It’s turning into a Golden Week unlike any other for the capesize trades. With China meant to be on holiday, traders might have been forgiven for thinking they could take it easy. Extreme coal shortages in China, India and Europe put paid to that notion, with capes being contracted for rates not seen since the heydays of the last great dry bulk run, which came to a shuddering halt 13 years ago.

On the C9 fronthaul route between Europe and East Asia, rates skyrocketed yesterday to $113,700 a day, reacting to early intense FFA trading that sees rates pushing very high into 2022. The transatlantic round voyage equivalent rose yesterday to $90,400 a day. Overall, the Baltic Exchange reported the benchmark 5TC up by $3,842 to $80,877 a day.

The period market is also following the pattern of the spot market with one-year time charter rates for capes also to 11-year highs at an average of $32,000 a day.

The cape spot market has been boosted by firm iron ore export volumes out of Brazil and Australia and mineral exports in the Pacific. A lack of tonnage is also driving freight rates due to port congestion in China along with other Covid-related delays. Nearly 6% of all bulk carriers are currently tied up in port congestion off China, according to data from Braemar ACM.

The stunning spot rise into six-digit territory means a 10-year-old cape could generate revenues of a third of its implied value in the next two months, according to Breakwave Advisors. The hot markets continued today with FFA trades pushing higher through to the end of the year and into 2022.

On where capes can head in the coming months, Rebecca Galanopoulos Jones, head of research at Alibra Shipping, told Splash today: “I think we can expect a strong Q4, so long as the current factors that are driving the market remain intact and the cape FFA market is also supporting this view with rates high until the end of 2021.”

The Baltic Capesize Index has broken the 10,000-point barrier for the first time in 13 years, adding another record statistic to a capesize bulker market that is red hot. The sentiment gauge picked up 723 points on Wednesday to reach 10,475 points, according to Baltic Exchange data. The last time the BCI was above 10,000 points was in September 2008, when the dry bulk market was plummeting from record highs as the global financial crisis took hold.

The Baltic Exchange reformulated the way the BCI is calculated in July 2020, after the index slipped into negative territory early in the year due to depressed markets. Meanwhile, the spot market for capesizes is also crossing new thresholds like a runaway train. The capesize 5TC, a spot-rate average weighted across five key routes, leapt 7.4% on Wednesday to $86,870 per day. The assessment has more than doubled since 8 September, when it was $40,518 per day. Spot rates on individual benchmark routes are also forging ahead amid high demand and tight vessel supply, lending great support to the booming capesize sector.

The Brazil-China round voyage improved 6.6% to $72,920 per day on Wednesday. Trips from the European Continent/Mediterranean to China-Japan gained 6.5% to hit $121,000 per day.

The paper market for capesizes kept sailing full steam ahead on Wednesday with big gains seen across most contracts, continuing the winning streak seen over the past few trading days. Forward freight agreements (FFAs) for October jumped 11.2% higher on Tuesday, settling at $75,786 per day. Paper for November leapt up by 14.2% to $61,589 per day.

A capesize bulk carrier has unloaded Australian coal in China, according to vessel tracking data. The discharge would have been unremarkable prior to 2020 but are rare since China instated a ban on imports of coal from Down Under last year. Data from bulker tracking platform Oceanbolt shows that Cosco Shipping Bulk’s 177,878-dwt capesize Nian Feng Hai (built 2008) loaded a 86,200 tonnes of coking coal at Hay Point and Abbot Point in Australia during mid-July. The vessel unloaded at Dalian and departed on Saturday, after arriving at the congested port three weeks earlier. It is, however, unknown whether the cargo has received the necessary customs clearance for the coal to be imported for end-use in China, which is the real sticking point. Shipping analysts don’t expect China’s import ban will be axed in the foreseeable future.

It’s hard to imagine China opening the doors to Australian coal any time soon, but we have seen some of the last vessels waiting since last year discharge in China,” said Nick Ristic, lead dry bulk analyst for Braemar ACM Shipbroking. “We can’t be sure whether these cargoes are destined to be used in China or Taiwan or to be re-exported, as has been the case in the past.” But amending the ban would make sense — China needs to import more coal by any means. Coal supplied about 58% of China’s total energy consumption in 2019. Just over two-thirds of China’s electricity is consumed by the industrial sector.

