Container trucking services in Ningbo, home to the world’s third-busiest container port, remain disrupted amid the backdrop of draconian measures taken to limit the spread of coronavirus. The city’s Beilun District, where a string of large box terminals is located, has been put on lockdown. The development has restricted the activities of more than 20,000 container truck drivers serving the port. They need to apply for government certificates to restore their working capability. The latest government update shows that more than 12,000 have received special passes that grant the access to port area, while 2,389 have been added onto a whitelist that enables trips outside of Ningbo to other regions in Zhejiang province.

In a customer advisory on January 6, Maersk said that less than 10% of the container truck drivers eligible have completed the certification required to meet local authorities’ virus-control rules. Shipping sources said trucking capacity was still in short supply owing to a combination of factors, including price gouging among drivers keen to reap fat profits from a tight market. Some non-local drivers are reluctant go to Ningbo due to strict precautionary rules. The government in nearby Wenzhou said in a recently leaked document that whitelisted truck drivers travelling from the Beilun port area were required to have received a booster dose of the coronavirus vaccine and to have produced a negative test twice in the preceding three days before being allowed to enter the city.

Positive test case rates elsewhere in the Zhejiang province have added another layer of uncertainty about the truck traffic and cargo flows in the hinterland. A positive test case was reported by the authorities in Yongkang, a part of Jinhua city, about 200 km southwest of Ningbo, on January 5, raising concern that the disruption to land transport could grow further. “Trucking service in Yongkang, Jinhua, the mid-high-risk area of Beilun district of Ningbo, and the area outside Zhejiang province remains suspended under the strict regulation by the epidemic prevention policy,” said Maersk, adding that operations at one of its Ningbo Bluedragon LongXing warehouses in Beilun have been halted completely.

Despite this, container load and discharge operations at the terminals are at normal levels as no infection has been detected in the facilities that operate under closed-loop management and are isolated from outside communities. Beilun has reported more than 30 positive test cases since January 1, when local positive tests were first recorded. New positive test cases after January 2, however, have all derived from designated quarantine locations, said the government, suggesting the spread is now under control.

Meanwhile, Shenzhen, another major port city in southern China, confirmed two positive coronavirus tests on January 7 in the Luohu and Longgang districts. Local authorities have started massive testing programs and imposed travel restrictions, which might affect road transport connecting the port.

Indonesia, the world’s largest coal supplier, is estimated to have exported about 437 MMT in 2021, expanding shipments by 30 MMT (+7%) y-o-y. This export figure is the second largest ever (459 MMT – 2019). Coal production in 2021 increased to 611 MMT (+48 MMT y-o-y) but did not reach the government’s target of 625 MMT due to unseasonably heavy rains and severe labor and heavy machinery shortages.

Indonesia’s shipments of thermal coal to China at an estimated 196 MMT (+68 MMT/+53% y-o-y) skyrocketed last year and now accounts for nearly half of all exports (31% in 2020), primarily due to the export ban on Australian coal. Conversely shipments to India fell by nearly 24 MMT y-o-y to 74 MMT by some distance the lowest figure for a decade. Exports to North Asia saw y-o-y declines, with combined shipments marginally below 65 MMT (-8.5 MMT/-12% y-o-y) whilst shipments to other countries in Southeast Asia at 90 MMT registered the first y-o-y fall for over 20 years.

Indonesia shipped more coal in 2021 via Panamax and Post-Panamax vessels, increasing these two sectors total share to 62% versus 54% in 2020. A consequence of less cargo being shipped to India the Supramax sector saw market share fall to 27% loading only 120 MMT in 2021 (-15 MMT/-11% y-o-y). The Indonesian government’s potential ban on coal exports would, therefore, especially impact on the Panamax market. Despite China’s current reliance on Indonesian coal, they have recently ramped up domestic coal production (at 4.01 BMT in 2021 up 7.7% y-o-y). With Chinese coastal coal trade likely to rise by around 60/65 MMT y-o-y in 2021 to 810/815 MMT, current Chinese stockpiles are now up by more than 50% y-o-y so China should now be able to withstand any temporary reduction in coal shipments from Indonesia.

Indonesian officials have said the country has enough coal to satisfy its domestic shortage, but there is no further clarity on whether the ban on exports will be continued. A senior cabinet minister told local media on Friday that Indonesia’s power crisis is over, and that the government is reviewing a new strategy for its mandatory domestic sales policy for coal, according to Reuters reports. Luhut Pandjaitan, Indonesia’s coordinating minister for maritime and investment affairs, met with coal miners and other authorities on Thursday. “The discussions were split into two, the (coal supply) fulfillment now and a permanent solution. For now, the emergency is over,” Luhut told CNBC Indonesia and local media, quoted by Reuters.

