Russia is set to profit from increasing grain exports in the wake of its incursion into Ukraine. Russia’s wheat exports are expected to increase by 6 MMT in the 2022/23 season from the previous year due to “a larger crop and strong demand for affordable Black Sea wheat as exports from Ukraine are curtailed,” the US Department of Agriculture said in its latest global grains report. Russia is expected to be the largest exporter for the third year in a row. Russian wheat is the cheapest at $399 per tonne as of May 11, while the US is the highest at $513 per tonne. “Grain is still flowing from Russia despite what is happening as the world needs food,” said Maritime Strategies International’s dry bulk analyst Will Fray. “It is highly unlikely that grains shipments will be sanctioned.”

While banning Russian vessels at its ports in its fifth round of sanctions, the European Union has allowed food supplies to continue, but self-sanctioning by some countries and companies against Russia’s actions may limit the appeal of the cost-competitive wheat, especially where payments in currency other than US dollars are concerned. Countries that support the Kremlin may therefore benefit from its supplies the most. But, while Russia capitalizes on higher volumes, Ukrainian wheat is expected to drop by 9 MMT in 2022/23 from 19 MMT in the previous exporting season due to “a significantly smaller crop,” the USDA said, leading to a supply crunch that has sent international prices spiraling upwards, stoking concerns about food inflation.

“Currently, Ukraine is unable to export via seaports because of the ongoing war, but is seeking to use alternative routes, primarily by rail, and export through neighboring European countries,” it said. “Damage to export terminals and transportation infrastructure, worker availability, and safety of shipping routes are among the factors that are expected to limit Ukraine’s ability to export grain in 2022/23.” Pakistan is one country that will be affected by the drop as it had been increasingly reliant on Ukraine as its primary supplier. Egypt, meanwhile, should import 1 MMT less due to a larger domestic crop combined with modest consumption growth amid high prices, according to the USDA. While a similar story is shaping up for Iran, which should see imports drop by 1.7 MMT, Morocco’s imports are forecast to rise by 1.8 MMT.

Meanwhile, allegations of grain cargo theft by Russia is mounting. According to CNN, Ukrainian officials have said that at least 400,000 tonnes of grain has been stolen and taken out of their country since Russia’s invasion on February 24. The latest vessel allegedly embroiled in this activity has been cited as the Russian flagged Matros Pozynich (IMO: 9573816) which was denied entry into an Egyptian port. The 2010-built handysize, believed to be carrying 27,000 tonnes of grain, was then headed for Beirut, Lebanon, as of last week, but appears to be moving back to Kavkaz in Russia, with a draught of 5.3 m, according to Lloyd’s List Intelligence data. With Beirut denying entry, the bulker, which was reportedly carrying stolen grains from Ukraine that were sent to Russia-annexed Crimea, was last spotted off Syria, a well-reported ally of Russia.

Global wheat exports are however forecast at a record 205 MMT, according to the USDA, as “robust import demand and high prices are expected to lead major exporters to prioritize ample supplies”. India was largely considered to meet some of the Ukrainian shortfall, but a fresh ban on exports by the Indian government will limit the opportunity. According to Banchero Costa, India was set to increase exports to 10 MMT, or 5% of global exports, as it had a surplus, but with the current heatwave, expectations will have to be adjusted downwards. “Any increase in exports will not materialize,” said Bancosta’s head of research Ralph Leszczynski. The news sent wheat prices up by 6%, according to various media reports.

While Canada is seen to build exports by 8.5 MMT, Australia, and Argentina see a drop of 2 MMT each in the 2022/23 marketing year, USDA figures showed. Corn volumes from Ukraine are estimated to slump by 14 MMT to just 9 MMT, according to the USDA. Although a strong Brazilian season is expected to meet some of the shortfall, global trade will decline mainly due to the lower Ukraine and US exports, and lower demand from China, while end-stocks fall. According to Arrow Shipbroking, a drop in US and Ukrainian corn exports could bring the upcoming marketing year back to 2020/21 levels, while Russian and Canadian wheat exports could potentially reach all-time highs. Soyabean exporters are also expected to increase volumes to a new high. For dry bulk shipping, the net effect looks to be negative as total grain tonne-miles could marginally shrink, said Arrow’s research analyst Harry Grimes. “The La Nina weather conditions are persisting strongly at the moment, posing additional risks to crop yields globally.”

