The most recently released data as of July 24th shows that daily coal burn rate at China’s six major coastal power plants has come in at 904,000 tons.  This is up week-on-week by 1%, is up year-on-year by 12%, and marks a second consecutive week where a record has been set. 

As we have been discussing in our work, 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. 

As we stressed last week, China’s surge in coal burn is encouraging and if sustained could finally result in a rebound in Chinese coal import demand.  Up until recently, import prospects were not bullish, but such strong coal burn will continue to help deplete coal stockpiles.  Going forward, we will be continuing to monitor all relevant developments closely and will be continuing to publish updates.

Those involved in the global transport of grain are watching the port of Chornomorsk, southwest of Odesa, closely today, looking for signs of shipments resuming across the Black Sea. The port is located on the northwestern shore of the Black Sea at the Sukhyi estuary, some 30 km from Odesa. It is the fourth largest port in the country, capable of handling ships up to 239 m in length with a maximum draught of 13.1 m. All Ukrainian Sea ports have been closed since Russia invaded on February 24, however preparations are now underway to get last year’s harvest moving following a deal signed in Istanbul last Friday between Russia and Ukraine to establish a safe corridor to the Bosporus.

“We believe that over the next 24 hours we will be ready to work to resume exports from our ports. We are talking about the port of Chornomorsk. It will be the first, then there will be Odesa, then the port of Pivdeny,” deputy infrastructure minister Yuriy Vaskov told a news conference on Monday, saying that a first shipment could be made this week. “In the next two weeks, we will be technically ready to carry out grain exports from all Ukrainian ports,” Vaskov said.

The United Nations (UN) is heavily involved in the operation to move the much-needed grain out of the war-torn country. The first ships may move from the country’s Black Sea ports within a few days, said deputy UN spokesperson Farhan Haq. Details of the procedures will soon be published by a joint coordination centre in Istanbul that is liaising with the shipping industry, said Haq.

Data from shipping analytics platform Sea/ shows there are currently 10 bulk carriers marooned at the port of Chornomorsk including the Emmakris III with no indications that any other ships are making their way there now. At issue remains the safety of the region, strewn with mines, and insurers’ willingness to cover ships making voyages in the high-risk Black Sea. Confirmed mine clearances and trial voyages are deemed as necessary before insurers take on the risk.

Crewing issues to move out ships that have been trapped at these ports could be resolved soon. There are some 85 foreign cargo vessels sitting at Ukrainian ports, mainly abandoned with crew repatriated. To resolve the manpower shortage, Ukrainian politicians are expected to allow local seafarers to return to working on ships, having previously been forced to sign up for military service in the ongoing six-month conflict.

“While there remain some concerns around implementation, and there are a range of scenarios around how quickly exports may ramp-up, the deal [signed between Ukraine and Russia last Friday] should facilitate some increase in shipments from Ukraine, helping to free up storage space (already largely full with last year’s crops) ahead of this year’s wheat and corn harvests which are due in the coming months,” Clarksons noted in its most recent weekly report.

The dry bulk market is still going strong, despite the threat of a looming global economic slowdown that could curtail demand, according to analysts. That is because fleet constraints are very much part of the dynamic influencing the market. While rates were under pressure because of current sentiment, strong fundamentals would prevail, according to Berge Bulk chief executive James Marshall. “While we are conscious of the negative macro-sentiment, we are still positive [on the market], due to the fundamentals in the second half of the year, leading to much stronger rates,” he told Lloyd’s List. The Singapore-based owner was particularly positive about the capesize market, based on the expectation that about 40 MMT of additional iron ore will be shipped in the second half of the year compared with the first six months, even as Brazil’s mining giant Vale revised down its full-year production estimate. Other supportive factors include continued congestion, although easing of late, coronavirus-related delays, anticipated weather disruptions and high fuel prices causing a slowing of the fleet, he said.

