China continues to diversify its raw materials needs away from traditional supplier Australia with news of a big iron ore tie-up in North Africa, something that were it to materialise would be a huge boost for dry bulk tonne-miles.

A consortium composed of Metallurgacal Corporation of China, China International Water and Electric Corporation and Hunan Heyday Solar Corporation has signed up to carry out a feasibility study on the exploitation of Gara Djebilet iron ore in western Algeria. The project could cost in excess of $2bn, according to preliminary estimates.

The move does not come as a big surprise, considering Beijing had been seeking to ensure greater iron ore security for the future, not only by opening itself to a wider range of markets, including Brazil, but also to countries where there is less chance of political disagreement, such as in Africa.

Politically, Australia has not seen eye to eye with its most important iron ore customer for a while. Weakened bilateral ties have also led to restricted imports of Australian coal and barley last year.

As for Algeria, the project in Tindouf Province could help its bid to diversify from oil, following struggles in attracting foreign investors.

“This important strategic project aims to ensure and secure the supply of the national steel and iron mills with raw materials, and to export large quantities, but also, thanks to its structural nature, aims to develop the entire southwest of Algeria and contribute significantly and decisively to the development of the mining sector,” said the Algerian ministry of energy and mines.

The Gara Djebilet mine is one of the largest iron ore reserves in Algeria, and in the world, with estimated reserves of 1.7bn tonnes of ore grading 30% iron metal.

The forecast cycle took another step in the right direction with the IMF raising its 2021 and 2022 estimates by 0.5% and 0.4%, respectively, to +6.0% and +4.4%, citing optimism on vaccines and continued successful policy support, although many challenges remain.

Forecasts were higher for all main economies, led by oil intensive India which is expected to grow by 12.5%.

Importantly, the +4.4% forecast for 2022 is also well above trend. Trade, and thereby shipping, should benefit from stronger GDP growth.

As such, we view this as good news for all the various shipping segments.

Coal imports into China are expected to decline this year, a potential negative for dry bulk shipping, which had been counting on growth. China’s demand indicators usually lead the direction for dry bulk freight rates, which have been boosted by grains and minor bulks, with expectations of increased iron ore and coal trades this year. Any drop in China’s import needs will therefore likely dent earnings prospects.

Speaking at the Coaltrans conference, Fenwei Digital Information Technology Co general manager Feng Dongbin said China’s total coal imports were estimated to reach 258m tonnes, down 15% year on year. Thermal coal is estimated to drop by 12% to 203m tonnes, while coking coal is expected at 55m tonnes. That is 24% below the past year’s import level, he said.

In the first two months of this year, total imports dropped 40% to 41m tonnes, comprising 35m tonnes of thermal coal, a drop of 34%. More significant was the decrease in coking coal imports of 58% versus the year-ago period.  The reason for the decline can be attributed in part to higher import prices versus domestic supplies, he said, adding that new coal mines have gradually been commissioned, with 146m tonnes added in 2020 and a further 143m tonnes expected to be added this year. Domestic coking coal capacity is expected to see an additional 39m tonnes this year, while imports may be curbed by policy uncertainties, leading to a structural shortfall, Mr Dongbin said.

Amid curbs on Australian coal, thermal supplies can be substituted by Indonesia and other regions, or increasing domestic output, but coking coal alternatives are harder to find, he noted. In December, no imports from Australia were recorded. Separately, Mitsui OSK Lines anticipates a downward trend in China’s imports this year, even though currently, the country’s steel production and iron ore imports continue to rise.

China’s steel output reached 83m tonnes in February, up 11% from the same month last year, according to the latest statistics from the World Steel Association. Shipping association BIMCO has been warning of a long-term slowdown in iron ore and coking coal demand as China increasingly uses scrap metal in steel-making furnaces as Beijing focuses on its environmental protection policy.

Clarksons report the dry bulk fleet added 2.8 MDWT in March (1.5 MDWT of Capes, 0.7 of Pmax, 0.5 of Supras and 0.2 of Handies), while a total of 0.5 MDWT was scrapped (0.3 MDWT of Capes, 0.1 of Pmax, 0.1 of Supras and 0.1 of Handies). This implies a net fleet growth in March of 2.3 MDWT or annualised +3%.

As the average speed of the fleet fell, effective supply decreased with the equivalent of -4.7 MDWT, resulting in an effective net change of -2.4 MDWT or annualised -3.2%.

