Norden is sharing the wealth with its shareholders after a “fantastic” second quarter with a surprise interim dividend and a new share buyback programme. Record margins generated by Norden’s freight business had a big pay-off for the Danish owner-operator in the second quarter. In fact, the Copenhagen-listed firm, which has a fleet of product tankers and bulkers, has already made more net profit during the first half of 2022 than it did during 2021. Chief executive Jan Rindbo said in the firm’s financial report it was a “fantastic second-quarter result based on a significant shift in market exposure from dry cargo to product tankers. This has enabled Norden to capitalize on the exceptional product tanker rates, while also generating value in a weakening dry cargo market from an extensive cargo cover portfolio. This highlights our trading ability and proactive risk management, which enables us to create value in both rising and falling markets”.

Norden’s bottom line hit $178.7m for the second quarter, compared to $31.8m during the same period last year. Norden has declared an interim dividend of DKK 30 per share, which it said was based on the “strong cash flows and favorable earnings outlook”. It has also started a new $40m share buyback programme that will run from 18 August until 1 November. “This is a positive, in our view, as it provides cash return to shareholders beyond the normal annual dividend,” analyst Anders Redigh Karlsen, head of shipping at Kepler Cheuvreux, said of the new buyback.

Overall, Norden’s profit for the first half of this year stands at $296m, up from $17m in the first six months of 2021. This means the firm has already topped what it made during the full year 2021, when it booked $204.5m in profit. Much of the quarterly result was generated by Norden’s freight services & trading division, which oversees its operated fleet. Norden said the division’s record margins followed its high level of exposure to surging medium-range (MR) tanker rates and a short position in dry cargo, which enabled it to benefit from falling rates. This generated $153m in profit for the freight division during the three-month period, up from $30m during the second quarter last year.

Rising product-tanker values also helped Norden’s assets & logistics arm to massively increase its profit year on year from $2m to $26m. Norden has fully covered its dry cargo position until the end of 2023 at what it called “profitable” rates. The company has this year made a big shift in its market exposure from dry cargo to product tankers across both business units.

Looking ahead, Norden said it expects profit for 2022 in the range of $560m to $640m, the same as the guidance it issued at the beginning of August. “We expect the share to trade up on today’s result and the hinting around a potential solid start of 2023,” Karlsen said in a note on Thursday. The Copenhagen-listed stock was up by just over 13% from the open and was trading at DKK 403.40 as of 09:45am in the Danish capital.

You can’t even go on vacation anymore without being confronted with the impacts of climate change. As my family arrived at an oceanfront apartment, we rented in Cartagena’s Boca Grande neighborhood, we were confronted with a surprise: the beach is a construction site. From my balcony on the 28th floor, I watched as diggers and dredgers worked to build a bulwark against rising seas that threaten to put parts of this Colombian city under water. The construction of embankments, breakwaters and new beaches is part of Plan 4C, with the Cs standing for keeping Cartagena competitive and climate compatible.

The inconvenience was minor for us, as there were plenty of beaches that were open in Colombia’s hottest destination for tourists. But as taxi drivers navigate flooded streets, a phenomenon that can happen even in the dry season, they mention that climate change is already impacting this city. Cartagena, home to one million inhabitants, a historic city centre that is a World Heritage site and one of South America’s busiest ports, is not alone. A few weeks before my visit, the World Meteorological Organization (WMO) met in the 489-year-old city for a regional conference, issuing a report that found that last year’s sea-level rise in Latin America outpaced the global average, continuing a trend that has lasted three decades. “Sea-level rise threatens a large proportion of the population, which is concentrated in coastal areas, by contaminating freshwater aquifers, eroding shorelines, inundating low-lying areas and increasing the risks of storm surges,” the WMO said in the report.

The United Nations body noted that the problem of rising oceans is particularly acute on South America’s Atlantic coast south of the equator and subtropical regions of the North Atlantic and Gulf of Mexico coasts. Cartagena is expected to see a sea level rise of 24 cm by 2050 and 52 cm by 2100 under a scenario of moderate greenhouse gas reductions, according to a September study by led researchers at Colombia’s EAFIT University. That would flood parts of the city, including the port area of Mamonal, by the end of this century. But that will be compounded by another problem that Cartagena is facing, parts of the city and its port zones are sinking. Add in the rate of this ground-level subsidence, and effective average sea-level rises stand at 36 cm by 2050 and 85 cm by 2100, the EAFIT University-led study found, and that is with moderate cuts to global greenhouse gas emissions. “Future city planning, including the conservation of cultural heritage, flood mitigation of coastal communities, and infrastructure development, must implement consistent subsidence measurements and modelling across the city,” the authors concluded.

