China’s plummeting steel demand and falling prices for the metal are putting cape owners on edge. China’s steel market, the world’s largest, has experienced a sharp sell-off over the last 10 days and steelmakers are increasingly looking to idle steel plants as their margins take a beating with steel prices crashing to 2020 levels. China’s steel output has been wildly overshooting local construction activity, something that is only now registering in prices for the metal. Dalian iron ore prices fell again today and have now registered their steepest weekly fall since mid-February.

In China’s steel production hub, Tangshan city, 56 of the 126 blast furnaces were shut down for maintenance, according to Sinosteel, as mills struggle to cope with slumping margins amid weak steel demand and high inventories. However, it is important to note this period of the year in China does tend to see a greater period of blast furnace closures thanks to the weather. Steel demand in China during the next two years is expected to grow at less than a quarter of the rate for the rest of the world

Mysteel Research & Consulting expects China’s steel prices to trend down as it enters a weak demand season amid high temperatures and heavy rainfalls. Most steel mills have planned maintenance in late June and early July. “In the short term, we do not expect the demand from the manufacturing sector and the property market will pick up when the automobile sector is recovering,” a new report from Mysteel Research asserts. Extreme lockdowns have hindered economic activity throughout the spring in China. Data from S&P Global Commodity Insights, for instance, shows China’s consumption of crude steel fell 14% in May compared with last year. Consequently, inventory levels are 12% higher compared with last year according to data from CRU Group and may take through to August to fall to the median levels of the past five years.

China’s steel demand has dictated capesize riches throughout this century. However, this is changing. Unusually, steel demand in China during the next two years is expected to grow at less than a quarter of the rate for the rest of the world, a recent dry bulk report from BIMCO predicted. The slump in China’s housing market has profound implications for future cape earnings. An official index that tracks apartment and house sales has posted year-on-year declines for 11 months straight, a record since China created a private property market in the 1990s. The malaise in real estate is the worst property downturn in China on record, according to Nomura Holdings. In May, sales in major cities declined over 40% from the previous May as lockdowns closed businesses and joblessness spiked. Norwegian broker Fearnleys in its most recent weekly report described the cape markets as “shaking” as fears of global recession grow, and steel and iron prices drop.

Turkey is investigating allegations by Ukraine that importers have been buying “stolen” grain. Turkish foreign minister Mevlut Cavusoglu told reporters a probe has begun, but no evidence of such shipments has yet been uncovered. Ukraine has identified four Russian vessels and a Syrian ship as involved in the trade, while Russia blockades Ukrainian ports and a grain mountain of more than 20 MMT builds in warehouses. Two are bulkers, two are multipurpose units and one is a general cargo ship.

Ukraine also said Russia had sent its ally Syria about 100,000 tons of stolen wheat. Russia again denied the claims. Ukraine’s ambassador to Turkey, Vasyl Bodnar, had said Turkish buyers were among those receiving grain from the annexed region of Crimea. He added Ukraine was working with Turkey and Interpol to find the culprits. “Russia is shamelessly stealing Ukrainian grains and getting it out from the invaded Crimea. These grains are being shipped to foreign countries, including Turkey,” he told reporters in Ankara. “We have made our appeal for Turkey to help us and, upon the suggestion of the Turkish side, are launching criminal cases regarding those stealing and selling the grains,” Bodnar said.

Russia and Ukraine account for nearly 33% of global wheat supplies. In May, Egypt turned away a sanctioned Russian bulker allegedly carrying grain from Crimea. The 28,350-dwt handysize Matros Pozynich (built 2010) was refused permission to dock at Alexandria. The ship was carrying 27,000 tons of grain and reportedly later docked in Syria. The bulker is owned by CMC Heavy Lift of Astrakhan, which did not respond to TradeWinds’ request for comment. The company is part of the state shipyard group United Shipbuilding Corp, which has been sanctioned by the US for allegedly building warships involved in the Ukraine conflict. Another CMC vessel is believed to be part of the latest probe.

Ukraine has begun moving produce by rail and truck through Poland and Romania to the Baltic, where bulkers are starting to load cargoes.

