Shipping is likely to buck the trend of generally lower growth in economies worldwide, Clarksons Platou Securities believes. The Norwegian investment bank said “significantly” longer journeys due to disruption from the Ukraine war will shield the sector from slowing trade volumes. The IMF has cut its forecast for world economic growth for 2022 from 4.4% to 3.6%. “For shipping, slower economic growth is not good, all else being equal,” said analysts Frode Morkedal and Even Kolsgaard.

Based on trade growth in the 2011 to 2021 period, they estimate that dry bulk and tanker trade growth was 0.9 times world GDP growth. Container trade growth has averaged 1.2 times world GDP growth over the same length of time. “If average nautical miles increase, this could compensate for lower volumes,” the analysts added. “For both dry bulk and tankers we have seen a lengthening of average trading distances on the back of reduced Russian exports. Low underlying fleet growth also means that slowing economic growth is less worrisome today than in prior periods,” they added.

Clarkson Research suggests that the Ukraine conflict could dampen total seaborne trade volume growth in 2022 by 0.9% in terms of tonnes. Significant shifts in trade patterns are expected, however, as some buyers, especially in Europe, seek alternative supplies and some Russian cargoes are shipped elsewhere, for example to Asia. Overall, expectations for increased average journey lengths in some sectors have meant that projection for growth in total seaborne tonne-mile trade in 2022 has remained very similar to previous projections, at a firm 4%, despite the downgrade to volumes, Clarksons Platou said. “This is a reminder that demand for ships is driven by more than volumes,” Morkedal and Kolsgaard added.

In addition to average miles, the productivity of vessels matters as well, they argue. This includes waiting times, speed and other factors that impact how many voyages a ship can be employed during a year. Lockdowns in China and the Russia-Ukraine situation have led to increased off-hire for ships, which tightens the market balance, albeit temporarily, the analysts said.

VLCC earnings fell 6% last week to $17,500 per day on average. Peak refinery maintenance is impacting demand, while ships having repositioned into the Atlantic generally increased vessel supply, Clarksons Platou said. US strategic oil stock releases of 1m barrels per day for six months starting in May, at the same time as refineries increase activity levels again, should lead to some upward pressure on rates again, the investment bank argues.

Capesize bulkers gained 25% last week to $15,300 per day. “The FFA market is particularly upbeat for this sector as Brazilian iron ore exports are expected to ramp up for the rest of the year and China returns from lockdowns, eventually,” the analysts added. Share prices were generally in the red last week, although Clarksons Platou’s shipping index fell no more than 1%, against a drop of 3% for the S&P 500 index. So far in 2022, shipping stocks are up 22% on average, while the broader share market is down 10%. “We believe shipping should remain a favorable sector in the years ahead,” said Morkedal and Kolsgaard. They base this on the very low newbuild orderbook for most segments, new carbon regulations from 2023, and China potentially seeing accelerating economic growth once the current Covid-restrictions are lifted.

As would seem to have become a quarterly tradition in these unprecedented times for container shipping AP Moller – Maersk has upped its full year profit guidance by a hefty $6bn. Following a pattern of revealing its expected financial result a few days before it releases the result, Maersk said on Tuesday to report an EBITDA of $9.3bn with an underlying EBIT of $7.9bn for Q1 of 2022. Revenues are expected at $19.3bn for the three-month period.

“The strong result is driven by the continuation of the exceptional market situation within Ocean, which has led to a 7% decline in volumes and an average 71% increase in freight rates compared to Q1 2021,” Maersk said.

Disruption has continued globally in Q1 exacerbated by lockdowns in the Chinese port cities of Shenzhen earlier in the period, and the start of a lockdown in Shanghai towards the end. The Danish giant is expecting more of the same in Q2 with higher contract rates and has therefore increased its expected full year EBITDA forecast from $24bn, the same as the record 2021 number, to an estimated $30bn for 2022.

“The current earnings guidance is still based on an assumption of normalization in ocean early in the second half of 2022,” the company said.