“There may be some negativity for minor bulks given the close link to GDP but increasing infrastructure stimulus will help support the market”, from China, in the near-term, and over the longer term, the US, he said. “In the medium term a constrained supply of newbuildings as yards are busy with LNG and containership orders, plus increased supply of commodities (particularly new iron ore), leads to a positive medium-term picture.” In response to recent news about China’s potential lifting of its ban on Australian coal, Mr Marshall said that a “better relationship is positive for trade” even if it could mean revised trade patterns. “If China sources more Australian coal again, other countries could go further afield, so there would be a ripple effect on tonne-mile demand.” Meanwhile, the emergence of a grain corridor from Ukraine will be positive for the dry bulk market, he said. “While extra tonne-miles and logistical issues could ease, we expect these to remain difficult for the medium term.”

Arrow Shipbroking, in a research note focused on the supramax segment, said that its models do not yet point to a strong bearish change in the market dynamics, although the third quarter of the year so far is showing mixed readings, with a tonne-mile drop partially offset by congestion. The drop in tonne-mile demand has come from the major bulks such as iron ore, coal, and grains, while the slowdown in the minor bulks have yet to materialize significantly, it said. However, steel trades, especially long-haul, could be hit, with a “pronounced impact” on the supramax segment as it is the third-most important commodity for this asset class. “Lower European steel consumption, a weaker euro, and an uptick in Chinese demand over the coming months point to a looming contraction in the seaborne steel trade,” Arrow said.

Global steel output declined 5.9% to 158.1 MMT in June versus the same period a year earlier as all regions registered a drop, the latest statistics from the World Steel Association show. India was the only leading country to note an increase. China’s decline was less acute than in many months, dropping 3.3% to 90 MMT in June, while the six-month figure shows a decrease of 6.5% compared with the same period last year. Meanwhile lower commodity prices are indicative of demand coming under pressure, according to London-based consultants Maritime Strategies International, with average freight rates between July and December at 20% below levels a month ago based on Forward Freight Agreement contracts. “Signs are mounting to suggest a global economic downturn will stifle demand for other goods including minor bulk,” it said, adding that although supramaxes should get support from grains, rates could soften because of strong near-term vessel deliveries. It thus expects spot rates around the $20,000 per day mark in the fourth quarter of the year. Similarly, daily handysize rates could weaken to less than $20,000 by the end of the year and $15,000 by the first quarter as inefficiencies ease, presenting downside risks for 2023, MSI said in a report. Another factor to consider is falling container rates, which could be bearish for bulkers. “The loosening of some containership market balances would also ease demand for bulkers to carry container cargoes if the downward movement in rates can be maintained,” ship brokerage Simpson Spence Young said in a half-year review.

Dozens of ships could remain stuck in Ukraine’s ports because of seafarer shortages even after a deal was struck with Russia to restart grain exports, a crewing manager said on Monday. The key problem is the continuing ban on domestic seafarers aged 18 to 60 from leaving Ukraine, said Henrik Jensen, the owner of Eastern Europe crew manager specialist Danica Maritime. Jensen said overseas replacements will be unwilling to travel to a war zone following weekend missile strikes by Russian forces on the port city of Odesa. “To get the ships moving again, we need the Ukrainian government to open up the seafarers to leave the country,” said Jensen, whose Germany-based company has 1,200 Ukrainians on its books. “The Ukrainians are ready to fill these ships as soon as they give the green light.”

He said the authorities were concerned that a martial law waiver for seafarers could lead to false claims from other Ukrainian men desperate to leave the country. A Turkey and United Nations-brokered deal on Friday last week prepared the way for sea corridors that would allow escorted convoys to resume grain exports from the three key Ukrainian ports of Odesa, Chornomorsk and Yuzhny. The UN described it as a “de facto ceasefire” agreement while ships bring out the grain under escort to stave off a global food crisis.