Owners and operators of mid-size bulkers are taking advantage of rising backhaul rates as the conflict in Ukraine continues to play havoc with the global trading of grain and coal. Ukraine’s grain exports have ceased since Russia invaded the country in late February, while dozens of countries are boycotting Russian coal in protest of the unprovoked, brutal attack. This has forced importers from Europe and elsewhere to get these commodities from countries that are much farther away, such as China, Indonesia, and the Americas. “The supramax-ultramax segment has been benefiting from positive demand fundamentals for minor bulks and increased tonne miles caused by the war in Ukraine, including a strong backhaul market,” one owner of midsize bulkers told TradeWinds.

When war broke out on 24 February, the average spot rate for the Baltic Exchange’s S2 roundtrip supramax route between China and either Australia or the Pacific Northwest jumped 26.5% to $35,250 per day on 11 March. The rate has cooled since then, but it is still at the same level seen at the start of Russia’s invasion of Ukraine. “Given how dynamic the markets have been, it is imperative for owners and operators to remain nimble and flexible in order to be able to maximize revenues,” the owner said. These war-influenced market fundamentals have, for example, driven owners of mid-size bulkers to import grains to Colombia and then export coal on backhaul routes, according to shipbroker Barry Rogliano Salles’ BRS Research division. “They could load up coal quickly in the Santa Marta, Cartagena and Barranquilla ports, reducing their ballast legs,” BRS Research said in a report. “If shipowners are reluctant to dirty up, they could also ballast down to Brazil or Argentina to pick up fresh agricultural shipments with the options to reposition their vessels to Skaw-Passero or Singapore-Japan range, offering flexibility.”

Colombia exported 19.4 MMT of coal and imported 3.5 MMT of grain for the first four months of 2022. BRS Research pointed out that the Netherlands became Europe’s second-largest Colombian coal importer during this time, up from fourth in 2021, after banning Russian coal. Pacific Basin, an owner and operator of 121 supramaxes and 116 handysizes, said that mid-size ships are finding lucrative fixtures on backhaul routes due to seasonality as well. “Ships are not fixed assets and, of course, vessels will move between the basins depending on market conditions,” spokesman Peter Budd told TradeWinds. “Rates are currently being impacted by the seasonal lull, which is typical for this time of year, in combination with an increased percentage of tonnage of both handysizes and Supras available in the Atlantic.” Owners start shipping an abundance of grain when harvesting starts in late July and early August. Budd acknowledged, however, that rates for backhaul Asia-to-Europe trades have been “particularly strong” for coal and steel, possibly due to the war forcing importers to go beyond the Black Sea for such commodities. He also noted that his fleet, which has many handysizes in the Pacific basin, hence the company name, also tries to find fixtures on the profitable backhaul trades. “We also use [contracts of affreightment] to help with our repositioning of ships on backhaul trades,” he said.

Two agricultural storage facilities in Ukraine owned by units of commodity trading giants Glencore and Bunge have been attacked by missiles on Wednesday. Citing officials of the two companies, Agence France Presse (AFP) and French newspaper Le Monde say the attacks took place at the Black Sea port of Mykolaiv. The Everi terminal facility, which is used to store and load vegetable oil, has been the target of a missile attack with two silos on fire and a third suffering damages, AFP said citing a spokesman of Viterra, a Glencore unit that bought the site in 2020. One person was slightly injured, according to the reports. The Everi port was built in 2010 with a capacity to store 160,000 tons and to load up to 1.5 million tons of vegetable oil per year for export destinations.

Bunge has seen damages as well. AFP cited a company spokesman as saying that facilities were impacted “by the latest Russian attacks in the region”. The exact extent of the damage, however, wasn’t known yet and nobody was injured. Bunge’s facilities in Mykolaiv have been shut down since Russia attacked Ukraine on 24 February. They include a storage and loading terminal as well as a vegetable oil production unit.

Ukraine is one of the world’s largest exporters for grains and vegetable oil. The country’s Black Sea ports have been blocked since the Russian invasion, stoking fears of worldwide food shortages, particularly in Africa and the Middle East. Negotiations between the warring and third parties over conditions to reopen the ports and unblock the ships trapped in them have been unsuccessful, so far.

