According to Chinese customs authorities, iron ore imports for October came in at 95.0 MMT, down 4.7% MOM but up 3.7% YOY, taking the YTD total to 918.1 MMT, which is down 1.8% compared to 2021 and down 5.9% compared to 2020 but slightly above the 5-year average.

Despite a decline MOM, iron ore imports have registered its second YOY growth per month in a row and are incrementally catching up to 2021 as YTD growth stood at negative 7.3% in April versus October figures of negative 1.8%.

Furthermore, coal imports came in at 29.2 MMT for October which yielded a decrease of 12% MOM, but a strong YOY increase of 8.3%. However, coal imports still fall short YTD with a decrease of 10.7% YOY.

Overall, climbing iron ore imports show signs of improving economic activity despite a macroeconomic slowdown and the government still clinging on to its zero-Covid policy.

US investment giant BlackRock has become the second-largest shareholder in John Fredriksen-controlled tanker company Frontline. The move follows a similar investment in Fredriksen’s bulker giant Golden Ocean Group in September. A filing to the Oslo Stock Exchange reveals BlackRock has amassed a stake of 5.13%, a slice worth $153m. The stock was trading at $13.38 per share in New York on Tuesday, up more than 6% from the prior day’s close. The share has risen from $7.57 at the start of the year in much better tanker markets.

Frontline chief executive Lars Barstad told TradeWinds he welcomed BlackRock as a significant shareholder at a time when the “fundamentals of our market are starting to shine through in earnings. Exciting months and years ahead. Frontline has the luxury of being the ‘go-to’ name in respect of tankers, being a household name to Wall Street with our transparent operational model and focus on maximizing shareholder value,” he added. The CEO said the same applies to Golden Ocean.

Frontline, which is listed in both New York and Oslo, is currently trying to tie-up a big combination with Belgian partner Euronav. Last month, US investment bank Goldman Sachs revealed it was holding a 5.26% stake in Frontline. The disclosures were classed as a “newly disclosable position” because of changes to the European Union’s substantial shareholding rules relating to transparency on 1 September. But the filing did not necessarily mean the investment bank controlled the shares. In March, the group made a similar filing about passing the 5% threshold in Oslo-listed MPC Container Ships, but it later emerged that this stake was being held on behalf of other unnamed investors. On Tuesday, Goldman Sachs said it now has 5.02% in Frontline, after several adjustments in the last few weeks.

BlackRock ranks ahead of Norwegian pension fund Folketrygdfondet on 5.28%. Fredriksen himself controls about 36% of Frontline. BlackRock has a little less than 5% in Golden Ocean. The shareholding places it behind only Fredriksen himself, who controls 39% of the company. Folketrygdfondet has a 3.79% slice and Goldman Sachs has 3.37%. BlackRock has not commented. The company is the world’s largest asset manager, with $10trn in assets under its watch. The fund has a 7.1% stake in US-listed bulker operator Genco Shipping & Trading. Last year, BlackRock also strengthened its position as one of the biggest shareholders in UK shipbroker Clarksons. According to a regulatory filing, the New York-based company increased its stake to 5.38% in the London-listed group on 30 November.

In July 2021, BlackRock had significantly reduced its stake in Irish product tanker owner Ardmore Shipping. The company sold nearly 1.7m shares, according to regulatory filings, whittling down its position from 2.2m shares to 495,717. According to Ardmore’s annual report, Blackrock was the company’s second-largest shareholder, with 6.6% of all shares and behind Aristotle Capital Boston’s 3.6m shares.

Bulker shares surged in New York on Friday as broader stock markets gained and investors took a liking to signs that China lockdown pains are poised to ease. The Breakwave Dry Bulk Shipping Exchange Traded Fund jumped 4.7% during the day to reach $7.72, according to data from Yahoo Finance. But the measure of bulker stock strength seesawed over a week in which it also touched its lowest level of the year, and its latest close was only a penny higher than the reading on the prior Friday. The ETF has lost 73.8% so far this year.