YTD the dry bulk fleet has seen deliveries of 10.4 MDWT, scrapping of 3.4 MDWT and the fleet at end March was 919.1 MDWT.

US-listed shipping stocks closed the first quarter up nearly 40% on average as investors flooded into the sector after shunning it for much of Covid-plagued 2020. Jefferies lead shipping analyst Randy Giveans called it a “record” performance by shipping during his years of coverage, as 31 of the 32 stocks under his research gained ground. Shipping dramatically outperformed both the S&P 500, which lifted 7%, and the Russell 2000 index of small-cap stocks, which climbed 14.1%. The strongest performance came in markets where hire rates staged a comeback from the depressed levels at the pit of the pandemic.

Dry bulk stocks led the way with an average 68% gain, while containerships followed close behind with a 61% surge. “Dry bulk rates rallied to multi-year highs, beating everyone’s expectations in what is historically a relatively weak quarter of the year,” Giveans said in a message to TradeWinds. “Container rates hit record highs and containership charter rates climbed almost every week, reaching decade-high levels.”

But what happened in tankers might prove even more interesting than the gains on the dry side. Listings there climbed an average of 29% at a time when operators in many sectors are struggling below their financial breakevens as inventory destocking stemming from the 2020 oil glut continues to take a toll on rates. The apparent takeaway: investors perceive tankers to have hit bottom and are starting to move into the stocks in anticipation of a rates rebound similar to that seen in the dry trades. “For the quarter ahead, tanker rates will be driven primarily by OPEC production and refinery utilisation, both of which will be driven by economic recovery,” Giveans said. “Regardless of rates volatility in the second quarter, we expect a much-improved tanker rate environment in year’s second half, as global demand, crude oil production and refinery utilisation increase in the coming months.”

As for performance by individual owners, listings in dry bulk and containerships dominated the top of the list. Greek boxship owner Danaos Corp and Angeliki Frangou’s Navios Maritime Partners – which controls both bulkers and containerships – both logged triple-digit gains at 137% and 110%, respectively. Dry owners Safe Bulkers at 88.5%, Eagle Bulk at 87.2%, Star Bulk at 64.1% and Diana Shipping at 59.1% all made the top ten climbers. So did boxship owner and 2020 IPO debutante Zim Integrated Shipping Services, which notched a 76.5% rally.

Tankers were represented in clean products by Scorpio Tankers at 66.5% and Diamond S Shipping at 54.2%. Diamond trades both clean and dirty and is set to be acquired by New York-listed International Seaways. In the gas trades, LNG companies fared better with a 24% average gain against 4% for LPG names.

Despite the huge gains by bulker and containership owners, Giveans has made clear he believe both sectors have more room to run in terms of share prices. “Dry bulk rates should remain firm as demand growth is expected across all dry bulk commodities, including coal,” Giveans said. “We expect capesize rates to climb in the near-term while panamax/supramax rates fade slightly, resulting in capesizes to be the leading asset class during the rest of the year.”

On the containership side, Giveans expects rates to remain “elevated” amid GDP growth and consumer spending. “As container spot and term rates remain near record levels, charter durations could extend to 24-36 months,” he said. LPG player Navigator Holdings was the lone owner not to share in shipping’s first-quarter fun, as shares sank 16.4%.

Shipping loves a crisis. Disruption gets charterers and shippers jumpy. Shipowners and lines can sit back holding their hand of aces. Shipping a box tomorrow? Any ship, any price will do. Need a ship? Just take it today while you can, and do not worry about the rate. Wedging one of the world’s biggest containerships sideways in a vital global trade artery was one Black Swan event that — unsurprisingly — few saw coming. It is also understandable that those outside the business are tempted to view it as another example of shipping’s incompetence to manage its own affairs. But let’s leave speculation about the incident to another day.

What we can say for certain today goes far beyond the Suez saga: shipping is finally on the move. Freight rates for many sectors are on the up, and look set to stay firm. Even those currently weak have backers betting on a rebound. Sale-and-purchase activity is roaring ahead, and newbuilding activity is accelerating. Petter Haugen, shipping analyst at Kepler Cheuvreux, first proclaimed “shipping for win” in December 2019. The pandemic put paid to that in 2020. In February this year, Haugen went for “shipping the win in 2021” as the dry bulk market “seems even better than we expected”. And, this time, it looks like his forecast is right. Panamaxes are trading at more than $25,000 per day, supramaxes over $22,000 per day and even capesizes are at $18,500 per day. Dry bulk shipowner shares are up about 65% since the start of the year, according to Clarksons Platou, with the listed shipping universe up around 25% overall.