Harry Grimes, research analyst at Arrow Shipbroking Group, said China’s coal ban is valued highly as a political statement, but “if the shortage becomes even more acute, we could envision a temporary quota opening up“. The ban is more likely to continue because of the strategic defense pact announced last month between Australia, the US, and the UK, according to Russell Thompson, managing director of maritime trade data firm Tradeviews. “The Chinese have not been known to back down even if it works to their advantage, so I expect this dispute will rumble on for some time,” he said.

Like China, India is highly dependent on both thermal and metallurgical coal and is facing an urgent shortage as inventories run short at many of its coal-fired power plants. Data from India’s Central Electricity Authority shows that 97 Indian power plants with around 120,000mW capacity have coal stocks of five days or less. A further 17 plants have zero coal inventory and 59 other power plants have enough of the commodity to last three days or less, according to the data. High commodity prices are incentivizing coal exporters to push out as much volume as possible, resulting in quirky new trades coming to light — such as the capesize fixed to take coal to China from Kazakhstan via the Black Sea. But high prices are also the reason that India’s imports have fallen to record-low levels. “Developed nations with deeper pockets will have an advantage in the market, and this could drive more cargoes into north-east Asia and Europe,” Grimes explained. “Overall, the developments in the coal market remain positive for dry bulk, however the growth in volumes may start to slow.”

China has taken steps to unlock more domestic coal production by relaxing mining safety regulations, but weather issues could make it hard for this increased supply to plug the gap in the short term, according to Ristic. Grimes thinks the big mismatch in coal supply and demand won’t be rectified quickly by a few policy changes. “However, looking forward, Beijing’s call for banks to increase loans to the coal-mining sector will stimulate supply over the medium term, which could dent import demand once the energy market normalizes,” he said. This week, demand for capesizes to carry coal helped push average spot rates north of $80,000 per day. But vessel supply remains constrained by congestion, quarantines, and disruption to trade patterns caused by the coal trade war. “A boost from exports from the US could be very supportive if capacity can be found, given the long-haul nature of the trade, as could an increase in shipments from South Africa, as this will thin the ballaster list for Brazil further,” Nick Ristic from Braemar ACM Shipbroking said.

Supramaxes could be the bulkers that benefit most as India and China boost imports of much-needed coal, according to analysis by Fearnleys. “Segment-wise, supramaxes have not been so strong on the coal side as panamaxes and capesizes, so probably we will see more coal on supramaxes if supply from the major exporters increases,” Fearnleys research analyst Bernhard Baardson told TradeWinds. But port congestion will continue to hamper the trade and could even get worse. “The way we measure it, congestion on supramaxes are currently at all-time highs, whereas on panamaxes and capes it has eased off the last few weeks, ” Baardson explained. “Assuming further records in total shipment volumes the next months due to restocking demand on the coal side, congestion is sure to increase from current levels.” Research by Arrow, however, has found that congestion has so far had a limited effect on seaborne coal trades, unlike iron ore. Congestion of vessels carrying coal is lower than at this point in 2020, Grimes told TradeWinds.

The market for capesize freight derivatives exploded on Tuesday, with front-month contracts rocketing by as much as 14% over the course of the day’s trading. After a positive day of trading on Monday, the stage was set for another good day on Tuesday. In the physical market, average capesize spot rates surpassed the $80,000-per-day level. But few could have predicted what would follow in the derivatives market.

A Dubai-based FFA trader compared the explosive activity to plastic explosives. “The last move was Mentos in a bottle of Diet Coke; this one is pure Semtex,” he said. “I doubt at 10am today there was a feeling that this was the day it all popped, but when you see a dot in the distance it takes time to realize it is actually a meteorite heading straight for you. Today was that day where, in the afternoon, it dawned on the market that this thing isn’t stopping. Bids, bid, bids.”