Friday saw at least five New York-listed bulker stocks post gains of more than 5%. Stifel analyst Benjamin Nolan tied the gains to some optimism over parts of China coming out of lockdown, where a zero-Covid-19 policy has hurt dry bulk markets. On Wednesday, Breakwave Advisors, the asset management firm that runs the dry bulk ETF, said on Twitter that relaxation of China’s zero-Covid policy was leading to positive sentiment in the iron ore sector. And the shares did spike, with the fund surging to nearly $8, before slumping again as stocks across New York markets were punished by news over interest rates.

But on Friday, Golden Ocean Shipping, the John Fredriksen-backed bulker owner, led the pack in the upward swing. Its US-listed shares added nearly 9.8% to close the session at $9.45. Right behind it was Greece’s Star Bulk Carriers, which saw its share price rocket 9.2% to $19.44. Eagle Bulk Shipping saw its shares jump 5.6% to $51.84, even after the Connecticut company reported lower-than-expected third-quarter earnings. “Eagle’s third quarter results came in at a $4.01 EPS [earnings per share], which was lower sequentially, but still reflective of a remarkably strong market,” Nolan wrote in a note to clients.

The stocks no doubt had some help from a spot market that took a modest rebound on Friday. The Baltic Dry Index, a cross-segment measure of bulker market strength, edged up 33 points to 1,323, ending a decline that had been unbroken since 18 October. But broader stock market gains also likely provided some lift, with the Dow Jones Industrial Average gaining 1.3%, although that was a 1.4% decline for the week.

As Chinese corn buyers start looking for alternatives to expensive US corn and uncertain Ukrainian crop, the Chinese government has this week approved Brazilian corn for import. We analyze what the impact could be in the scenario Brazil replaces the US in China’s corn import mix.

Brazilian corn approved in China

This week China’s general customs administration (GACC) approved over 100 Brazilian agricultural traders, cooperatives, and facilities to participate in exporting Brazilian corn to China, a trade which has previously been very uncommon. Ports with approval for export include Santos, Paranagua and Itagui. Included in the deal, cargoes must be inspected for 18 quarantine pests before departure for China. Going forward, more approvals may be granted for Brazilian farmers and shippers, paving the way for an even greater volume of shipments. The news comes as one of China’s primary corn suppliers, Ukraine, continues at war with Russia and grain exports have been very limited. In 2021, China imported 8 MMT of corn from Ukraine, making up 28.3% of the country’s imports, with the US taking the majority share at 70.5% totaling 20 MMT.

Chinese corn imports have declined by 35.8% YoY to just 16.8 MMT over the Jan-Oct period as shipments from Ukraine were halted at the end of February, but also due to falling demand in the country. Some of this can be attributed to an unfavorable exchange rate as US corn for most of the year has largely been the only option for Chinese buyers. So far this year, US corn has accounted for 91.5% of Chinese corn imports since the war started. According to the USDA, there is a $42 premium to import US corn over Brazilian into China, making Brazilian corn more economical. A weak yuan also raises the possibility China will look to use its current stocks, which are priced in yuan, before replenishing them at a more favorable exchange rate on the seaborne market in the future driving higher import demand.

Brazilian corn harvest

According to the USDA, Brazil’s corn crop is expected to yield 126 MMT, rising by 8.6% YoY, for the 2022-23 marketing year. On the export side, USDA expects a 5.6% increase YoY in Brazil’s corn exports at 47 MMT, and the highest on record. Brazilian farmers have more than recovered from last year’s weak corn harvest as yields have improved quite significantly. The sharp rise in volumes expected in 2023, estimated by the USDA, is likely more than enough to fulfill China’s demand given the country’s corn imports this year.

Growing woes in China

Like coal, China has sought to reduce its reliance on the seaborne grain market by increasing domestic production. While somewhat successful, the current corn crop is expected to decline in the coming marketing year. Estimates have been revised down by 4 MMT in the next marketing year, according to the USDA’s latest China Grain and Feed update; Citing excessive rains in the north-eastern regions of the country, which stronger yields are not expected to fully offset. Chinese farmers also receive a subsidy 9 times larger to grow soybeans over corn, providing a greater scope for less corn planting and more corn imports. On the demand side, weakened appetite from China’s restaurant industry, which has been affected by Covid-19 lockdowns has also hampered grain demand to an extent. With lockdowns still occurring this further adds to hesitancy when considering importing expensive US corn. Finally, low hog prices and firmer feed prices earlier in the year incentivized hog farmers to reduce their herds, reducing feed demand.

