Thoresen Shipping has become the latest bulker owner to post record profits on the back of the strong bulker markets. The Thai-backed shipowner said its third quarter result of THB 1.77bn ($54m) was the “best ever profit in more than a decade”. Thoresen said freight revenues came in at THB 3.49bn in the third quarter, which was up 30% quarter-on-quarter and up over 200% year-on-year.

“Supramax freight rates averaged $34,269 per day in the third quarter, supported by a limited fleet growth and demand growth of coal and minor bulks following the world economic recovery, as well as the ongoing port congestion due to Covid-19 control measures,” the shipowner said.

Thoresen said its time charter equivalent (TCE) rate rose 85% quarter-on-quarter and 196% year-on-year to $33,842 per day and outperformed the net market rate of US32,556 per day by 4%. Owned fleet utilisation rate remained high at 100%, with the highest TCE rate of $53,160 per day, while vessel operating expenses were down 7% quarter-on-quarter to $3,861 per day.

“We are pleased with the strong operational and financial results delivered in the third quarter,” said Chalermchai Mahagitsiri, chief executive of parent company Thoresen Thai Agencies. “Shipping’s time charter equivalent rate outperformed the net market rate, with gains from both owned and chartered-in vessels.”

Thoresen said dry bulk trade is forecast to grow by 4.1% in tons or by 4.8% in ton-miles for the full year 2021, driven by the recovery of coal and minor bulks, and dry bulk trade growth of 2.4% in ton-miles for the next year.

On the supply side, it said the order book stands at a record low of 6% of fleet capacity in 30 years, with fleet expansion is currently projected to slow to 3.5% in deadweight tonnage for the full year 2021 and 1.5% in 2022. However, it warned that the strength in freight rates is likely to ease with “improved port operation once Covid-19 vaccines are thoroughly distributed worldwide”.

At quarter-end, Thoresen owned 24 vessels – 22 supramaxes and two ultramaxes – with an average size of 55,913-dwt and an average age of 13.5 years.

In the summer of 2008—at the height of the commodities super boom—Australian thermal coal prices exceeded $192/ton. For the next 13 years thermal coal miners suffered through long stretches of low-price environments, with prices never approaching 2008 levels and rarely exceeding $100/ton. However, after sinking below $47/ton in August of last year, Aussie thermal coal prices soared to a stratospheric $254/ton last month. The severe supply/demand imbalance in the current market is, at least in part, a direct result of these low-price environments which forced many of the world’s swing coal suppliers to permanently exit the industry, drastically reducing the international market’s reserve coal capacity. Without this reserve capacity, the coal market has been unable to meet the massive surge in global demand for energy at a time when others forms of alternative energy, particularly gas, have skyrocketed.

Efforts to expand coal supply have proved challenging on many fronts. First, in any year, mining firms approach new project mining investments with caution, resulting in a timeline of several years before operations commence. Second, while expansions of current sites can be initiated more rapidly, a heavy machinery shortage was constraining this option. Third, poor weather conditions, intermittent labour shortages at ports, and covid disruptions at mining sites have further disrupted operations.

After experiencing a wave of blackouts in many of its provinces, the Chinese government finally intervened, allowing power producers, that had been operating at a loss due to the high cost of coal, to pass on these higher prices to end users. The government instituted a price cap for many coal suppliers while also ordering an increase in production. These strategies appear to have been successful. As of 11th November China’s daily coal output was over 12mt/day, suggesting China’s domestic production will achieve a record month in November. Whether this increased production can close the gap between coal output and demand remains in question, as coal output was up annually by only 3.7% as of September while energy consumption increased by 12% over the same period.

Coal prices have contracted since its high in mid-October, losing over $100 in a few weeks , but seem to have found a floor at around $150/ton as of Friday. This steep decline in coal prices has discouraged trade as end-buyers delay purchases, choosing to wait for prices to stabilize. For those unfortunate buyers who contracted coal cargoes before the price fall, many are seeking to postpone shipments, which will likely lead to a significant cut in the expected coal shipments for the rest of November. More importantly, China’s policy decision to ramp up domestic production in order to combat rising energy costs will almost certainly dampen demand for imports in the near term, especially if China’s stockpiles remain at sufficient levels.

