Dry bulk rates and the shares of bulker owners have continued to slide on concerns about China’s reduced steel production. Iron ore futures traded back below $100 a ton on shrinking steel output in China and signs economic growth is facing mounting headwinds. Clarksons Platou Securities analysts Frode Morkedal and Omar Nokta said in a note Tuesday that “it seems to be another tough week for rates”, with capesize spot rates currently at $31,000 per day, down 14% since Friday. “The paper market has seen even more of a correction since last week, as the capesize November contract fell 18% yesterday and is down another 9% today, currently at $25,250 per day,” the analysts said. “It seems to be the weak iron ore trade that keeps the pressure on rates, as Australian iron ore shipments declined 8% and Brazilian shipments 3.6% in October, while last week coal exports from Australia and Indonesia increased 22.9% and 21.4%, respectively.” However, Morkedal and Nokta said that if iron ore exports from Brazil should pick up, we could see a rebound in capesize rates as fewer vessels are currently deployed in the Atlantic.

Pradeep Rajan, head of Asia freight pricing, S&P Global Platts said: “We are witnessing big corrections in the freight rates for spot chartering across the board. With China slowing down on purchases of coal and iron ore as well as other minor bulks such as nickel ore, dry bulk freight rates have started to move south”. Rajan said the market expects rates to “descend further and sentiment to stay soft for most of the fourth quarter of 2021”. While China has imposed curbs on production throughout 2021, restrictions are now being rolled out more frequently and limits have been extended into the first quarter in an effort to ensure blue skies for the Winter Olympics, reported Bloomberg.

Daily crude steel output in the final third of October dropped to the lowest since March 2020, according to researcher Mysteel. There were frequent requests from local governments to curb production, while lackluster steel demand and softening prices have dampened mills’ willingness to produce, it said. “The probability that iron ore demand slides by at least 20% in the fourth quarter is increasing, judging from lower downstream demand,” Orient Futures Co analyst Xu Huimin told Bloomberg. “We have to monitor if mills will actually reduce production on their own, which will worsen the market a step further.”  China’s housing sector, an important source of steel and metals demand, is under strain from rules aimed at curbing leverage as well as a slowdown in the market, said Bloomberg. Credit assessors are downgrading the industry’s companies at the fastest pace on record, while at least four developers defaulted last month and others sought to delay near-term bond payments as contagion sparked by China Evergrande Group spreads, the newswire said.

China’s reduced demand for iron ore has also hurt the major dry bulk shipowners. Shares in John Fredriksen-backed Golden Ocean are down nearly 25% in the past month and closed at $8.51 per share on Tuesday. Fellow US-listed dry bulk owner Diana Shipping is down over 20% over the same period to $4.71, while Star Bulk Carriers’ shares are down almost 24% since the beginning of October.

Denmark, the United States and 12 other countries on Monday at the COP26 climate summit in Glasgow backed a goal to reduce shipping emissions to zero by 2050, something that will come up for discussion later in the month at the International Maritime Organization’s Marine Environment Protection Committee gathering. “We urge the IMO to take action to set ambitious targets to achieve zero emission shipping by 2050,” Danish prime minister Mette Frederiksen told reporters at COP26. “Carbon-neutral shipping is vital to reaching our climate goals.”

Belgium, Britain, Finland, France, Germany, Honduras, Hungary, Iceland, the Marshall Islands, Norway, Panama and Sweden also signed the shipping declaration, which commits countries to “work at IMO to adopt such a goal, to adopt goals for 2030 and 2040 that place the sector on a pathway to full decarbonization by 2050, and to adopt the measures to help achieve these goals”. The zero emissions target is a big jump from existing IMO targets which call for a minimum 50% cut in emissions compared to 2008 levels by 2050.

Speaking alongside the Danish prime minister, John Kerry, the US climate envoy, hinted that shipping ought to look more into nuclear propulsion. While stressing that this was not an official American policy, Kerry related how as a former US Navy man, he was a fan of nuclear power, something that has worked without any casualties in the American military for more than 70 years.

The US has this month released a new detailed pathway report on how it intends to decarbonize the nation, which is on a per capita basis the world’s largest polluting country.