Demand impact positive but still lower YoY

Overall, in the scenario China replaces US corn with that of Brazil, the bulk carrier demand impact will be positive for the Panamaxes, though overall demand is still estimated to decline YoY. While the distance to China from the US Gulf is longer (assuming going via CGH) than the voyage from Paranagua for example, the congestion and load waiting times in ECSA translate into vessels being tied up for longer. This is largely due to the lower volumes out of the US resulting in less port queues, but also the number of berths available in the USG compared to the Brazilian grain ports. This year, average load waiting times for a Panamax loading corn in Brazil totaled 10 days compared to just 6 in the US.

This effect could be further exacerbated by increased arrivals into Brazil during the start of the country’s corn exporting season in Q3 which overlaps with the even larger soybean season. According to AXS vessel tracking, the Panamaxes have accounted for 98.7% of all Chinese corn imports this year. As a result, we plot the demand impact of Brazil substituting US corn heading to China solely as a Panamax trade looking to next year. Based off USDA estimates for next year, which are lowered to 18 MMT from 22 MMT, and substituting the US share of Chinese corn imports to Brazil, expected Panamax demand improves by 30.9% compared to what it would be if China continued to import from the US. Another scenario is that both Brazil and the US play the majority role in China’s corn import mix, as Ukrainian volumes are still very limited despite the extension of the Black Sea grain deal. In this case, we would expect Panamax demand from this trade to rise nearer to that of this year. Overall, while relatively subdued, the impact of China substituting US corn with Brazilian crop does have some upside to what otherwise might be a sharper decline in bulker demand from Chinese corn imports.

It was another quarter of profits and dividend distributions for Connecticut-based Eagle Bulk Shipping, but the company reported lower numbers across the board that showed the effects of a cooling dry bulk market. Gary Vogel-led Eagle turned in a net profit of $77.2m, or $5.94 per share, which was slightly weaker than the $78.3m and $6.12 per share reported in the third quarter of 2021. Eagle’s reporting is complicated, however, in that it also reports adjusted numbers that reflect the impact of non-cash derivatives and also diluted numbers that account for the impact of $114m in convertible notes set to mature in August 2024. Adjusted net income was $74.3m or $5.72 per share, while diluted net income was $4.77 per share.

Eagle declared a dividend of $1.80 per share, which reflects 30% of net income. That is its minimum target level. The owner has now distributed $10.05 in dividends over the past year. “We posted another robust quarterly result of $77.2m as our team successfully navigated a volatile landscape,” Vogel said in the earnings report. The consensus expectation of Wall Street analysts was $4.64 per share, although different analysts seem to be using different measures for the calculation.

Eagle also used the profitable quarter to make a dent in that convertible debt. The company bought back $10m worth of the 5% notes and retired them. This equates to 9% of the notes outstanding. Eagle was able to view the purchase as both a debt reduction and an indirect form of shares buyback, as the notes repurchased were equivalent to about 297,000 common shares.

The New York-listed outfit is a major owner of mid-sized tonnage in the supramax and ultramax categories, and the result reflected an ability to continue besting relevant market indices. Eagle earned a time-charter equivalent (TCE) figure of $28,099 per day in the quarter, which reflected a roughly 46% premium to the Baltic Supramax Index average of about $19,000 per day. However, Eagle is also reporting TCE guidance of $25,040 for the current quarter with 70% of days booked, showing the impact of continued market weakening, although to still-profitable levels.

Vogel attributed the performance to “our commercial platform and dynamic approach to trading ships, as well as our ability to capture significant value from fuel spreads as a result of our fleet scrubber position.” Eagle has exhaust gas scrubbers on nearly all of its 52 vessels. TCE revenue was $128.9m, down from $138.2m last quarter. Eagle’s TCE rate of $28,100 per day fell from $30,207 in the second quarter, when the BSI average was $28,000 per day.

Eagle’s gross Ebitda was $96m for the quarter, or $85m on an adjusted basis. Both were down from the $102.6m raw figure in the second quarter. Analysts projected a figure of $88.8m.