Valentios “Eddie” Valentis’ company is a small Greek shipowner that has tried to do things the right way. After taking Pyxis Tankers public in 2015, Valentis has weathered mostly tough years in the clean product carrier sector. The chief executive has done his best to grow and renew the fleet, which now consists of five eco MR tankers, moving opportunistically on small capital raises when possible, at or above estimates of the company’s net asset value.

Now on the cusp, at last, of a recovery in the clean product sector, it was understandably troubling for Valentis and chief financial officer Henry Williams to hear wary questions from some investors recently. The investors had heard about recent “highly dilutive” share deals done by other public micro-cap Greek shipowners and wanted to know whether they had to fear the same thing from Pyxis. Valentis and Williams declined to say what companies and deals were referenced. However, TradeWinds reported on 15 June that certain share-warrant deals organized by investment bank the Maxim Group bubbled further into public view after stockholder complaints on an earnings call conducted by Imperial Petroleum. Imperial, a spin-off from Harry Vafias’ StealthGas, heard on the call from angry investors who complained that they were being diluted by repeat Maxim-run equity raises that have cratered the share price. Things got heated to the point that Vafias objected to “shouting and screaming” from the shareholders.

TradeWinds has reported in recent months that it is mostly smaller Greek shipowners on the Maxim client roster, which includes Diana Shipping spin-off OceanPal, Castor Maritime, Seanergy Maritime, Performance Shipping, Globus Maritime, and Top Ships.

For the record, Pyxis is not engaged in any business with Maxim. Pyxis says it remains committed to best practices in its capital-raising, yet it cannot completely escape suspicion. “These investors have bought these other securities and the stocks have not performed, there’s been a series of dilutive financings,” Williams told Streetwise on the sidelines of the Marine Money Week conference in New York. “As a result, we’ve had some people say, ‘We just want to make sure you’re not going to do anything like these other deals. We tell them we’ve had a history of significant discipline in raising capital from third parties and making accretive acquisitions.” Pyxis has also pointed to Valentis’ majority shareholding in the stock. “We are not looking to burn our investors when the principal owns approximately 55% of the company and his interests are aligned with theirs. We’re not looking to shoot ourselves in the foot,” Williams said.

The Maxim stock sales typically involve packaging a common share with a warrant that can be converted into equity. Some of the earliest stock offerings came on behalf of Castor Maritime, a Cyprus-based owner that has used the proceeds to build a fleet from a start of one old ship to its current fleet of 28 vessels. The deals are in effect a back door into US equity markets, where initial public offerings and conventional follow-on secondary offerings through an underwriter have been challenging for shipowners in recent years. While the equity offerings vary from company to company, they generally are done at steep discounts to the prevailing share price promptly before the sale and are considered highly dilutive. Further, some feature a “super voting” preferred stock in which the company’s principal has only a small percentage of common shareholding, but still controls votes through superior preferred shares. Insiders are thus effectively insulated from the resulting dilution and interests may not be aligned with the common shareholders. Buyers of these new offerings are said to be largely hedge funds that specialize in such transactions.

Advocates of the Maxim raises say they provide shipowners with equity capital when it would not otherwise be available, allowing them to grow. The various risk factors of the sales are fully disclosed in public filings. Critics maintain the deals nonetheless emit an odor that may keep other investors from considering shipping stocks more generally. Streetwise has asked Maxim to talk about its work on behalf of the shipowners, but a banker said the firm rarely speaks to media. Valentis told Streetwise that Pyxis tries to concentrate on “preserving and improving” shareholder value. “We have improved the competitive and financial position of the company,” he said. “The offering rationale for others is not our concern. But the shareholders in these other deals, especially retail investors who provide after-market liquidity, they need to be fully aware of what they’re getting themselves into.”

