The capesize bulker market has been on a downward trend for weeks as China’s real estate troubles continue and port congestion eases, but it should turn around if one thing does not happen, market sources say. The Baltic Exchange’s capesize 5TC spot-rate estimate across five key routes has slid 64% since 18 July to $8,783 on Tuesday, marking the lowest level since late January. But Breakwave Advisors, a New York-based dry bulk ETF-trading platform, is confident that the market will soon do an about-face, provided that the second largest economy on earth does not crumble. “Our view is that absent a historic collapse in the Chinese economy, upcoming stimulus efforts will provide the catalyst for major restocking of iron ore, and thus, a swift jump in dry bulk demand,” it said in a report on Tuesday.

Australian miner Rio Tinto fixed one unnamed capesize on Tuesday and another three to-be-nominated capesize on Monday to haul 170,000 tonnes of iron ore each from Dampier, Australia, to Qingdao, China. The mining giant hired the ships at rates that ranged from $7.50 per tonne to $7.85 per tonne. The four vessels are scheduled to take on ore from 30 August to 2 September. A month ago, Rio Tinto hired an unnamed capesize to move the same quantum of ore on the same route at $10.85 per tonne. Loading was set for 30 July to 1 August.

The country’s floundering real estate sector has essentially stalled while facing billions of dollars of debt and a mortgage crisis, causing a sharp drop in iron-ore demand that has in turn stung the capesize market. Meanwhile, supply has increased in recent weeks as more vessels get freed from port congestion, the Breakwave analysis said.

Capesize rates for benchmark iron-ore routes from Brazil have also dropped steadily due to China’s wheezing real estate industry that has seen Chinese developer Evergrande fall into $330bn of debt. The freight rate for the C3 voyage from Tubarao, Brazil, to Qingdao, China, has plummeted 38% since 18 July to $20.044 per tonne on Tuesday. At the same time, the average spot rate for the C14 roundtrip leg between West Australia and China has declined 69% to $6,300 per day.

The capesize market “will suffer some more” as China’s economic struggles continue and the typical summer lull for dry bulk shipping persists, but the EU’s new ban on Russian coal should help it recover, broker Giuseppe Rosano said. “Russia traditionally supplies the EU with around 70% of its coal requirements, therefore importers will need to source supply from further afield which could be positive for capesize tonne-mile demand,” said Rosano, founder of London-based broking house Alibra Shipping.

With average capesize earnings collapsing below $10,000 per day for the first time in more than six months, owners of ageing vessels are considering offloading their oldest ships for demolition. Several market sources indicated that one such deal has already been concluded. Golden Union, controlled by veteran Greek owner Theodore Veniamis, is said to have agreed to sell the 171,500-dwt Captain Veniamis (built 2001) for scrap. This is the oldest ship in Golden Union’s fleet of nearly 50 bulkers. London brokers reported that the Hyundai Heavy Industries-built vessel has fetched a price of $550 per ldt on an “as is” basis in Singapore. Managers at Athens-based Golden Union did not respond to a request for comment.

The Captain Veniamis would be the first capesize sold for demolition since April, when the Nicholas Moundreas Group, a Greek peer, achieved a record $715 per ldt with a scrapping deal for the 171,200-dwt Sunbeam (built 2000). This was the highest demolition price achieved by a capesize bulker since at least 1998, according to the VesselsValue deals data bank. The price gap between the Sunbeam and the Captain Veniamis is indicative of the demolition market’s travails over the past few months when a limited quantity of vessels headed for scrapping amid robust bulker rates.

Bulker earnings, however, have been sliding for several weeks. With average capesize rates dropping below $10,000 per day last week, some owners seem tempted to pull the scrapping trigger. “We’re seeing a positive trend in the demolition market over the past five days,” said Yiannis Kourkoulis, Piraeus-based vice president of purchase at cash buyer Best Oasis Ltd. Broker queries for scrapping deals have increased. The interest seems to be matched by interest from scrapyards.

Vessels due for delivery in the Indian subcontinent could reach prices of up to $590 per ldt, according to Kourkoulis. These are still hefty levels, considering overall market conditions and funding difficulties that scrapping players have been facing in the subcontinent recently. Some cash buyers and end-buyers seem nevertheless prepared to pay such prices to get the market moving again. Still, some capesize scrap talk seems to be premature. London brokers are reporting that Moundreas has agreed to sell another capesize, the 172,600-dwt Sunlight (built 2000), at $547 per ldt. Market sources in Athens, however, said the Sunlight has not been sold.