Royal Caribbean Group has achieved something it has not done since the pandemic suspended the entire cruise industry in March 2020. The New York-listed cruise major has made a profit. Jason Liberty-led Royal Caribbean reported $33m in net income for this year’s third quarter on Thursday, marking the first time in nine consecutive quarters that it has been on the black side of the ledger. Before Thursday, the Miami-based owner’s quarterly results had been billions of dollars in the negative for more than two years, including the year-ago loss of $1.43bn. “Last quarter’s better than expected performance was a result of the continued robust demand environment and strong execution by our teams,” chief executive Jason Liberty said in a statement.

Royal Caribbean posted an adjusted profit of $65.8m versus an adjusted loss of $1.2bn for the third quarter of 2021. The owner achieved earnings per share (EPS) of $0.26, beating analyst consensus of $0.20 EPS and far exceeding the $5.59 loss per share recorded during last year’s third quarter. “Third-quarter results were better than expected and above guidance for the quarter mainly due to higher load factors from strong close-in demand, further improvement in onboard revenue and better cost performance,” he said. “The group also introduced the Trifecta Program, a new three-year initiative designed to drive superior performance.”

Revenue totaled $2.99bn versus $457m a year earlier as third-quarter occupancy reached 96% overall and almost 105% on Caribbean sailings during the third quarter, Royal Caribbean said. Royal Caribbean paid off $5.6bn in debt maturing in 2022 and 2023 during the quarter, leaving $100m of debt maturities in 2022 and $2.1bn in 2023. Its total long term debt stands at $19.4bn.

The company, which has $3.8bn in customer deposits, expects revenue of about $2.6bn, adjusted Ebitda of $350m to $400m and adjusted loss per share of $1.30 to $1.50 for the fourth quarter.

“While still early in the booking cycle, the view for 2023 is encouraging and the company expects a return to historical load factors in early summer, record yields and adjusted Ebitda for 2023,” Royal Caribbean said.

It’s a rare occasion in shipping merger-and-acquisition deals that such a complete picture of the behind-the-scenes competition for a company emerges as it did this week with Grindrod Shipping Holdings. Of course, we already knew before the filing of highly detailed proxy materials with securities regulators that the “winner” of the fray was UK-listed Taylor Maritime Investments (TMI), which is closing out a $26-per-share cash tender for Grindrod. But it was only after the massive documents dump — and a little sleuthing with market sources — that TradeWinds was able to declare “losers” of the pursuit: TMI’s larger US-listed peers Eagle Bulk Shipping and Genco Shipping & Trading. Both US companies seemed to lose conviction in the hunt as the dry bulk market began to deteriorate around them over the summer, causing them to reduce or decline to improve best offers. Meanwhile, Ed Buttery-led TMI stayed the course and eventually prevailed.

But on further reflection, do we really know the winners and losers in this game? The argument can be made that executive teams at Eagle and Genco got cold feet over a major acquisition for the right reasons. And by the same token, that TMI is playing a risky game levering up its balance sheet to carry out the deal in a declining dry bulk market. Will Eagle and Genco executives sleep better at night on the notion that sometimes your best deal is the one you haven’t done? Ultimately, the dry bulk market, with all its uncertainty over near and medium-term prospects, will be the decider on this one.

To be sure, it is easy to see the appeal of the takeover from the viewpoint of TMI, which is vaulting up the list of public dry bulk owners with the presumed successful completion of the tender. TMI stands to more than double its fleet of 26 handysize bulkers with the acquisition of Grindrod’s core fleet of 15 handysizes and 16 supramax/ultramax vessels. It benefits in financial scale as well, as it is the smaller company in current market capitalization: near $380m this week compared with Grindrod’s $494m. It’s a combination that at minimum catapults TMI into the same ranks as the Gencos and Eagles of the sector as a major public player. What’s more, the chance to swallow a company of Grindrod’s size is rare. “The opportunity for this sort of deal doesn’t come along very often. That’s what makes it hard to walk away from,” one dry bulk executive told Streetwise. But with the excitement comes concern over a call on a dry bulk market that is increasingly difficult to read. “This is a big bet on the future of handysizes,” said one executive. “The upside scenario is that the handysize market continues to do well and justifies the prices that were paid. The downside scenario is that it doesn’t continue to do well and does not justify those prices, at least within the context of Taylor’s balance sheet, which they are levering up considerably to do the deal.”