Even steely-eyed transport analyst Amit Mehrotra at Deutsche Bank was moved to state: “Shipping is back.” His team has seen a “notable uptick in investor interest in the maritime shipping sector”, and not just in dry bulk. The tanker sector has also gained attention on the back of the potential for a strong recovery in oil demand as economies ease Covid-19 restrictions. Not that the first quarter was anything less than catastrophic for the biggest crude tankers, after Opec and its allies decided not to increase oil exports as soon as many expected.

Clarksons Research said average tanker earnings in February were the lowest for more than 30 years at $5,939 per day, as crude and products volumes were down about 9% and 6% year-on-year, respectively, in the first two months of 2021. And then there is the container sector, which even before the Suez crisis was riding a wave reminiscent of the early 2000s. David Kerstens, a shipping analyst at Jefferies, thinks major lines will have earned more in the first quarter of 2021 than in the whole of 2020. The Suez blockage will inevitably reduce supply due to delays or longer voyages, driving box rates even higher. Trevor Crowe of Clarksons Research sees the container market story as a clear example of the “disruption upside” sparked by the pandemic, with port congestion — and now Suez — providing additional impetus.

So what about the asset play and investment scene? The hotter S&P market seen in the last quarter of 2020 has continued this year, with prices for boxships and bulkers up about 20%. Just over $5bn has been spent on 457 secondhand ships totalling 31m dwt — close to one-third of the total for 2020, according to Clarksons. Again, for newbuildings, the pace is picking up, with more boxships already ordered in 2021 than in either of the past two years. Overall, prices are up about 5%, and berths for the next two years look scarce. Rising secondhand ship values means balance sheets are strengthened, leverage comes down and finance becomes more accessible. That means companies have room to manoeuvre — and this is where things get interesting.

While the biggest issue facing shipping today is cutting carbon pollution from fuel, the key question for much of the past decade was less about finding the right technology and more about the inability to pay for it. Steve Gordon, head of Clarksons Research, now sees energy transition issues featuring in many companies post-Covid planning, with 30% of the orderbook having alternative fuel. “As recovery continues, some supportive impacts from disruption may ease but limited supply growth — and improvements in the economy — may help sustain further gains into the next phase of the cycle.” Shipping’s win over the next few years if current markets are sustained will be a credible case to invest for the industry of the new zero-carbon age.

Due to favourable growing and harvesting conditions Australia’s wheat production for the crop year Jul ‘20–Jun ‘21 is estimated to be a record 33 MMT, more than double the 15.2 MMT in the previous crop year.

Yields have been especially high such that marketing year exports (Oct to Sep) are forecast to more than double y-o-y to 21 MMT.

Exports started to gain pace from the start of the year with 5.1 MMT wheat exported in Jan/Feb an annual record for this two-month period. Shipments to South East Asia have been especially strong.

Apart from plentiful supply, a competitively priced Aussie dollar versus USD as well as much higher freight rates from alternate suppliers in Q1 like Argentina and Russia/Ukraine in the Black Sea has played its part.

China was Australia’s No.1 market in 2020 with exports totaling 2 MMT though to date shipments have been modest with just 4 vessels reported with wheat to China; now however rumours abound that they have made substantial purchases in Q2.

Perhaps a contributory factor for China turning to Australia has been Russia’s decision to impose a wheat export tax of 25 euros per tonne starting 15 Feb in an effort to stabilise domestic food inflation. This export tax rose to 50 euros per tonne on 1 Mar and is intended to stay in place at least until 30 Jun.

This increased level of wheat exports from Australia has given the Pacific sub Cape market a significant boost during Q1, and with shipments set to increase further in Q2, it has no doubt been a contributory factor for Pacific round voyage rates in both Panamax and Supramax now exceeding trans-Atlantic timecharter rates.

Top executives at the Suez Canal Authority (SCA) refuse to be drawn on whether changes might need to be made to the southern portion of the waterway in the wake of last week’s headline grabbing grounding of the giant Ever Given boxship. Canal executives are waiting to see what the accident investigation report states before making any big decisions on dredging – or even adding an extra waterway like what was added in the north of the waterway six years ago. However, a number of experts contacted by Splash suggest action will need to be taken swiftly to avoid further snarl-ups on the key trade artery linking Europe with Asia.