Clarksons, one of the first brokers to report the Captain Veniamis deal, poured cold water on talk that the bulker recycling market is surely heading towards revival. Yards in India remain the only realistic demolition option in the subcontinent for owners of larger vessels, due to issues with the issuing of letters of credit in Bangladesh and Pakistan, Clarksons said in its latest weekly report. Some market observers even doubt that the Captain Veniamis constitutes a recycling sale and suspect that it may potentially go on for further trading, the brokerage added.

Regional container specialist SITC International has doubled profits on the back of soaring freight rates in the Asian feeder trades. The Hong Kong-based feeder operator bagged $1.17bn in profit in the first half year. That compares with just $487m logged in the same period last year. The stunning performance reflected rising freight rates and higher volumes that benefited its container shipping division.

The company recently flagged the expectation of improved performance in a profit alert issued to the Stock Exchange of Hong Kong. In July, SITC said that freight rates had significantly increased, driven by “continues improvement in the relationship between supply and demand in the Asian region”. That has been borne out with a 69.2% rise in revenues to $2.25bn in the first half year, up from $1.33bn in the same period in 2021.

Freight rates were 60% higher at $1,239 per teu in the first half year, up from $770 per teu in the interim period a year earlier. Continuous expansion by the company in the Asian market further boosted performance, as volumes rose 8.1% to 1.61m teu, the company said.

SITC operates 97 vessels up to 2700 teu, of which 74 are owned. The Yang Shaopeng-led company has made no secret of plans to expand its operations in the Asian shipping trades. SITC “will continue to purchase container vessels and containers and invest in logistic projects as and when appropriate,” it said.

The company is currently listed by Alphaliner as the 14th largest liner operator but has in the past two years embarked on an ambitious newbuilding program. The company took delivery on 10 August of the 2,600-teu SITC Chunming (built 2022) from Yangzijiang Shipbuilding (YZJ). The vessel is the first of ten SDARI-designed sister ships that the yard will deliver to SITC this year and in 2023. That follows the delivery on 20 July of the 1,844 teu vessel SITC Mingde (built 2022). The vessel is the sixth unit in a series of twelve Bangkok-maxes that SITC will receive from YZJ this year and in early 2023. SITC has taken delivery of seven newbuild container vessels in the first half year, the company said.

Another 35 vessels – ranging in size from 1,023 teu, 1,800 teu and 2,700 teu – are scheduled for delivery in the coming year.

The newbuilds are under construction at South Korea’s Dae Sun Shipbuilding & Engineering, as well as YZJ and Huanghai Shipbuilding of China.

Western Bulk Chartering has had its best start to the year since it was founded in 1982 but expects demand for dry-cargo shipping to suffer during the rest of this year. The Oslo-listed bulker operator recorded $37.4m in net profit after tax for the first half of 2022, more than four times the $9m it booked during the same period in 2021. “The high market volatility seen in 2021 continued into 2022. With focus on trading the short-term market, Western Bulk managed to utilize this both in respect of total market levels and relative levels between the basins,” the firm said in its financial report for the period. “The company has also managed to limit negative impacts from the Russian invasion of Ukraine.”

Western Bulk has declared a dividend of $13m for the second quarter, which is NOK 3.85 per share ($0.40). The company has implemented a quarterly dividend policy to distribute a minimum of 80% of its earnings. Gross revenues during the first six months of 2022 were $883.1m, compared to $565.3m in the same period in the previous year. Western Bulk attributed its good results to “good craftmanship with an agile approach to market volatility” and strategic and operational initiatives that have borne fruit. “In addition, cooperation between regions has been strengthened to improve decision making, as well as to capture a larger arbitrage potential from higher dry bulk market volatility,” it said in its report.

The firm said it has been making investments to allow for more data-driven decision-making in developing a more “systematic approach” to business development and managing client relationships. Western Bulk ran an average fleet of 113 supramax, ultramax and handysize bulk carriers in the first half of 2022.

Its net time-charter (TC) margin per ship was $3,158 per day during the six-month period, compared to $1,020 per day for first half of 2021. The firm said there was a “significant increase” in the size of its fleet during the second quarter, during which it operated 120 vessels on average, up from 105 in the first three months of the year.