Ship brokerage Simpson Spence Young said that after two years of decline, global soyabean trade is expected to rebound to almost 166 MMT in the 2022/23 (October-September) season as both Brazil and the US increase shipments. Brazilian exports are projected at a three-year high of 87 MMT, while US cargoes are forecast at 60.1 MMT, it said in a note. That ties in with a rise in Chinese demand of 98 MMT. Meanwhile, barley from Ukraine is expected to drop by 800,000 tonnes to reach 2 MMT, the USDA report said. Lower global trade is estimated, as Australia volumes also decline, despite larger yields from Russia (exports set to rise by 1.5 MMT), Canada and Turkey. Combined exports from Ukraine and Australia from October to September is expected to fall by 28% to 3.3 MMT versus a revised 2021/22 level, it said.

According to data from China’s National Bureau of Statistics, Chinese coal production for April amounted to 363.9 MMT, which is down 8.4% MOM and up 12.4% YOY. The figures denote a continued high production level following the country’s energy shortage last winter, with YTD production of 1,447.8 MMT being up 11.8% YOY and 25.6% above the 5-year average. YTD, China’s electricity production has amounted to 2,603bn kwh, which is up 3.0% YOY, but with thermal electricity production (i.e. coal) constituting only 72% of the total versus 75% at the start of 2022 and at the same period last year, respectively.

 
April 2022 saw steel and pig iron production of 92.8 MMT (down 10.4% YOY) and 79.4 MMT (down 7.3% YOY), respectively – marking the second highest April production figures on record for both commodity types. YTD, production volumes have reached 336.2 MMT for steel and 280.3 MMT for pig iron, which is well above their respective 5-year averages of 314.4 MMT and 264.9 MMT.

India’s decision over the weekend to ban wheat exports is expected to see a greater swathe of the dry bulk fleet head to the Americas, extending the tonne-mile picture for panamaxes, Supras and handies.

Wheat prices rose by the maximum amount allowed on Monday in the wake of the ban from India, a nation that has been hit hard by a severe heatwave over the past two months.

Prior to the ban, New Delhi had suggested it could serve as a big wheat exporter after shipments out of the Black Sea were slashed in the wake of the war between Russia and Ukraine, two nations who typically supply around 30% of the world’s wheat needs.

Foreign ministers from the Group of Seven (G7) nations appealed to Russia over the weekend to free up sea export routes for Ukrainian grain and agricultural products critical to feeding the world, as food prices rise, and the World Food Program warns of “catastrophic” consequences if Ukrainian ports remain blocked. Ukraine’s ports have been closed since the end of February with significant infrastructure damage at many quaysides as well as the issue of many sea mines located off the Ukrainian coastline.

“We must not be naive. Russia has now expanded the war against Ukraine to many states as a war of grain,” German foreign minister Annalena Baerbock said at a news conference Saturday after the G7 meetings.

Baerbock said the group was searching for alternative routes to transport grain out of Ukraine with Splash reporting regularly on how export routes out of Romania and Bulgaria are growing.

Iron ore has had a rough week as containment measurements and a worsening property situation in China is weighing on sentiment and expectations of a delayed recovery in demand. The fourth largest property developer in China, Sunac China Holdings, missed a USD 742m bond payment during the week, adding to the list of issues in the domestic property sector. In addition, the company said on Thursday that it does not expect to make payments on other bonds coming due either. Nevertheless, demand is still expected to rebound in the medium-term as the Covid-19 outbreaks ease and the government implements policies to support growth.

Year to date, Chinese dry bulk imports are down 9%, but supply issues in both Brazil and Australia are likely equally important as weakness in demand when explaining the drop.

Week-on-week, benchmark Capesize, Panamax and Supramax rates increased by 50%, 9% and 1% to averages of USD ~30.4k/d, USD ~28.2k/d and USD ~30.2k/d, respectively. The key driver for the surge in Capesize rates, is higher volumes out of Brazil, as the miners are coming out of the rainy season.

The record Brazilian export figure for the first four months of the year 32.4 MMT (+0.9 MMT/+2.8% y-o-y) masks a significant drop off in April (at 11.6 MMT down 28% y-o-y). Indeed, this is the first time April exports have fallen short of March figures in 25 years. Despite unfavorable weather reducing Brazilian soybean production figures down to around 125 MMT (-14.5 MMT/-10.4%) this year, it may well be that falling demand from China is the principal reason for the April decline.