Increased profitability is expected this year despite Maersk having revised its outlook for global container trade growth to negative 1% – positive 1%, compared to 2-4% growth previously.

In 1Q22, China imported only 51.8 MMT of coal. This figure not only represents a decline of 16.6 MMT (-24%) vs 1Q21 but a 41.1 MMT contraction vs 4Q21(93 MMT), the second largest quarterly decline on record (4Q19 vs 3Q19: -46.9 MMT). All the loss was in thermal coal (-17.6 MMT) with a combination of factors responsible for this reduction. Indonesia is now overwhelmingly the largest supplier of coal to China with a record 196 MMT imported last year. So, when the Indonesia government abruptly halted coal exports in January, China had no realistic alternative supplier at such short notice with shipments from Indonesia in 1Q22 consequently down 16.1 MMT y-o-y at 28.5 MMT. High international coal prices this year have also reduced the incentive for cheaper imports. With prices currently in the region of $300-350 dependent on its calorific value they are comfortably ahead of the 4Q21 average price $186/tonne when crucially international coal remained cheaper than the Chinese domestic coal price, thus stimulating such high imports.

Clearly energy security is key and as of 4Q21 China committed itself to a policy of rapidly expanding domestic coal production amidst rapidly rising energy prices. After a record 4.07 BMT of domestic coal production in 2021, China’s output of almost 1.1 BMT of coal in 1Q22 is astonishing, representing a 124 MMT (+13% y-o-y) increase. Putting it into perspective domestic coal production in March hit a monthly record of 396 MMT, 72 MMT more than China imported during the entirety of 2021! With coastal coal movement also running at record levels (2021 – 810 MMT + 60 MMT y-o-y) this might also explain why Chinese owners were so active in secondhand market for sub-Cape tonnage during 2021. This policy of rapidly expanding domestic coal production looks set to remain in place for the balance of 2022.

By contrast, 1Q22 met coal imports increased slightly to 12.3 MMT (+1mt / +9% y-o-y). However, discounting the overland trade with Mongolia as well as the long-held 2 MMT of Australian met coal recently released by customs, total seaborne shipments stood at 8.2 MMT in 1Q22 (+3 MMT / +58% y-o-y). China’s release of Australian met coal indicates a tightening in its domestic stockpiles rather than a reproachment with Australia, so will China import cheaper Russian coal? At 3.3 MMT in 1Q22, Russia has not only increased shipments to China by 133% (+1.9 MMT) y-o-y but has now displaced USA as the largest seaborne supplier of met coal to China.

A significant cutback in overall Chinese coal imports would of course negatively impact the dry bulk market in the Pacific but with energy usage in China still running at record levels, a shortage of international supply thus limiting imports is perhaps more pertinent this year. There are of course ongoing concerns about the overall health of the Chinese economy going forward which might serve as a drag on Chinese industrial production and ultimately demand for energy. On Tuesday, the IMF cut China’s GDP forecast for 2022 from 4.8% to 4.4%.

China has set a fast course to reach its decarbonization goals and achieve its policies to boost domestic energy security. Imports of thermal coal are expected to fall by as much as 25%, mostly from Indonesia and Australia, from 210 MMT in 2019 to an estimated 155 MMT in 2025. China’s demand for Australian coal could fall by up to 40% from 2019, to 30 MMT in 2025, with Australian coking coal shipments expected to fall 30% to 20 MMT.

China is the world’s largest importer with almost 324 MMT of thermal coal imported in 2021, 62% coming from Indonesia and 17% from Russia. China is the biggest market for Indonesia, the world’s largest thermal coal exporter, and reduced imports means Indonesia will be left looking for new buyers and competing more strongly with exporters like Australia and South Africa.

China maintains that by 2060 it will reach the goals set in its “net zero emissions” policy which has it reducing imports by as much as 49% between now and this period.