Looking ahead, Western Bulk said it does not expect seasonally higher markets in the second half of the year than in the first, as would usually be the case. “This is not expected to happen this year due to lower economic growth with the risk of several countries going into recession,” the firm said in its report. “Uncertainty related to Chinese demand is increased, spurred by troubles in the housing sector, as well as increased tension between China and the US regarding Taiwan adding to the negative sentiment. “The Baltic Supramax Index has been declining for all forward periods throughout the summer, and with muted market levels overall volatility is expected to be lower.”

Western Bulk opened an office in Dubai early this year. Some employees from the company’s Indian Ocean commercial team have relocated from Singapore to Dubai to get closer to customers in the Middle East. The company listed on Oslo’s Euronext Growth exchange in September last year. Its shares have been registered on Oslo’s over-the-counter market for unlisted securities since 2017. Its predecessor company, which had the same name before becoming Bulk Invest, was listed on the Oslo Stock Exchange from 2013 to 2016.

The most recently released data as of August 14th shows that the daily coal burn rate at China’s six major coastal power plants has come in at 923,000 tons.  This is up week-on-week by 1%, up year-on-year by 19%, and is another new record.  Coal burn has now set records during four of the last five weeks as China continues to experience warmer than usual temperatures and, in some places, new records. 

In addition, new daily coronavirus cases and restrictions remain much lower than seen during May’s peak (although this week has seen a significant increase seen in new cases). 

Overall, China remains well supplied with thermal coal.  Unlike last year, China is still not experiencing a coal shortage.

With barely four months to go until the introduction of new carbon reduction legislation, it remains unclear how container shipping will be affected. The answer to the question depends on who you ask — a tonnage provider or a liner operator. Neither side of the charter market disputes that vessels will be forced to slow down. But they clash over the extent at which they will slow, and consequently, over how much additional capacity will be required.

Liner giants Hapag-Lloyd and AP Moller-Maersk estimate that a minimum of 5% of additional tonnage may be needed to meet the new emissions goals introduced by the IMO next year. Speaking in an earnings presentation yesterday, Hapag-Lloyd chief executive Rolf Habben Jansen put the figure in the region of “high single digits”. He said the application of the legislation in 2023 and 2024 could require between 5% and 10% more tonnage, subject to change. “If you asked half-a-year ago, we would probably have assessed smaller. We will learn as we go and know that some of the formulas will change over time, so it may mean we need to adjust that a little bit upward or downwards.” The estimate roughly tallies with the assessment of Maersk chief executive Soren Skou earlier this month. He suggested that the slowing down of vessels could have “a significant impact” that requires between five to 15% more capacity.

On the other hand, tonnage providers have flagged the prospect that the new legislation will have an even greater impact. New York Stock Exchange-listed boxship owner Global Ship Lease (GSL) suggested that reducing the average operating speed of the global container ship fleet by just one knot could cut effective supply by 6% to 7%. That could be significant if, as GSL executive chairman George Youroukous told a 4 August earnings call, the speed could be two to three knots slower than today. That suggests slowing down the fleet could require 18% more capacity, GSL said, citing figures from independent consultancy Maritime Strategies International. “And it’s not just the speed, it’s a lot of other things,” Youroukos said. If ships are caught up in congestion, he added that their Carbon Intensity Indicatory (CII) rating could be destroyed.

The CII is an efficiency rating assigned to ships based on the grams of CO2 emitted per capacity-mile. The first CII ratings, based on 2023 data, are due no later than 31 March 2024. Shipowners also need to comply with the Energy Efficiency Existing Ship Index (EEXI) regulation, which is to be introduced on 1 January 2023. That is expected to force older ships to slow down to meet the emissions goals set by the IMO’s Marine Environmental Protection Committee at its 78th session in June. The uncertainty over the impact of the new laws has led lines to adopt a “wait-and-see” approach to the charter market, tonnage providers said. That is compounded by the worsening economic outlook, which is likely to dampen demand. “There are indeed question marks on how the market will develop in 2023 and 2024 as various contradicting forces come into play,” Euroseas chief executive Aristides Pittas said. But he added that the impact of the high orderbook and increased deliveries next year and in 2024 would be offset by the effect of new regulations on speed and increased scrapping. That remains to be seen, in the view of Habben Jansen. But he remains optimistic that a cooling container shipping market will enable the company to source the extra ships that could be needed from 2023 onwards.

