16-12-2022 The Big Picture: 2022 review pt. 2, By Mark Nugent, Braemar
The Panamaxes and geared fleet
Following last week’s review of the Capesize market we look at how the Panamax and geared vessels have fared during what has been an eventful year.
Like the Capes, the Panamax and geared vessels have taken to the downside in 2022 following what was a remarkable year for the dry bulk market in 2021. Year-to-date, the Panamax TC average has declined by 42.3% while the Supramax and Handy averages have each fallen by 47.2% and 49.3% respectively. As with the bigger ships, the Kamsarmaxes did push to firm levels earlier in the year, reaching a peak of $30,746/day for the year. Meanwhile the geared vessels managed to climb even higher, with the BSI 58 and BHSI 38 climaxing at $33,366/day and $32,166/day. Rates on the smaller vessels have continued this trend throughout the year, with the Supras and Handies outperforming the Kamsarmaxes by $1,520/day and $679/day, respectively. However, as has been the case with all sectors in the dry market this year, the fleet has operated more efficiently which has had a detrimental effect to fleet utilization in 2022 against a backdrop where shipped volumes have seen little growth. In China, discharge waiting times for the geared vessels declined by over 3 days in Q3 this year compared to the same period last year while on the Panamaxes this metric declined by almost 5 days.
Demand
On the Panamaxes, the effects of the Ukraine war had seemingly little effect on demand initially from grain trades. Across the first 11 months of the year, Panamax demand from grain trade has declined by just 4.5% YoY between the Jan-Nov period. Of this loss, the shortfall in Ukraine has accounted for 58.7%, which is reflected in the declining growth in Agri bulk demand starting in the summer months, when the bulk of Ukrainian grain is shipped. Total volumes have proven more robust, declining by just 0.2% YoY across the first 11 months of the year, amounting to 275.6 MMT. Despite weather disruptions across several grain producing regions around the world, planting areas continued to grow which has helped offset affected yields. On the coal side, the year started with January printing Panamax coal demand’s lowest annual growth rate of the year so far, declining by 11.7% YoY as a coal export ban in Indonesia and historically low demand from China reduced volumes shipped. Panamax coal liftings declined to just 41.3 MMT in January, the lowest since April 2016 according to AXS vessel tracking. Since then, however, Panamax demand from coal trade has been in growth territory as the world got to grips with soaring energy prices following the start of the war. Subsequently this year, Panamax coal demand has increased by 7.4% YoY. Outside of the Panamaxes’ primary hauls, shipments (incl. iron ore, bauxite, minor ores etc.) have totaled 274 MMT in the first 11 months of the year, 2.2% higher YoY.
Moving on to the Supramaxes, liftings have totaled 998 MMT across Jan-Nov 2022, declining by 4.6% YoY. When translating this into demand, the Supras have fared better, with the first 11 months of the year showing a 4.9% improvement on 2021 levels. While globally volumes have been robust, Chinese demand for Supramax cargoes has been particularly weak, declining by 20.6% YoY to 223 MMT. The fewer arrivals naturally contributed to the easing of port queues in China which have fallen significantly in 2022 as mentioned above. Accounting for 11% of Supramax demand across the same period has been an 8.4% increase from steel shipments. As mills in the West continue to be affected by higher energy costs and reduce capacity, buyers have increasingly sought-after ferrous products from the Far East as demand has yet to fall in line with the shortfall in production. Though total shipments out of the Far East has risen by just 3.7% YoY to 41.8 MMT, the further destination of these cargoes has translated into a 22.7% increase in Supra demand from steel trade over the same period.