At 22.3 MMT (-0.3 MMT/-1%), in the four months to date China remains the principal purchaser, but China’s share at 69% is the lowest for the period since 2012. With pig herds in China now restored to pre–African Swine Flu levels, farmers there are now faced with precipitously falling pork prices as domestic demand has been choked off by extended lockdowns in several principal cities. The response from farmers has been to consider cheaper alternative feed (such as sorghum) instead of more highly priced international soybeans. Whilst lockdowns continue and prices for pork remain low the usual intense demand from China for Brazilian soybeans for the balance of Q2 is unlikely which is perhaps a bearish factor for the Panamax market as this sector is the principal carrier of Brazilian soybeans to China.

Aside from China, Brazil has shipped over 5 MMT (+0.4 MMT/+9% y-o-y) to Europe and Eastern Mediterranean, with Spain at 1.6 MMT (+0.4 MMT/+33%) being the largest importer. Other major importers of Brazilian soybeans include Turkey and Netherlands, both taking in 0.8 MMT each though this is little changed from 2021. Exports to other markets in the Far East have improved; Thailand at close to 1 MMT, the third largest importer of Brazilian soybeans, is slightly up whilst Vietnam at 0.5 MMT and Japan at 0.3 MMT are sharp improvements on 2021 figures after four months. In the Middle East and Subcontinent shipments to Pakistan (0.6 MMT), Iran (0.5 MMT), and Bangladesh (0.4 MMT) in the first four months are also broadly like 2021. Perhaps more surprising is that Brazil’s biggest y-o-y percentage gain at +158% are exports to Russia which at 0.5 MMT are up 0.3 MMT on this period last year.

Container shipping has borne the impact of the devastating war in Eastern Europe better than other sectors. That may be changing as the ripples from the conflict spread. Arguably the biggest container ship “casualty” of the war to date is the 9,403-teu Joseph Schulte (built 2013). The Cosco Shipping-operated vessel remains in the port of Odessa, where it made an ill-timed call when hostilities broke out. Such direct impacts on the container sector have been few and far between. The response of liner operators to the outbreak of hostilities was to cease operating services to Ukraine and drastically reduce calls to Russian Black Sea ports. Daily port calls to Russian ports fell from around 12 at the start of 2022 to about eight in late March, according to Clarksons Platou Shipbroking. “We’ve had to take a proactive approach to reduce down our booking levels and stop bookings coming in the Europe gateway and the Black Sea gateway,” says Jeremy Nixon, chief executive of Singapore-based Ocean Network Express (ONE). He says the war has not so far had huge ramifications for the Japanese carrier. “Fortunately, as ONE, only 1% of our volume is affected.” But the closure of production plants that produce components that are manufactured in Ukraine and Russia is having a knock-on effect on the supply chain, he says.

The repercussions for ONE’s alliance partner Hapag-Lloyd have been dramatic. The German carrier was the first liner company to impose a booking freeze for Ukraine and Russia after the invasion on 24 February. That was only eight months after it had established a foothold in Ukraine with the opening of an office in June 2021. But liner operators have been buffered against the damaging impact of the conflict due to a limited involvement in the two countries. Sanctions against a handful of Russian-owned or financed container ships, including those of Far Eastern Shipping Co, affected just 0.1% of the total boxship fleet, according to Clarkson figures. Russian and Ukrainian ports together accounted for a mere 0.8% of global container throughput in 2020. Where the war is starting to hurt container shipping is the knock-on effects, which are reflected in increased port congestion and record bunkering costs following the spike in oil prices to decade highs. Reduced economic growth is now deemed the biggest risk to the container market, according to Bimco chief shipping analyst Niels Rasmussen. The biggest direct early consequence of the war on the container market was the sanctioning of state-owned Russian Railways, with China-Europe rail volumes turning to liner operators instead. “The main concern for the container market, however, remains slower economic growth and in particular lower goods trade as consumer uncertainty increases and discretionary spending decreases,” Rasmussen says.

