Aluminum prices hit decade highs yesterday on the back of the coup news coming out of Guinea, a key supplier of bauxite, a raw material used to make the metal. However, analysts are confident that bauxite shipments will continue to flow relatively unscathed, with operations at the port of Conakry, an important export hub, already having resumed.

Colonel Mamady Doumbouya, the leader of the coup which ousted Guinea’s President Alpha Condé, has said a new “union” government would be formed in weeks.

Mining companies in Guinea have been permitted to work through the curfews imposed by military coup leaders and vessel tracking data shows ships are moving in and out of local ports.

According to research from brokers Arrow, Guinea exported 44.7m tonnes in H1 2021 with 70% of it heading to China. Capes account for 80% of total bauxite shipments out of Guinea. As of yesterday, there were 14 dry bulk ships waiting to load off Guinean ports.

Guinea accounts of 60% of global bauxite shipments, supplying 2.5 times more volumes to the seaborne market than the next biggest supplier, Australia. “Given that bauxite accounts for practically 100% of Guinea’s seaborne dry bulk exports, no government – military or otherwise – can afford to jeopardize their major source of income,” Arrow suggested in a note to clients.

The country shipped a record 86.4 MMT of bauxite last year and was on track to surpass this figure this year. “For the Capesize market specifically, these volumes have become extremely important. Cargoes are loaded relatively slowly offshore via transhipper and almost entirely bound for China, employing vessels for long periods of time,” a report from Braemar ACM noted.

Cape shipments of Guinean bauxite have grown from virtually nothing in 2015 to 64.1 MMT last year with huge mine and port expansion projects underway. The route from Guinea to China directly accounted for 4.7% of total capesize employment in 2020, according to Braemar ACM.

Aluminum prices hit decade highs yesterday on the back of the coup news coming out of Guinea, a key supplier of bauxite, a raw material used to make the metal. However, analysts are confident that bauxite shipments will continue to flow relatively unscathed, with operations at the port of Conakry, an important export hub, already having resumed.

Colonel Mamady Doumbouya, the leader of the coup which ousted Guinea’s President Alpha Condé, has said a new “union” government would be formed in weeks.

Mining companies in Guinea have been permitted to work through the curfews imposed by military coup leaders and vessel tracking data shows ships are moving in and out of local ports.

According to research from brokers Arrow, Guinea exported 44.7m tonnes in H1 2021 with 70% of it heading to China. Capes account for 80% of total bauxite shipments out of Guinea. As of yesterday, there were 14 dry bulk ships waiting to load off Guinean ports.

Guinea accounts of 60% of global bauxite shipments, supplying 2.5 times more volumes to the seaborne market than the next biggest supplier, Australia. “Given that bauxite accounts for practically 100% of Guinea’s seaborne dry bulk exports, no government – military or otherwise – can afford to jeopardize their major source of income,” Arrow suggested in a note to clients.

The country shipped a record 86.4 MMT of bauxite last year and was on track to surpass this figure this year. “For the Capesize market specifically, these volumes have become extremely important. Cargoes are loaded relatively slowly offshore via transhipper and almost entirely bound for China, employing vessels for long periods of time,” a report from Braemar ACM noted.

Cape shipments of Guinean bauxite have grown from virtually nothing in 2015 to 64.1 MMT last year with huge mine and port expansion projects underway. The route from Guinea to China directly accounted for 4.7% of total capesize employment in 2020, according to Braemar ACM.

Grain volumes for 2021 are expected to come in lower than originally forecast, but that should not weaken a strong dry bulk market, according to analysts. Braemar Shipping Services cut its June estimate for bulk agricultural shipments by 2.7% to 665 MMT after the US Department of Agriculture lowered several export forecasts. But Braemar noted that the downward revision is still 8.2% higher than its 2020 forecast and would still represent the highest year on record, if realized. Grain shipments to the end of July have already reached 84.5 MMT before the fall harvest, exceeding deliveries for the same period last year by 10.4%.

“This is the highest volume on record and is largely down to China’s restocking of its food inventories, with the country focused on the food security of its population, according to its latest Five-Year Plan,” Braemar wrote in its latest weekly report on dry bulk shipping. But for the 2021-2022 season, the US Agriculture Department lowered its forecasts for Russian wheat output by 14.7% to 72.5 MMT and for western Canada by 24% to 24 MMT, Braemar said. “Cold weather and droughts in key wheat-producing countries have led to a reduction in our forecast for full-year 2021 where we now see total seaborne wheat trade at 128.9 MMT, a decline of 3% on our previous forecast but still 4.3% higher year over year,” the broker wrote.

