorages due to bad weather.
  • At the same time, Panamax congestion remains supported by a lack of grain storage capacity in Chinese ports. China-bound vessels carrying grain are reportedly facing waiting times of several weeks to discharge.
  • Newly reported positive Covid-19 cases in China have recently forced the country to re-introduce restrictions to curb the spread of the virus.
  • Most ports in the country are now requiring a nucleic acid test (NAT) for all crew mates, with vessels forced to remain at anchor until negative results are confirmed.
  • Many ports in the country are also requiring vessels to quarantine for 14-28 days if they previously berthed in India or performed a crew change within 14 days of arriving in China.
  • While it is unclear how long these measures will be in place for, they will likely tighten the dry market in the near-term.

China curbs fertilizer exports

  • The Chinese government has reportedly told the country’s major fertilizer producers to suspend exports of the material as prices of phosphates and urea continue to soar.
  • This is one of many actions the country has taken in 2021 to stabilize commodity prices and reduce input costs for agriculture and other industries.
  • Chinese fertilizer exports totaled 1m tonnes in July, decreasing by 43% YoY. Over the first half of the year, Chinese fertilizer exports accounted for around 12% of seaborne supply.
  • Severe flooding in some regions in recent weeks has also affected supplies in the country, sending prices higher for farmers.
  • Following record imports of various crops in 2021 to bolster food reserves, the country has sought to expand its domestic production to lower its reliance on seaborne produce.
  • Of the 1m tonnes loaded in July, 300k tonnes went to Brazil, a potentially lucrative backhaul route for owners of geared tonnage.
  • Meanwhile, other major buyers such as India and Pakistan will now need to look elsewhere for supplies, which may have to come from more distant suppliers such as Russia or Morocco.  

Iron ore market spooked by Chinese regulations, supply prospects from Brazil

  • Benchmark 62% Fe content iron ore prices fell by 15% WoW on Friday to $185.0 per tonne, the largest WoW drop since May, before stabilizing at $185.5 per tonne today.
  • Today’s prices still represent a 65% improvement versus a year ago and the premium of higher-grade 65% Fe content remains at record highs of over $30 per tonne.
  • Recent announcements by Chinese authorities have likely put a dent in sentiment – export tariffs were raised last week, which could take the heat out of external demand for Chinese steel products. This source of demand has been a key driver of elevated production, and thus iron ore imports, in China.
  • Meanwhile, despite another weak month for Brazilian iron ore shipments in July, many are expecting improved volumes over August, helping to address the deficit in the market.
  • On the periphery, other issues may also be weighing on prices. A recent spate of COVID-19 cases in China, weaker manufacturing activity have eroded confidence in China’s steel sector, while the country’s domestic iron ore output has been gradually increasing for the last few months, rising 12% YoY in June to 87.9m tonnes.