The canal has had 25 groundings in the last 10 years according to insurer Allianz, but nothing to compare to the 199,629 dwt Evergreen ship that blocked the transits of more than 360 ships for six days. Impressively the SCA has managed to work at maximum capacity clearing most of the backlog since the ship was refloated and moved on Monday.

Accident investigators from the canal and also the ship’s flag, Panama, have been onboard the ship this week as work gets under way to ascertain how the Shoei Kisen-owned vessel became lodged in the waterway’s eastern bank. Investigators will be assessing whether human or mechanical failure played a part in the accident, the role of the two pilots onboard, and whether, as the ship’s owner and manager have insisted, huge surface to cross-winds were to blame. Preliminary reports from the Panamanian registry indicate that the ship suffered problems with machinery affecting manoeuvrability, something strongly denied by the ship’s owner. Panama did hint that the ship’s size could have been its downfall, noting the vessel was heading north through the canal at a time of high winds and a sandstorm.

“The Ever Given is one of the largest container ships in the world, built in 2018, it is 400 meters long (length), about 59 meters wide (beam) and 15.7 meters deep. She can carry a total of 220,940 tons and has a capacity of 20,388 standard-size 20-foot containers. By having these dimensions, the container walls act as sails and the ship can be subject to gusts of wind,” the Panamanians noted in a release.

Charles Moret from container shipping advisory CTI Consultancy said the ongoing investigations will likely call for more studies and simulations on the effect of banks and wind on today’s growing crop of 20,000+ teu vessels, especially when travelling as fully loaded as they are this year. On whether upgrades will need to be made to Suez infrastructure, Ninan Oommen Biju, senior port and maritime transport specialist at the World Bank, told Splash: “Enhancing resilience of the key transport corridors is a priority, as well a necessity.” Given the need for an alternate gateway, Biju said a rail corridor that could transfer volumes at Alexandria or Haifa in the Mediterranean could emerge as a potential option, in addition to a second channel. Biju’s rail suggestion would in many ways mirror the Sumed Pipeline, a 320 km alternate to the canal that runs from the Gulf of Suez across Egypt to the shores of the Mediterranean, just west of Alexandria. Biju’s colleague at the World Bank, Martin Humphreys, who serves as lead transport economist, said the Ever Given incident had underlined the need to introduce measures to improve the resilience of critical supply lines and key nodes in the logistics chain. “I think improving the resilience of the system is a priority, and in the case of the canal, will involve a range of measures, which may or may not involve widening, or a second channel,” Humphreys said.

Ports expert Jonathan Beard, a partner at EY, commented: “The evolution of container shipping has focused on economies of scale to deliver better productivity and lower unit costs – massively larger containerships, higher box exchanges per port call and a dramatic expansion of port and marine infrastructure. On the downside, the deployment of these mega-vessels is not without risks – when things go wrong, the impacts can be equally massive.” A spokesperson for the SCA said that studies of the maritime course, whether by adding channels or deepening, are subject to periodic studies. The implementation of such projects is linked to economic feasibility. The last such study was completed three months ago. On August 6, 2015, to much fanfare the SCA inaugurated a 35 km extra channel at the northern end of the waterway, costing a massive $8.2bn.

Lars Jensen from SeaIntelligence Consulting questioned whether there was a cost/benefit case for a second parallel channel in the south. The key first action for the authorities would be to work out why last week’s grounding happened, he said, before making any big investment decisions. Nils Haupt, a senior director at German line Hapag-Lloyd, put last week’s grounding down to a freak accident, doubting the need for a waterway upgrade. “As 20,000 teu vessels pass the canal annually without major disruptions I feel it would be exaggerated to ask for expansion. The canal works fine as is,” Haupt said. Adding a second lane to the southern end of the canal would be prohibitively expensive, argued Sal Mercogliano, an associate professor of history at Campbell University, one of the most high profile commentators on TV during the six-day Ever Given fiasco. “The more likely prospect for the SCA is to enhance dredging in the canal to widen the navigable channel to lessen the potential of suction pulling the vessel into the sides and allow more room to manoeuvre for wind,” Mercogliano said.

Where the Ever Given grounded last week only between 60 to 70% of the left hand side of the channel is dredged deep. Mercogliano also suggested the authority should think about revising and enforcing limits to sailing in the one-way sections of the canal for ultra large ships in constrained portions of the Suez. He also called for the requirement of tug escorts and the availability of larger salvage vessels. “The final determination for the cause of Ever Given will eventually reveal if weather, mechanical, or human error was the root cause and will contribute to the final decision on modifications to the Suez,” Mercogliano concluded.