The maritime ministry will review the formula for the so-called domestic market obligation and will aim to come to a decision the same day, he added. Luhut did not disclose further details on the new formula or whether the export ban would be lifted or eased. Indonesia’s domestic market obligation requires miners to sell 25% of their production to local power companies at a maximum price of $70 per tonne.

Coal exports from Indonesia were suspended for a month by the government on 1 January, after the country’s state power utility reported dangerously low inventory levels of coal, risking widespread power outages. An agreement was reached on Tuesday between producers and state-owned utility Perusahaan Listrik Negara (PLN) to supply an extra 7.5 MMT of coal to help avert power outages and boost stockpiles. PLN had previously said it needed 5.1 MMT of additional supply for January to avoid power cuts. Indonesian Coal Mining Association executive director Hendra Sinadia said on Wednesday that while producers are willing and able to supply the necessary coal to PLN, the main obstacle is the availability of vessels to transport it. Under national cabotage laws, cargoes would have to be shipped on Indonesia-flag vessels.

On Thursday, Indonesian president Joko Widodo’s administration revoked 2,078 permits for mining, mineral and coal businesses, stating the firms failed to provide work plans, misused the permits, or transferred them to other parties.

Meanwhile, around 145 bulk carriers — mainly supramax and panamax vessels — are still in limbo in Indonesia, according to a port positioning list released by Indonesian shipping agents on Wednesday. Some were already fully loaded, ready to sail, but were denied sailing permits. Others were partly loaded or waiting to load. A further 36 bulkers fixed to load Indonesian coal were scheduled to arrive between 6 January and 10 January. The export ban will have a negative impact on bulker markets if it lasts until the end of January and is applied across all exports, analysts told TradeWinds this week. But most researchers doubt the ban will be continued until the month’s end.

Indonesia is the world’s biggest thermal coal exporter. It accounted for one-third of total seaborne coal volumes during 2021, according to research by Braemar ACM Shipbroking. It also accounted for 65% of China’s coal imports, up from 51% in 2019, due to the Chinese ban on Australian volumes in late 2020.

According to an Indonesian senior cabinet member, the country’s recent power emergency is over. Indonesian authorities have not provided an exact end-date for the ongoing export ban on coal, but we view recent statements as supportive of the ban being lifted in the immediate future. Certain importers have also addressed the issue through diplomatic channels to swiftly resolve the disruptive situation, adding pressure on the government to relax the outright export ban. Furthermore, the spokesperson stated the government is reviewing a new formula for its mandatory domestic sales policy, under which local producers currently must supply 25% of its production at a maximum price of USD70/tonne to domestic power generators.

As the year kicks off, we lay out some of the key themes to watch that could shape the dry bulk markets over the next twelve months.

Chinese policy decisions

In 2022 the Chinese government faces multiple tests, including, but not limited to, the fallout from defaulting property developers, energy shortages and a battle to completely eradicate COVID-19 within its borders that is looking increasingly infeasible as new variants spread across the world. The policies implemented to combat these issues will continue to shape the country’s raw material demand this year.

Beijing is carefully trying to deleverage China’s real estate sector, but the resulting property slowdown has created holes in the finances of local governments and has dented consumers’ personal wealth and spending activity. The country’s central bank eased policy slightly last year but the measures have been very tame so far.

On the pandemic front, so far only a handful of cities appear to have locked down due to fresh coronavirus outbreaks, but more strict measures could disrupt demand further, especially as the Chinese New Year period approaches. At the beginning of the pandemic, people not being able to return from their hometowns due to travel restrictions was a leading cause of the sharp drop in output.

Tight rules at ports also drove congestion of ships in China higher last year, and over the last few weeks the measures have only become stricter and more disruptive. It seems unlikely that these issues will go away quickly, so we expect them to continue to keep the market tight over the next few months.

And lastly, two major events are scheduled for 2022. The first is the Winter Olympics in February. In the lead-up to this we’ll likely see further cuts to industrial activity to curb pollution (exacerbated by energy shortages), though restocking of bulk commodities is likely to continue. The second is the 20th National Party Congress in October, which will decide whether Xi Jinping will remain leader of the Chinese Communist Party for a third term. This underscores how critical it is for the government to balance quickly combating all the issues with supporting economic growth.

Energy markets

Tying into the above, an extremely volatile global energy market will continue to shape bulk carrier demand, through its influence over coal trade flows.