It is unclear how long trading can be delayed. For instance, India, which relies on coal for about 70% of its energy, is contending with stockpiles that remain dangerously low, with only six days of coal-burn available nationally. Colder than normal weather also threatens to strain China’s current stockpiles, which at coastal plants is only sufficient for 14 days, about 15% below last year’s levels at this point in the year.

If coal prices display further volatility as a result of stockpile declines, or in fact for any reason, coal trading activity will almost suffer in the short term. If prices stabilize at their current levels, coal trade may well increase in the short term but the wider dry bulk market will likely suffer in the medium term. For, even at $150/ton, the cost of energy will effectively serve as drag on Chinese and other Asian countries industrial production. On a positive note, 2021’s coal trade has been fairly tepid due to insufficient supply and high prices, and as demand for energy remains strong, any increase in coal supply next year will likely find a home.

President Joe Biden will sign off the largest federal investment infrastructure bill in more than a decade this Monday. The bill would raise USD 1 trillion to be spent on roads, bridges, ports, rail transit, safe water, the power grid, broadband internet and more.  The American Iron and Steel Institute (AISI) has expressed a positive outlook as the bill moves to upgrade existing infrastructure and expand infrastructure capacity to much needed areas. Among the steel-intensive funding in the legislation; USD 100 billion is for roads, bridges, and major projects, USD 66 billion for passengers and freight rail, USD 39 billion for public transit and USD 7.5 billion for electric vehicles. The AISI estimates that for every USD 100 billion of new investment in infrastructure, it could increase demand for steel by as much as 4.5 MMT. Other steel organizations have shared a similar figure. Notably, the bill stipulates provisions to encourage steel used in federal-funded projects to be melted and poured in the US. The Biden administration has stated that the bill would boost domestic industries and create millions of jobs in the US.

Belships’ expanded fleet and a strong spot market helped the Norwegian shipowner to book an upsized profit for the third quarter, trouncing analysts’ estimates. The Oslo-listed firm made a net profit of $35.2m during the period, up from a loss of $4.2m in the same quarter last year. Freight markets for supramax and ultramax bulkers hit the highest levels since 2008 during the third quarter.

Belships’ expanded fleet, which now numbers 30 supramax and ultramax bulkers, meant it had 25% more active days compared to a year ago. The shipowner will pay out NOK 0.55 ($0.06) per share, equal to 64% of its third-quarter net profit, adjusted for non-controlling interests. Much of the net result was generated by Lighthouse, Belships’ in-house commercial platform that handles cargo trading. Lighthouse contributed $23.2m of Belships’ third quarter Ebitda of $57.1m.

Net freight revenue for Belships’ owned vessels was $106m during the third quarter, compared to $43.7m a year ago. Its owned ships earned average time-charter equivalent rates of $25,378 per day during the third quarter, a big increase on the $9,067 per day during the period in 2020.

This quarter, Belships has around 77% of its available vessel days booked at about $29,000 per day net. Looking to 2022, the shipowner said it has covered approximately 42% of vessel days in the next four quarters at about $25,500 net per day. The shipowner has fixed a few of its ships on period deals in recent months but revealed that a two-year contract has been broken off. In late October, Belships fixed the 63,300-dwt Belpareil (built 2015) on a 23- to 25-month period charter at $25,500 per day. But the shipowner said on Friday that the contract with the unnamed charterer has been cancelled due to delays on the vessel’s current voyage.

Belships said its outlook is optimistic, based on the low number of vessel deliveries, the “historically low” orderbook for ultramaxes and “stable demand“. “We will continue to pursue opportunities for further growth whilst being selective and disciplined in the use of our capital,” the company said in its report.