Habben Jansen said the high orderbook, comprising 28% of the global fleet, meant that in absolute terms a lot of new vessels will be entering the fleet. That would enable container ships to catch up on dry docking that would be needed if ships are to be modified to comply with the new environmental laws, he added. “We clearly see that, in the next 24 months, supply growth will outpace demand growth,” he said. “I think that is good. That means markets will ease a bit.” While spot rates in the freight market have fallen, demand in the US seems to be holding up reasonably well, although Habben Jansen said there was probably some nervousness in Europe. “We don’t see demand falling off a cliff anywhere,” he said.

Production data for July shows slowing steel production hampering iron ore import demand, while immense coal production continues to support energy costs as evidenced with thermal electricity production ramping up. All in all, the data fails to provide support for dry bulk import demand for the time being.

Chinese steel production is following last year’s dive and was for July below the 5-year average at 82.4 MMT, down 4.2% YOY leading to a 6.2% decline YTD compared to last year. The raw material intensive pig iron production was 72.0 MMT for July, 6.7% down YOY and YTD now stands 4.2% below last year. The Chinese economy has seen a slowdown hampered by its zero-Covid policy and a declining property market, with recent figures indicating property investments and new sales declining 12.3% and 28.9% YOY, respectively. Consequently, the slowdown has led to China cutting the medium-term lending rate from 2.85% to 2.75% to combat the falling economic growth.

Chinese domestic coal production continues at elevated levels of 368 MMT for July. This is up 17.5% YOY and YTD growth has been up 13.2% from last year. High production is pressuring import needs which have been sluggish so far this year (YTD down 18.4% YOY).

However, the ample supply of coal has caused a wide price differential between Chinese and global coal prices and is incentivizing increased thermal electricity production. Overall electricity production was up 4.7% YOY for July and has YTD been up 2.7% compared to last year, while thermal electricity production was up 5.7% for July but is down 2.0% YTD. Furthermore, attractive economics for coal as fuel has also curbed Chinese LNG imports, which were down 22% YOY YTD as of June, while pipeline gas imports are up 11.4%.

It is finally happening, but slowly. The grain trade in Ukraine is grinding into life with support from big traders and aid cargoes that will make their way to countries with insecure food supplies. Wheat, corn, and oilseeds from the country cannot be exported soon enough. Millions of people are at risk of famine this year, particularly in East Africa, where drought has decimated harvests.

Fourteen laden bulkers have left Ukraine over the past two weeks, but until now these have been ships that were stranded in the country as war broke out. Only one fixture has been done by a commodity trader for a bulker not already present in Ukraine, in addition to those fixed by the World Food Programme (WFP). The UN agency is understood to have fixed vessels for eight cargoes, for which vessels are currently on their way to Odesa and Chornomorsk. The first WFP-chartered bulker departed with Ukrainian wheat on Friday, according to Turkey’s defence ministry.

These vessels are likely to discharge their grain cargoes in Djibouti, which will help feed people in places like Ethiopia, Somalia, and Yemen, where famine is a looming possibility. Meanwhile, big traders Cargill, ADM and Sierents were rumored to have taken coverage on Thursday for grain loadings in Ukraine. Other big names like Louis Dreyfus Commodities are also understood to be in the market, looking for tonnage. Large premia in freight rates are on offer for shipowners willing to call in Ukraine because vessel supply is scarce and there is such little visibility of where the market is at. “Anything goes,” Ioannis Spanos, handysize broker for Howe Robinson, told TradeWinds. He said handysize and supramax vessels can command anything from between $30,000 up to $45,000 per day for calling in the region, chargeable on a time-charter basis because of the risk of delays. In contrast, handysizes in the depressed Mediterranean market can expect day rates of around $15,000 or even lower because of the lack of cargoes coming to the market. Naturally, handysize owners are looking hungrily at the big premia on offer in Ukraine but remain cautious.

“Many people are still skeptical. They haven’t decided if they want to do it or not, for many reasons like ‘How’s it going to work? We want to see the first vessel to go there and go out safely. We want to see what we can do with insurance, the crew, anything’,” Spanos said. “At the moment, it’s a new thing for everybody.” Most enquiries are understood to be for handysize bulkers, which have a shallower draft that will allow them to call in a wider range of discharge ports in Africa. Though the WFP has a humanitarian cause, it secures its bulkers in competitive markets just like everybody else and receives no preferential rates. The only difference is that contracts are finalized on World food 2017, the WFP’s own Bimco-approved charter party. Much like its freight, the WFP purchases food aid on the open market through tender processes. Ukraine is thought to have around 22 MMT of grain held in silos from the past season and expects to harvest another 20 MMT in this year’s harvest.

