In the first five months of 2022, South Africa exported 29.4 MMT (+2.7 MMT/+10% y-o-y) coal. With a total ban on Russian coal imports to Europe imminent, South Africa is benefiting from buyers of coal from the Continent and Mediterranean competing for its high-quality thermal coal. Coal prices in South Africa have maintained an upward trajectory as exports to the Continent/Mediterranean/North Africa have soared from a mere 0.2 MMT (all to the Netherlands) in the first five months 2021 to 6.1 MMT in the corresponding period this year. So far this year Netherlands has imported 1.8 MMT but a raft of other countries have bought from South Africa for the first time in many years. Perhaps the most eye-catching is Morocco (1.6 MMT) but France and Italy both 0.6 MMT as well as Germany (0.4 MMT), Spain (0.3 MMT), Belgium (0.3 MMT) and Poland (0.2 MMT) are actively purchasing South African coal.

To illustrate the change in coal purchasing patterns, China has stepped back from buying product from South Africa; last year China (as South Africa’s third largest market) imported 6.6 MMT coal and to date remarkably has not purchased a single tonne of South African coal. In addition, South Africa’s second largest export market, Pakistan (12 MMT in 2021), has significantly reduced cargo inflow at only 2.3 MMT to date down 3.4 MMT (-59%) y-o-y for the first five months, preferring instead to buy much cheaper coal overland from Afghanistan which at present exports 0.6-0.8 MMT per month overland to Pakistan.

India remains South Africa’s principal export market with shipments in the five months to date down only 0.5 MMT y-o-y at 11.5 MMT, though with Transnet, South Africa’s rail operator suffering from several logistical challenges through cable thefts and industrial disputes, some smaller South African coal producers are now looking to export out of Mozambique thus boosting coal shipments to this neighboring country from minimal quantities in the early part of last year up to 2 MMT to May this year, catapulting Mozambique to South Africa’s third largest market! Exports to South Korea at just below 2 MMT and Taiwan at 0.9 MMT are also significantly ahead of where they were last year after five months to both countries.

The increase in South African backhaul coal exports has also led to more cargo shipped in larger tonnage with Capesize shipments in the five months to date up 2.4 MMT (+16%) y-o-y at nearly 17 MMT; shipments in Panamax tonnage have also doubled at 4.7 MMT at the expense of the Ultra-Supramax sector, down 2 MMT y-o-y at 2 MMT. Larger cargo stems have reduced the number of stems from South Africa though not it seems congestion at Richards Bay which remains high though with more tonnage generally coming open in the Atlantic, 2022 has been notable for less imbalances of tonnage thus the outbound premiums in most vessel sectors have

gradually been eroded as the year has progressed.

A post-pandemic recovery in volumes is proving more elusive than we expected, but a constrained fleet-growth outlook still means the underlying market balance looks set to improve until 2025e. Along the way, roughly 5% excess congestion needs to be ‘consumed’, aided by higher fuel costs and regulations capping sailing speeds. Rates should stay elevated in a historical context, paving the way for solid shareholder returns.

Dry bulk supply growth constrained to 2.0% for 2022–2025e. We forecast fleet growth to average 1.8% in our forecast period, as the orderbook-to-fleet ratio remains at a record low of 6.9% and contracting is subdued. However, we expect congestion – at close to 10% in 2022e – to revert towards the historical 5% over the next 12 months, albeit partly offset by increased fuel costs and lower speeds. Hence, we forecast dry bulk shipping supply to average 2.0% in 2022–2025.

Demand growth of 2.2% for 2022–2025e. The expected recovery in demand volumes post-pandemic has been muted due to the ongoing conflict in Ukraine, further Covid-related lockdowns in China, a generally deteriorating macro-outlook and recession fears. However, we still expect demand to outpace the limited supply growth and see a strong H2 2022 and 2023 as drivers of continued strength.

Another week, another popular uprising.  While last week it was Libyans literally storming their parliament and burning offices there — all while chanting “we want the lights to work — this week it has been Sri Lankans storming their presidential palace after months of food shortages, fuel shortages, and rolling blackouts.  The people have ransacked the palace, enjoyed swimming in its palatial pool, and their prime minister has announced he will be stepping down. 

The Northern Hemisphere summer is not yet three weeks old and already one nation’s parliament has been torched and another nation’s presidential palace has been taken over by its people.  Going forward, we continue to anticipate that all of us will end up living through a wild Northern Hemisphere summer that we might never forget. 