This comes against a backdrop of stricter decarbonization pledges from mostly developed economies, which have left some countries vulnerable to temporary but sudden falls in renewable energy output or natural gas supplies. Such blind spots have been a key ingredient in the ongoing energy shortage in Europe, which has already translated to a modest rebound in the continent’s coal demand. At the same time, shortages in China last year drove an increase in coal imports from traditional sources (apart from Australia which remains off-limits) but also from more distant suppliers that helped to boost shipping demand, a trend which is likely to continue this year.

More recently, in an ongoing story, Indonesia has announced a ban on thermal coal exports. It is still unclear how this will develop, with some miners reportedly now allowed to ship their product, but if supply is constrained for a prolonged period, it will likely open the door to more of these atypical trade patterns.

Weather

As usual the weather will likely play a key role for shipping markets. Bad weather in China has the potential to make queues worse again and tighten the Pacific market, but cyclones in Australia over the next few weeks would have the opposite effect.

Further, rain in northern Brazil has already influenced the volume of Capesize cargoes available in the Atlantic, but dryness in the south, caused by a La Niña weather pattern, has hit the conditions of soybean crops in the region. This will be a key driver of grain exports from the region, but shortages could also trigger more volumes being shipped from the US on different trade routes and vessel types.

Decarbonization

As the year progresses the efficiency regulations coming into force from 2023 will loom ever larger, and owners will need to prepare for compliance and for effects on the market that these rules may have. Although key pieces of the EEXI and CII regulations are yet to be clarified, we believe that the leadup to their implementation will have a material impact on the effective carrying capacity of the fleet in addition to the decisions owners make on fleet renewal.

With charter rates at their worst in decades, 2021 could not have been bleaker in many ways for US-listed tanker companies. But while it might be cold comfort at best, there was one metric in which the tanker crowd maintained its traditional upper hand over counterparts in dry bulk, container ships and gas carriers. Investors traded more tanker shares per daily average than in any of these other sectors, according to data furnished to Streetwise by investment bank Jefferies.

Public tanker companies turned over an average of 1.2m shares per day, topping the totals for dry bulk at 842,000, container ships at 790,000 and gas carriers at 454,000. This maintained a long-held advantage in liquidity driven by tanker companies’ larger size and market capitalization. But upon closer examination, even this small case for bragging rights does not hold up so well. That is because a more important measure of trading liquidity — measured in dollar volume per day — tells a different story. Through that lens, the sorry state of tanker companies in 2021 becomes more readily apparent. With an average daily trade of $8.9m per day, tankers sit third in the pecking order behind the money-printing container ship owners and operators at $28.7m and bulker companies at $11.1m. Only gas carriers had worse dollar turnover with a daily average of $4.5m.

“Dollars traded per day is more meaningful,” Jefferies lead shipping analyst Randy Giveans said. “That’s true trading liquidity. The numbers of shares traded can be impacted by things like stock splits and reverse splits. Dollar volume is what the large investors I speak with are looking at. They’re typically searching for a $1bn market-cap company that trades at least $10m per day.” Share prices of bulker and container ship companies spiked in 2021 to the tune of 175% and 163%, respectively, helping to fuel greater dollar liquidity in trading. Tanker valuations remained muted with an average 1% loss. So, while Nordic American Tankers — the top-traded tanker owner — notched an impressive turnover of 3m shares per day, its prevailing share price was generally between $2 and $3, leading to an average dollar volume of $8.8m per day. In contrast, Israeli liner company Zim traded 2.1m shares per day but had an average daily dollar volume of $96m. Its current share price is near $55. In similar fashion, dry cargo behemoth Star Bulk Carriers traded an average 1.8m units but $34.6m.

Another measure of the changing dynamics for public shipping companies is how the raw trading numbers have changed from 2020, when a booming tanker market in the year’s first half sparked an investor frenzy. At that time, bulker owners traded an average 300,000 shares per day over the course of the year for a dollar volume of $4.2m. The tanker group traded 1.79m and $14.2m. While the tanker numbers are sure to perk back up once markets rebound, it is also possible that there has been a sea change for the previously ignored dry bulk and container sectors as they grow fleets, market caps and fortress balance sheets. “For these companies, there have been cyclical changes and maybe even structural changes,” Giveans said. “Market caps are much larger. Zim is a $7bn company. Danaos is $1.5bn. Star Bulk is $2.5m. Even a Navios Partners, while a mixed bag, is near $800m. “Balance sheets are in the best shape they’ve been in five years and arguably 15 years. That’s a big change. And the third thing is the introduction of big dividend policies that further stoke investor appetite and therefore liquidity.”