Among the areas that saw the widespread sinking land were port zones, with the oil port of Bahia Blanca scoring the second highest cumulative subsidence reading. But Florida International University earth and environment professor Shimon Wdowinski, one of the authors of the study, said climate resilience for critical infrastructure like ports is easier to handle than for residential communities in coastal areas. “For the operation of infrastructure, I can see a solution. It’s a costly solution, but it’s important,” he told Green Seas. “For the residential [areas] behind that, that’s a different story.”

The Plan 4C climate resilience effort is underway now, but it was announced more than six years ago and suffered long delays. But for this port city and others in Latin America, this is just the beginning of efforts to make shorelines climate resilient.

New York Stock Exchange-listed Zim saw profits increase by 50% in the second quarter, despite mounting evidence of easing volumes and falling freight rates. The Haifa-based carrier reported net income of $1.34bn for the three months to the end of June. The stunning performance, up from $888m in the same period last year, was mainly due to surging freight rates. Average freight rates rose 54% to $3,596 per teu in the quarter. That was more than enough to compensate in a 7% dip in volumes to 856,000 teu. The strong freight rates lifted revenues by 44% to $3.43bn. Operating income rose to $1.76bn, up from $1.16bn in the same quarter last year. The company said that was despite increasing costs, primarily vessel chartering and bunkering costs.

While volumes and freight rates remain at historically high levels, both have trended down this year. The company said average freight rate in the first quarter was $3,722 per teu and volumes were 1.71bn. “Over the past several weeks, we have seen a gradual decline in freight rates, including in the transpacific trades, despite continued port congestion and resilient demand, driven by macro-economic and geopolitical uncertainties,” Zim chief executive Eli Glickman said. He added that the company would deal with the challenges by focusing on its core strategy and strengths. “Our global niche approach is centered on successfully identifying attractive growth opportunities and adjusting our fleet size dependent on changing market conditions,” he said. “A prime example of this has been the growth in our car carriage activities, growing from one vessel operated two years ago to 10 car carriers today. “We believe that this approach will continue to serve us well as the market is expected to normalize from peak levels.”

Glickman remains confident that Zim will report “another year of record earnings and profitability. Despite the backdrop of various challenges, based on our strong performance in the year to date coupled with spot and contract rates that remain highly profitable, we are reaffirming our 2022 guidance,” he said.

Ebitda this year is forecast in the range of $7.8bn to $8.2bn, and adjusted Ebit for the full year of $6.3bn to $6.7bn. That expectation comes on the back of net income in the first six months of $3.05bn, up from $1.48bn in the first half of last year.

Glickman referred to Zim’s “standout margin”, which meant it was able to hike its dividend payment. “Due to our conviction in Zim’s ability to earn sustainable long-term profits, we are increasing our quarterly dividend payout from 20% to 30% of quarterly net income,” he said.

Yards in southern China have been forced to declare force majeure on some orders, after work schedules and production were severely affected by searing temperatures. This summer has been one of the hottest in the region in six decades, with peak temperatures between 40C and 42C. Meteorologists are warning that the heatwave could continue well into September. Drought has dried up rivers and damaged hydropower production from dams. The government is rationing power and has decided to prioritize residential over industrial use. Shipyard work has become nearly impossible in the sweltering temperatures and workers have had to take unscheduled breaks. Production has been delayed as the thermometer regularly reached 40C in July and August. Temperatures on the shop floor have been even higher, with workers complaining it feels more like 50C.

The beating sun has turned ship decks into red-hot plates, with temperatures as high as 80C recorded. “It’s hot enough to cook an egg sunny side up,” one yard manager said. Yards have declared force majeure as a precautionary measure to protect themselves at an early stage, but it will come into effect only if deliveries are delayed. The terms of shipbuilding contracts vary. Some state that when temperatures exceed 35C for a consecutive number of days, yards can exercise their right to declare force majeure. Others specify temperatures upwards of 37C. Declaring force majeure does not absolve shipbuilders from taking measures to make sure delivery dates are met and is not necessarily a free ride for yards. One broker said yards still need to prove that they have tried to resolve the situation and make up time on delays.

To keep production on schedule, some yards have opted to start work earlier and have a longer lunch break. Work then resumes as temperatures start to dip, around 4pm, and employees work until late in the evening. Some work that can be carried out at night, such as coating application, is not being undertaken during the day. However, the need to make these changes is pushing up production costs.