Regarding transport, the report states: “Making progress this decade requires investing in domestic manufacturing and reliable supply chains for clean fuels, batteries, and vehicles. In addition, research, development, demonstration, and deployment of electrification and zero- or low-carbon fuels for aviation and shipping will ensure we have the technology to continue reducing emissions across the entire transportation sector in the years leading to 2050.”

Handysize bulk carriers have been the stars of 2021, with rates hitting their highest levels since mid-2008. Despite rates falling off a little in recent days, fleet employment remains high as demand in disrupted shipping markets remains strong. Handysize utilization peaked this year at around 98% and remains close to that level, according to Braemar ACM Shipbroking.

Employment of smaller bulkers is usually dragged up by rising utilization of larger tonnage but — true to form for 2021 — this year it has been the other way around. “When we run our historical fleet utilization model, which tracks how ‘fully’ the fleet is being employed, handies have shot above all of the other sectors for much of this year, with strength filtering upwards into the bigger vessels,” Nick Ristic, Braemar lead dry bulk analyst, told TradeWinds. “Note that when we pass the 90% mark, rates become extremely sensitive to small changes in supply and demand. It is only recently that the capes have approached these levels, for example.”

Tonnage lists are building in Asia and to a lesser extent the Atlantic and Mediterranean, while fresh enquiry remains low, causing spot rates to fall since their recent 13-year high. The Baltic Exchange’s basket assessment of average handysize spot rates reached $37,109 per day on Monday 25 October, but had fallen by just over 4% by Friday 29 October. Congestion at Chinese ports is easing “possibly due to industry scaling back due to the upcoming Winter Olympics“, according to the Baltic’s weekly market report.

This year has seen decent growth in volumes for minor bulks, minerals and other typical handysize cargoes, while vessel supply has been low. The global handysize fleet is scheduled to grow by 2.7% or 110 vessels this year, of which 29 are still to be delivered, according to Clarksons Research data. The overall handysize orderbook for vessels of up to 44,999 dwt currently stands at just 154 vessels, equivalent to 4% of the current live fleet, the data shows. Just under two-thirds of these vessels will hit the water before 2023. But timing has been key to the strength of this bulker segment too.

Port congestion has taken a large number of handysizes out of the trading fleet for long periods. Vessels are also undertaking longer-haul trips. One chartering manager for a handysize owner told TradeWinds that he had a vessel wait at anchor outside a Chinese port for 50 days to unload grain after a voyage from South America that typically would have taken 60 days to complete. “The growth in cargo demand has been healthy across all sectors up until recently,” he said. “What’s made it look super-healthy is the amount of time each voyage has taken to prosecute, which has definitely gone up.”

The minor bulk trade has generally fared much better than commodities such as iron ore and coal this year on the back of new trading opportunities, according to Ristic. “On commodities like steel, you have a lot of regional arbitrages opening up that have been very supportive of geared tonnage and I suspect the same trend is at play across other goods,” he told TradeWinds. For steel, he said this means handysizes and supramaxes are being employed on longer-haul trips that have opened up as a result of the regional mismatch in supply and demand — “for example, the Far-East to the US“. “Because there are so many East-West cargoes, the steel is also a particularly good backhaul and has helped to pull ships out of the Pacific and tighten that market,” he said. But Ristic does not see arbitrage-driven trades such as this lasting into next year. “This kind of trade is likely to subside as we progress into 2022 as capacity local to demand catches up,” he said. The chartering manager with whom TradeWinds spoke sees a similar pattern with intra-Asian coking coal trades.

Food cargoes such as sugar and rice are also making their way back into bulker holds. Five handysizes have been reported fixed for sugar so far this year, compared with two in 2020, according to fixtures data. “China normally exports coal around the region and places it’s normally exporting coal to are now exporting coal to [China] — Korea, Japan and so on,” he said. “Something they’ve already bought, they’re selling back for profit. It’s a very small volume in that case, but [for] some it’s noticeable what’s going on.” Ristic thinks handysizes have also received “a real boost” from carrying cargoes that would normally be containerized, either as parcel cargoes or using the whole ship. Heavily disrupted containership markets and sky-high freight rates have meant bulkers have been carrying these swing cargoes including steels, pulp, equipment and various kinds of bales and unitized cargo. “It is very difficult to quantify how much support the smaller bulkers are receiving from this trend, as it’s virtually impossible to identify a bulk cargo that otherwise would have gone in containers,” Ristic said.