The data aside, 2022 dawns with more investors “sharpening their pencils” on renewed tanker investment but many not ready to write checks just yet, Giveans said. At the same time, investors are more convinced — even with markets off their high boil — that strength in dry bulk and container ships is less transitory than suspected only six months ago. That may keep them around for a while.

The dry bulk market is expected to follow a similar trend to the past year, according to market participants. “With the holiday break behind us, the dry bulk markets return to a state of uncertainty driven by the same factors that led to the record high volatility of 2021,” said US-based consultancy Breakwave Advisors. A major issue likely to continue this year is the draconian coronavirus-related disruptions in China, leading to delays and port congestion, it said in a note, while weather-related disruptions are also affecting shipping operations. Some Chinese ports have had to close due to gales this week, according to ship agency Wilhelmsen.

Meanwhile, energy shortages across the globe are likely to linger, supporting coal movements, while vessel substitution is also likely to persist providing support to the smaller-sized bulk carriers, Breakwave said. Uncertainty related to Indonesia’s surprise ban on coal exports led to panamaxes climbing and Supras dipping, with 140 bulkers at anchor off major ports. Breakwave expects heightened volatility until at least spring when some of the factors may start to wane, it said.

EastGate Shipping, a brokerage in Greece, expects coal demand to continue to ride high, given economic recovery around the world combined with high gas prices that make coal-use more competitive, a good sign for the dry bulk market. While China’s thermal coal imports are expected to remain stable at around 258 MMT this year, India’s imports could rise by 8.5% to about 164 MMT, it said in an end-year report.

Another bright spot is long-haul grains trades, particularly Brazil to China soyabeans, which should support the medium-sized bulkers,  it said, adding that with Brazil’s early harvest, more cargoes will be “put into the market relatively early” in the first quarter. Brazil’s soyabean exports during the 2021/22 season are projected to gain some 15% to 94 MMT, year-on-year, it added. That will offset lower export volumes from the US, expected to drop by almost 10% to 56 MMT.

For iron ore, the Beijing winter Olympics was seen to have weakened demand, and EastGate expects a rebound following the games, with imports up almost 3% on 2021. In the first 11 months of the past year, China’s iron ore imports decreased by 3.2% to 1.04 BMT versus the same period in 2020. But concerns over China’s property sector developments will linger given the Evergrande default.

Meanwhile, the macro picture “remains cautiously positive,” EastGate said, adding that it is “indeed probable” for demand, which is expected to grow by 3%, to outstrip supply, given the low orderbook, which is at about 7% of the existing fleet in deadweight terms.

This becomes more acute if the Omicron variant plays out in a way that port disruptions tie more ships to congestion and, therefore, reduce spot supply, it noted, adding that it is bracing itself for “higher-than-usual volatility which will require particular intuition and sharp reflexes from all market participants”.

Separately, US investment bank Jefferies expects grains and minor bulk trades to continue to support bulker earnings, but questions remain about China’s economy and its import requirements for key dry bulk commodities. “We believe there will be ongoing tension between Chinese regulators trying to pursue economic growth and stability while also trying to improve air quality, which could have downward pressure on iron ore and coking coal demand,” the bank’s equity research head Randy Giveans said in a report. “As such, Chinese emissions regulations and other measures to curb steel production remain a wild card in coming months.”

On the supply side, it expects the growth rate this year to slow to 2%, with further easing to 1.6% in 2023, with vessel removals to continue to be much lower than the elevated levels seen in 2020, as the “dry bulk market looks poised for continued strength following a robust 2021”. Jefferies forecasts capesizes to average $26,000 per day in 2022, with panamaxes and supramaxes at $22,000 per day, and handymaxes at $19,800 per day.

Concerns over major disruptions to coal trade and shipping arising from an abrupt ban by the Indonesian government on exports are being alleviated. A select group of 25 coal producers in Indonesia are said to have been allowed to resume their exports. Sources in the shipping industry told Lloyd’s List that Jakarta has lifted the restrictions for these companies, which contribute most of the country’s coal exports and have fulfilled their domestic supply obligations.

Indonesia, the world’s largest exporter of thermal coal, has a so-called Domestic Market Obligation policy, whereby miners must supply 25% of annual coal production to power facilities under the state utility company Perusahaan Listrik Negara for up to $70 per tonne, far below current market price.

A roster of the selected companies being circulated within the industry include Indonesia’s largest coal miners, such as Adaro Energy and Berau Coal. Ships with their cargo on board have started to leave the ports today, having obtained bills of lading, sources said. The vessels have been waiting outside ports after coal was loaded onto them in the past few days even with the government ban still in place, they added. The energy ministry and the Indonesian Coal Mining Association did not immediately respond to the requests for comment.