Both maritime equity specialists from Noble Capital Markets have jumped ship to begin work at New York-based Alliance Global Partners (AGP). TradeWinds has confirmed that AGP is the destination for shipping analyst Poe Fratt, and AGP said in a separate statement that it has welcomed Mark Suarez, who had led Noble’s investment banking efforts in the sector. While neither man could be reached for comment ahead of TradeWinds’ deadline, shipping executives said they expected AGP would broaden its coverage of transportation and logistics including shipping names. Suarez has been hired to head that practice.

“We are excited to have Mark join the banking team as we expand our verticals that we currently cover,” said AGP chief executive Phil Michals in a statement. AGP national sales manager Eric Steingruebner also offered a hint of direction. “With transportation and logistics becoming ever more critical during this time, it will give us a competitive advantage to have someone with Mark’s background finding opportunities in this sector,” Steingruebner said.

The departures came virtually on the eve of Noble Capital’s annual investor conference, dubbed NobleCon, held outside of Fort Lauderdale from Tuesday to Thursday. That led to some confusion for shipping presenters during the event, although Noble’s Michael Heim, an energy analyst, introduced himself to management teams as taking up maritime names in Fratt’s place.

Both Suarez and Fratt came on the scene in 2017 as Noble announced a counter-cyclical play in shipping equities, specializing in smaller-cap names. Suarez has a total of 16 years in shipping investment banking and equity research, with previous stints at McQuilling Holdings and Euro Pacific Capital.

AGP describes itself as a full-service national investment firm and SEC-registered broker-dealer for the past 39 years. It has 11 offices across the US, with headquarters on Madison Avenue in Manhattan. The firm says it has taken part in more than $20bn worth of capital markets transactions as lead manager, co-manager or syndicate member and completed more than 300 public offerings as a deal manager.

As TradeWinds has reported, shipping equity analysts have been on the move in recent weeks, with Jefferies veteran Randy Giveans leaving for a post with Navigator Holdings and Omar Nokta departing Clarksons Platou Securities to fill Giveans’ spot, with an expected start date in July.

A softened dry bulk market should firm up over the rest of the year despite concerns around China’s Covid-19 lockdowns, the Russo-Ukrainian war and Brazil’s rainy weather, analysts say. Average bulker spot rates slid over recent weeks because of these uncertainties but should recover as supply remains tight for 2022, B Riley Financial’s Liam Burke told TradeWinds. “With fleet growth anticipated to grow 2.7% year over year in 2022, the sector does not need significant growth in demand to maintain a healthy rate environment,” he wrote in a client’s note. “We are expecting stable rates in 2022, with dry bulk operators generating TCE [time charter equivalent] revenues well in excess of cash costs.”

Average spot rates for all bulker sizes soared in March before falling sharply during the second half of the month and into April. Capesizes saw the steepest decline. Nonetheless, Burke named Eagle Bulk Shipping, Genco Shipping & Trading and Pangaea Logistics as listed owners posting shareholder returns while making good money in these risky times. And he believes fiscally disciplined outfits will continue to do so if they can navigate the uncertainty ahead. Burke said that spot rates for ships smaller than capesizes should benefit from countries seeking coal and grain from other exporters besides Russia and Ukraine as the war continues. “With coal prices remaining high, markets are trying to import coal from wherever in the world it is available,” he said.

Meanwhile, capesize rates should rebound this year due to higher steel production following seasonal weakness driven by Brazil’s rainy weather. Brazilian miner Vale’s first-quarter iron ore production fell 6% to 63.9m tonnes from a year ago due to heavy January rainfall in the state of Minas Gerais, Reuters reported on Tuesday. Production was also lower due to mine upkeep that should, however, allow Vale to uphold 2022 guidance of 320 to 335 MMT of the steel-making commodity. “We believe recovering iron ore cargo demand combined with strong coal demand bode well for capesize rates for the balance of 2022,” Burke said. “Despite anticipated rate volatility for the balance of 2022, increased global demand for coal and longer tonne-miles required to source coal from non-Russian producers should support spot rates, in our view.”