The third-quarter bull market for capesize and panamax bulkers has helped GoodBulk post its best-ever quarterly result, topping the company’s record from the previous three months. The bulker owner is paying out $1 per share to its shareholders — or $30m in total — as capital repatriation for the period. This matches the dividend GoodBulk paid out during the second quarter, which was the most the company had ever distributed to shareholders. GoodBulk’s securities are registered on Oslo’s over-the-counter market.

The company said the positive results came on the back of sustained high demand for the transport of coal and iron-ore cargoes during the period. GoodBulk logged net profit of $32m — or $1.06 per share — during the third quarter of 2021, compared to a loss of $1.2m during the same period last year. Third-quarter revenue totaled $77.9m, up from $44.7m a year ago, underpinned by strong earnings for GoodBulk’s 22 capesizes and one panamax bulker.

Sixteen of GoodBulk’s capesize vessels were traded in the spot market during the third quarter, employed with Capesize Chartering Ltd via the CTH Capesize Revenue Sharing Agreement. GoodBulk’s lone panamax vessel — the 75,395-dwt Aquaknight (built 2007) — was also traded in the spot market during the quarter. Six capesize vessels were employed on period charters.

GoodBulk’s capesize fleet logged an average gross time-charter equivalent (TCE) rate of $29,083 per day during the third quarter and its panamaxes earned $28,997 per day. Average direct vessel operating expenses for the period came in at $5,872 per vessel per day. A year ago, GoodBulk’s capesizes earned $15,908 per day on average and its panamax had income of $6,412 per day.

The company observed that the Baltic Capesize Index averaged $42,379 per day during the third quarter this year, around double the level seen during the same period in 2020. The third-quarter results mean that GoodBulk has had a profitable first nine months of 2021. Its net profit for the period totaled $55.6m, compared to a $12.2m loss in the same period of 2020. Earnings per share during the nine months totaled $1.85, compared to a loss of $0.37 per share in the the first half of 2020.

Seanergy Maritime Holdings’ earnings have grown by almost six times in a capesize bulker sector that saw the highest rates in more than a decade. The New York-listed capesize owner on Tuesday reported a $20.1m net profit for the third quarter, compared to $3.6m in net earnings for the same period of last year.

Seanergy’s fleet of 17 capesizes earned an average time-charter equivalent (TCE) rate of $30,764 per day during the three months, surpassing last year’s third-quarter TCE earnings by 90%. This caused the shipowner’s revenue to skyrocket by 146% to $50m during the three months, compared to a year ago. “I am very excited to announce our financial results for the third quarter and nine-month period that ended on September 30, 2021, marking a record profit for Seanergy since we started acquiring our current fleet in 2015,” chief executive Stamatis Tsantanis said in a statement.

“The exceptional financial performance of our company is attributed to the combination of the well-timed acquisitions that we executed in the past year, as well as the highest dry bulk market of the last decade.” The Greek shipowner has acquired seven Japanese-built, second-hand capesizes this year for $193m while selling one. The acquisitions have boosted the value of Seanergy’s fleet by 55% to $397m.

Tsantanis said Seanergy is “confident about the prospects of the capesize market for years to come“, given a spot-rate average of $87,000 per day just weeks ago, a very low orderbook and high demand for dry commodities. “The capesize orderbook still stands at the lowest level of the last 25 years and the upcoming environmental regulations are expected to lead to a significant vessel supply squeeze in the following years,” he said.

For the first nine months of 2021, Seanergy posted a $20.7m profit versus a $16m net loss for the same stage in 2020. Revenue came in at $100m against $43.5m a year earlier.

Seanergy’s shares were trading at $1.08 on the New York Stock Exchange as of mid-morning in the city on Tuesday, down by 4% since the market opened. A rout has been seen across all dry-bulk equities.

AP Moller-Maersk has made more profit in just three months than it previously made in a year, according to chief executive Soren Skou. And the world’s largest liner operator is set to keep reeling in the cash as shippers lock in longer contracts at higher rates. Speaking on a conference call today after unveiling the best quarter in the company’s history, Skou highlighted how Maersk has locked in future earnings in what had been “an unusual year”. The company logged a profit of $5.46bn in the third quarter alone, nearly twice the $2.9bn for the whole of 2020. “We’re actually delivering a quarter which is better than the best year ever for the company,” Skou said.