Research by Braemar Shipbroking suggests that export volumes of 20 MMT of grain would translate to around 715 handysize loadings. But even if exports from Ukraine were to resume fully, analysts do not expect any huge impact on tonnage demand. “Of course, it would be positive, but to put things into perspective, Ukraine’s grains exports in 2021 accounted for about 0.7% of supramax and about 1% of all sub-cape tonne-mile demand. Not a huge volume of demand but would provide much-needed fresh cargo to the market,” Harry Grimes, analyst at Arrow Shipbroking told TradeWinds. But Spanos said thinks that the nascent market is all about “the greater good”, getting food into the hands of people who need it most. The resumption of exports from Ukrainian Black Sea ports has helped stabilize grain prices, which will help make food supply more secure. Countries in sub-Saharan Africa have been struggling to import food while grain prices have been high. Somalia is one of the countries that has been hardest hit by drought and is most at risk of famine, which could happen as soon as next month, according to the Food & Agriculture Organization of the UN (FAO).

After much more favorable growing conditions this season, Brazil’s corn exports look set to bounce back strongly from last year’s drought ravaged figure of just 20 MMT; though unlikely to exceed the 2019 export record of 43 MMT they will probably exceed the 2020 figure of 34 MMT as Brazil looks to ship more quantities to those countries previously reliant on Ukrainian corn.

Though we are only in the early part of the season already exports to date are up +2 MMT y-o-y to Atlantic destinations and +2.8 MMT to destinations east of Suez. It is notable that with longer sea miles especially to destinations in the Mediterranean and Egypt, a much greater proportion of Brazil’s corn cargo is being carried on Panamax/Kamsarmax/Post Panamax tonnage; this may be in part to changed trading patterns, longer sea miles to Atlantic destinations and somewhat cheaper freight available in the larger sectors.

With such a significant structural change in the Brazilian Atlantic corn trades, one might have expected panamax rates to receive a timely boost from all this additional cargo; however, with other changes in trading patterns, in particular coal, there have been on average an additional 175 Panamax/Kamsarmax open in June/July in the Atlantic compared to 2021 thus more balanced tonnage supply has more than negated the increases in Brazilian corn flow/longer sea miles.

The European sanctions have now taken full effect on Russian coal as of Thursday, something analysts are confident will have a positive effect on the global dry bulk tonne-mile picture. In 2021, the EU imported 39 MMT of coal from Russia, totaling some 36% of the bloc’s coal imports. The EU’s demand for coal has increased year-to-date and is expected to increase further as the bloc turns to coal to replace missing natural gas supplies from Russia. The most basic upshot of the total ban will see more Atlantic and Australian coal heading into Europe and most Russian coal moving east to India and China.

Historically, Europe has had little to no effect on the demand intensity of seaborne coal trade, analysts at Braemar noted in a new report. “Since the war started, however, we can see the positive effect European coal imports have had on bulk carrier demand. This is not only a reflection of the longer voyages, but also simply the greater volumes imported,” Braemar pointed out. Not only is bulk carrier demand from coal improving due to European imports from further afield, but it is also down to the change in flows out of Russia. Russian coal imports to India doubled year-on-year in July to 1.9 MMT, according to Braemar data, while China imported 6.8 MMT, a 22.7% year-on-year increase and the highest monthly total on record for this trade.

Of concern to European utilities scouring the globe for urgent coal supplies was the decision this week by the Indonesian energy and mineral resources minister to ban 48 miners from exporting coal. Niels Rasmussen, chief shipping analyst at BIMCO, commented: “The EU’s ban on Russian coal increases demand for non-Russian supply by about 4% and a sustained partial ban of Indonesian exports will obviously not help. It makes it even more likely that India and China will buy more of their coal from Russia in the coming months. Combined, the two shifts in supply patterns will drive up average sailing distance for global coal shipments and bulk demand overall.”

Logistically, the heatwaves that have dominated the European summer are creating bottlenecks with inventories at ports in northern Europe at highs not seen for many years as barges struggle to make it down the parched Rhine River.

Soaring natural gas prices are giving rise to coal demand around the world, with consumption set to match this year the record-high from 2013, and further jump to a new all-time high next year, the International Energy Agency (IEA) said at the end of last month.

Fitch analysts have substantially lifted their Asian thermal coal price forecast for this year and beyond. Fitch now expects the fuel loaded at Australia’s Newcastle port to average $320 a ton this year and $246 a ton on average from 2022 to 2026, up from previous outlooks of $230 and $159, respectively.