China imported 91.2 MMT of iron ore in July.  This marks a month-on-month increase of 2.1 MMT (2%) and is up year-on-year by 2.7 MMT (3%).  As we have continued to stress in our work, there remains a good chance that China’s iron ore imports will continue to climb higher during the second half of this year as iron ore port stockpiles are well below this year’s high and as Brazilian and Australian iron ore production remain poised to continue to undergo seasonal strength.

China imported 23.5 MMT of coal in July.  This marks a month-on-month increase of 4.5 MMT (24%) but is down year-on-year by 6.7 MMT (-22%).  We continue to stress there remains a very good chance that coal imports will continue to contract on a year-on-year basis this year.  China’s domestic coal production has continued to fare much better than thermal coal-derived electricity generation.

China imported 7.9 MMT of soybeans in July.  This marks a month-on-month decline of 400,000 tons (-5%) and is down year-on-year by 800,000 tons (-9%).  Going forward, the outlook for China’s soybean imports remains less clear than the outlook for coal and iron ore imports. 

According to Chinese customs authorities, iron ore imports for July came in at 91.1 MMT, up 3.1% YOY, taking the YTD total to 626.8 MMT, which is down 3.4% compared to 2021 and 5.0% compared to 2020.

Likewise, coal imports came in at 23.5 MMT, down 22% YOY and down 18.4% YOY YTD, as domestic coal production continues at elevated levels – with the January-June period up 12.6% YOY YTD.

However, we believe all indicators should be on a better trajectory for H2 than last year, as H1 proved unusually strong. While the macroeconomic outlook has deteriorated, we still see potential for higher volumes into the stronger H2e and 2023e fueled by Chinese stimulus and return of long-haul Vale volumes.

Many coal mine accidents have occurred in China recent weeks, but unlike in 2021 this has not led to major changes in coal production. At least six separate accidents, five of which resulted in deaths, have occurred since the end of June (in total, these six accidents have resulted in the deaths of at least 17 miners.) As we have stressed in previous work, during previous years coal mine accidents received much more attention in China and were very often followed by regional and national inspections and restrictions. After China began to experience a coal shortage leading up to last winter, however, a shift occurred in which increasing coal production became much more of a priority than new safety inspections and restrictions. So far this year, production has continued to be prioritized, despite the most recent accidents.

China’s central government is continuing to focus on avoiding any chance of experiencing extreme thermal coal shortages again. Last year, the government in our opinion was very much in denial leading up to the winter, but lessons were learned and a reversal in policy remains in place. For now, China’s coal import prospects are still not bullish as domestic coal production continues to fare a great deal better than thermal coal consumed for electricity generation. The most recently released data shows China’s thermal coal-derived electricity generation has contracted on a year-on-year basis for four straight months, while domestic coal production has continued to grow on a year-on-year basis. During this four-month period, China’s thermal coal-derived electricity generation has contracted on a year-on-year basis by 8% while coal production has grown year-on-year by 15%.

Inquiries for Ukrainian grain fixtures are heating up as a UN-brokered safe-passage deal for vessels is being gradually implemented. However, the market is still in flux as players are busy weighing the risks and opportunities of carrying Ukrainian grain, market observers say. Very few, if any, fixtures are known to have been concluded yet with shipowners, charterers and insurers still feeling each other out to settle on price levels.

The first fixtures to be made, possibly as early as next week, might be settled at twice the average ‘conventional’ earnings, according to an Athens-based specialized dry cargo broker. “Rates out of Ukraine on new deals are still being worked at so the price is still being discovered,” said Vassilis Mouyis, joint founder of Doric Shipbrokers. “We understand not much has been concluded as the various stakeholders assess the risk, including underwriters’ war risk insurance,” he told TradeWinds. “Time charter rates could be concluded at twice, if not more, the conventional market as the execution of this trade is still being tested,” Mouyis added.