The International Chamber of Shipping (ICS) said that 400 bulkers would be needed to bring the estimated 20 MMT of grain out of the country. The Ukrainian Seaports Authority has called for applications to join the convoys to export some of the 20 MMT of grain to clear space in storage for Ukraine’s new harvests. Ukraine said Russian missile strikes on Odesa at the weekend did not hit the port’s grain storage area and that plans to resume shipments were continuing. It was not immediately clear when the exports would restart. TradeWinds has identified some 50 non-Ukrainian or Russian ships of over 10,000 dwt currently stuck in ports. ICS officials say total crew numbers have been cut from 2,000 to a skeleton of 450 for safety reasons but bring new problems of how to recrew the vessels. “I don’t suppose too many want to come to a war zone,” said Jensen, who said he had already been approached by shipowners of vessels stranded in the ports for experienced seafarers.

He said that new crew would likely be brought overland from Romania or Poland to Odesa because of war-related travel restrictions. Ukraine supplies about 5% of the 1.89m global seafaring workforce but most of them are trained officers. The Seafarer Workforce Report of 2021, published by trade associations Bimco and the ICS, had already warned of a shortfall of about 26,000 officers over the next four years. Kuba Szymanski, the secretary general of InterManager, which represents the ship-management industry, said he believed that any crew shortfall would be filled by non-Ukrainian seafarers. He said there were no issues over crewing for ships travelling through piracy hotspots off the coasts of Nigeria and Somalia.

Issues still needed to be resolved over the safety of ships and the willingness of Russia to abide by the agreement. But he added: “If the corridors are open, there will be ships and people who will go there.” Crew transfers did not normally happen in Ukraine and the stranded vessels could be recrewed by seafarers arriving by ship from Istanbul, he said.

Many analysts have been suggesting container shipping’s boom period is ending, pointing to myriad freight indices that have been in retreat for months. However, no one seems to have told tonnage hungry boxline operators who continue to snap up ships in high volumes and at incredible prices. There is a “startling” amount of secondhand containership business now, according to a new report from brokers Braemar.

Braemar reports in its latest weekly container shipping report on speculation that a fleet of up to six vessels all with deliveries next year sized between 2,500 and 7,000 teu have been sold to a major Europe-based liner company.

Mediterranean Shipping Co (MSC), which has bought more than 200 secondhand ships in the last 24 months, is tipped to have bought a pair of 9,400 teu ships, while CMA CGM has paid a firm $75m for a nine-year-old, Chinese built, 3,756 teu ship called Cap Capricorn, a vessel that would have cost less than one-third of the price when brand new in 2013.

Feeder ships also continue to change hands with Vietnamese interests snapping up the 14-year-old, 1,708 teu A Roku for $30m.

“All deals mentioned are transactions at still astonishingly high levels, so for all the talk of freight rates falling, interest rates rising and life generally about to become more difficult, the liner operators see something others cannot,” Braemar stated, going on to suggest that with prices at these levels more sellers may appear in the coming weeks.

Consumer spending in China finally experienced year-on-year growth in June rising by 3.1%. Previously, spending had contracted on a year-on-year basis for three straight months. As we have continued to stress in our work, coronavirus cases and restrictions eased significantly in June, and this has helped allow consumer spending to finally experience growth again.

Last week, I wrote about the European heatwave, with a focus on the U.K. But there’s a mind-blowing detail that only just came to light.

As reported this morning by Bloomberg, London avoided blackouts last week by briefly paying an astonishing $11,700 per megawatt hour—over 5,000% more than the regular spot price—for electricity sent over from Belgium.

There are two underlying problems here. The first is the climate emergency, with the extreme weather it increasingly generates. The other is underinvestment in the power grid—which is far from being a particularly British issue.

For this South African, it feels like developing-nation problems are starting to cross over into the more industrialized world—though there’s a heck of a way to go yet.