But sanctions against Russia and disruption to Ukraine’s growing season could also hurt rates for the smaller vessels by creating a global grain shortage that lowers demand. “Ukraine and Russia generate about 15% of the global grain supply and should there be a disruption in Russian and Ukraine exports later in 2022, there could be a potential supply shock,” Burke said. “The supply gap created by the Ukraine conflict could be bridged from alternative sources such as the US and Australia that would increase tonne-mile demand but, unlike coal, grain is not as readily available from suppliers outside of Ukraine.”

Oslo-based Fearnley Securities gave a less upbeat forecast for dry bulk rates as China’s plans to raise annual domestic coal output by 13.8% to 4.6 BMT amid the geopolitical uncertainties may curtail demand. The investment bank also expects the lockdowns in China to hurt iron-ore demand, while the ability of Brazil and other exporters to produce the mineral to be a “key concern” for dry bulk shipping. But it still managed to shed a ray of optimism for the sector, despite the uncertain times. “On the other hand, congestion is worsening on the back of Chinese lockdowns and is increasingly likely to add support to the market for some time.”

Dry bulk outlook for the rest of 2022 will be “a battle” between tight supply and low demand that will lead to market volatility, said John Kartsonas, founder of dry bulk ETF-trading platform Breakwave Advisors. “However, the significant distortions in trade patterns combined with higher overall voyage days have been enough to boost rates to high levels and have the potential to push freight volumes to very high levels, similar to last year,” he told TradeWinds. “How the above factors play out is anybody’s guess, but it won’t be smooth sailing for the rest of the year either way.”

The capesize bulker sector is beginning to show a little spring in its step after pretty much dragging its feet for more than two weeks. The Baltic Exchange’s capesize 5TC, a spot-rate average across five key routes, leapt 35% over the past two days to $15,299 per day on Friday. Before this, it did not change by more than $1,500 per day for two weeks, peaking at $12,285 per day on 14 April. “After several weeks of relatively flat price movement, the capesize 5TC market has started to show a little positive sentiment,” Baltic Exchange analysts said on Friday. “Fixture activity on the whole has not been very eventful.”

But Capesize Chartering Ltd (CLL) was able to relet a capesize to Greece’s Enesel at on Friday. The Athens-based diversified operator fixed Bocimar’s 178,062-dwt Mineral Dragon (built 2008) to ballast from India to South Africa with the intent of delivering chrome ore to China. Enesel is paying $28,000 per day. The trip is set to commence on 29 April.

Baltic analysts pointed out that the C5 West Australia to Qingdao route increased $0.773 on Friday to $10.741 per tonne and “has steadily improved over the week”. On that route, BHP fixed an unnamed capesize on Friday to carry 170,000 tonnes of iron ore at $10.70 per tonne, while a similar fixture was booked for a somewhat lower $9.10 per tonne on Tuesday.

“Meanwhile, the cargo to vessel ratio in the Atlantic is said to have tightened — especially for prompt positions.” They also pointed out that the transatlantic C8 has risen $2,250 per day over the past week to reach $11,625 on Friday.

“The capesize market is definitely improving in sentiment, which is a welcome sight for many,” they wrote. “However, with the dark shadow of the lockdown situation in Shanghai hanging over all the shipping markets, the capesize main destination market is unable to fire on all cylinders placing somewhat of a cap on trade at this time.”

China’s plan to boost domestic coal production by 300 MMT this year may hurt the dry bulk sector over time but should spare the market in the near term, according to market watchers. Government officials have confirmed that the country will increase mining capacity by that much in 2022, to reduce foreign energy dependence amid geopolitical tensions, Bloomberg has reported.

China, the world’s largest producer and consumer which mined 4 BMT in 2021, has also implemented price controls that put its main suppliers in Indonesia, Russia, and Mongolia at a disadvantage. The price of coal reached $329 per tonne on Thursday, up 12.2% from two weeks ago, according to the New York Mercantile Exchange.

Citigroup said that lower China imports, which fell by a quarter year-to-date, may be a “game changer” that could present “major downside risks” to fossil-fuel prices, Bloomberg reported. But China’s decision to raise domestic output should not rattle the present bulker market, said John Kartsonas, founder of dry bulk ETF-trading platform Breakwave Advisors. “These are long term drivers and have little if any impact on current spot rates,” he told TradeWinds. He said the market is currently “well supported” with demand and the futures market, especially for capesizes, is reflecting trader optimism with high rates, despite China’s plans.