Fixture talk revived as four more bulkers were enroute carrying Ukrainian grain shipments on Friday under a UN-brokered safe passage deal, following the first successful export carried out earlier this week. Most of these shipments are understood to have been in execution of chartering deals arranged before Ukrainian’s biggest ports shut down following Russia’s invasion on 24 February. Out of the five bulkers carrying grain, four were already laden in the blocked ports of Odesa and Chornomorsk. It isn’t known if, or in what way, those ships’ prior charter arrangements were amended to reflect their involuntary four-month stay and the current risk situation. All that is known about their voyages is the size of their load and their destination: the 29,300-dwt bulker Razoni (built 1996) is enroute to Tripoli, Lebanon; the 12,200-dwt Polarnet (built 2016) is heading to Karasu, Turkey; the 38,200-dwt Navi Star (built 2011) will unload at Ringaskiddy in Ireland; and Navibulgar’s 41,600-dwt Rojen (built 2019) is enroute to Teesport in the UK. Managers at Navibulgar didn’t immediately respond to a request for comment. The one vessel likely to be underway under a newly fixed charter is the 13,500-dwt Fulmar S (built 2007), which is sailing empty towards Chornomorsk. Executives at the company’s Turkish-based managers Armador Shipping didn’t immediately respond to a request for comment.

All in all, about 85,000 tons of Ukrainian grain are currently seaborne under the UN scheme, which international officials admit is still in testing phase. Far more vessels need to travel in the corridors to approach pre-war traffic levels that would help avert a global food crisis, Ukraine’s infrastructure minister Oleksandr Kubrakov tweeted on Friday. “We have to provide the processing of 100 [vessels] per month to be able to export the necessary quantum of foodstuffs,” Kubrakov said.

A first convoy is headed out of Ukrainian waters this morning bringing urgently needed grain out of the country. Three ships have departed from two ports and are now heading together along an agreed safe corridor across the Black Sea for inspection at Istanbul and onto destinations around Europe. Moreover, a first ship has been granted to call at a Ukrainian port to load.

Two weeks ago, Ukraine and Russia reached a deal to establish safe shipping routes for Ukrainian grain exports from three ports. Earlier this week, the first vessel departed from Ukraine and as per the details of the Black Sea Grain Initiative was inspected in Istanbul to ensure it was only carrying grain before being allowed to carry on to its destination in Lebanon. Today, marks the first ramp up in ship numbers moving last year’s harvest out of Ukraine. Another seven ships at the ports of Odesa and Chornomorsk are already loaded with grain and are ready for shipment.

“While the cargo carrying capacity of the three vessels only accounts for a minor fraction of the 20 MMT of Ukrainian grains awaiting export, the development adds to the positive momentum. Hence, the flow of seaborne exports may accelerate in the near term,” an update today from chartering platform Shipfix stated.

The Joint Coordination Centre (JCC) was established under the Black Sea Grain Initiative in Istanbul on July 27 to oversee shipments. The JCC discussed yesterday the need for the commercial vessels stranded in the Ukrainian ports since February to depart to their pre-defined destinations. “Their movement will free up valuable pier space for more inbound ships to come in and carry food to global markets in line with the Initiative,” the JCC stated in a release.

Eagle Bulk has reported a tenfold increase in net profit compared to a year ago as the US-listed bulker operator posted its “best ever” results. Net income for the three months ended 30 June 2022 was $94.5m against the $9.2m seen 12 months earlier. Revenues for the second quarter came in at $198.7m compared to the $129.9m achieved in the comparable quarter in 2021.

Eagle attributed the increase in revenues to higher charter rates because of a market recovery with an increase in demand for dry bulk products and an increase in available days due to an increase in owned days and chartered-in days. Eagle’s fleet earned a daily time charter equivalent (TCE) rate of $30,207 per ship, up 39% on the TCE rate of $21,580 seen in the second quarter of 2021.

“I am really proud of our team’s collective efforts this quarter which enabled us to achieve our best-ever results,” said Eagle Bulk chief executive Gary Vogel. “Focused execution, including our ability to successfully trade our ships in a volatile commercial environment, contributed to this outperformance. We believe our differentiated business model, combined with our exclusive focus on the midsize dry bulk vessel segment and … fleet scrubber position, has enabled us to generate outsized returns, as compared to the broader dry bulk market.”

Vogel said the company had declared a dividend of $2.20, equal to 30% of net income, given the company’s “strong cash generation, solid balance sheet, and constructive outlook on the market”. Eagle said it spent some $400,000 during the quarter on vessel upgrades which it said are discretionary in nature and evaluated on a business case-by-case basis. The upgrades represent items such as high-spec low friction hull paint which improves fuel efficiency and reduces fuel costs, Neo Panama Canal chock fittings enabling vessels to carry additional cargo through the new Panama Canal locks, as well as other retrofitted fuel-saving devices.