A week ago, we discussed how sentiment and prices in the energy markets at the time had cooled, and that we were of the view that sentiment and prices would very soon heat up again.  Energy prices have ended up rebounding as we anticipated, and we expect more strength will be seen in the months to come.  We also expect that citizens in several other nations will end up taking similar actions as seen recently in Libya and Sri Lanka — and if having to guess, we believe that the next popular uprising could occur in Guinea, Kenya, or Ghana.  Our upcoming Weekly Dry Bulk Report will also discuss some of the latest issues arising in much more stable European nations including Germany and the Netherlands.  Overall, the global food and energy crises continue to affect both relatively poor and relatively rich nations alike.

Running ships entirely on green hydrogen-based fuels would add less than €0.10 ($0.10.5) to the price of a pair of trainers and up to €8 for a refrigerator, a new study on the cost of decarbonizing European shipping shows. The analysis of shipments from Shenzhen in China to Europe was carried out by NGO Transport & Environment (T&E). Faig Abbasov, shipping director at T&E, said: “Green shipping would add less than 10 cents to a pair of Nikes. This is a tiny price to pay for cleaning up one of the dirtiest industries on earth. In a year where shipping companies are making bigger profits than Facebook, Google, Amazon, and Netflix combined, it is right to question whether shipping companies are doing enough.” The study shows that even in the most extreme case of a ship running on 100% green fuels, prices would not rise significantly. In the worst-case scenario, shippers would face increased transport costs of 1% to 1.7%. However, on an itemized basis, the price of consumer products would barely budge, the study maintains. A pair of trainers would cost just €0.003 more, a television €0.03 and a refrigerator up to €0.27 more. The cost increase calculations are based on different hypothetical fuel mixes for a container vessel that sails between China and Europe. Data is obtained from the satellite-based automatic identification system (AIS) and cross-checked with the EU MRV database.

Abbasov concluded: “A decade ago, the only hope of decarbonizing shipping was halting global trade itself. Now we have the technology, but what is lacking is a market signal for green hydrogen producers. As a world leader in shipping, the EU should set an ambitious green e-fuel mandate that guarantees hydrogen fuel suppliers a market. Green shipping is possible. It is a question of political will.”

Touching on the same subject last year was Soren Skou, the CEO of A.P. Moller-Maersk. Interviewed by the BBC, the Maersk boss acknowledged the shipping industry would have to spend billions of dollars transforming the global merchant fleet but the cost for the end consumer would be minimal. “It would in a container with sneakers from Vietnam, translate into something like six cents per pair of sneakers. So, I don’t think that it will really impact the consumption opportunities for consumers out there,” Skou told the BBC.

Markets reacted joyously to the Fed’s expected rate hike Wednesday amid more news running counter to the predominant recession-is-looming narrative. The US economy managed to expand in the second quarter despite high inflation and central bank tightening, avoiding even the “technical” appearance of a downturn. Fed Chair Jerome Powell, speaking after the rate increase was announced, said a similar move was possible again and rejected any recession speculation. “Demand is still strong, and the economy is still on track to continue to grow this year,” Powell said.

Spot rates for supramax bulkers heading to and from east coast of South America continued to fall on Thursday as south Atlantic fixture activity stayed modest because of meagre demand. The rate for the Baltic Exchange’s supramax S9 route, which ships cargo from West Africa to Europe via South America’s east coast, reached its lowest point since mid-May, losing $343 on Thursday to land at $23,469 per day. “The overall sentiment in the South Atlantic market is bearish,” broker Barry Rogliano Salles (BRS Group) said in a report. “We see more and more ballasters coming from all over the Atlantic to load cargoes in east coast South America.”

Firm demand for supramaxes heading from West Africa to South America has offset some oversupply off Brazil, BRS Group noted. “For ships in West Africa, South Africa remains the most attractive area, which removes a couple of potential ballasters going to East Coast South America.” Supramaxes travelling from east coast of South America back to Europe are earning around $30,000 per day, but ultramaxes sailing to the Far East are making about $18,000 per day with $800,0000 ballast bonuses.

“Despite the mixed signals received from the market, unfortunately the overall sentiment is negative,” BRS Group said. “The number of spot ships are increasing and unless they are taken by new cargoes, we expect to see more downward trend of the market for the next couple of days.” The North American supramax market is also flat because of supply outweighing demand. “There are quite a few forward grain fronthaul cargoes, but currently there is a big gap between bids and offers,” BRS added. Fourth of July celebrations also contributed to limited supramax fixtures in US waters of the Gulf of Mexico. “We are starting to see a little bit of life returning to the market with rates moving slightly up from last done to around $26000 per day for fronthaul and trips across at around $25,000 per day on big supramaxes,” BRS Group said.