Shipping delays are being reported off the Australian port of Newcastle, with bad weather leading to the longest queues since last November. Bulk carrier queues increased to 41 vessels in port of Newcastle, up from 40 the week before, according to Lloyd’s List Intelligence vessel tracking data.

“In my experience, temporary weather of this nature has its biggest impact in the short term, although it’s too soon to say for certain how much damage has been done to the rail and port infrastructure,” said Felipe Simian, chief executive of the Chile-based dry bulk operator Nachipa.

Heavy rains along Australia’s east coast earlier this month have caused the worst flooding in half a century and have slowed vessel movements into and out of the port, but operations were continuing. “High tides, choppy seas, and fog have made access to the port’s harbour more difficult over the last week, and as long as the weather remains rainy you can’t load grain into a bulker’s open hatches,” Mr Simian told Lloyd’s List.

However, the disruption is expected to hit coal shipments the most, as major flooding across the Hunter Valley region has hit the rail network. This could affect coal loadings as stockpiles are already depleted following rail maintenance on March 13 and 14. Newcastle, in New South Wales, is home to three giant coal terminals — the BHP Billiton-operated Coal Infrastructure Group facility and the two terminals operated by Port Waratah Coal Services.

Mr Simian noted that big buyers of Australian thermal coal such as Japan and South Korea should see limited effects as they are currently in the slack period between summer cooling and winter heating demand. Yet, “Indian imports tend to ramp up at this time of year as stockpiles are accumulated before the monsoons, and this means that supply is dropping, and price is increasing at just the wrong time for them.”

He said Australia-China trade tensions, compounded by China’s coal import ban, could further dampen Australia’s coking coal exports. Mr Simian is cautiously optimistic about the dry bulk market for this year and said that there were plenty of signs the market could run longer than that. “The dry bulk order book is very low, and even if the big shipbuilding nations give their yards post-Covid stimulus boosts, we’re still at least 18-24 months away from seeing a lot of new ships hit the water.”

He feels that it is too soon to predict the start of a new dry bulk supercycle but there are a couple of demand drivers that could individually sustain a supercycle which includes: global construction of low carbon infrastructure, large post-Covid fiscal stimulus, and the urbanisation and industrialisation of a major nation such as India.

Larger vessels may command the most attention — not least because of the blocking of the Suez Canal by a container behemoth — but humble handysize bulkers are causing their owners an unaccustomed measure of excitement as freight earnings climb.  So far this year, average daily earnings for handies have reached a time charter equivalent of $16,288, according to Allied Shipbroking research. Not only is that more than double last year’s annual average, it is the highest level since 2008 and the tail end of the dry bulk market supercycle.

Some of the factors that have pulled the market up are shared with other classes of bulker, such as a relatively low orderbook for new vessels. For handysizes, this is estimated at a total of about 95 ships, wrote Allied research analyst Ioannis Vamvakas in a market analysis this week that noted the rare degree of enthusiasm for handysizes. He put this into context by recalling the respective number on order at the start of 2016, which was 329. “Given the disappointing freight earnings of past years, many in the market had lost interest in this segment, which is clearly illustrated in the declining pattern of the orderbook on a year-over-year basis over the past five years,” he said.

While the constriction of the supply side had helped freight rates, today’s stellar levels would not have been achieved without demand factors, too, he noted. Trade in steel products, which is among the key cargoes for handies, has suffered in recent years but recently has shown “a robust recovery”, while other commodities such as grains, wood products and agribulks rebounded in the fourth quarter of last year, said Mr Vamvakas. He is optimistic that demand growth could be sustained “further into 2021” but owners “should be prepared for the possibility of an optimal equilibrium point being reached sooner or later”.

The greater earning potential of bulkers in the 20,000 dwt–40,000 dwt band appears to rekindled greater investment interest in such vessels, which have been relatively overlooked for several years. Allied’s research suggests that 46 handysizes changed hands in the secondhand market during the first quarter of this year, for an aggregate of far above $400m. According to the Greek shipbroking house’s own numbers, in the same quarter last year just a third of that amount was spent in the segment, with 20 handysizes traded for $136m.

Bulkers across the entire spectrum of sizes have been doing much better and if handysizes are entitled to celebrate louder it is mainly because they were often uninvited to previous parties. The surge in sale and purchase activity for the first quarter of 2021 reflects this situation, with Allied data showing more than $3bn of investment already in over 250 bulkers. That compares with about $890m spent on 91 bulkers in the same period last year.