The imposition of sanctions has already led to growing congestion in the container ports of northern Europe because liner operators must sift through sanctioned cargoes from the thousands of containers being shipped. A crisis team of 25 employees established by Hapag-Lloyd had to deal with around 9,000 containers en route to Russia or Ukraine. Sanctioned cargoes were issued a “red alert” and the cargo was returned to the original shipper. Other containers were stored in regional ports such as Constanza in Romania and Istanbul, as well as in Hamburg, Rotterdam, and the Baltic states. The resulting congestion meant container shipping capacity stuck in European ports was about 20% higher in March than the previous month, according to Clarksons. That puts it more than 60% higher than the 2016-2019 average. Bunker prices surged too, providing support to eco and scrubber-fitted vessels and potentially affecting shipper costs. Some of the worst fears of the liner sector, including a potential cyber-attack, have not materialized yet. Many players remember the NotPetya cyber-attack on Ukraine in 2017, assumed to have been conducted by the Kremlin. The attack crippled AP Moller-Maersk’s systems for two weeks and cost it $300m. So far, such a scenario has not been repeated. But many in the container sector remain on edge. The war has also had consequences for the S&P market. The spending spree in which liner operators bought secondhand vessels at an unprecedented rate for 18 months has ground to a halt. Most operators and tonnage providers are waiting for clarity on what happens in the war, causing a flatlining of secondhand prices for the first time in many months. “More logistics players are unclear about the restrictions of doing business with many companies because there are second-order and third-order sanctions that are also required to be considered,” explains Christian Roeloffs, chief executive of container leasing portal Container xChange. “Companies are hesitant to make decisions — selection of new partners is significantly impaired.”

In the charter market, some vessels became surplus after they could no longer trade to Russia and were fixed out to other operators at discounted rates. That uncertainty is reflected in sliding freight rates, particularly for shipments from Asia to Europe. Spot freight rates from Asia to northern Europe fell below $11,000 per 40-foot equivalent unit (feu) at the start of May, according to the Freightos Baltic Index. That is the lowest freight rate on the trade in 10 months since the first week of June 2021. Rates have dropped 19%, or $3,704 per feu, since the invasion of Ukraine started on 24 February and are nearly 30% down since the start of year, at the time of writing. The war has torn apart expectations of recovery for the supply chain, Roeloffs says. “European demand has been badly hurt by weaker consumer sentiment since the start of the Ukraine-Russia conflict and this will continue to affect demand in the near term,” analyst Linerlytica writes. Bullish expectations that the crisis could lead to higher freight rates as rail and air cargo shifted to sea networks have proved unfounded so far. Any positive spillovers because of shifts from air freight and trans-Siberian rail will not compensate for the short-term cargo loss, according to Linerlytica. Others expect that rising crude prices will result in surcharges, or Bunker Adjustment Factors, of between $50 and $150 per feu. The lingering concern is the potential of the war to dampen the growth of global trade. Rising inflation is cutting into consumer demand as buyers with shrinking disposable income have less money to buy products shipped in containers. “These present ‘headwinds’ to global container trade, while lost Russia/Ukraine trade volumes may also impact and persist into 2023,” says Clarksons, which has downgraded teu volume growth for 2022 by around 0.4% to a steady 3.5%. Other players think the end of Covid lockdowns in China could result in a surge in demand for shipments in the coming months, at a time when port congestion remains at historically high levels. Container ship capacity in ports stood at 8.8m teu in early April, equivalent to 35.4% of the total fleet, according to Clarksons. It is down from a record 37.5% of fleet capacity in October 2021, but much higher than the 2016-2019 average of 31.3%.

The capesize bulker sector made good headway this week due to strong tonnage demand from Brazil and Australia. The Baltic Exchange’s capesize 5TC, a spot-rate average across five key routes, logged a seven-day gain of 36.4% days to hit $32,733 per day on Friday. “The capesize market had the wind in its sails as rates jumped in all regions,” Baltic Exchange analysts wrote on Friday in their weekly wrapup on the dry bulk market.

China-Brazil round voyages surged as the route’s average spot rate leapt 41% during the same period to $31,050 per day on Friday. The benchmark C5 route between Western Australia and Qingdao, China, also became more lucrative as its freight rate improved 15.8% to $15.077 per tonne on Friday.

