11-10-2022 Dry Bulk Research Update, Braemar
Thermal coal prices fall on mild weather and improved European energy stockpiles
The Rotterdam front month coal contract on ICE fell to $262 on Monday, down 20.2% WoW and the lowest price since 2 May. Large parts of Europe have seen above average temperatures in October, reducing pressure on coal power generation. Fears of a major energy shortage this winter have also eased somewhat. Stockpiles of natural gas have surpassed targets, with storage facilities currently at 91% capacity across the EU, helping ease pressure on European power utilities. Plans are also being put in place to cut energy usage from companies and local governments. Production cuts are being driven by high costs and weakening demand in power-intensive European industries such as aluminum and steel. Europe, however, remains vulnerable to higher than anticipated energy usage if a particularly cold winter materializes or in the event of any further cuts in supply.
As Europe continues to try and secure alternative energy sources, we do not anticipate a slowdown in European coal imports. With existing pipeline gas flows into Europe proving volatile, it is expected Europe will ensure replacement energy sources are readily available. There are, however, some growing coal supply concerns across several major producers that European buyers have substituted Russian volumes with. Strike action is continuing in South Africa and there is renewed risk of industrial action on the US railroads after unions rejected a government brokered deal. In Australia, a report released today by the Australian Bureau of Meteorology has warned of a severe and potentially early tropical cyclone season, that could disrupt coal shipments.
IMF cuts global growth forecast
In its latest world economic outlook, the IMF is now forecasting global growth at 3.2%, while downgrading its estimate for 2023 by 2 basis points to 2.7%. The IMF is forecasting inflation of 7.2% in advanced economies this year, falling to 4.4% in 2023, both more than 1% higher than its forecast back in April. The IMF warned that a soaring US dollar, caused by investors moving assets into perceived safe investments such as US Treasuries, is compounding inflation by raising the cost of imports.
For China, the IMF is forecasting growth of 3.2% for 2022, while cutting its forecast for 2023 from 4.6% to 4.4%. In the long term, the IMF expects growth to stabilize at around 4.6% until at least 2027. While a worsening macroeconomic environment is a headwind for global trade, we still expect demand for several dry bulk commodities to prove robust in the near-term, such as coal and grains.