Bids for October capesize forward freight agreements (FFAs) peaked at $76,250 per day during the day on Tuesday, up by over $8,100 from Monday night’s settlement price. After a slight sell-off, bidding for October paper was at $75,750 per day as of 4pm (1500 GMT) in London. “Popped eyeballs and nosebleeds everywhere today. Worse than a pub fight with Conor McGregor,” said a Geneva-based trader said, referring to the Irish mixed martial artist. The same trader said that he suspected that many stop-loss orders had been triggered, which would account for the en-masse pile on.

Bidding for November contracts was at the $61,250 per day level at 4pm in London. November FFAs peaked during trading at $61,625, which is over $7,700 or 14% more than the previous close. Bids for fourth-quarter paper were around the same level.

What is harder to pin down is exactly why the market sprang to life in such a dramatic way on Tuesday. Another trader to whom TradeWinds spoke said the capesize FFA market was simply “mirroring what’s going on in coal and European power/gas“. Coal has, of course, been a key driver of capesize demand in the physical market but reported fixtures have been thin so far this week.

There were also rumors of a front-haul fixture of over $160,000 per day for a cargo from the Black Sea, although TradeWinds was unable to confirm this information. As the trading day neared its end, word of four capesize cargoes being split into panamax-size stems in the Atlantic came to light. TradeWinds spoke to one trader who wondered aloud as to how this would affect capesize FFAs going forward.

The forward curve, however, is still sharply backwardated going into 2022. Paper for the calendar year 2022 was bidding around $28,150 per day during the late afternoon in London — not a patch on front-month contracts, despite having advanced by over $1,200 from Monday night’s close.

Greek-Cypriot owner Polys Hajioannou predicted five months ago that towards the end of 2021 charterers would be looking to fix bulkers for at least three years. His forecast is beginning to look accurate. Safe Bulkers, the US-listed company he heads, announced late on Monday that it had concluded a period time charter for a minimum three years for a 181,000-dwt capesize it bought in early August.

Unknown charterers have agreed to pay $24,400 per day to employ the Japanese-built vessel from November, when Safe Bulkers is expected to take delivery. Charterers, which some brokers identify with agricultural firm Olam, have the option to extend the deal for a year at $26,500 per day.

In a statement, Safe Bulkers president Loukas Barmparis described the deal as an “attractive period time charter … which enhances visibility of our future cash flows”. The company said it expects the deal to generate about $26.7m in gross revenue over the ship’s minimum three years of employment.

The agreement vindicates Safe Bulkers’ chief executive and majority shareholder, Polys Hajioannou, who told investors in a conference call in May that the bulker freight market would improve further and, that in a few months, charterers would seek multi-year deals to employ vessels. In anticipation of such deals, Hajioannou said he was keeping a considerable part of his company’s fleet of about 40 bulkers in the spot market.

The development also vindicates Safe Bulkers’ decision to buy the Stelios Y back in August — its first capesize acquisition since 2018. Safe Bulkers paid $32.3m for the ship, which brokers believe to be Doun Kisen’s Yumetamou. The deal was structured as a 12-month bareboat charter agreement under which Safe Bulkers paid $4.5m upfront, a further $4.5m on the ship’s delivery and $14,500 per day over the following 12-month period, at the end of which the company will have an option to buy the vessel for $18m.

“The residual steel value of the vessel today is about $14.5m,” Barmparis noted in the company’s statement. Safe Bulkers was one of the first Greek companies to order bulker newbuildings ahead of the market boom. It has eight kamsarmaxes and post-panamaxes under construction in Japan.

The Baltic Capesize Index continued climbing on 4 October to 9,289 points, its highest level since 2008, as demand for iron ore and coal put a huge strain on the commodities supply chain.

Spot rates for capesize bulkers have broken yet another threshold unseen since 2008 in a runaway market that shows no signs of slowing down. The capesize 5TC, a spot-rate average weighted across five routes, jumped 5% on Tuesday to reach $80,877 per day, according to Baltic Exchange data. The last time this rate surpassed $80,000 per day was on 5 September 2008 when it attained $81,362 per day while in a rapid slide to under $2,400 per day just three months later.

“The capesize market is going from strength to strength over the last month with spot rates now at 13-year highs, supported by iron-ore export volumes out of Brazil and Australia to China and strong mineral exports in the Pacific,” said Rebecca Galanopoulos Jones, research analyst for London broking house Alibra Shipping. “A lack of tonnage is also driving freight rates due to port congestion in China along with other Covid-related delays.”