The performance is expected to be replicated in the coming two quarters, which are forecast to be in line with the third quarter. Maersk has reiterated earnings guidance of between $22bn and $23bn for the full year. Skou’s ebullience springs partly from seeing shipments of 40-foot equivalent unit (feu) move away from the spot market. It had been “an unusual year in that many customers have been willing and wanting to commit to longer periods”, Skou said. “We now have 1.4m feu of multi-year contracts,” he said. “But we’ve seen customers wanting to negotiate early for 2022.”

Contracts had already been inked including on the transpacific that normally are not negotiated through to a deadline on 1 May 2022, he said. That helped Maersk reduce exposure to the commoditized short-term market “where we are price-takers and where we are subject to wild swings in spot rates”. Long-term contract volumes were up more than 40% from 2019 through to 2022, with additional contracts to be negotiated in the run-up to Christmas. More than two-thirds of Maersk’s long-haul volumes, or 7m feu, are now on long-term contracts. That is 50% higher than one year ago. Another 1m feu of volumes on regional trades were also committed long-term.

Skou warned that earnings guidance was dependent on uncertainties, including the supply chain problems and congestion at ports. Maersk had responded to that by expanding capacity to an all-time high level as well as increased the average speed of vessels. The Maersk fleet has risen to 736 vessels of 4.21m, increased by 4.4% from 4m teu at the end of 2020. However, around 10% of Maersk’s capacity was tied up due to congestion at ports around the world. “That’s why we’re having a hard time delivering on the volumes and growing as much as we would like,” Skou said.

The increase in the proportion of long-term contracts will help mitigate any weakening of short-term freight rates. But Maersk is not expecting any weakening in spot rates this quarter or next, while long-term rates are up on average around $1,000 per feu in 2021, or about 50%. Volumes in the third quarter were slightly down by 0.6%, mainly due to a decrease in east- west volumes linked to the congestion issues. Congestion meant that Maersk’s container volumes were unlikely to match market growth of between 7% and 9% in 2021, Skou said.

With third-quarter earnings season set to open in earnest this week, investors will get a choice between rates strength and market momentum as they pick through the three principal operating sectors. Containership and dry bulk owners have seen record, or at least robust, markets that may already have peaked in some cases, but are set to “fall” to still enviable levels. Tankers, on the other hand, have been scudding along the bottom for more than a year and are set for a rebound, but one that has been slower and will perhaps be more stubborn than originally envisaged.

As owners in all three sectors prepare to lay cards on the table in the next few weeks, TradeWinds caught up with Jefferies lead shipping analyst Randy Giveans, who covers 29 US-listed stocks, for a look ahead. “It’s going to be interesting to me to see how investors react to what they’re hearing — does momentum win out or does underlying profitability prevail?” Giveans said. “Dry bulk and containers are coming down from peak levels in recent weeks … but still to really strong levels that are well above 10-year averages. Meanwhile, tankers are the opposite: rates are certainly heading higher, but to levels that are not extremely profitable and definitely not better than the 10-year figure.”

Analysts usually pay less attention to the past quarter’s numbers — these generally are largely known and already baked into the stock price — than to any guidance shipowners may offer as to rates booked to date in the current quarter. With all the volatility across the sectors, this will be especially true in the current batch of results, the Jefferies man said. “In the dry bulk sector, for example, we’ve seen capesize rates go from $80,000 per day to $40,000 [per day] in a few weeks — which owners were able to capture some of those $80,000 fixtures at the start of the quarter and which weren’t?” Giveans said. “Tanker owners have their own version of that. As we saw with rate guidance at the start of the third quarter, there was a pretty big range in strength. In that case, it will be interesting to see how these various owners finished the quarter. Who outperformed, who underperformed, and why? But the fourth-quarter guidance will be pretty meaningful as well.”

Giveans already has made his own adjustments to expectations in a quarterly earnings preview. Jefferies has raised its price targets, second-half earnings expectations and 2022 projections for the dry bulk names under its coverage, based on stronger-than-predicted rates in the past quarter and a fourth quarter that started even higher in some vessel classes. While there have been lots of negative headlines around declining capesize rates and lower Chinese iron-ore demand amid restricted steel production, Giveans likes the continued strong market for coal and its impact on smaller vessel classes. “The market is being minor-bulk pushed rather than capesize pulled,”Giveans said.