A projected scant increase in bulker supply over the next few years provides some comfort, but only to an extent. “The dry bulk market is incredibly confusing right now,” the executive said. “For example, 40% to 50% of dry bulk cargoes end up in China. How’s the Chinese economy doing, and how do you know? “Nobody has a clue how it’s doing now and they have even less of a clue how it will do in the future. It would be nice to know the demand side.” Even documents filed in support of the TMI-Grindrod combination raise questions about future market strength. A chart prepared by US investment bank Evercore, financial advisor to TMI, show Grindrod’s estimated 2022 Ebitda of $224.6m nearly halving to $116.4m next year, then diving to $89.8m in 2024 and $25.2m by 2026. One of the few analysts to cover Grindrod is Poe Fratt of Alliance Global Partners. At the announcement of the deal in August, he held out hope for a sweetened offer. He now tells Streetwise that he believes the $26 offer is reasonable. “I think it’s fair, especially in the context of the weakening market. Rates, valuations and public share prices in dry bulk all have declined since August,” Fratt said. Evercore projects the deal is being concluded at 89% of its estimated Grindrod net asset value (NAV) of $27.32. A discount to Grindrod’s NAV always was assumed in the tender process. Although a shares-based offer by Genco had an implied value of $30.33 and cash offers of $28 came from Eagle and TMI, these were when Grindrod’s NAV was estimated at $31 to $32 per share. Offers weakened as the market did. But did TMI get Grindrod cheap? The market will tell us in a couple of years.

Bulker and tanker firm Norden has declared another dividend and initiated more share buybacks after again reporting stellar results. The Copenhagen-listed company, which owns and operates product tankers and bulkers, said it will pay an interim dividend of DKK 30 ($3.94) per share for the third quarter, the same as for the previous three months. This trumps the DKK 25 payment that had been rumored in late October, as TradeWinds reported. Norden also plans to buy back a further $50m of its shares by 7 February, swiftly following a $40m buyback scheme that began in August and was completed on Tuesday.

Chief executive Jan Rindbo said the 64% return on equity during the third quarter “is a testimony to our unique trading model. During the quarter, Norden generated high dry cargo earnings in a weakening market. In addition, our large exposure to tankers enabled Norden to capitalize on surging tanker rates. As we head towards 2023, we expect to continue to benefit from our large exposure to tankers while profiting from a fully covered dry cargo portfolio. This positions Norden to continue to deliver strong returns to our shareholders.” Norden’s bottom line was $243.1m for the third quarter, topping the record result in the previous three months. It booked $65m profit during the third quarter last year.

This means the company has made more than half a billion dollars in combined net profit for the first nine months of this year — $539m to be exact, or DKK 107 in earnings per share. As ever, the Freight Services & Trading unit was the engine that has driven growth in profit for Norden overall. The business unit booked its best-ever quarterly result of $190m, up year on year from $57m. During the third quarter, Norden-operated vessels made $4,583 per day. The Freight division has increased the average margin per vessel per day to $1,253 since 2019. Meanwhile, the rising value of Norden’s tanker fleet has driven up the overall value of its fleet. The market value of both its owned and leased vessels was $1.42bn at the end of the third quarter. Norden said the market value of its owned vessels exceeded book values by $202m. The Assets & Logistics business unit, which looks after its owned and leased vessels and its logistics activities, generated a profit of $53m during the third quarter, of which $20m was profit from the sale of vessels.

Norden expects annual profit of between $650m and $730m for 2022. “This is based on high exposure towards substantially increased product tanker market rates, very strong short-term positioning towards a weakening dry cargo market, high long-term dry cargo cover at profitable rates and active asset trading,” it said. “Given the war in Ukraine, full effect of sanctions on Russia, remaining Covid-19 disruption and macroeconomic uncertainties in general, the freight market uncertainty and volatility is expected to remain high. With an agile business model and strong operating platform, Norden is well equipped to manage this uncertainty and adjust exposure accordingly.”

Analyst Anders Redigh Karlsen, head of shipping at Kepler Cheuvreux, praised the new buyback plan. “The share performance has been strong and we believe the dividend will be a positive (even if it was suggested that it would be coming),” he said in a note on Thursday. “Another share buyback programme will also enhance shareholder returns. We expect to see a moderate positive share price reaction today.” Norden shares were trading at DKK 440 as of 11am in Copenhagen, up by 10% since the opening.