Back home, the state power utility Eskom operates a rickety grid that makes rolling “load shedding” blackouts a daily reality. There, it is pretty much essential to install an unofficial app on your phone (EskomSePush: a quite amusing name that I sadly cannot explain in a family-friendly newsletter; rest assured it’s not flattering to Eskom) that informs you of the timing and severity of your area’s scheduled blackouts. Eskom’s near-failure weighs very heavily on the South African economy and its public debt.

Europe obviously isn’t anywhere near that sort of crisis, but recent events have shown it is not immune.

Russia may not have realized Europe’s worst energy fears by turning off its gas supplies entirely, but the artificial constraints it is imposing on those flows have already forced the German government to bail out local energy giant Uniper, to the tune of $15 billion. And a more serious disruption could yet come; Greece is the latest country to unveil a contingency plan for that eventuality that would include rolling blackouts in the worst case.

Again, Europe’s power grids aren’t about to fall apart. But the days of taking electricity for granted 24/7 may be numbered.

For the second time since April, Ukrainian president Volodymyr Zelenskyy has attempted to whip up public opinion against seaborne Russian oil exports — particularly the Greek tankers that carry a lot of it. “We see Greek companies providing almost the largest tanker fleet for the transportation of Russian oil,” Zelenskyy told an Economist conference in Athens on Tuesday, speaking via weblink. “I am sure that this does not meet the interests of Europe, Greece, or Ukraine. This is just one example of the need for even greater unity, so that Russia is forced to seek peaceful solutions.”

Greeks are the world’s single biggest tanker owners and were the most active transporters of Russian oil even before the invasion of Ukraine in February. Their market share has increased since, according to several market observers, as several Western shipping companies’ self-sanction from the trade — for moral reasons or to avoid bad press in their countries. Seven of the nine owners whose vessels made multiple deliveries of Russian crude to India in May were Greek, according to data from the Finland-based Centre for Research on Energy & Clean Air. “What’s really shifted are these loads to India and the Middle East, which didn’t effectively exist before the war started,” said the center’s lead analyst, Lauri Myllyvirta. “The capacity to run those trade routes has been predominantly provided by the Greeks.”

Ukraine’s foreign minister, Dmytro Kuleba, also took a sideswipe at Greek tanker owners in an interview with website LB.ua, saying they are “basically pulling Russia out of the oil embargo. I urge partners: restrict Russia’s access to their services and deplete Putin’s war machine,” he later said on Twitter. Asked to comment on Zelenskyy’s statements later in the day during the conference, Greek owner Evangelos Marinakis said Greek oil transports are in line with current European Union sanctions that allow Russian crude imports until the turn of the year. Repeating a point he made last month, the Capital Maritime & Trading chairman said Europe’s dependence on Russian oil cannot be overcome overnight. “What the Greek tonnage is transporting is oil that has been already contracted and is fully approved by the EU,” he said. “It’s something that our countries desperately need. It’s not like we’re violating any law or any embargo — it’s something that is needed and thank God we’re here to provide stability.”

His statements are in line with remarks made by Melina Travlos, head of the Union of Greek Shipowners, at Posidonia last month. Marinakis urged European politicians to look for “radical steps” to settle the conflict. “We should see more initiatives from the politicians in Europe to find a solution for peace. We see record oil and gas prices — our economies can’t hold on for a while longer,” he said. Speaking at the same conference, fellow Greek owner Angeliki Frangou beat the same drum. “Governments do the policy, and they create the trading patterns … [they] make the rules, we follow them,” she said. The Navios Maritime Partners CEO also criticized the confusion created by media reports about another Greek tanker allegedly carrying sanctioned oil, which in the end turned out to have been sanctions-compliant crude from Kazakhstan. “It was frontline news in The Wall Street Journal. Suddenly it was considered illegal. There was nothing illegal. It was totally legal oil coming into the US,” she said.