Elsewhere on the Supramaxes, total grain shipments, like on the Panamaxes have proven robust despite the Ukraine port closures, falling by just 0.6% YoY to 160m tonnes. Coal liftings have fallen to a greater extent, 6.5% YoY, to 226 MMT despite firming demand for the fuel globally as buyers have demanded larger cargoes, benefitting the bigger ships. The Supras also perform many short haul Indonesia-China coal stems, which has declined to 52 MMT across Jan-Nov, a decrease of 14.5%. Coal liftings to China have recently improved, however, as Covid outbreaks in coal producing regions in China affect supply chains to power stations on the coast.
Excluding the commodities mentioned above, the Supramaxes have moved 527 MMT of dry bulk materials, declining by 4.2% YoY. Gains in shipments to other regions have been more than offset by weak Chinese demand for these commodities, which have declined by 21.1% YoY to 139 MMT in the first 11 months of the year, highlighting China’s weaker minor ore demand. This is also a reflection of India imposing higher tariffs on iron ore exports, which subsequently declined 82% YoY on the Supramaxes to just 4.3 MMT.
Finally, the Handies have fared like the Supras in terms of tonnes moved, which totaled 512 MMT in the first 11 months of the year, a decrease of 7.1% YoY. When converting this into demand, the Handies have also landed in growth territory at 1.3% YoY. As is naturally the case with the smaller vessels, the change in trade is more of a mixed bag. Grain trade on the Handies has declined by 6.5% YoY to 120 MMT across Jan-Nov this year. Despite getting off to a slow start, grain shipments have been buoyed recently by record Handy volumes out of Russia in November and strength in Brazil for stems to North Africa. On the minor ores, it has been a year of limited growth in volume so far. Handy shipments of nickel ore have increased by 1.1% YoY between Jan-Nov, while copper concentrate shipments improved by 5.5% YoY across the same period. While shipped tonnes were subdued, the demand generated from these trades increased by 19.5% from nickel ore and 15.9% from copper concentrates. Much of this can be attributed to greater demand out of South America destined for trips to China. In tandem with the Supras, the Handies’ share in seaborne coal trade has also been conceded to the larger ships in 2022. Across the first 11 months of the year, Handy coal liftings have amounted to 41.3 MMT, declining by 26.3% YoY, trending towards the weakest year for Handy coal trade on record. Although difficult to quantify, the Handy demand has undoubtedly been affected by the downfall in the container market, which provided these ships with considerable demand in 2021.
Supply changes
In the Panamax sector, deliveries have so far amounted to 8.3 MDWT split across the various sub-sectors, with another 2 ships scheduled for delivery before the new year, this will mark the lowest level of Panamax deliveries since 2018. On the other hand, 10.1 MDWT has been ordered in this sector, and although there is still time before the end of this year, this would imply a 40% decline in ordering YoY. Nevertheless, 9% of the fleet is currently on order in this sector.
It has again been another year of limited scrapping in the Panamax fleet has grown by 3.3% YTD and has seen the highest level of fleet growth across the dry bulk sectors, adding 7.8 MDWT net of demolitions. The Supramax fleet has added 6.7 MDWT, little over flat on last year’s total additions. Supramax contracting has bucked the trend of low ordering in the other sectors, with contracting at 11.9 MDWT so far this year, already the highest level since 2014. In summary, the Supramax fleet has grown by 3.2% (6.5 MDWT) and 10% of the trading fleet is now on order, the highest of all the dry bulk markets.
Finally, the Handysize fleet continued its slow growth pace in 2022, so far increasing by just 1.2% this year, totaling 1.2 MDWT net of removals. Deliveries have amounted to 6.7 MDWT. Removals have been particularly underwhelming given the heightened age profile of this fleet, at just 240K DWT at an average age of 30 years. This is set to be the lowest level of Handy scrapping for over 20 years.
Overall, ordering has persisted at historically low levels across the different dry bulk sectors. Despite the downturn in container rates, orders of these vessels have continued to emerge and take up slots that could have been for bulkers. As we noted last week on the Capes, environmental regulation uncertainty and firm prices do not seem to be disappearing any time soon which we expect to keep bulk carrier contracting low going forward.