Analysts seem none too worried, however, about the possibility of lower volumes hurting spot rates for the midsize bulkers that typically carry grains. Slightly lower grain volumes may weaken rates temporarily, but they should remain firm over the long haul due to a low orderbook, Noble Capital Markets analyst Poe Fratt said. “We need to watch seasonality, port congestion and other minor bulk shipments, like cement and finished steel, since those factors will also influence rates,” he told TradeWinds.

Average panamax bulker rates have been above $30,000 per day for most of the past several weeks, after starting the year at just under $12,300 per day, according to the Baltic Exchange. Supramax rates have been even stronger, ending August at more than $38,000 per day. A reduced grain outlook into next year does present headwinds for rates, but volumes should stay high enough to reach long-term growth forecasts, according to Jefferies analyst Randy Giveans. “The grain trade will certainly remain robust in the second half of 2021, primarily driven by Chinese demand,” he told TradeWinds. “They will get the cargoes from wherever it takes, whether the US, Latin America or elsewhere.” Further, rates for the smaller ships will stay firm amid heightened demand for minor bulk commodities and containers that an overloaded boxship sector cannot handle, he said. “We expect rates for sub-capesizes to remain firm in the second half of 2021 and in 2022, although we expect capesize rates to outperform the smaller asset classes in the coming months and quarters,” Giveans said.

Capesizes, which do not carry grains, should continue to outperform the rest of the dry bulk sector, but lower iron ore prices and slower steel output from China could cause them to decline, according to John Kartsonas, founder of asset-management advisory firm Breakwave Advisors. “I am more worried though about the state of the steel market in China,” he told TradeWinds. “The recent steep drop in iron ore prices and the ongoing signaling by the steel industry of curbs in production will potentially have a more meaningful impact.” He said these two factors and the high capesize rates, which have recently been pulled back from average rates that peaked above $50,000 per day after starting the year at just under $16,700 per day, may lead to lower figures in the weeks ahead.

“I don’t think this means a collapse or anything like that, but historically both the time of the year and the recent steep increase in rates point to a period of consolidation in the near term,” Kartsonas said. Looking further out, Braemar expects annual grain volumes to fall only 4.4% by 2025 to 765 MMT. “This can be attributed to the fact that weather disruptions, more so than changes in demand, are behind the supply issues, and will not have an effect on future harvests.”

Shipowners’ investment in car carrier newbuildings has accelerated past $3.2bn this year after Eastern Pacific Shipping and Zodiac Maritime signed huge orders. TradeWinds reported that Idan Ofer’s Eastern Pacific has contracted 12 ships in China worth $1bn, while brother Eyal Ofer’s Zodiac put pen to paper on a deal for 14 vessels worth $1.1bn, also in China. Shipbroker Affinity (Shipping) said between 20 and 30 pure car/truck carrier newbuildings have been contracted in the past few weeks.

VesselsValue’s head of ro-ros and vehicle carriers, Daniel Nash, called the 2021 total “an astonishing amount of money for a niche sector”. He calculated that this year’s tally to date beats that of the previous six years combined. “If we include options, a whopping $4.4bn has been agreed year to date,” he said. Japanese shipyards have raised prices to $100m for LNG dual-fuel vessels of 7,000 ceu, up by a “staggering” $10m compared with last year, he added. Chinese yards have followed, but still maintain a healthy discount, quoting $88m for an equivalent specification. “Rapid steel price inflation, combined with a post-Covid supply vacuum, have skyrocketed newbuild prices following a barren period of low orders stretching back to 2016,” Nash said.

Forty vehicle carriers have been contracted this year, as well as 16 options. The dual-fuel vessels will form a “premier” asset class for an electrified car market, Nash argued. But price rises are not limited to new ships. Secondhand sale prices exploded in the second quarter as operators battled to secure tonnage, VesselsValue data shows. The 23-year-old, 6,400-ceu Asian King (built 1998) sold for an “eye-watering” $23m in June, Nash said. He called this a “remarkable” price compared with the 6,400-ceu Perseus Liberty (built a year later), which went for $13.8m two months earlier. “Such price inflation has inevitably led to talks of a super cycle buoyed by a hot charter market,” he said.