One Singapore-based chartering source said no major disruptions to vessel schedules are expected. “Charters and operators may incur only minor delays of just one to two days, which should have been already factored into the chartering contracts,” the person said, adding that exports of the smaller miners remain stranded. A government source said the key to whether the export ban will be lifted completely lies in state power producer Perusahaan Listrik Negara getting adequate coal supply. “If PKN gets enough coal to meet its needs, the ban will be lifted completely,” he said, without elaborating.

Ridwan Jamaludin, director-general of minerals and coal at the energy ministry, said earlier this month that the “temporary” ban was aimed at replenishing stockpiles for about 20 coal-fired power plants for state power utility company Perusahaan Listrik Negara to avoid a “nationwide blackout”.

A shipbroking source in Singapore said “exorbitant” coal prices in the local market appeared to have prompted Indonesian authorities to resort to the unexpected and knee-jerk total ban on exports to force local producers to temper prices at which they sell coal to the country’s power producers and ensure adequate supply to the latter. With domestic coal price capped at $70 per tonne against export prices of more than double and up to $200 per tonne, some producers have opted to defer supply to local customers in favor of increased export shipments, a source among coal producers told Lloyd’s List. In a related development, Indonesia’s President Joko Widodo said today that the government has revoked more than 2,000 mining, plantation and forest-use permits. It is unclear yet the extent of involvement of local coal miners, whose production and export capacity could be affected.

With less than a month to go until the start of the Beijing Winter Olympics there is no letup in China’s zero-Covid policy with more and more cities being plunged into lockdown, creating widespread supply chain shocks.

The port of Ningbo-Zhoushan is struggling to shift containers as less than a quarter of registered truckers have the necessary new paperwork to go in and out of the three terminals at Beilun, a district that has gone into lockdown following the detection of a Covid-19 outbreak at a clothing factory over the weekend.

The city of Xian in the west of the country has been under a strict lockdown for a fortnight, while the city of Zhengzhou on the banks of the Yellow River has just ordered its 12m residents to take Covid-19 tests after a handful of cases were detected. The city has gone into partial lockdown while the 1m citizens of Yuzhou city – in the same province as Zhengzhou – have received stay-at-home orders after three asymptomatic cases. On Tuesday, China reported 41 new symptomatic community cases, including 35 in Xian.

Down south, the leader of Hong Kong today announced further restrictions including a two-week flight ban from eight nations. A new report out by Goldman Sachs yesterday suggested that China will likely stick with its zero-Covid approach this year, despite most other nations abandoning such a policy. Reports that vaccines made by domestic firm Sinovac Biotech offer limited protection against the omicron variant will likely reinforce China’s resolve to stick with its Covid Zero strategy, the Goldman Sachs analysts suggested.

With Covid-19 likely to be widespread outside China and with the party congress approaching in the final quarter, the analysts wrote: “We doubt policy makers would eliminate quarantines before then. With transmission typically higher in the winter months, it’s possible that border restrictions could be kept largely intact until spring 2023.”

China’s heavy quarantine rules are seeing Chinese crews – among the most numerous in the global merchant fleet – facing quarantines of up to seven weeks when they return home, while crew changes for foreign seafarers at Chinese ports have become very difficult, exacerbating the crew change crisis.

The Indonesian government is meeting with the nation’s top miners today with a deal to ease this month’s coal ban expected to be announced shortly. Indonesia shocked energy buyers and the dry bulk shipping community over the weekend by announcing a sudden ban of coal exports for the month of January over concerns about local power blackouts amid tight supplies. The swiftness of the announcement has left many ships bound for Indonesia in limbo.

Under Indonesia’s Domestic Market Obligation (DMO) scheme, miners are obliged to supply 25% of their output to the local market, but critically low stockpiles at power utilities have incited further action from the country’s energy ministry. However, after much representation to government by the mining industry as well as overseas buyers this week, a deal to ease the ban is likely to be revealed later today.

Indonesia is the world’s biggest exporter of thermal coal, exporting around 400 MMT in 2020. In 2021, Indonesia accounted for a third of total seaborne coal volumes, according to data from Braemar ACM. It also accounted for 65% of China’s imports specifically, up from 51% in 2019 due to China’s ban on Australian volumes.

Indonesia’s coal reserves have already been rapidly boosted in the opening days of the year as miners rushed to quell government fears over shortages with data showing as of yesterday the nation’s top utility had secured an extra coal supply contract of 7.5 MMT. The severity of the ban has been brought into question. As many as 25 coal companies in Indonesia’s key producing region East Kalimantan have been allowed to export coal in the opening days of the new year, local media quoted the provincial government as saying yesterday.