She also noted that one-year time charter rates for capesizes were also up last week to 11-year highs at an average of $32,000 per day. Coal demand is also being cited as a reason behind the rising average capesize spot rates, which have risen by $30,000 per day in less than a month’s time. “Coal is basically the most sought commodity right now, and the energy crisis in Europe is causing a panic mode amongst traders to secure supplies,” a market analyst told TradeWinds.

“It’s a similar situation in China, given their low inventories. Dry bulk historically has been a coal market. Only the last decade iron ore has dominated, but at the end of the day, coal is king.”

The strong capesize market comes as, ore listed bulker owners are paying dividends through variable payouts, which fluctuate based on company performance, according to Noble Capital Markets equities analyst Poe Fratt. “It will be interesting to see how investors view the variability,” he told TradeWinds. “Overall, it is a positive since the dry bulk industry is on more solid financial footing and generating strong cash flow.”

He said dry bulk equities should perform well if capesize rates stay above $40,000 per day and supramax rates maintain at least $30,000 per day. New York-listed owners that are paying dividends include Genco Shipping & Trading, Star Bulk Carriers and Eagle Bulk Shipping, which announced a payout policy on Monday.

China’s extreme shortages of coal, which powers around 70% of the national grid, have been making plenty of headlines in recent weeks. The same story is unfolding in neighboring India, a country with a similarly high reliance on coal for its power generation. The severe shortages in India are expected to push up dry bulk’s ton-mile scenario dramatically in the coming weeks as New Delhi sources coal from further and further away to keep the lights on.

According to the government’s Central Electricity Authority (CEA), out of the 135 thermal power stations in the country, 104 of them are at either ‘critical’ or ‘super critical’ levels of coal inventory. Out of these 104 plants, 68 have been listed as ‘super critical’, according to the CEA’s most recent coal report, indicating less than three days’ worth of supply as torrential rain has hit domestic coal production. In terms of capacity, 77% of coal-fired plants, or 126.8 MW, are now at risk of halted production if days without an increased supply of coal persist.

India’s power minister, R.K. Singh, told the local Indian Express newspaper today that electricity demand would be “touch and go” in the coming months. The Indian government has been in negotiations for what it described as priority cooperation with Australia to secure stable inflows of the country’s coal. “If realized, the country’s proposal to Australia would be positive for freight, given the longer voyage from West Australia,” Braemar ACM noted in an update to clients.

Historically, India has relied on Indonesia for thermal coal supply, accounting for 60.2% of monthly shipments on average over the last five years, Braemar ACM data shows. Spot prices for Australian thermal coal surpassed $200 per ton as of early October, smashing the previous record of $185 set in July 2008. “Imports remain the only option to meet demand” in the near term, Indian credit rating agency Crisil, part of the S&P Global group, wrote in a recent report. “In our view, coal inventory at thermal plants will improve only gradually by next March.”

Meanwhile, in China, where power cuts and limitations have been reported since the middle of September, reports have emerged of a partial lifting of the country’s more than a year-long ban on Australian coal. Braemar ACM has detected around 450,000 tonnes of Australian coal has been allowed to be offloaded at Chinese ports over the past month. However, analysts remain unconvinced whether Beijing will make a wholesale U-turn on its Australian coal ban.

Coal shortages elsewhere are being reported daily. Last week, for example, Steag closed its Bergkamen-A plant in the western part of Germany, citing shortages of the commodity.

According to the Financial Times, China has reportedly begun to unload a small number of Australian coal shipments to alleviate the ongoing energy shortage, with energy research company Kpler stating that last month saw five vessels discharging 383k tonnes of Australian thermal coal at Chinese ports. The development comes despite the unofficial import ban, which has seen Australian coal exports to China plummet.
 
In our view, low stockpiles ahead of the winter months in several Asian countries combined with high energy prices should entail firm coal demand near-term. Furthermore, we view China’s acceptance of Australian coal cargoes as a positive, given that it points to the lengths for which the country will go to secure the upcoming winter months’ energy supply.