Rates have firmed to $30,000 per day for midsize 5,000-ceu units and $35,000 per day for 6,500-ceu ships. “It’s a seller’s market — buyers beware,” warned Nash. The number of sales has been “average”, however, because owners are reluctant to let go of tonnage in a supply-starved market, expecting higher values, VesselsValue explained. Some operators have chartered out their owned ships, enticed by lucrative earnings from a booming rate environment. Nash believes current market conditions could last into 2024 based on an underlying lack of tonnage. Looking back to 2010, a healthy number of deliveries hit the water — 8% of the fleet, excluding units of less than 1,000 ceu. However, by 2013, deliveries had more than halved, stabilizing at just above 20 vessels per year through to 2018, before declining into single figures from 2019 prior to Covid. The current orderbook at 5% includes four deliveries in 2022, 10 in 2023 and 19 in 2024. “Owners have reacted this year, with a respectable number going on a major shopping spree, but they are paying a high price for leaving it late,” Nash added.

However, newer ships will be able to take advantage of the rise in demand for electric cars, which weigh 20% more than conventional vehicles. Ships with low deck strengths will be disadvantaged, but demand will rise for modern ships. Vessels trading to used car markets such as Africa are less exposed to this headwind. “However, this is already an issue for ships operating on major east-west liner routes delivering finished new cars to European and North American markets, with long-term ramifications for fleet development,” Nash added.

Cargo-miles will also receive a boost in the short to medium term, he believes, as more capacity is required to carry the same volume of seaborne cars around the world. And supply chains will continue to be choked by the stop-start nature of the pandemic, restricted by slow terminal operations and vessel delays at congested ports. Nash sees this as “the new normal”, reducing liner frequency and therefore the overall supplied capacity available for ocean exporters.

Container freight rates are expected to remain at record levels, but the price shippers must pay will vary. The differences are greatest in the transpacific, where the spread between the lowest and highest rates has widened to $15,000 per 40-foot equivalent unit (feu). That spread is reflected in widely differing rate estimates of freight index providers. The highest rates are reported by the Freightos Baltic Index (FBX), where the spot rates from China to the US East Coast (USEC) are $21,686 per feu, as of 3 September. That is nearly twice the rate of $11,138 per feu cited by the Shanghai Containerized Freight Index (SCFI) on 27 August.

The disparity between Asia and the US West Coast (USWC) is even greater, with FBX citing $20,188 per feu and the SCFI $5,949 per feu. Other indices produced by Xeneta, Platts and Drewry list rates in between those two extremes. Drewry’s rate on 2 September was $11,509 per feu for Asia-USWC and $15,035 per feu for the USEC equivalent. Rather than any single index being right and the others wrong, all prices cited in the transpacific are valid, according to Erik Devetak, chief product & data officer of Xeneta. But he suggested in a presentation that the price of freight depends on what kind of shipper you are, where you ship to and from, and how soon a container needs to be shipped.

He added that the transpacific has changed over six months from a single market to what is today “a clearly dissipated, fragmented market”. The change has been accentuated by the growing importance of premiums and no-roll fees imposed by carriers. Premiums are added to the base rate, known as Freight All Kinds, to guarantee space and equipment. In the transpacific market, these can add $2,500 to the cost of shipping a container, a 40% premium. But some shippers have “defaulted” from normal rates to “premium rates”, said Devetak. “The more attractive customers see both prices and are able to ship on both prices.”

The shift in the transpacific market has “winners and losers”, he said. The new dynamic favors shippers with larger volumes with which liner operators can deal directly. Smaller transpacific shippers deemed “less attractive” face the prospect of coughing up about 20% more, or around $1,200 per feu, on the base rates. That has consequences for the profitability of smaller shippers that are unable to get the competitive prices. If that trend continues, it could lead to further consolidation.

“Volume size is a really massive competitive edge in this market, especially if you have long-standing relationships with the shipping lines,” said Patrik Berglund, chief executive of Oslo-based Xeneta. “I’m really concerned that if this lasts and stays, the big players can eat even more market share, as the infrastructure is tailored in favor of big players.” That is disconcerting to smaller shippers, which may face high costs for the next two years. Indicative forward freight agreement (FFA) rates for some transpacific routes for October are close to $30,000 per feu. “It’s a symptom of a new market. There’s a premium on locking in stability in the moment,” said Peter Stallion, a container FFA broker with Freight Investor Services. There are few signs of things easing until the end of the year.

Even towards the end of the year, indicative freight rates are priced in FFA markets at historically high levels. All-in rates from Asia to USWC are $11,000 per feu for a 2022 contract and $9,000 per feu for 2023. “This is the highest it’s been ever — and will pull back as the spot market does,” Stallion said. “If sellers [ocean liners] want to secure good hedges, it’s better if they do it now.”