Belships exceeded consensus estimates across the board, but equities analysts said they expect a softer fourth quarter now that freight markets have come off. Analyst Mindaugas Cekanavicius said Norne Research maintains its positive view on the company but will adjust its estimates for earnings from Lighthouse Navigation, the part of Belships’ business that is most exposed to volatile freight markets. “We could have expected the record-high numbers to be reported for the Belships’ dry cargo shipping segment, but the Lighthouse Navigation segment significantly outperformed 2Q despite the conservative guidance,” he said in a note to clients on Friday. “The inherent lag in Belships’ business signals for a very strong short-term future regardless of the negative rate development we have encountered over the last few weeks.”

Fearnley Securities said Belships has “played the cycle to perfection” in terms of fleet expansion and net-asset-value (NAV) growth, despite its stock often trading below NAV per share. “However, we expect a substantially softer result from [Lighthouse Navigation] with the company saying it expects to make provisions for potential loss-making contracts if the reduction in FFA continues towards year-end,” analysts said on Friday.

The market for capesize bulkers made some modest gains over the past week following a month-long tumble from historic highs, but market experts aren’t expecting another huge rally right away. The capesize 5TC, a spot-rate average weighted across five key routes, improved 14% over the past seven days to $31,811 per day on Friday. The jump represented a rebound after the rates plummeted 68% in the four weeks ending 5 November. “Indeed, we have stabilized a bit, but capes will always tend to surprise us,” John Kartsonas, founder of asset-management advisory firm Breakwave Advisors, told TradeWinds.

The spot rate for the round voyage from Brazil to China picked up $95 per day on Friday to come in at $25,368 per day, while the transpacific route lost $300 per day to end up at $33,471 per day. Among Friday’s fixtures, Rio Tinto booked an unnamed 170,000-dwt capesize for a trip from Western Australia to China at $12.70 per tonne. That’s higher than what the mining giant was willing to pay a week earlier, when it agreed to pay $10.80 per tonne for similar voyage.

Breakwave Advisors expects average capesize spot rates to fluctuate about $3,000 per day either way from Friday’s 5TC figure before rallying at the end of November, Kartsonas said. “A lot of things can change in days, but for now this is our base-case scenario,” he said. “This is contrary to the FFA [forward freight agreement] market that expects rates to continue to weaken for the months to come.” The FFA rate for November contracts stood at $29,036 per day on Friday, while December came in at $24,907 per day. The rate for January contracts was $18,300 per day. Spot rates could improve as approaching winter heightens coal demand, but they could also slide as port congestion eases, he said. “The balance of the two will determine the near-term outlook, but for the short term, we remain more constructive,” he said. “We do expect rates to weaken in Q1 though, but still remain higher than historical levels.”

Capesize spot rates should remain relatively even-keeled in the coming weeks amid stabilized commodity prices as rising coal demand and subdued iron-ore trade offset each other, Jefferies analyst Randy Giveans said. “My guess is capesize spot rates will stay above $25,000 per day, and probably above $30,000 per day, throughout the end of the year,” he said. “Dry bulk equities will start catching some bids as investors look past any short-term seasonal dry bulk weakness between now and February.”

Reports of the capesize market’s demise have been greatly exaggerated and day rates of $30,000 are “not the end of the world“. That is according to John Michael Radziwill, chief executive of bulker pooling giant C Transport Maritime (CTM) and its public arm, shipowner GoodBulk. The capesize market’s downturn this quarter has been a “massive overreaction” and typical of the market, whether rising or falling, Radziwill told TradeWinds. “I think it all ties into that we’re moving into a seasonally weaker period for the hard commodities — there’s less construction, so there’s less demand for iron ore and coking coal,” he explained.