China Zhejiang Province has turned to Kazakhstan for thermal coal for the first time. The power crunch province has imported 136,000 tonnes of premium coal from the landlocked country in a shipment whose oceangoing leg involved a capesize bulker that took 30-day voyage.

According to local news reports, Zheneng Fuxing Fuel has brought in its first shipment of high-grade thermal coal from Kazakhstan amid a nation-wide coal shortage and record coal prices. The company is the shipping arm of Zhejiang Provincial Energy Group, which is controlled by the provincial government.

Zheneng Fuxing has fixed the 178,006-dwt Caro (built 2010) to ship the thermal coal from Russia’s Port Kavkaz on the Black Sea to the Liuheng coal terminal in Zhejiang province. According to Clarksons’ database, Caro is owned by Orion Reederei of Germany.

A Chinese dry bulk shipping source said eastern China usually imports coal from Indonesia, Vietnam, and Australia. It has never shipped coal from the landlocked Kazakhstan, as it is not economically efficient since the cargo must be transported by rail to a loading port in Russia before sailing to China. The shipping source believes Zheneng Fuxing has worked out its math and found it more attractive to import coal from Kazakhstan in this instance, while China’s is facing an energy crisis.

“China is already buying coal from the US but the voyage is much longer than that of Kazakhstan,” said the Chinese shipping source. “The coal from the Central Asia nation is also of better grade.”

China is facing a power outage due to shortage of coal supplies, tougher emission standards and strong demand from manufacturers and heavy industries.

Beijing has refused to buy Australian coal, driving up its energy costs. The price of coal has shot up by more than threefold from less than $60 per tonne early this year to more than $200 per tonne today.

The country is also said to have shut down several coal-fired power plants in a move to cut down emissions.

The volume of containership contracting this year has exceeded all previous records. An ongoing surge in orders has seen about 470 units with a total capacity of 3.9m teu contracted in the nine months to 1 October, according to figures from Clarksons Research. That already exceeds the previous record set 14 years ago in 2007, when 3.3m teu of containership capacity was contracted, the data shows.

Newbuilding boxship contracting surged early this year and resumed in the second half, led by carriers and a handful of tonnage providers. Some 4.7m teu of capacity has been contracted since the surge kicked off in the fourth quarter of 2020, Clarksons estimates. The tally has been boosted by orders of 96 ships with a total capacity of 576,000 teu in August and September.

Orders at Chinese, South Korean and Japanese yards put the total value of containerships contracted this year at $37bn, according to Clarksons. That remains some way short of the all-time-high of $47bn-worth of orders concluded in 2007. But strong newbuilding interest and firm steel prices continue to support further gains in pricing, the shipbroker added.

Clarksons’ boxship newbuilding price index climbed to 95 points at the end of September, the highest level since before the financial crisis in 2008. The newbuilding price for a 15,500-teu neo-panamax climbed from $108m in January to $150m over the same period, up more than 40% since the end of last year, the shipbroker estimated. Other European brokers allude to the prospect of more newbuilding projects in the pipeline before the year ends. They believe that further orders and a shortage of newbuilding slots over the next three years could push prices higher.

The surge in the value of the newbuilding orderbook has risen in the past two months on the back of a contract placed by Danish giant Maersk, worth up to $2.1bn for eight to 12 methanol-capable 16,000-teu ships. More recent orders have seen liner operators and tonnage providers place contracts for 7,000-teu designs. French carrier CMA CGM inked a $720m order in September for six dual-fueled LNG vessels of 7,100 teu at Samsung Heavy Industries. It was followed by tonnage provider Seaspan Corp, which signed up in China for 10 ships of 7,000 teu on the back of long-term charters to Japan’s Ocean Network Express. Seaspan has placed orders for 70 vessels since December 2020, amounting to 839,000 teu.

The surge in orders has pushed the containership orderbook up to 687 ships of 5.62m teu today, a threefold increase since the end of 2020. That remains beneath the record of 6.6m teu on order at shipyards in 2008, but it has led to a sharp increase in the portion of the fleet on order. The newbuilding orderbook has more than doubled, from 10% of the total container fleet on the water at the end of last year to 23% today. That is deemed manageable compared with 2008 and 2009, when the orderbook was equivalent to more than 50% and up to 60% of the fleet on the water.