“While the Shanghai covid situation continues to hamper vessel movements across all sectors, the capesize market appears able to push as good tonnage demand comes from Brazil and Australia,” analysts said. Australian iron ore miner BHP hired an unnamed capesize on Thursday to carry 170,000 tonnes of iron ore at $15.15 per tonne from Port Hedland, Australia, to Qingdao, with loading set for 26 to 28 May. A week earlier, BHP fixed a to-be-nominated capesize to ship the same quantum of ore on the same route at just $13 per tonne. Loading for that trip was scheduled for 18 to 20 May.

The analysts also said that the C16 backhaul route between Europe and North China “continues to amaze and disrupt”, skyrocketing 54.3% over the prior five business days to $28,500 per day on Friday.

Some are even calling it “the new front-haul route”, they added. “This high valuation continues to be largely driven by coal demand to Europe as energy prices remain at high levels,” the Baltic analysts said.

Spot rates for smaller bulkers did not move too much over the past five business days “as activity and sentiment softened at close”, they wrote. The panamax 5TC moved up 3.4% during the week to settle at $29,545 per day on Friday, while the supramax 10TC inched upward by 0.8% to $30,272 per day.

May 20 has been given as the first official deadline for Shanghai, China’s largest city, to open. The metropolis, home to the world’s largest container port, entered lockdown in late March for what was meant to be 10 days as part of China’s strict zero-covid policy. Most of the city’s 25m population have been living in lockdown ever since with a deleterious effect on local transport. Up until today, Shanghai authorities had been unwilling to give a firm date for when the city would reopen with persistent cases of covid flaring up across its 16 districts. Vice mayor Wu Qing said at a news conference today that an orderly opening would now proceed in the middle of this month, using a Chinese term that refers to the period between May 11 and 20.

In terms of port operations, Peter Sand, chief analyst at container platform Xeneta, told Splash earlier that it would take anywhere from four to eight weeks for normal operations to resume, while gateway terminals in the US and Europe have repeatedly been warned by container analysts to brace for a so-called whiplash effect from Shanghai’s reopening. The reopening cannot come soon enough with many international manufacturers reporting extreme distress and pessimism at how local authorities have handled the Shanghai outbreak.

A flash survey carried out from May 6 to 8, polling 460 member companies of the German Chamber of Commerce in China, shows that only a small number of firms have been able to operate and resume production in the People’s Republic. Foreign employees are increasingly planning to leave the country due to China’s strict covid strategy, the survey showed. In areas affected by lockdowns, companies can only restart their operations under constraints. Just 19% of the surveyed German companies have permits to produce under adverse conditions in such areas. Of those allowed to run operations under lockdown, many only operate at less than half of their full production capacity. Logistics problems, low availability of staff and uncertainty caused by sudden changes in policies are the main reasons for hampering the increase of production capacity, the survey showed. Nearly one third (28%) of foreign employees of the surveyed companies plan to leave China due to covid-related measures, with 10% planning to do so even before their current employment contract ends.

“It will be extremely challenging for German companies to substitute these employees with new staff from abroad, considering how the current covid outbreak in China is handled”, said Maximilian Butek, executive director of the German Chamber of Commerce in Shanghai. “The current circumstances under which German companies must operate in China can only be short-term solutions in emergency situations. Closed-loop productions are unacceptable as a long-term solution for German companies to operate in China.” Among other key findings from the survey, it turns out that 73% of the respondents’ business operations are in areas under full or partial lockdown. At least 32 cities across China are now under full or partial lockdown, impacting up to 220m people, according to calculations from international news channel CNN. Authorities in China have this week imposed a de facto international travel ban, forbidding citizens from going overseas for non-essential reasons. In a statement Thursday, the Chinese National Immigration Administration said it would tighten its reviewing process on issuing travel documents such as passports, and strictly limit those looking to leave.

India’s close ties with Russia have seen it ramp up purchases of bargain commodities in the two and a half months since the invasion of Ukraine began. Data from S&P Global Market Intelligence shows India’s seaborne crude oil imports surpassed 4.8m barrels per day in April, the highest on record, with higher Middle East and Russian volumes displacing cargoes from further afield, such as the US, Canada, and West Africa. Russian-origin crudes hit 5% of India’s total seaborne imports in April for the first time, rising from under 1% throughout 2021 and Q1 2022. As of May 9, almost 10m barrels of crude loading from Russia—including 970,000 barrels of Kazakhstan’s CPC Blend—have discharged in India this month. Another 16 vessels with 13m barrels are currently indicating India as their destination and are expected to arrive within the next four weeks. This includes one cargo each of CPC Blend and Siberian Light and the rest comprising Urals.