Many owners are said to be sympathetic towards the position of the yards and their attempts to meet schedules. The heatwave is the latest setback for Chinese yards. Production schedules were disrupted earlier this year by an emergency Covid-19 lockdown in Shanghai and other regions. Yet brokers suggested that yards may find it easier to make a force majeure claim related to the summer heat than one related to the pandemic. Most newbuilding contracts do not include a communicable diseases clause. Also, there is a view that the Covid lockdown was only partial, and was never made official by the Chinese government, which might make it difficult for a force majeure claim to stick legally.

(This means that scheduled deliveries will be delayed, slippage will increase, effective net increase of tonnage on the water will be constrained. Khalid)

USDA cuts EU grain projections following high temperatures

In its latest WASDE report, the USDA has reduced its 2022/23 (July-June) projection for EU corn output by 11.8% to 60 MMT, down 15.5% on the previous marketing year. Projected wheat output was also cut by 8.9% to 13.08 MMT, a 4.5% YoY reduction. Rainfall this summer has been far below seasonal averages while temperatures have soared in much of Europe. Crop damage was amplified due to heatwaves occurring during crucial growing stages. Water restrictions have also been put in place across France, Italy, and Spain, limiting irrigation.

EU countries imported 46.5 MMT of grains, the majority corn, in MY 2021/22, up 12.3% YoY. With lower domestic production, EU corn imports are projected to increase by 18.8% in the 2022/23 MY to 19 MMT. EU wheat imports are projected at 5.5 MMT, up 12.2% YoY. In MY 2021/2022, the largest exporters of grains to the EU were Ukraine and Brazil, at 8.8 MMT and 8.4 MMT, respectively. Since the blockade of Ukrainian ports began in March, EU imports from Brazil have almost tripled YoY to 2.2 MMT, more than tripled from the US to 1.1 MMT and increased by 13.2% from Australia to 1.8 MMT.

EU grain exports, mostly of wheat, also increased 47.7% YoY to 5.4 MMT in July. The lack of Ukrainian volumes has increased demand for European crops, particularly from the Middle East and North Africa. This is unlikely to be sustained given the expected lower yields, however. The USDA has cut its projections for both EU corn and wheat exports by 2 MMT, to 2.7 and 33.5 MMT, respectively. Exports have already slowed in August, averaging 170k tonnes per day so far, a decrease of 19.4% YoY.

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Heatwave leads to restrictions on Chinese steelmakers

A heatwave in China’s eastern Anhui and Jiangsu provinces has led to a surge in power demand. In response, authorities in Anhui have ordered all independent electric arc furnaces to stop production. Jiangsu has also placed restrictions on some steel and copper plants. The power shortage has been exacerbated by low water levels in the Yangtze River, limiting hydropower generation capacity. According to most recent estimates from Reuters, an additional 19 MMT and 22.4 MMT of coal will be needed to replace the reduction in hydropower compared to last year.

Data released on Monday showed average daily Chinese coal production up 16% YoY in July, with production totaling 372.6 MMT, as domestic mines continue to ramp up production. Thermal coal imports have also picked up, however, totaling 20.7 MMT in July. While down 8.6% YoY, this is up almost 41.3% MoM. Imports of Russian coal increased by 39.1% YoY to 5.7m tonnes, as western sanctions have led to it being offered at a steep discount.

Current weather forecasts suggest temperatures will cool in the next couple of weeks, however, taking pressure off power plants and tempering coal demand. Despite this, we expect the country to ensure sufficient energy stockpiles are in place, which could see increased demand from the seaborne market.

Newcastlemax owner 2020 Bulkers reported a fall in profits in the second quarter, driven in part by cuts in long-haul Brazilian iron ore exports. It reported profits of $12m, in line with analysts’ expectations, down from $17.1m in the same period last year. Revenues fell from $28.4m to $23.3m.

The Oslo-listed shipowner described the market as unseasonably weak during the third quarter so far, owing to lower Brazilian iron ore export volumes, less port congestion and fewer ships sitting in port. “Although global iron ore exports are relatively unchanged year to date, down 0.5%, tonne-miles have fallen compared to the same period last year, driven by a 3.6% drop in long-haul Brazilian export volumes. The capesize market has softened during the third quarter, as there has been a sharp reduction in fleet inefficiencies and port congestion.”

Average time charter equivalent rates for the three months stood at $32,300 per day, down from $39,500 for the same period a year earlier. So far in the third quarter, 2020 Bulkers has secured average rates of $30,300 per day. It has six vessels trading on index-linked time charters and two others on fixed time charters until the end of 2022 at $32,378 and $30,905, respectively.