The huge spread in freight rates priced to shippers is a recent phenomenon that is reflected by different index providers. The FBX reports the highest rates because it reflects prices reported by small freight forwarders and quick turnaround times. Cheaper rates are generated from ports of origins in China. That partly explains why the SCFI reports lower prices than indices that measure rates from more expensive ports in the Far East.

Spot rates for two benchmark capesize bulker routes fell sharply on Monday amid political upheaval in Guinea, one of the world’s largest suppliers of bauxite. The China-Brazil roundtrip voyage slid 8.5% on Monday to $37,7231 per day, according to Baltic Exchange data. The China-Japan transpacific roundtrip leg to and from Brazil lost 6.4% to come in at $38,969 per day.

Sunday’s overthrow of Guinea’s government has shaken a capesize market that is already slipping amid slow mining activity worldwide, said John Kartsonas, founder of asset-management advisory firm Breakwave Advisors. “I think though the news affecting the market today is around the situation in Guinea,” he told TradeWinds. “The political instability following the coup and the impact on bauxite exports are what most traders are focusing on, and I believe are part of the excuse to sell. Guinea bauxite accounts for almost 5% of capesize activity.”

Special forces overthrew the President Alpha Conde-led government on Sunday, causing prices for bauxite, aluminum’s main ingredient, to rise on Monday. Asian Metal last assessed Guinean bauxite for delivery to China at $50.50 per tonne, up 1% from Friday and about 16% this year, Reuters reported.

Conde, 83, became president 11 years ago when the west African country held its first democratic election since gaining independence from France in 1958. Guinea, which has 7.4bn tonnes in bauxite reserves, is home to producers Societe Miniere de Boke and Compaigne des Bauxites de Guinea.

Kartsonas said this temporary downward trend in the capesize market may see spot rates fall into the mid-$30,000-per-day range, but they should head back up soon enough. “I am optimistic for a strong fourth-quarter rebound,” he said.

The capesize 5TC, a spot-rate average weighted across five key routes, declined 4.7% on Monday to $44,465 per day. The Baltic Dry Index shed 122 points to land at 3,822 points.

“We are all looking on aluminum,” Noble Capital Markets analyst Poe Fratt told TradeWinds. “Exports of bauxite from the country have been running at 4m to 5m tonnes per month, which, depending on the degree of any disruption, could sour sentiment.”

Global steel production slows in July

• Global steel production totaled 161.7 MMT in July according to the latest figures from the World Steel Association (WSA), a decrease of 3.7% MoM and the lowest figure since February. Despite a modest slowdown from June, this is still 3.6% higher YoY and the strongest output for July on record.
• Chinese production declined 7% YoY to 86.8 MMT, the country’s greatest decline since 2008. China’s recovery in steel output since the pandemic has largely helped to satisfy global demand as others were slow to restart activity in their mills, however the WSA’s latest report indicates some regions have started to ramp up production.
• Production in the United States totaled 7.5 MMT, increasing by 4.7% MoM and 38% YoY.
• Apart from Asia, all other continents posted YoY increases in their output, with the EU and South American production rising by 30.4% and 21.7% respectively.
• Following a rough few months for Indian mills due to Covid-19 disruptions, the country was able to get back on track in July, with 9.8 MMT of steel produced, an increase of 5.2% MoM and 13.3% YoY.

India to China iron ore trade declines

• Chinese appetite for Indian iron ore has begun to slow as the country’s steel production eases. Indian iron ore loaded for China totaled 2.1 MMT in August, a decline of 55% or 2.6 MMT YoY. With shipments averaging 3.8 MMT per month over the last year, this is the lowest monthly total for this trade since Q4 2019.
• Indian iron ore to China has declined each month since March, in tandem with improved volumes coming out of Brazil. With China’s steel production slowing, mills in the country have prioritized higher grade ore from other sources such as Australia and Brazil.
• An increase in domestic steel production in India, has seen more previously seaborne ore remain heading to domestic mills instead.
• As volumes increased earlier this year, we have seen more Cape cargoes making the trip, however it is the Supramaxes that will likely be most affected by a slowdown in this flow, accounting for 81% of the shipments since the start of 2020. Our assessed BS12 Supramax route from EC India to Far East increased by 196% YoY to $40,000/day in early September.