China will offer more than 140 billion yuan ($21 billion) in additional tax relief mainly aimed at businesses as it seeks to offset the heavy impact of coronavirus lockdowns on the economy. The measures include additional tax rebates to companies and cuts of 60 billion yuan on passenger-car purchase taxes, China National Radio reported, citing a decision from a meeting of China’s State Council, a top government body chaired by Premier Li Keqiang.

Master consolidator Andreas Sohmen-Pao admits it might seem a contradiction to say he’s worried about the world economy and geopolitics but sanguine about the prospects for shipping markets. But that was the case the BW Group chairman made as a featured speaker on Wednesday at the 34th Marine Money Week conference in New York during an on-stage interview with Jefferies shipping investment banker Doug Mavrinac. “I’m very positive about the shipping outlook and very worried about the world outlook,” Sohmen-Pao told Mavrinac. “During the last half-century, we’ve built this incredible economic machine on the back of cheap energy, cheap money, and low-cost labor. We’ve just put that system through a period of unbelievable stress. And it’s a resilient system that was able to survive the financial crash of 2008.”

Sohmen-Pao referenced the shutdowns triggered by the Covid-19 pandemic, the revival of demand abetted by trillions of dollars’ worth of economic stimulus and finally the outbreak of war in Europe with Russia’s invasion of Ukraine. “The point I’m making is that the machine is breaking down,” he said. “The things we took for granted, we can’t take for granted any more. The bad movie is going to be real if this hits the food system. You can deal with a shortage of semi-conductors, but when there isn’t enough food, things get messy.”

As to why he is more positive on shipping’s prospects, Sohmen-Pao said that although a global slowdown in consumer purchases could indeed be bad news for the long-rampant container ship sector, current supply dislocations should prove favorable to movers of bulk commodities. “I’m a fan of bulk shipping, wet and dry,” he said. “They benefit from energy geopolitics and just the need to sustain day-to-day livelihoods. They have these very strong tailwinds.”

The BW Group owns or is an investor in companies ranging from BW LNG and BW LPG to product tanker owner Hafnia, VLCC specialist DHT Holdings and BW Dry Cargo. It also plays in the renewables sector through 10 entities including BW Solar and wind specialist Cadeler. Mavrinac pressed the BW chairman on which is his favorite investment, and which might be an up-and-comer. “My favorite is whoever’s generating the most profit,” Sohmen-Pao quipped, before admitting, “That’s a bit of a facile answer. We believe in being countercyclical, so sometimes that’s the one that’s not doing so well but is poised for improvement.” He gave a nod to Hafnia, which he noted had bought more than 40 tankers in the past year during a market trough and was now poised for a significant recovery in the clean products market. He concluded with the observation that while the group is investing heavily in green-energy businesses, “the cash flow is very much on the left”, an allusion to a chart showing BW’s involvement in traditional energy. “There are some interesting companies on the right like Cadeler, but they’re in the growth phase, sucking in capital. We’re thinking 10 years out.”

High container freight rates are responsible for over 1.5% of the inflation consumers are feeling at retail outlets, but the impact is far higher in less-developed countries than well-connected nations. “In the past we used to say the freight rate was so low compared to the value of the goods that it was immaterial,” said UN Conference on Trade and Development head of trade logistics Jan Hoffmann. “It was less expensive to send a bottle of wine by sea from Australia to Hamburg than to send it by truck from Hamburg to Berlin. But with freight rates being so very high, and with freight rates coming into a product not only once but several times, that has changed.”

Unctad ran a simulation on the price impacts of high freight rates last November that suggested that it would lead to 1.5% inflation. “If anything, that has now got worse, and the impact is 1.6%,” Mr. Hoffmann said. “The original study was done when inflation was lower, but we now have it running at 8%-9%.” Import prices at the border had increased even more steeply, but these have not been immediately fed to the consumer. However, the global number masks wide discrepancies across different markets. Globally import prices are up 11.9%, but in small island developing states the increase is over 25%. “These countries are further away and have diseconomies of scale and import imbalances. They have less-efficient ports and depend even more on maritime that other countries.” Here the impact of higher freight costs has been an 8.1% increase in consumer prices.