When the MV Bokm Guiba sailed from her yard in Qingdao on 27th July it not only marked the last of 50 of 325,000 DWT so called Guiba-Max design, but for the first time this century there are no pending VLOC’s on the orderbook. The biggest concentration in VLOC deliveries was between 2008-2013 on the back of China’s huge growth in iron ore imports with 179 vessels delivered in just 6 years. In total there are now 265 VLOC’s in service of 82 MDWT with 142 built in China, 76 in Japan and a further 47 in South Korea.

Since 2018 the VLOC orderbook has been dominated by the Guiba-max series and 33 new generation 400,000 deadweight Valemax; these 83 vessels total 31.45 MDWT and with an annual cargo capacity of around 100 MMT of Brazilian iron added in just 5 years. Add a further 35 older generation Valemax and the total cargo carrying capacity is closer to 150 MMT annually going forward before even considering the balance 147 varied VLOC’s of other designs most of which are also carrying Brazilian iron ore.

Clearly now that all these VLOC’s are delivered (and Vale is considering a further series of dual fuel Valemax), the owners of conventional Capesize will be faced with carrying a reduced proportion of the c350 MMT annual Brazilian iron ore exports in future, particularly considering the average age of the VLOC fleet is just over 7 years of age.

Steaming ahead

India’s appetite for coal has been robust this year, growing by 3.9% YoY for the first seven months. This week we delve into some interesting trends regarding Indian coal imports.

India’s coal imports have totaled 136.9 MMT during January-July 2022, up 3.9% over the same period last year. At this rate, annual volumes for 2022 have a potential to reach circa 235 MMT, levels last seen in 2019; however, back then, imports totaled 141.1 MMT during January-July. In July, imports stood at 24.1 MMT, lower 10.02% MoM due to easing power demand in the Monsoon season, but up 45.5% YoY.

Thermal coal imports growing

India has witnessed firm economic activity as well as an intense heatwave this year, which has fueled higher electricity demand. Consequently, thermal coal imports have been up 9.5% YoY, totaling 101.3 MMT so far in 2022. India’s coal-fired power generation capacity is the second largest in the world at approx. 204 GW. This equates to a daily coal requirement of 2.8 MMT, according to the Central Electricity Authority (Ministry of Power). Despite the central government’s drive to make India self-sufficient for thermal coal, utilities have looked to import more volumes even with high international prices, as domestic production has struggled to keep pace with growing demand. Lack of supplies was among the key reasons for acute power cuts in April-May during the peak of the heatwave. Moreover, almost all coal-fired power plants have lower than required stock levels. This has pushed the central government to direct Coal India (state-owned coal miner) to import 12 MMT of coal during July 2022-July 2023. This would be the first coal imports by Coal India since 2015. As of 2nd August, total coal stock at all power plants stood at 30.2 MMT or 10.9 days’ worth of consumption, compared to a stipulated requirement of three weeks’ worth. This is up sharply from a few months ago. Total coal stocks were 22.0 MMT as of 1st May.

Coking coal shipments facing headwinds

In contrast to thermal coal, India’s coking coal shipments have been on a decline this year despite the government’s initiative to cut the 2.5% import duty to zero in May. The country’s domestic coking coal production has increased this year, keeping a lid on import volumes. According to provisional data from the Ministry of Coal, coking coal production stood at 28.4 MMT in 1H 2022, compared to 21.3 MMT during the same period last year. On a monthly basis, this equates to 4.7 MMT in 2022, compared to 3.4 MMT/month in 2021. Imports were down to 3.9 MMT in July, lower 61.7% MoM, and the lowest monthly total since July 2020. Overall, shipments have totaled 35.6 MMT for the first seven months of the year, down 9.2% YoY.  Demand for this grade of coal has been strong with healthy domestic steel production, supported by infrastructure and construction sectors. According to Worldsteel, India’s crude steel production stood at 63.2 MMT in 1H 2022, up 8.8% YoY.