Speaking about Ukrainian grain exports and the global food crisis their collapse may cause, Frangou is optimistic that the situation can be rectified quickly once the conflict is resolved. “The good thing is, disruption of grain supplies can recover in a couple of crops,” she said. “I’m always optimistic that this will happen.”

Keeping the lights on has become a top priority for many countries as the impact of Russia’s invasion of Ukraine extends across the global energy market and the world economy. Fundamental changes in long-established dry bulk movements provide a timely barometer of shifting trade patterns, presenters at a S&P Global Commodity Insights webinar revealed earlier this week.

Shriram Sivaramakrishnan, managing editor APAC Dry Bulk Freight Market, outlined some of the challenges and opportunities faced by dry bulk operators. Against strong headwinds including the economic impact of the pandemic, rampant inflation, climbing interest rates and the increasing cost of capital, there were mixed signals across the sector, he said.

Europe’s growing energy crisis had led to an increase in European coal imports from the US and other long-haul exporters, with planned coal-fired power plant shutdowns being delayed or reversed. This has provided some support for the Capesize sector, he said, which had been hit by lower iron ore imports in China. However, European demand for coal had resulted in more Capesize cargoes and a significant number of open Capes in the north Atlantic. This peaked in late April and May but is still evident, he said, and the Capesize sector remains under some pressure.

Rates in the supramax sector had recovered quickly following a decline over the first quarter, partly a result of Indonesia’s coal export ban. When it was lifted, a scramble for supramax tonnage was heightened by higher coal prices and a move to smaller cargo consignments. Meanwhile, a significant number of panamax vessels hit by the Indonesian coal ban ballasted from the Pacific to Brazil to service an earlier-than-usual grain harvest.

Following the steep decline in grain exports from Ukraine and Russia, Brazil and China had signed a 4 MMT deal for 2022, following only a couple of cargoes last year. Much higher prices would have an impact on animal feed, however, ultimately filtering through to higher meat and food prices, Sivaramakrishnan warned.

Freight Analytics Lead, Andrew Scorer, noted that the many uncertainties in today’s dry bulk sector raise the challenges of forecasting. The spiraling cost of fuel was now a major concern for ship operators who were aiming to minimize ballast hauls and cut ship speeds, he said. They would also choose the cheapest possible fuel, he said, opting for very low sulphur fuel oil over LNG for dual-fueled ships amid spiraling gas prices.

Meanwhile, imminent carbon efficiency regulations pose serious questions for operators. With a range of possible fuels under development, the technology options generate more uncertainty and could well be a constraint on bulk carrier contracting. The orderbook represents less than 7% of the existing fleet. Fuel choice might depend on geographical ship deployment in the future, he said, but availability is not there today. Although the development of alternative fuels will inevitably continue, the analysts do not expect many changes in the overall marine fuel picture by 2030.

European ban looming

With the European coal ban set to be implemented on August 10th, we look at how the seaborne coal market will develop going forward.

Exports to Europe slowdown

Since the initial rush in coal ordering by European buyers in March shortly after the Ukraine-Russia war commenced, volumes discharging at European ports have declined each month. In June, only 7.9 MMT of thermal coal landed in Europe, declining by 19.1% MoM, but still more than double YoY. Additionally, thermal coal loadings to Europe declined by 22.3% YoY, in part due to the uncertainty over the deliveries from the Nord Stream 1 natural gas pipeline, which some think will get back to full capacity.

Much of this can be attributed to the sharp decline in imports from Russia which several utilities in Europe started avoiding almost immediately in March. Russian liftings into the bloc continued while power stations looked to secure supply from elsewhere, but so far alternate producers have not made up for the additional volumes. There is also the issue of storage at ports in the ARAG region. Coal storage is at extremely high levels and is now being extended to areas allocated for iron ore, for example. Buyers are struggling to get the coal in-land to power stations by river as the recent heatwaves continue to reduce water levels on the Rhine. In the past couple of days, these levels have reduced further, with some vessels reportedly only loading to 30% capacity depending on their destination. This brings the prospect of continued vessel pile ups at ARAG ports, worsening bottlenecks.