The capesize 5TC, a spot-rate average across five key routes, shot up 20% on Thursday to $13,571 per day after falling steadily since mid-March, according to Baltic Exchange data. Forward freight agreement (FFA) rates for the sector dropped slightly on Thursday, but they still showed the market increasing steadily in the months to come, to $21,243 per day in May and $34,750 per day in August.

Average spot rates for panamaxes, which are also hired to ship coal, slipped 1.3% on Thursday to $27,419 per day, though the rates are still beating $25,063 per day reported on 11 April, Baltic Exchange data showed.

And China, which was a net exporter of coal a decade ago, is not expected to completely stop buying the commodity overseas as demand is set to grow amid possible shortages, Bloomberg reported.

For New York-listed Pangaea Logistics Solutions, the trip to the Seminole Hard Rock Hotel & Casino on the outskirts of Fort Lauderdale is about what it’s always about: trying to get more eyes focused on the stock. It has been a process for Pangaea since the bulker owner and operator went public through a special purpose acquisition company in 2014. The company is little known, closely held, thinly traded, and located in a place that is a bit unusual for a dry bulk company in Newport, Rhode Island.

Chief financial officer Gianni Del Signore is the man carrying the message for Pangaea as Noble Capital’s annual NobleCon investor conference goes live for the first time since February 2020, about a month before the Covid-19 pandemic struck. It is not the usual crowd for a shipping company seeking attention. Shipping represents just a small slice of the various industrial sectors — most small-cap or micro-cap entities — vying for investor attention. There is shipping but there is also health care, tech, pharmaceuticals, cannabis, and psychedelics purveyors, all thrown together over the course of a three-day event. “Part of our interest in coming to this conference is that it is not your typical dry bulk-focused conference,” Del Signore told Streetwise as he readied his investor presentation. “You’re getting eyes that otherwise would not be exposed to dry bulk and it gives us an opportunity to expand the outreach of the company. I think it’s a unique opportunity particularly for companies such as ours that are undervalued.” Pangaea was to be joined by management of Connecticut-based Eagle Bulk Shipping and New York’s Genco Shipping & Trading, both companies with a larger market capitalization and more mainstream locations.

In previous years, Noble has also attracted management of International Seaways — no longer so small with a $1.1bn market cap today — and an array of Greek shipowners including Seanergy Maritime Holdings, Pyxis Tankers, Euroseas and EuroDry. While Eagle and Genco have grown considerably during a sustained peak market in dry bulk, most of the shipowners presenting are still far smaller than what bankers say is optimal to attract broad investment. But the little guys have been Noble’s niche since its countercyclical dive into shipping in 2017.

From Pangaea’s perspective, there is a good story to tell, not just about the broader strength of the dry bulk market, but about a company that has started to spread its wings after its quiet beginning. Major shareholder Cartesian Capital began selling off a 33% holding in Pangaea in the spring of 2021, paving the way for a large increase in the public float of shares. Around the same time, noted long-only investor Wellington Management moved in, and it has built a stake of more than 9% that makes it the second-largest shareholder. “Ours was the typical story of a family-owned business that went public and wound up with a shares float that was lower than we would have liked, at only about 10% of the stock,” Del Signore said. “It’s one thing that was holding the stock back. It was so thinly traded and closely held that there was no real opportunity for an investor to buy or sell a position.” That changed with Cartesian’s exit, with the float now over 50% of shares. “Our average shares volume was once only 20,000 shares a day and now we’re over 100,000, with some days approaching 1m. For us, Cartesian’s exit was certainly well-timed, coming just as the market started to show some real signs of life,” Del Signore said.