“A rebound in domestic demand as well as stronger oil product exports likely spurred India’s crude import volumes. Refiners have been highly attracted to discounts for Russian-origin cargoes and India has been a major alternative destination for Urals crude that would typically have been sold to refiners in Europe. Conversely, stronger demand from European end-users for other Atlantic Basin crudes—to replace Russian cargoes—pushed up these procurement costs, and India has instead turned more to the Middle East in the last month,” commented Yen Ling Song, associate director at S&P Global Market Intelligence. Russian exports rebounded in April by 620,000 barrels per day from the month before to 8.1m barrels per day, the International Energy Agency said in a global markets update yesterday, back to their January-February average as supply was rerouted away from the US and Europe, primarily to India. Indian politicians have been defending their decision to buy so much Russian crude while other nations look to wean themselves off Russian energy reliance in the wake of the invasion of Ukraine. Finance minister Nirmala Sitharaman recently commented: “I will put my country’s interest first and energy security first. If oil is available and at a discount, why shouldn’t I buy it?” External affairs minister S Jaishankar, too, has weighed in on the matter. India’s total oil purchases from Russia in a month would probably be less than what Europe does in an afternoon, he said recently.

Russia has been reportedly offering discounts of as much as $30-35 per barrel on its flagship Urals grade to woo India. It’s not just oil that the Narendra Modi-led country is eager to buy from its old friend, Russia. In a notice released on May 5, India’s Ministry of Power instructed all power plants to increase their imports of coal. Specifically, the ministry demands that power plants designed to run on domestic coal start importing at least 10% of their requirements. The government’s intervention comes as many states have suffered prolonged power outages since April and the country is two months into an unprecedented heatwave with reports this week of dehydrated birds falling from the skies amid the protracted 40+ degree environment. The upcoming monsoon is likely to cause additional problems and lead to lower domestic coal production, thereby adding to import requirements. “India will attempt to increase shipments from Australia and Indonesia, their main trade partners, but supply side difficulties could emerge. In Australia, recent heavy rainfall on the east coast is challenging coal logistics, and a requirement to sell 25% domestically limits Indonesian coal miners’ export potential,” commented Niels Rasmussen, chief shipping analyst at BIMCO, adding: “India may instead look towards Russia, especially from mid-August when the EU’s ban of Russian coal is fully implemented.” Preliminary government statistics show that India’s overall imports from Russia witnessed a more than three-fold jump to $4.67bn from a year before since the Ukraine conflict began on February 24. Between February 24 and May 8, India’s purchases of crude oil from Russia jumped 393% to $1.86bn, while those of petroleum products surged 175% to $560m, government data shows. Similarly, imports of coal climbed 277% to $630m, and fertilizer purchases saw a multi-fold jump to $376m from $43m. The growth in import value is aided by a rise in global commodity prices in recent months and a relatively low base but is nevertheless remarkable and shows the firm friendship between New Delhi and Moscow.

As weather in Brazil starts to subside and the end of the financial year for several miners’ approaches, we look at the iron ore market and what may be in store going forward.

Demand outside of China strong

Global iron ore shipments totaled 131.5 MMT in April, coming in flat YoY. However, vessel demand from iron ore increased by 6% YoY in April on the back of stronger liftings in the Capesize sector, while demand from the smaller segments all declined during the same period. China iron ore imports declined by 3.2% YoY to 88.8 MMT in April, therefore the growth in demand has come from elsewhere. Excluding China, iron ore imports increased by 1.9% YoY to 40.3 MMT. Bulker demand outside of China, in comparison, increased by 15.9% YoY. This, in part, is a result of more robust steel production globally apart from China which currently faces both production curbs and demand constraints.

Demand from Japanese iron ore imports increased by 18.9% on the back of shipments from Brazil more than doubling to 1.3 MMT in April. Further, a 12% increase in European imports, totaling 8.5 MMT, has also added to support and contributed to Capesize port inefficiencies in the region as we noted last week when referring to coal.