“The big one that hit sentiment too is the Chinese government intervening to cool down raw material prices. That did trigger a significant drop in coal and iron ore, and off the back of the iron-ore price drop, the miners are all guiding towards the lower end of their production.” But Radziwill expects an upturn this quarter. “The best way to absorb this [lower] market is to consume the spot market going forward,” he explained. “Fixing out period or selling, I think you’re taking a fairly big discount to what you would get on the spot market and so far this year, that’s been right and [the third quarter] is really where it’s starting to come to fruition. We’re pretty excited and we think there will be a rebound [this quarter] too.” Coal demand should remain solid during what looks to be a cold winter in the northern hemisphere, he said. China’s imports of iron ore from Brazil have been positive for capesizes in terms of tonne-miles and, while demand from the country may have faltered since September, South Korea and Japan are not slowing their imports, Radziwill observed. Neither is port congestion showing much sign of abating and the fleet is also steaming “quicker than it should be“.

Data from bulker tracking platform Oceanbolt shows the capesize fleet is sailing at around 11.56 knots, down from the peak of 11.97 knots in August, its fastest speed in at least six years. “If anything, we’d keep as much as we can in the spot market and the pools would probably fix what’s very close to them and the shortest voyage possible and maybe stay away from the longer voyages at the moment,” Radziwill said of the strategy going into 2022. “We just think the market’s oversold, so we don’t think it’s the right time to sell in the time-charter market or in the asset market.” Panamax values have risen year on year by 55% and supramaxes by 77%, but capesize values have only appreciated by around 35%, he said. “On the basis of the bigger [bulker] sectors behaving like the smaller sectors, we think we probably need another couple more months of capesizes in the band between $25,000 and $50,000 a day for asset prices to get to that next level,” said Radziwill. Pool manager CTM has 127 bulkers under its management for around 30 clients, ranging from handysize up to capesize. In addition, CTM also co-manages more than 200 vessels with Capesize Chartering Ltd. “That gives us a lot of information. It really helps all of us at CTM, our 30 clients, see around the corner a little bit better — and I think that’s super important at the moment,” Radziwill said of the operation.

“Up until a month ago, there was nothing so abnormal about capesizes this year and they spiked in August. Great. That’s what always happens.” Radziwill thinks capesize spot rates need to reach “abnormally good” territory for asset prices to really pop, like the small ships have this year. “We think probably there is upside in capesize values from today,” he said. “Certainly between now and the end of [the first quarter of 2022], we think cape values will start to catch up with the smaller [bulker] values. We don’t really see that anything on the medium- to long-term supply-demand balance has changed — and it looked pretty good before.”

The whipsaw-like capesize market has also exposed flawed strategies that were too dependent on precedent, according to Radziwill. “In this ever-changing and uncertain world, experience actually means less and less because we haven’t seen it before, so you really cannot trust experience,” he said. “Analysis is the most accurate way to synthesize what’s going to happen in the market at the moment because this has never happened before with a pandemic, certainly not in anyone’s lifetime.” Relying too heavily on experience can even get you into trouble, he added. “When the [freight] rates started to explode or started to go up on the small ships, we saw a lot of people taking coverage, like right away, and that was a mistake. I’m pretty sure they made that mistake because their experience told them — and this was probably right — from 2012 to 2019, every time there’s this spike, take some money off the table. “But the world has changed and it shifted.”

Global thermal coal seaborne shipments have totaled 806 MMT for the first ten months of 2021, up 10.0% YoY, though lower by 2.1% over pre-pandemic levels in 2019. Electricity demand has seen a sharp rebound, as markets around the world have shed pandemic-induced restrictions and returned to business as usual.

Following a sharp contraction due to the pandemic in 2020, China’s appetite for thermal coal shipments has increased significantly this year. Based on our cargo tracking, China’s imports of thermal coal have totaled 222.2 MMT for the first ten months of 2021, up 32.2% YoY and higher by 14.3% over the same period in 2019.

Despite a boom market in 2021, the long-term outlook for thermal coal is still relatively weak. According to our projections, global thermal coal shipments are expected to decline progressively in the coming years as economies switch over to alternate fuels for power generation to meet their climate action targets. In our base case, we are forecasting a net decline of 9.6% in thermal coal shipments by 2025, over 2021 baseline with the current year being the peak. However, if more aggressive climate action targets are implemented in next 2-3 years, especially in China and India, the outlook could be bleaker.