Like other dry bulk shipowners, Pangaea shares have prospered, up 87% on the year. Prior to Covid-19, Pangaea instituted a modest dividend of $0.02 per share, but it was shelved during the pandemic. The owner has not only brought it back but boosted it to $0.05 in February as another investor perk. “Now, with the increased liquidity, there’s more opportunity for investors to consider Pangaea,” Del Signore said. Pangaea’s story is not the simplest to convey it is a specialist in niche, tricky trades like the Arctic ice-class market. It values access to cargo first and takes part in adjacent trades like investing in ports and terminals. But with shipping stocks one of the top-trading sectors of the first quarter, there is a story to tell, even amid the palm trees swaying and slot machines ringing from a casino in South Florida.

Limited ordering of new handysize bulkers is expected to bode well for future earnings potential and asset values. “With the orderbook remaining at multi-decade lows for the handysize segment and net fleet supply forecast set to decrease next year even with steady minor bulk demand growth, we consider there is a supply shortfall of ships. There is also further upside in secondhand asset values as 10-year-old benchmarks are below depreciated replacement cost,” said London-listed owner Taylor Maritime Investments. “Given the underlying fundamentals of the handysize segment, particularly tight fleet supply, the company believes the 2022 outlook is positive.” Older, less-efficient tonnage may also be ideal candidates for scrapping, shrinking supply even further, while minor bulks demand growth hovers around the 2% mark.

Indeed, the orderbook to trading fleet ratio in dwt terms is at 3.3%, the lowest of all the bulker segments, bar very large ore carriers, which are at 0.8%, according to data from Banchero Costa. Fleet growth of 2% in 2021 is expected to drop to 1% this year, followed by a 1% contraction in 2023 and negative growth of 3% in 2024, its data showed. With 2,825 ships on the water, handysizes make up 23% of the overall dry bulk fleet, according to Lloyd’s List Intelligence data. About 15%, or 433 units, were built in 2000 or before, while 44% are less than 10 years old. There are 100 vessels in the orderbook, with four scheduled for delivery in 2024.

Taylor Maritime Investments’ chief executive Ed Buttery said there were three main reasons for the lack of newbuilding ordering: a reluctance by investors to fund this particular asset class, uncertainty over future fuels regulations and a lack of shipyard capacity. “Handysizes are slipping under the radar,” he told Lloyd’s List. Private equity is cautious about handysize newbuildings as they will not deliver until the second half of 2024 or early 2025, which means there is a wait for returns, so it is better to buy secondhand ships, he said, which can trade instantaneously, capturing the healthy spot rates. In addition, ships being built are not state-of-the-art electric or hybrid, and until that happens, no money will flow to this segment, he said, adding that shipyards are not that keen on handysizes as they are not that profitable for the yards compared with containerships or liquefied natural gas carriers. Newbuilding price inflation must also be considered.

The sentiment was echoed by Thailand owner Precious Shipping chief executive Khalid Hashim, who also highlighted the smaller the ship, the greater risk of falling foul of the new efficiency regulations which come into force on January 1, 2023. Dry bulk owners have been erring on the side of caution when it comes to newbuildings given the massive over-ordering that took place in 2007-08, which left the market “in a mess” until 2020, he said. In addition, active shipyards fell to just 89 in 2020 from 231 a decade earlier which means available capacity has shrunk and dry bulk owners have been “crowded out” unwilling to bid higher to ensure slots. Handysizes are also “not the flavor of the month” given the inconsequential difference in price with ultramaxes, which have greater carrying capacity.

Meanwhile, Bancosta head of research Ralph Leszczynski said the lack of ordering in the smallest size stems from a “general upsizing” trend as port infrastructure improves. “Draft limitations and other restrictions are being gradually reduced in many ports, and therefore there is increasingly less need to specifically use small vessels. At the same time, economies of scale tend to favor the use of larger vessels. That is why the focus over the past decade has been much more on supramaxes and ultramaxes than on 20,000 dwt handies.”

Smaller-sized vessels tend to be not particularly attractive for both investors and shipyards from an economic point of view compared to larger vessels, he said, adding that generally only owners with significant experience and know-how of the business manage to maximize profits from smaller tonnage.