The company said its prospects could improve if high gas prices lead to increased demand for seaborne coal. Its newcastlemax vessels do not typically carry coal but have competed with standard capesizes because of surging demand during the energy crisis. “Although China has ramped up domestic coal production over the last months, the coal trade is expected to remain robust going forward as the global energy crisis persists,” 2020 Bulkers said.

But it warned that a continued economic slowdown and heightened geopolitical tensions could hit the sector. The Russian invasion had “created challenges” in rotating crews that include a limited number of Ukrainian officers. The company moved its tax domicile from Bermuda to Norway this month. Lawyer Viggo Bang-Hansen has joined the board and two members stepped down.

Accelerating infra push amid weak economic print: Premier Li Keqiang at his meeting with key local government officials, as well as China’s NDRC at its monthly meeting (both on 16 August), asked for faster construction of infrastructure projects from 3Q22, in response to China’s sluggish July data (released on 15 August). The above-mentioned pro-growth messages are worth highlighting, as they are in contrast to prior concerns over cutbacks in infra stimulus per read-throughs from the Politburo mid-year assessment. YTD infra-activity has clearly accelerated, evident from July’s infra-FAI growth, +9.1% Y/Y (vs +7.1% in 1H22 and +0.4% in 2021), while the forward-looking indicators suggest an acceleration in activity in coming months, given robust infra new project starts (+23% Y/Y YTD) and order flow reported by E&C contractors (average +20% Y/Y in 1H22).

Power rationing to boost coal transportation capabilities: In addition, we note power rationing in south-western parts of China, including Sichuan, has reignited concerns over large-scale power shortages like those that occurred in 4Q21; in our view, this underscores the importance of bolstering domestic coal production as well as coal transportation.

• Premier Li Keqiang said China will step up policy support for the economy at the meeting held on 16 August with senior officials from six major provinces, namely Guangdong, Jiangsu, Zhejiang, Shandong, Henan, and Sichuan, which account for >40% of the country’s economy. Premier Li vowed to ‘reasonably’ step up policy support to stabilize employment, prices and ensure economic growth, asking to bolster pro-growth measures after July’s data showed worrying consumption and output trends, amid recurring mobility curbs and the ongoing property activity slump.
• NDRC asked (16 August) to speed up issuance and usage of local government special bonds to stimulate investment, besides accelerating project rollout. This year’s quota of Rmb3.45 trillion of special bonds for project construction has almost been fully issued by end-July. NDRC has asked local governments to submit the third tranche of projects for approval, to be funded by special LGB issuance.
• Infra-FAI remains the bright spot in July, as well as for the near term. Infra FAI growth ticked up further in July (9.1% Y/Y, vs +7.1% Y/Y in 1H22). This contrasts with the slump seen with domestic consumption and IP, as well as other FAI activity, including: 1) manufacturing FAI, which saw growth ease modestly in July (7.5% Y/Y); and 2) real estate FAI, which weakened further, falling 12.1% Y/Y, amid further weakness in property market activity.
• China to ramp up domestic coal supply amid power shortages, with beneficiaries in our coverage including Daqin Railway, CRRC and ZZCRRC. A few provinces (including Sichuan, Zhejiang, and Jiangsu, etc.) have introduced power-rationing measures since early August as high temperatures stretched the local power grid. Specifically, Sichuan is asking some local factories to halt their operations temporarily to alleviate power shortages, which comes as heatwaves boost power demand that coincided with weak hydropower generation. Against this backdrop, NDRC said on 16 August that China will ramp up coal supply for power generation, as high temperatures and a quickened pace of economic recovery have pushed national demand for electricity higher.
• Daqin Railway, as the only listed coal-dedicated rail operator, looks well-positioned to benefit from these trends, given its access to China’s higher-quality key coal produced regions.
• We also note CRC’s train procurement activity has seen a notable pick-up on the freight train side. CRC’s procurement of freight locomotives has reached 540 units YTD, much higher than 2020/2021’s full-year levels at 389/317 units, respectively. We see both CRRC (the monopolistic train maker) and ZZCRRC (leading train equipment producer) as beneficiaries.

Oslo Stock Exchange-listed Belships has reported a jump in profits and revenue in the second quarter of this year after expanding its fleet. The company reported a net profit of $31.6m, compared to $22.5m in the same period last year. Operating income also increased from $140.4m to $190.4m over the same period. “The increase in net result is mainly caused by the improved freight market and Belships’ increased fleet,” the company said in its earnings statement.