The bearish outlook for thermal coal implies a decline in Cape and Panamax shipments in the long-term, though it could be partially offset by longer distance trades if China continues its ban on Australian coal. We also expect growth in other trades to more than offset these losses in vessel demand.

Norwegian operator Torvald Klaveness believes bulker earnings will climb again after being “hammered down” in recent days. Key to this is charterers no longer being able to hold back cargoes to take advantage of falling spot rates.

Peter Lindstrom, the company’s head of research and data platform, has observed charterers postponing cargo nominations. “A charterer who is sitting on a contractual obligation to move a commodity from A to B has a laycan window, typically one to two weeks, which gives them some flexibility around when the vessel needs to be nominated,” he explained. “When freight prices are falling the charterer is incentivized to hold back on nominations, if possible, as this will lower their freight cost,” he added.

The analyst argues that the number of actual cargoes being circulated in the market since mid-October is lower than the underlying demand for vessels. “However, this can only last for so long as the charterer needs to nominate a vessel within the laycan period,” he said. When spot rates bottom out, postponed nominations will resurface, Lindstrom believes. “Rates tend to increase quite quickly again,” he said. “We are optimistic for freight rates in the very short term and into 2022.”

Lindstrom points to all-time low fleet growth, combined with a resilient demand outlook, as backing for the company’s belief in a rise in earnings again. Bulker freight rates have been trending upwards since 2016. Rates peaked in mid-October on continued demand and port congestion. But earlier in November, weakening bulker markets pushed the Baltic Dry Index (BDI) to its lowest level since 11 June. “Since mid-October we have seen a steep correction in spot rates and forward values,” Lindstrom said.

Klaveness does not pretend to have all the answers as to why this has happened, but has a number of theories. There has been weaker sentiment linked to negative growth in Chinese steel production since July, the company said. It blames a softening domestic property market and a crunch on energy supplies for manufacturing. “As China accounts for about 70% of the seaborne volumes of iron ore there should be some risk priced in, in terms of Chinese iron-ore demand in 2022,” Lindstrom said. “This has clearly impacted sentiment negatively. However, we argue the restricting factor for the iron-ore trade at the moment is the supply side, not the demand side. Thus, lower Chinese demand does not necessarily mean lower volumes of seaborne trade,” he added. There has also been a sharp correction in commodity prices, following on from the drop in steel production, Lindstrom explains. “When commodity prices nosedive like this, all traders and those end users who can afford to wait step back and wait for the fall to run its course. Only when a bottom is perceived to be near will demand from these buyers resurface. Thus, during a price fall the actual purchases of commodities will be less than the underlying demand as those who can afford to wait will wait,” he added.

Klaveness believes coal prices could increase, however, with winter increasing demand. “We believe there still will be a deficit of coal in China and the rest of the world in the coming months and years,” Lindstrom said. “As with iron ore, we argue that the bottleneck for the seaborne trade of coal is supply, not demand. Thus, we expect the seaborne trade of coal to be resilient in the coming year,” he added. But the company is not expecting big growth in coal shipments either, although the rise will exceed minimal fleet growth in the coming two years.

Another factor in the rate drop has been rapidly reducing port congestion, releasing ships into the spot market, Lindstrom believes. This could be because of fewer cargoes being loaded as commodity prices fell, he argues. “As commodity prices show signs of stabilizing, we think that congestion will bottom out and start to increase again,” Lindstrom added.

Precious Shipping has reported its best start to the year in over a decade helped by a blockbuster third quarter performance. The Bangkok-based shipowner said Thursday that its third quarter net profit was $45.4m, almost double the $26.23m figure in the second quarter of 2021. “The earnings per day per ship for the third quarter came in at $ 24,722…almost three times higher than the year-ago figure of $8,786,” Precious said.

The Khalid Hashim-led supramax and handysize bulker owner said its highest earnings per day per ship surpassed the $50,000 mark during the quarter. The strong performance came despite Precious under-performing the Baltic Handy Size Index (BHSI) and Baltic Supramax Index (BSI) by 30.9% and 19.7% respectively. During the third quarter the BHSI averaged 1,788 points derived from the average time charter (TC) rate of $32,194 per day, while the BSI averaged 3,115 points derived from the average TC rate of $34,269.