An ultramax off the east coast of South America was rumored to have been placed on subjects for a trip from Itaqui, Brazil, to Aqaba, Jordan at $34,000 per day, but no further details surfaced, according to Baltic Exchange analysts. “Another limited day with little fresh information surfacing,” they wrote on Thursday. “Overall sentiment remains flat from many areas in the Atlantic, but some brokers said demand remained from the US Gulf, although little fixing surfaced.”

US owner Eagle Bulk Shipping has seen its share price plummet 46% in a month, but analysts see little risk to its equity. Fearnley Securities called the stock plunge a “massive sell-off”. The shares had been trading at $78 in June, but closed in New York on Wednesday at $42, down 7% in a day. Current pricing implies a market cap of $691m versus a scrap net asset value (NAV) for the fleet of $114m, based on a conservative recycling price of $450 per ldt, the investment bank calculates. This leaves a residual value of only $577m to be covered by cash flows over the coming years, analysts Oystein Vaagen, Erik Gabriel Hovi and Ulrik Mannhart said.

A total of $275m of debt is already accounted for in the scrap NAV assessment, so Fearnleys is using a cash breakeven figure of $10,000 per day. This implies Eagle’s 53 vessels only need to manage earnings of $13,000 per day on average for the next 10 years to cover the current residual value. The investment bank has a “hold” rating on the stock.

The company is a panamax and supramax specialist. Panamaxes were quoted at $21,260 per day on Thursday, down 3% on the day. Supramaxes were stable at $24,700 per day. In June, Eagle Bulk reached an agreement to sell its oldest bulker and the only one that remained in its fleet from the time of its 2005 initial public offering, shipbrokers said. Eagle offloaded the 55,400-dwt Cardinal (built 2004) “in the high-$15s” to unidentified Chinese buyers, brokers said, referring to millions of dollars.

The price is further confirmation of strong valuations in the secondhand market, although it looked to be slightly below the $16.35m estimate of valuation platform VesselsValue.

Russia was the European Union’s biggest supplier of crude oil in the first six months of 2022, latest statistics show. Between January and June 2022, the EU imported 223 MMT of seaborne crude oil, up 15.3% year-on-year, according to shipbroker Banchero Costa. Seaborne imports from Russia amounted to 59.6 MMT between January and June this year, up 5.5% on the figure seen 12 months ago. This accounted for 26.7% of volumes imported into the EU in the first six months of 2022, ahead of the North Sea with 17.1% and North Africa with 14.6%. In early June, EU leaders agreed to ban the seaborne imports of Russian crude effective 5 December 2022 to punish the country for its invasion of Ukraine. Until then, with no legal impediment to its purchases and few, if any alternatives to Russian crude, analysts say shipments are unlikely to decline significantly.

Shipments from the North Sea were up 27.1% year-on-year to 38.2 MMT, while imports from North Africa were up by 6.1% year-on-year to 32.6 MMT, despite a 14.5% year-on-year decline from Libya. Shipments from West Africa to Europe were up by 33.3% year-on-year to 24 MMT between January and June 2022, while imports from the US surged by 57.5% year-on-year to a new record of 24.6 MMT in the same period. Direct shipments from the Arabian Gulf also rebounded sharply by 31.3% year-on-year to 11.7 MMT, Bancosta said.

Last year, the 27 member states of the EU imported 402.5 MMT of crude oil, up 3.5%, but still well below pre-Covid 19 levels. The previous year imports totaled 388.8 MMT, which represented a net decline of 12.8% year-on-year, compared to the 446 MMT imported in 2019.

Bancosta said the EU has now once again emerged as the world’s largest seaborne importer of crude oil, after having been briefly overtaken by China in the period from 2019 to 2021. Global crude oil loadings were up 11.4% year-on-year at 1.03 BMT in the first half of 2022, well above the 924 MMT in the corresponding period last year, and marginally above the volumes seen in the same period of 2020.

Exports from Saudi Arabia are up 19.2% y-o-y to 169.7 MMT in January to June 2022, almost back to pre-Covid levels, as are Russian shipments, which are up 16.9% to 112.8 MMT. Exports from the US have surged by a further 13.2% year-on-year to a record of 74.2 MMT. However, some suppliers such as Nigeria and Libya are still struggling with supply issues, with shipments down 6.3% to 35.1 MMT and down 21.1% to 20.2 MMT, respectively.

Capesize rates have seen further declines as Brazilian iron ore volumes continued to lag and congestion was seen easing. The average weighted time charter on the Baltic Exchange closed on July 5 at $17,283 per day, down 12% from July 1 and 31% lower than June 20. The spot rates, which have been on a general downward trend since towards the end of May, are trailing the levels seen at this time last year. Capesize loadings from key iron ore ports in Brazil were 21% lower from January-June compared with the year-earlier period, according to Lloyd’s List Intelligence data.