In recent weeks, the DCE iron ore price in China has declined by 8.1% WoW to $138.8 per tonne. While China has frequently expressed aims to limit speculation on commodity prices, demand fears have ultimately driven this most recent decline. As the lockdowns remain in place, these levels are likely to be maintained. Nevertheless, any indication of restrictions lifting will raise expectations of improved steel production, though the property sector in China has yet to show signs of recovery. So far, despite cases reportedly declining, the Covid policy has not changed.

Brazil gradually returns

Brazil iron ore liftings have improved in recent weeks fueling more positive sentiment in the Capesize market. Shipments totaled 25.8 MMT in April, the highest monthly total so far this year. The well-documented rainy season in Brazil is now starting to fade, driving greater iron ore export volumes. Average monthly precipitation in the northern region declined by 24.4% in April. As a result, the past two weeks have been the strongest for iron ore shipments out of Brazil this year, averaging 7.3 MMT per week. Given it is expected to remain dry in the near-term and liftings have started strong in May, we expect another monthly increase in Brazilian iron ore volumes this month.

So far, exported volumes have predominantly been lifted by the VLOC fleet. Average daily liftings in the previous 30 days on the VLOCs lie at 620k tonnes, the highest level in the past 12 months. Although a niche trade, Brazil has seen interest from the Middle East, with 1.9 MMT of iron ore loaded for Oman in April. Meanwhile Netherland shipments more than doubled to 1.1 MMT, though less important than China, upturns in these trades have assisted in keeping Brazilian iron ore demand healthy.

Relaxed restrictions lift Australian liftings

In Australia, production constraints that miners have faced, namely labour shortages due to travel restrictions, have started to subside as the country moves out of lockdowns. As expected, this has vastly improved the overall efficiency of miners’ operations in the country. Shipments have also been bolstered because no major maintenances have been carried out recently. Shipments have ramped up in May as the end of the financial year for various miners draws closer. In April, the country exported 74.7 MMT of iron ore, coming in flat YoY. However, last week, Australian producers exported 19 MMT of iron ore, the highest weekly total so far this year. Heading out of lockdowns has however resulted in a sharp decline in Australian congestion levels. Capesize queues currently amount to 7 MDWT, declining by 22.5% WoW and 18% below the 5-year average. As many vessels opted to continue the C5 route as Brazil volumes were lighter, this dynamic has changed with more ships headed east for Brazil, India, and European stems, which have grown in Q2. Capesizes have also garnered more enquiry for coal voyages to Europe from the east, providing ships with an ideal haul to reposition. Combining reduced tonnage in West Australia and a ramp up in iron ore shipments, rates have moved to the upside. The C5 route now commands $15.2/t, increasing by 68.9% MoM according to the Baltic Exchange’s latest figures, although some fixtures have been rumored even firmer.

India stronger in April

Indian iron ore exports totaled 4.4 MMT in April, the highest since March 2021. While steel mills continue to face higher costs because of elevated energy and coking coal prices, a lower grade iron ore may provide some relief to producers’ bottom line. Indian iron ore is of a lower grade in comparison to Brazil and Australia, which as a result offers a lower price and thus may be more favorable to steelmakers whose margins have been diminished. With input costs set to remain high, steelmakers are likely to continue their interest in Indian iron ore. This comes as some regions in the country are considering removing a mining cap to expand production for domestic steel production and exports.

Longer term impact of Ukraine

While no shipments have occurred since late February, most Ukrainian iron ore typically shipped to the Far East, namely China and Japan. In finding replacement volumes, these countries have naturally looked to Australia and India given their proximity. Iron ore shipments from Australia to China increased by 3.2% YoY in April, totaling 60.8 MMT. Substituting Ukrainian iron ore, which exported on average 2.3 MMT per month pre-invasion, may continue in the longer term beyond an end to the war. As the country will require significant rebuilding when the time comes, iron ore is likely to remain in the country to be used for domestic steel production. Subsequently, Ukrainian iron ore buyers will need to maintain purchases from replacement sources.

So far in Q2, the re-emergence of solid volumes out of Brazil has rebounded bulker demand from iron ore and has particularly helped lift Capesize rates. Australia has maintained strong export volumes in Q2 providing stable employment on the C5 route. Despite Chinese demand being relatively muted, iron ore flows have been positive in the second quarter. With bauxite flows also performing strongly, any positive news from China with regards to lockdowns, could see Capesize demand, and thus rates, continue to move higher.