Coup attempt in Guinea threatens bauxite traffic

• A coup is reportedly underway in Guinea, and unverified videos show the country’s president being detained by soldiers. So far, we have not heard of any disruptions to operations at the country’s ports, but unrest presents a risk to Guinea’s booming bauxite export flows.
• The country shipped a record 86.4 MMT of bauxite last year and was on track to surpass this figure this year. For the Capesize market specifically, these volumes have become extremely important. Cargoes are loaded relatively slowly offshore via transhipper and almost entirely bound for China, employing vessels for long periods of time.
• Cape shipments of Guinean bauxite have grown from virtually nothing in 2015 to 64.1 MMT last year, although recently, a weak bauxite price and high freight rates have eroded shippers’ margins and slowed growth in this trade. This route directly accounted for 4.7% of total Capesize employment in 2020.
• The FFA market was well offered this morning. At the time of writing the Cape October 2021 contract has sold off by $4,700 (11%) since last Friday, trading at $37,250.

Container lines racked up a staggering $28.6bn in profits in the second quarter of the year a 13-fold improvement on a year earlier. The McCown Container Results Observer reported that the 11 container lines that publicly report results made profits of $18.44bn. The 11 lines represent 64.5% of the sector in teu capacity and based on the assumption that the lines which do not publicly report had similar per teu results the total profit for the sector in Q2 2021 was $28.6bn.

The “amazing” second quarter 2021 profitability compares to $2.2bn in the same quarter in 2020, which was in line with historical averages. The second quarter profit eclipses the already record breaking first quarter of 2021 profit of $19.1bn by some $9.5bn. In the final quarter of 2020 container shipping made a $9.1bn profit.

“By any and all financials, the 2Q21 results were by far the best actual quarterly performance by the container shipping industry in its history,” the report published by Blue Alpha Capital said.

Revenues for the sector in the second quarter were $88.9bn equating to net margin of 32.1%. “I never actually expected to see an actual net income to revenue margin of 32.1% for any major container shipping company, let alone for the entire industry,” John D. McCown, the founder of Blue Alpha Capital said.

Placing the staggering Q2 2021 results in some historical perspective McCown notes that it was only the fourth quarter of last year that cumulative five-year sector result went into positive territory. Over the last 22 quarters the net container shipping sector result stands at $54.9bn, on estimated revenues of $1.4trn, generating a net income margin of less than 4% over the period.

The Port of New Orleans (NOLA) is to resume container operations on Tuesday, while breakbulk operations are already back up and running following Hurricane Ida.

The Port of New Orleans said it resumed limited cargo operations for breakbulk on 2 September four days after closing due to the category 4 storm Hurricane Ida. New Orleans Public Belt Railroad (NOPB) operations have also resumed with modified hours, while Napoleon Avenue Container Terminal will restart on Tuesday, 7 September.

Port NOLA said terminals and port industrial property did not sustain major damage due to the hurricane.

The port said seven general cargo vessels remained in port during Hurricane Ida, and cargo operations for these vessels resumed on 2 September. Three terminal operators, Coastal Cargo, Gulf Stream Marine and Ports America were operating from Saturday.

“Port and New Orleans Public Belt Railroad staff and our partner agencies worked collaboratively to overcome significant challenges,” Brandy D. Christian, President and CEO of Port NOLA and CEO of the NOPB said.

“Partners, such as Entergy, FEMA, U.S. Coast Guard, U. S. Maritime Administration, Governor Edwards and our local, state and federal delegations are to be commended for their efforts to restart freight operations on the Lower Mississippi River.”

Containership charter rates now stand at more than double their previous peak 16 years ago. Charter rates for shipping’s hottest sector have more than quadrupled from the start of this year and are now 128% above the previous 2005 peak, according to Clarkson Research Services. 1,700 teu ships are now able to command $51,000 a day for six -to 12-month contracts, while the rate for a 4,400 teu ship is about to crack the $100,000 a day mark, sitting on $97,500 a day with ships in the 6,800 teu range pocketing $111,500 per day.

“In its complicated simplicity the current market may resemble a bubble-like environment but the demand for more radical chartering solutions is still there and the inherent difficulties of the global supply chain guarantee that it may be so well into 2022,” creators of Germany NewContex chartering index noted in a weekly report published on Friday while discussing the raft of big retailers paying “colourful” sums to charter in boxships over the summer.

Splash reported last week on Ikea joining the likes of Walmart and Home Depot in taking in its own tonnage.

The situation has become so tight that even dry bulk operators have entered the fray with Swire Bulk and Pacific Basin among the first confirmed parties to be offering container shipments on their dedicated bulk carriers.