Ahead of the rest

In recent weeks, the Panamax vessels have shown the most resilience to the general drawdown in dry bulk freight rates. We look at some reasons that have contributed to this and if these factors can be sustained.

China coal demand improving

The sharp drop in Chinese coal demand at the start of the year, which almost exclusively caused the lows in Panamax trade, is starting to recover. China imported 13.6 MMT of coal on bulk carriers in August. Despite declining 5% MoM and 14.6% lower YoY, this is still 31.4% higher than the monthly average so far this year. With the winter period just over a month away, we can expect continued coal demand in China who are aiming to ensure energy supplies, and this will primarily benefit the Panamaxes. Hindering a return to the heights of last year’s coal imports in China currently are the persistent lockdowns and weak industrial activity which have reduced the country’s energy requirements. Suggesting coal buying has continued solidly in September, queues of unladen Panamaxes have increased to 6 MDWT at Indonesian ports, a 63% rise since the start of the month. Overall, a growing reliance on thermal coal worldwide and a revival in Chinese demand bode well for the Panamax market looking to next year.

Shipments excl. coal, grain strong

Overall, Panamax liftings have steadily improved as the year has progressed, amounting to 114.1 MMT in August, an increase of 4.3% YoY. Apart from the well-known growth in coal shipments, liftings of less common trades on the Panamaxes have also performed well offering welcome support as grain shipments start to slow. Panamax liftings excluding coal and grain totaled 27.4 MMT in August, rising by 3.2% YoY and the highest level so far this year. Breaking this down, shipments of aggregates, which includes different construction materials such as sand and gravel, were the strongest in August among these less popular bulk commodities. Panamaxes loaded 5.1 MMT of these construction materials in August, rising by 22.3% YoY. These more-niche shipments also disperse the fleet away from the large trading routes, driving longer ballast legs, which supports rates for spot requirements. On top of the increase in coal demand, a continuation of shipments of these less common trades should help support Panamax rates as we approach a slowdown in the large grain exporting regions.

 Bumper Australian grain

Grain shipments, like coal, have seen changing trading routes following the start of the Ukraine war. From Australia particularly , the Panamaxes have benefitted from increased shipments to the Middle East. Australia is expected to harvest a record crop in 2022 due to favorable weather conditions, with the USDA estimating production at 36.3 MMT, 49.8% above the 5-year average and the highest on record. This is a timely harvest given the loss in volumes from the Black Sea but also as production elsewhere, such as in the US and Europe, has been hampered by poor weather. Australian grain shipments on Panamaxes totaled 1.7 MMT in August, increasing by 85.7% YoY. This followed a near-record month for this trade in July which amounted to 2.4 MMT. Significant amounts of Australian grain has been shipped to countries which typically import Black Sea crop, such as to Europe and the Middle East.  

Capacity in shipyards rising

According to AXS, the number of Panamaxes in repair yards hit a 5-year high on 31 August amounting to 78 vessels. While having come off the highs since, this figure still lies at 62 Panamaxes. When translating this into demand, this metric reached the highest monthly total on record in August, implying more visits and longer stays. As many shipyards in China reduced capacity or halted activity altogether in Q2 due to Covid-19 lockdowns, we could be seeing the resultant backlog in scheduled visits now being worked through. Further, the typhoons in China are expected to prolong this effect as operations in some coastal regions slowdown and vessels remain in yards for longer periods. Overall, the Panamaxes remain well positioned to avoid a prolonged downturn in rates given the commodities they are primarily exposed to. Coal will continue to be shipped to meet global energy requirements, with volumes showing high prices yet to deter the larger coal buyers so far. A similar principle can be expected on the grain side as demand for food is relatively resistant to economic slowdowns.