On the tanker side, it is the opposite, as Jefferies has reduced second-half and 2022 earnings projections, while either maintaining price targets or increasing them in the case of DHT Holdings, International Seaways, Frontline and Euronav. “While there is a demand recovery for crude currently underway, it is taking longer and rising at a much slower pace due to lingering Covid concerns than we expected,” Giveans said, applying much the same analysis to clean products rates. One nugget symbolic of the changing fortunes of the two markets: Jefferies projects VLCCs will earn $25,000 a day for full 2022, just a hair less than his $26,000 estimate for capesizes.

Earnings in the coming week will see insights from owners in dry bulk, where both Eagle Bulk Shipping and Genco Shipping & Trading are gearing up dividend payouts, and in the crude sector, where Euronav may shed further light on a 10% investment from tanker king John Fredriksen. Eagle has just instituted a quarterly dividend for the first time in chief executive Gary Vogel’s five-year tenure, while Genco is expected to once again incrementally bump up its payout for the third quarter before shifting to a high-payout model for earnings in the current quarter, Giveans said. Euronav chief executive Hugo De Stoop told Bloomberg last week that his company is not currently in merger discussions with Fredriksen’s Frontline and that any prospective merger would be friendly.

Bangkok owner Thoresen Thai Agencies (TTA) plans to sell debentures worth up to THB 2bn ($60m) as it clears away other maturing debt. The bulker and offshore support vessel owner said it will look to place the unsecured securities in two tranches.

The first will mature over three years and three months with a fixed coupon rate of 4.75%, and the second covers a 4.5-year period at interest of 5.1%. The issues are worth up to THB 1.5bn combined, with an additional greenshoe option of up to THB 500m.

The debentures have been assigned a credit rating of BBB with a stable outlook by the TRIS Rating agency. They will be offered to general investors and institutional investors between 8 and 10 November.

Investment banks Asia Plus Securities, Globlex Securities, KGI Securities, Krungthai Zmico Securities, KTBST Securities and Yuanta Securities are running the transactions. TTA chief executive Chalermchai Mahagitsiri said the proceeds of the offering will be used to repay earlier debentures and as working capital to strengthen the company’s businesses and to increase liquidity.

“Currently, shipping segment is projected to grow, while offshore service segment, which recently secured multiple contracts in Thailand, Angola and Saudi Arabia, has prepared to provide a comprehensive range of subsea services,” he added.

TTA said it has a healthy balance sheet, with cash of around THB 7.5bn, giving it a strong capital structure with a low interest-bearing debt-to-equity ratio of 0.06 as of 30 June. The group owns 29 ultramaxes, supramaxes and diving support ships. Its investment portfolio includes agrochemical and food and drink interests.

Traffic along the Yangtze, China’s longest river and a massive source of cargoes both domestically and for export, is worsening.

According to analysts at Singapore’s Eastport Research, traffic is backing up at ports near and along the Yangtze River over the past month with a severe shortage of pilots slowing vessel movements. The average time spent per vessel in Zhangjiagang, and Shanghai increased by almost a day in October.

Specialized river pilots are now required to be quarantined after completing their duties, which has led to pilot shortages.

The average time spent per vessel increased by 169% year-on-year for Jiangyin, 154% year-on-year for Nantong, 41% year-on-year for Ningbo and 190% year-on-year for Zhangjiagang in October, according to data from Eastport.

Approximately 3bn tonnes of cargo is moved by ship along the Yangtze every year making it the busiest inland waterway for cargo in the world.

China’s coal mines were required by the central government to boost output as an energy shortage across the country has seen millions of homes and businesses hit by power cuts in recent weeks. An additional 50-55 MMT of coal production are estimated to be added in the fourth quarter of this year.

Chinese provincial governments are encouraging coal imports from Russia, Indonesia and Kazakhstan to resolve domestic shortage. Despite the political tension, China has begun unloading Australia’s coal transport in October and vessels idled near ports have received clearance to discharge the coal.

But the Chinese government is unlikely to reverse the unofficial ban on Australian coal imports anytime soon.