Short-term decline in Australian liftings

Heavy rainfall in eastern Australia has caused a backlog in shipments from the region, particularly the port of Newcastle, Australia’s largest coal port. Newcastle is currently operating under freshwater conditions due to run-off from the flooding on-land and thus loading has largely been limited to Panamaxes, with any Capes scheduled to load currently waiting in anchorages until it is possible to fully-load. Current weather forecasts from Reuters suggest the rain will continue into next week before easing off. From a European import perspective, delays could cause a burst of arrivals and add to further bottlenecks on the European end.

Potential lifting of China-Australia coal ban

With reports circulating that the Chinese government is considering ending its unofficial ban on Australian coal, it seems the benefit lies predominantly in metallurgical (met) coal. In the twelve months before the ban was enforced, China imported an average of 4.6 MMT of thermal and 3.6 MMT of met coal from Australia. Since then, China’s met coal imports have significantly declined compared to a sharp increase in thermal imports, averaging 2.7 MMT per month. In 1H22, the country imported just 11.6 MMT of met coal, declining by 35.8% YoY. Naturally, the decline in met coal imports has come in tandem with declining steel production and expanding domestic coal production. Most of the imported volumes since the ban was implemented have been sourced from Russia, Canada, and the US, though volumes from the US and Canada are very limited as miners in these countries are at full capacity. With Chinese steel demand growing weaker and profit margins at steel mills largely diminished, acquiring cheaper inputs would relieve some of the pressure on Chinese steelmakers. As of today, premium Australian met coal prices present a $113 discount to domestic prices in China.

As the Chinese government continues to try and revitalize its economy through infrastructure-focused stimulus packages, easing strains on one of its largest industrial sectors is likely of high importance. This incentivizes cheaper Australian met coal because it improves margins, particularly as iron ore prices have moved higher this week on supply concerns.

Unlike met coal, Newcastle thermal coal prices are trading at a considerable premium to all alternative coal suppliers, given Europe’s rising demand. This of course lowers the incentive Chinese buyers have towards buying Australian thermal coal. 2021 was a strong year for Chinese thermal coal imports, averaging 23.4 MMT per month versus just 18.9 MMT in the twelve months before the ban. Inventories at Chinese power stations are at healthy levels, with an aggressive relaxation of Covid policy the most likely event that would see energy use rise dramatically and these stockpiles diminished. In 1H22, however, thermal coal imports have declined by 31.1% to 92 MMT. As is widely known, strong domestic thermal coal production in China, and cheaper alternatives such as Indonesia, indicate there is little reason to believe Australia-China thermal coal shipments will recover to near pre-ban levels.

In the event China does lift the unofficial ban on Australian coal, we see this starting as primarily a met coal trade given the price incentive for Chinese buyers. As a result, we can expect the longer thermal coal voyages out of Australia to continue, such as to Europe, while more met coal is exported to China simultaneously. On thermal coal, if China did opt to import more from Australia, some of these volumes are likely to replace liftings from Indonesia, which again results in longer voyages.

India importing more Russian coal

In June 2.7 MMT of coal was lifted on bulk carriers from Russia to India, by far the largest monthly total on record. India has shown a clear willingness to buy Russian coal and given the heavy discounts it will achieve compared to other suppliers, we expect this to continue and likely continue to increase. In the event India does continue to import Russian coal at these levels, or even higher, this does free up volumes in Indonesia, Australia, and South Africa for other buyers, such as Europe and South Korea.

While the EU, South Korea and others are actively shunning Russian coal and looking for substitutes, we believe the longer coal voyages will continue, albeit with increased competition. The fact that several major buyers are not sanctioning Russian coal and are importing more from the country frees up volumes for the longer voyages into Europe. This would more than offset the shorter voyage from Russia to India.