Research from Arrow Shipbroking shows that iron ore trading volumes have dropped by 27 MMT this year, with shorter ballasting distances increasing fleet efficiency. Unwinding congestion to historical averages was thus a drag on earnings, it said in a note. “While the fundamentals have weakened, the capesize market still has plenty of life left,” it said, adding that the upside potential, as the negative factors could easily reverse, was greater than the downside risks related to demand.

According to Braemar, economic sentiment has improved in China, with its manufacturing index back in expansionary territory at 50.2, while steel output showed signs of improving, with May at 96.6 MMT, the highest level so far this year. With an easing of Covid-19 lockdowns, the ship brokerage is thus optimistic that the country’s iron ore demand will continue to rise through the quarter and provide a lift to capesize demand. As iron ore failed to impress thus far, capesizes have been more involved with carting coal and bauxite cargoes, but bad weather could derail the trades going forward. Australia’s coal shipments could be at risk given a new weather pattern that may bring rains in the second half of the year, according to the country’s latest resources and energy quarterly report, though demand will remain strong as Europe’s sanctions on Russia’s material take effect from August. Guinea’s bauxite may also be affected by the upcoming rainy season.

The capesize forward curve has come under pressure in recent weeks on concerns about China’s property sector, according to US-based Breakwave Advisors, which has said it considers the recent sharp correction in freight futures as “almost complete, and we anticipate some much-needed improvement in sentiment”. It expects the strongest spot rates in the fourth quarter, rather than the usual third quarter being the peak for the year. “The considerable downside adjustment in the futures curve has been the main event over the last few weeks as spot rates have failed to rally to any substantial degree to justify the prompt futures premiums,” it said recently. “Market expectations for a strong third quarter had mainly reflected memories of last year’s impressive rally rather than any fundamental shift in market balance.”

As of July 4, August is priced at $28,000, while September is at $30,750, according to GFI figures. The third quarter is at $27,250, while the fourth quarter is not far behind at $26,750. However, both are $1,000 or more below the previous session’s close.

Container shipping equities have broken a three-year winning streak, dropping by around one-quarter since the start of the year. But ongoing supply chain issues mean the sector will continue to perform better this year than last year, according to equity and container shipping analysts. The bullish prognosis issued by Drewry Maritime Financial Research (DMFR) follows a worrying drop in the market capitalization of stock-listed companies this year. The Drewry container equity index, a weighted index of 12 liner shipping companies, posted a decline of 23.1% in the first half-year to the end of June. That marks a sharp reversal on the gains of 127.7% in 2021, 79% in 2020, and 36.2% in 2019. But supply chain issues mean that liner companies will still perform better this year, while huge liquidity could cushion any downturn in freight rates, argues DMFR lead analyst Ankush Kathuria.

Port bottlenecks mean effective container capacity will be about 15% below potential this year, following on from a 17% reduction last year, Drewry added. It points to shippers’ expectations that supply chain constraints are likely to continue through to the first half of 2023. That parries with an estimate that around 10% of the global container vessel capacity remains unavailable to the market, according to Lars Jensen CEO of Vespucci Maritime. He added that the pending peak season has the potential to dramatically worsen congestion, which in turn will remove capacity and send freight rates spiraling. But congestion in global ports has not prevented spot rates from falling in recent months.

Rates from Asia to the US west coast are down nearly 30% since the end of May to $7,447 per 40-foot equivalent unit on 4 June, and nearly 50% below the level at the start of the year. That dragged the Freightos Baltic Index down 14% in June in its first monthly annual decrease since early 2020. The falls point to the beginning of the end of the carriers’ bull run. But the winding down of high rates and carrier profits will take some time, according to Drewry senior manager Simon Heaney. “We think the bottlenecks will last sufficiently long enough for carriers to secure decent contract renewals next year, although much will depend on the speed of the spot market downturn and how watertight existing contracts are,” Heaney writes.

Robust industry fundamentals present a strong case for investment in liner companies from a long-term perspective, Kathuria added. “The current industry valuation is below the long-term historical average, which provides an opportunity for equity investors,” he writes. “However, the downside risk could be a faster interest rate hike which will ultimately result in a recession and destroy consumer demand.” Drewry believes that carriers will take the necessary steps to keep themselves in an advantageous position by prioritizing profits over market share with strict capacity discipline. “Therefore, we can expect to see more blank sailings on the agenda next year, this time motivated by the need to prop up spot rates rather than for operational necessity,” Heaney writes.