Precious said there were “three reasons for our underperformance” including that it ships were “different” from the index ships. “On an apples-to-apples comparison, our handysize ships are ranked 25% below and the supramaxes are 10% below the index ship TC rates,” it said. Secondly, it said five of its handysize ships, out of its fleet of 19, are on long term charters are fixed at $17,013 per day and one supramax, out of our fleet of 17, is fixed at $13,421 per day. “And finally, if we had fixed all your ships on day one of the third quarter at the index level – BHSI at $27,890 per day and the BSI $32,324 – we still would have underperformed the average index ship TC by 13.4% in handysizes and 5.7% in supramaxes,” Precious said. “If we had applied these three adjustment factors to our result, we would have outperformed the handy index by 19.8%, and just underperformed the supra index by 0.50%.”

Precious was also optimistic about prospects in the fourth quarter based on its comments about China’s coal imports and the impact of climate change. The shipowner said that if China does not increase coal production and imports, existing power shortages will be further exacerbated. “The Chinese population affected will be really upset as winter progresses and the cold starts to bite,” Precious said. “And the one thing that the Chinese government does not want, above all else, is a minor revolution. So, smart politics suggests that China’s regulators will produce more coal and allow greater imports.”

On the impact of climate change, Precious said it is exhibiting no signs of getting better and that we will all have to learn to live with weather-related disruptions as part of the “new normal”. “In general, any disruption is always good for dry bulk shipping as they create inefficiencies and reduce the effective supply of ships,” it said. “The recent typhoons to hit China have increased congestion in their ports. Soon the Australian cyclone season will commence causing disruptions, port closures, delays, congestion, weather related port damages, rail line damages, mines getting flooded, rail lines getting flooded, which is all bullish for shipping.”

Container spot rates are falling – and are unlikely to see any noticeable edge up for the remainder of what has been a record-breaking 2021, multiple analysts polled by Splash have predicted. Liner shipping is on course to smash profits in excess of $150bn this year, more than five times their previous best cumulative effort as rates soared to highs never seen before. However, as the peak season has passed and carriers focus on getting more clients fixed to long term contracts, the spot market has entered free-fall.

Last week saw the biggest week-on-week drop of Drewry’s World Composite Index since November 30, 2017, a global spot rate indicator, which plunged 4.9% in the first week of the month. “We think spot rates will probably continue to slide through the rest of the year, but that they will remain at high levels, feeding into strong contract rates next year,” Drewry’s Simon Heaney told Splash.

“At Xeneta we clearly see a tendency that average spot rates are now past the peak. Until another freak event occurs, that is,” commented Peter Sand, who this month joined Xeneta as chief analyst after 12 years at BIMCO.

Shabsie Levy, founder of digital freight forwarding company Shifl, commented: “With the holiday shopping rush seemingly over and the already ordered goods sitting inside thousands of containers on many ships across the USA, the drop-in freight rates on the spot market continues into November.”

Across the three main long-distance high-volume trades out of Asia heading towards the US and EU, spot rates in November have fallen from the end of October. Moreover, some carriers are now removing or not keeping previous surcharges. A pre-Lunar New Year rush is likely to turn the spot tide in early January, both Sand and Levy predicted.

“After Chinese New Year as we head into the traditionally quieter months, I’m confident we will see the rates on a stable downward trajectory” Shifl’s Levy said.

For long-term rates, Sand said they are holding steady across the main lanes for the time being. Shippers hoping to bag bargain ocean freight prices anytime soon are likely to face disappointment.

Writing on LinkedIn, Lars Jensen, CEO of container advisory Vespucci Maritime, warned: “You need to expect a new normal where rate levels in general are stronger than 2019, but of course a lot lower than right now. Not because of the pandemic and bottlenecks. This would have happened anyway and is a consequence of the consolidation in the industry which has increased market power with the carriers.”