Belships owns and operates a fleet of 31 bulk carriers. Net freight revenue for owned vessels was $54.6m in the second quarter of 2022, compared to $32.6m in 2021. The company acquired five modern ultramax bulk carriers, and sold one vessel, in the second quarter period.

However, EBITDA contribution from inhouse cargo trading division Lighthouse Navigation fell to $9.4m in the second quarter, compared to $14.5m last year. Despite the dip Belships said Lighthouse Navigation “continues to deliver good results.”

In a positive development for Belships, it declared several purchase options on Japanese-leased vessels at prices below the current sale and purchase market. “Belships’ fleet has increased and improved with only modest cash investments, signaling the competitive advantage Belships has in sourcing ship finance. The Japanese-designed bulk carriers entering the fleet represent the highest quality and lowest fuel consumption available in the market today,” the company said.

Belships remains confident about the prospects for the supramax and ultramax markets in the future despite a recent softening of rates since July. “Looking ahead, towards 2023 and 2024, the supply side as observed from the number of deliveries and the publicly quoted orderbook for our segment is historically low. On the back of stable demand, we remain optimistic in terms of market prospects,” Belships said.

Globus Maritime, a New York-listed owner of a dozen bulkers in the water or under construction, said it expects its market to continue generating good earnings, despite a recent rate decline. “Although we have recently seen time charters easing back a bit, nearly all the markets are well above trend,” the Athanasios Feidakis-led company said in financial results late on Tuesday. “We continue to believe that the freight rates will remain healthy for the foreseeable future,” added the Athens-based company.

All of Globus’s nine ships in the water — four kamsarmaxes, four supramaxes and a panamax — are operating in the spot market. That spot market exposure ensured soaring profit in the second quarter, during which the company booked a net income of $11m from a narrow loss of $23,000 in the same period of 2021. Profit surged to $24.2m in the first half, from a $0.8m loss last year.

As a sign of long-term confidence in its market, Globus ordered three ultramax newbuildings in the spring, all due for delivery in 2024. In a more recent development, the company revealed it found a new creditor to top up an existing $34.25m loan with CIT Bank by an additional $18m. The object of the combined loan of $52.25m is to refinance its 81,800-dwt Orion Globe (built 2015).

“By doing this our gain was twofold,” the company said in its statement. “…we have been able to enhance our cash position by $18m and also succeeded to reduce the applicable margin from 3.75% to 3.35% for the whole CIT loan facility,” it said.

South Korea’s Daewoo Shipbuilding & Marine Engineering (DSME) reported net loss of KRW 668bn ($509m) for the first half of this year amid rise in newbuilding contracts, according to Yonhap news. However, the loss amount was half of KRW 1.24trn which it logged for the same period in 2021. The shipyard reported an operating loss of KRW 570bn, down from KRW 1.22trn form a year ago. But it saw its revenue increase by 12% to KRW 2.42trn from the first half of 2021. For the second quarter of 2022, DSME reported an operating loss of KRW 99.5bn and net loss of KRW 176bn, down 78% and 64% respectively from the previous quarter.

The shipyard said that “while the losses have sharply narrowed from the first quarter, the company continued its losses due to sanctions against Russia and labour strikes”. The conflict between Russia and Ukraine has led to the cancellation of two of three LNG carrier orders from Russia worth around KRW700bn at the yard. The remaining LNG ship is also at the risk of being terminated.

The debt-ridden yard was hit by a 51-day labour strike that started in early June. DSME estimated the aggregate operating loss from the prolonged strike to be more than KRW 800bn. On a positive note, DSME said it has received $6.67bn worth of newbuildings orders this year. The contract volume is about 75% of its annual order target of $8.9bn.

On 12 August, DSME disclosed that it has received an order for a single 174,000-cbm LNG carrier newbuilding from an Asian owner worth about $240m. It is slated to deliver the gas carrier in the second half of 2026. The Okpo-based shipbuilder said the eco-friendly newbuilding will be fitted with a low-pressure dual-fuel ME-GA engine and an on-board re-liquefaction facility that will significantly reduce emissions. The name of the buyer was not disclosed. However, shipbuilding sources believed Japan’s Mitsui OSK Lines (MOL) was behind the contract. The contract would be MOL’s second deal with the shipyard this year if confirmed. In April, it was reported to have signed up for two vessels to be delivered by the second half of 2026 at $213m each.

Daewoo Shipbuilding was reported to have received orders for 21 LNG carriers so far this year, up from 15 in the whole of last year.