Indonesian and Russian volumes grow

Indonesia has recaptured its top spot in the Indian coal market, accounting for 48% of imports in 2022 YTD compared to 35% last year. Shipments have totaled 65.4 MMT during January-July 2022, up 38.8% YoY. Volumes have grown steadily since February, after Indonesia’s ban on coal exports in early January, which was redacted later in the month. Russian coal shipments to India, albeit a meagre 5.5% share of total volumes, have grown sharply by 73.6% YoY to total 7.5 MMT. While several buyers have shunned Russian commodities due to the war and strict sanctions, India has looked to take advantage of lower Russian coal prices and has imported more volumes. This trend can be expected to continue in coming months, considering EU’s ban on Russian coal coming into effect from 10th August. Meanwhile, Australia’s share of the pie has shrunk this year as exporters have struggled to maintain volumes due to heavy rains and floods in key mining regions of New South Wales and Queensland. Australian volumes to India have declined by 29.4% YoY to 33.5 MMT in 2022 YTD. This amounts to 24% of total Indian imports. Interestingly, last year Australia held the largest market share in India at 36% as exporters were looking to diversify once China imposed an unofficial ban on Australian coal in late 2020. Lastly, Indian coal imports from South Africa (10% share) and the USA (6% share) have also declined this year, by 17.8% and 20.3% YoY, respectively.

Capes gain

India’s growing appetite for coal has greatly benefitted the Cape segment in 2021 and 2022. For both these years, imports on Capes have been at about 47% of total, compared to 35% in 2019 and 33% in 2020. Indonesia, Australia, and South Africa have been the largest source of Cape shipments during January-July 2022, amounting to 30.4, 13.2, and 9.9 MMT, respectively. Combined, this was 83% of total imports on Capes. Panamax (incl. Kamsarmax) has been the next preferred segment with 36% volumes shipped on this size so far this year. Shipments on Supramaxes were 15.4% of total, whereas Handysizes had a small contribution of 0.4%. With the rainy season bringing a much-needed respite from the intense heatwave and predictions for lower than previously expected economic growth, India’s coal requirement is likely to ease in the coming months. In its latest WEO report, the IMF forecasts India’s GDP to grow by 7.4% in 2022, down from its forecasts of 9.0% in January and 8.2% in April. Though Indian buyers may face intense competition to secure cargoes from major coal exporters, particularly Indonesia and Australia, as many countries are progressively moving away from Russian coal, they may get lucky in securing more Russian volumes at a steep discount.

While gas and oil might have garnered more headlines, the commodity that has seen the greatest changes in seaborne trades and volumes this year in the wake of the invasion of Ukraine looks like being coal. The price of coal has tripled this year and old mining communities have been resuscitated as Europe seeks alternative energy supplies outside of Russia.

The International Energy Agency (IEA) is now predicting an all-time-high coal demand this year of about 8bn tons after an increase in requirements last year of 5.8% year-on-year. This comes despite projected negligible growth in seaborne imports into both China and India with both countries ramping domestic production a great deal this year. “The global total would match the annual record set in 2013, and coal demand is likely to increase further next year to a new all-time high,” the IEA’s latest Coal Market Update said. Meanwhile, the full ban on imports of Russian coal into the European Union is only days away, with the competition for alternative sources set to continue to increase.

“The continued problems with the flows of Russian natural gas through the pipelines to Europe are also contributing to European demand for the dirtiest of fossil fuels increasing,” chartering platform Shipfix noted in a recent markets report. An untypical spike in discharge volumes in the Antwerp Rotterdam Amsterdam (ARA) zone saw the number of ships waiting to discharge hit a six-year high at around 120 by early June, according to data from BRS. “While it had a sharp correction subsequently, there’s a high chance of the phenomenon reoccurring again as Europe braces itself for the upcoming winter ahead while weaning off its structural dependance on Russia’s fossil fuels,” BRS forecast in a new dry bulk report.

It is not only Europe that is looking to replace its imports of Russian coal. Japan, one of the world’s largest importers of the commodity, has seen dwindling cargo order volumes for coal originating in Russia in recent months, according to Shipfix, who noted: “The development will add to the growing global competition for non-Russian coal, with prices likely to continue on an upward trajectory.”

The most recently released data as of July 31^st July shows that daily coal burn rate at China’s six major coastal power plants has come in at 895,000 tons.  This is down week-on-week by just 1%.  Previously, coal burn had set records for two consecutive weeks.  Despite not setting another record, the 895,000-ton daily burn is still up year-on-year by 12%.  Overall, 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.  China still remains fairly well supplied with thermal coal, however.