Since the first energy crunch a year ago, China has seriously ramped up domestic coal production in an effort to avoid excessive quantities of more expensive imported energy and even before the Russian-Ukrainian conflict, in an unprecedented move, domestic coal mines maintained full production schedules throughout the Chinese New Year holiday period last February. Consequently, domestic coal production may increase by as much as 400 MMT in 2022 to around 4.5 BMT. Additional coal production has also impacted Chinese coastal coal movement which we forecast to rise to around 870 MMT (+ c30 MMT YOY) which is now carried by as many as 2,300 Chinese flag vessels ranging from Handysize up to Post Panamax.

The increase in coastal coal movement almost mirrors the decline in International coal imports this year,182 MMT by the end of Q3 compared to 213 MMT at the same point last year. Imports from Indonesia have seen the sharpest decline standing at 115 MMT by the end of Q3 compared to the full year 196 MMT in 2021. On the other hand imports of cheaper short haul Russian Pacific coal have increased to 47.5 MMT and look set to better last year’s total of 57 MMT. Elsewhere, China continues to import high quality metcoal from USA though at just 4 MMT to date it is about half of what has imported by this time last year and given that almost all these quantities are shipped on Capesize and Panamax tonnage from the US east coast, this reduction in volume has been a serious hit for tonne-mile demand. Canada at around 9-10 MMT looks set to be a distant third provider of coal to China behind Indonesia and Russia with all their shipments sourced from west coast Canadian ports. China has largely exited importing coal from Colombia (4 MMT in 2021 but just 0.2 MMT to date) and South Africa (7 MMT in 2021 declining to 1 MMT so far this year) whilst imports of coal from Philippines at 3.6 MMT are just over half of what they were last year.

Both the fall in Chinese import volumes and evolving trade patterns have been one of the key determinants negatively impacting Pacific markets in particular this year and though some of the shortfall in Indonesian coal has moved instead to India this has not exactly boosted tonne-mile demand. Whilst coal prices remain north of $200 we do not envisage a change in the present Chinese government policy of prioritizing domestic coal production above imports.

Four days after suspending its backing for a UN-led safe passage for the seaborne transport of Ukrainian grain, Russia announced on Wednesday that it is returning to the scheme. The Russian Ministry of Defence said on its website that it had received the guarantees it had been demanding from Ukraine that the corridor would not be used for military purposes. “The Ukrainian side officially assured that ‘the maritime humanitarian corridor will be used only in accordance with the provisions of the Black Sea Initiative’,” and other related regulations, the ministry said. “The Russian Federation considers that the guarantees received at the moment appear to be sufficient, and resumes the implementation of the agreement.”

Moscow had announced its temporary withdrawal on 29 October after some of its warships suffered a drone attack at the port of Sevastopol, in Russian-annexed Crimea. It accused Ukraine of having used the UN corridor to approach its ships. Ukraine is said to have supplied the “necessary written guarantees” via the UN and Turkey, which helped broker the scheme in the first place.

The UN has confirmed Russia’s return to the deal. “I welcome the return of the Russian Federation to the implementation of the Black Sea Grain Initiative [BSGI] to facilitate exports of food and fertiliser from Ukraine,” Amir Abdulla, head of the UN’s Joint Coordination Centre (JCC) in Istanbul said in a tweet. “Grateful for the Turkish facilitation. Looking forward to working again with all parties in the Initiative.”

Russia’s return means that insurers, which said they would stop covering lucrative Black Sea grain voyages, can start writing business on the trade again. The scheme has proved highly successful since getting up and running on 1 August, helping Ukraine export 9.73 MMT of grain and foodstuffs.

After it gathered pace in September and October, Ukraine re-established 85% of its pre-conflict seaborne export levels, according to Clarksons. The long-term survival of the scheme, however, is not guaranteed. The four-month deal is subject to renewal on 22 November. Russia has warned that it might call it off if the West does not drop some of the sanctions that would facilitate the export of Russian fertilizer and agricultural commodities. Russian participation is crucial for the BSGI to continue, the UN said on Tuesday.