Russia’s Gazprom has indefinitely shut off natural gas flows to Europe through the Nord Stream 1 pipeline, citing technical issues brought about by European sanctions. Energy price surged following the announcement. ICE Dutch TTF October gas futures rose by 14.6% on Monday, closing at €245.926/MWh. EEX German year-ahead baseload power contracts rose by 12.1% on the day to €570.33/MWh. The euro also hit a 20 year low against the dollar on Monday, falling to $0.9879 in early trading.

European aluminum production from January-July 2022 has also fallen 12.8% YoY to 1.7 MMT, according to International Aluminum. Several aluminum plants have already been forced to close; a last resort given the costs of restarting smelters, with this same trend now kickstarting on the steel-side. Imports of bauxite were down 29%, totaling 990k tonnes in August in part due to the seasonal slowdown in Guinea in Q3, but also a lack of demand as smelting capacity is reduced.

EU leaders are currently debating emergency measures, which may include a cap on wholesale gas prices and a windfall tax on power company profits. If the proposed policies fail to curtail prices and prevent wider closures of European heavy industries in the coming months, we expect a considerable reduction in EU demand for several non-coal dry bulk cargoes. EU countries imported 8 MMT of iron ore in August, down 2.6% YoY.  Capes accounted for 62% of this trade, followed by Panamaxes at 21% and Supras at 17%. Steel imports also decreased by 13% YoY to 2.7 MMT.

EU countries imported 1.9 MMT of coal from South Africa in August, the highest monthly total on record. EU imports of South African coal have increased more than seven-fold to 5.8 MMT in the 5 months since sanctions on Russian coal were announced in April. Of these volumes, 56.1% were shipped by Panamaxes in August, followed by Capes at 30.6%, and Supramaxes at 13.3%. The full implementation of EU sanctions from 10 August resulted in a loss of approximately 2.6 MMT per month in Russian volumes. In total EU coal imports were up 44% YoY in August, as states stockpile the energy resource before winter and higher water levels in waterways between ports and inland power stations ease congestion.

Some countries have freed up volumes for European buyers in South Africa by opting to continue to import discounted Russian coal. Indian imports of South African coal fell 55.4% YoY in August to 889k tonnes, while imports of Russian coal more than doubled to 1 MMT. The mine-to-port constraints facing South African miners have improved in Q3 because of the increased use of private security guards by mining companies. This bodes well for shipments to Europe continuing at these levels going forward.