Further compounding the problem for less-developed nations is the fall in port connectivity, giving fewer options for shippers. “Year after year, we saw a long-term trend where the global liner network was expanding as new ports were connected,” Mr. Hoffmann said. “But from 2019 we have seen this decline. When the pandemic started, and there was a shortage of ships and services, clearly some of the ports were taken out of the network. Once we no longer have congestion and get back to normal, and the ships that have been ordered have been delivered in two to three years, I hope we will get back to an upward trend in the number of ports connected.”

The inflationary impact of higher freight costs also varied depending on the type of product, with some, such as furniture, seeing increases of over 10%. “These are cheap, high-volume products, where if you fill a container with plastic garden chairs and the freight rate has gone up from $2,000 per teu to $20,000 per teu, it starts to make a difference,” he said. “The more interesting one is high-technology products like computers, which have risen 11.4%. These are products that have very deep supply chains and can have nine levels of suppliers. If each one of these steps is produced in different countries, then you have nine times that something is moved in a container. This adds up and leads to the higher impact on prices.”

Alphaliner is reporting that Mediterranean Shipping Co’s (MSC) world-beating orderbook has grown by another near 200,000 slots.

MSC has chosen Jiangsu New Times Shipbuilding in China for the next phase of its extraordinary expansion that will ensure it becomes the first liner in history to control a fleet of more than 5m slots shortly. The Chinese yard has been contracted to build 20 ships for the Geneva-based carrier, an order made up of ten 8,100 teu vessels, and ten 11,400 teu vessels. All ships will deliver in 2024 and 2025 and will feature LNG dual-fuel propulsion. No price has been revealed for this latest series of ship orders.

MSC already has fourteen 7,000 teu ships on order at the same yard.

According to Alphaliner data, MSC has 111 vessels made up of 1.45m slots on order, roughly the same deployed capacity as the current size of Japan’s Ocean Network Express (ONE), the world’s seventh largest carrier.

AP Moller-Maersk chairman Robert Maersk Uggla has spoken out against criticism of the container ship industry from leaders such as US President Joe Biden. Speaking to graduates of the Massachusetts Maritime Academy’s class of 2022 over the weekend, the Danish chief executive of AP Moller Holding said: “Lately, some leaders have given the impression that shipping lines are to be blamed for the challenges, delays, and costs we are witnessing with transported goods. Let me be blunt, there are plenty of ships on the water and plenty of shipping lines at hand.”

Biden was quoted as saying earlier in June that record profits earned by liner operators amid rising consumer prices made him “viscerally angry, like if you had the person in front of you, you want to pop them”. He has now signed the Ocean Shipping Reform Act into law, although it is much maligned in the liner sector. The new rules give the Federal Maritime Commission power to initiate investigations into the practices of shipping companies on its own, force liner operators to establish service standards, outlaw unreasonable refusals to carry US goods and forces carriers to justify detention and demurrage charges.

But Uggla said the blame for supply chain problems lies elsewhere. He pointed out that container import volumes to the US are up 35% compared to pre-Covid levels, partly driven by a big stimulus program. Carriers have responded by moving massive amounts of capacity into the Pacific, he said. In Maersk’s case, the group now has 50% more teu there than before the pandemic. “However, the quality and cost of a transportation network is a function of how all parts of the network operate. The onshore capacity has not been able to scale in the last two years,” Uggla added. The chairman revealed that, for long periods, Maersk has not been able to operate all its cranes at Pier 400 outside Los Angeles. “And many US ports, I am afraid to say, contrary to many ports in Europe and Asia, still don’t operate 24/7. Also, the lack of truckers and limited rail capacity have created congestion,” Uggla said. “We experience challenges of similar nature in other countries as well. The net effect is that around 10% of the global container ship capacity is waiting outside ports,” he added.

The Maersk man stressed that everyone working on a ship or in a port, in a warehouse and in other parts of the supply chain, is connected and dependent on each other, across different countries. “There is only one solution, to work closely together. And in this respect, the global supply chain mirrors the world. When we work together, across communities and across borders, tackling profound challenges such as climate change or the supply chain disruptions of food, we end up with better outcomes,” Uggla concluded.