Chinese economy shows signs of slowdown

China’s PMI fell below 50 in March, signaling a slowdown in manufacturing and service activity. The manufacturing PMI fell from 50.2 in February to 49.5, while the non-manufacturing PMI was down to 48.4. The slowdown comes amid volatile commodity prices following Russia’s invasion of Ukraine and a renewed surge in COVID cases across China. Rising cases have triggered strict lockdowns and movement restrictions in many of China’s key manufacturing and port hubs. However, there has not been a material increase in dry bulk congestion in Chinese ports, which currently amount to 420 vessels. This is below the 2021 average of 457 vessels. The PMI surveys were taken prior to the worst COVID outbreaks, suggesting that a further decline is likely next month when the full impact of the lockdowns is incorporated. On March 30, state media reported that further support measures will be rolled out to stabilize the economy. Among these is ramping up production of several commodities, including coal and grain, to ease price constraints for end-users.

Germany activates emergency fuel plan

Germany has activated the first of three phases in its emergency energy supply plan, following the rejection of Russian demands that European countries should pay for natural gas in rubles. A crisis team has been formed to monitor imports and storage levels. If a significant fall in supply is observed, regulators could start rationing energy. Under the plans, households, hospitals, and other critical institutions would be given priority over less-essential sections of the economy. As a result, the German industrial sector would therefore feel the brunt of any rationing, including steel and aluminum production. According to the World Steel Association, Germany produced 40 MMT of steel in 2021, accounting for 26% of total EU production. In the first two months of 2022, German output totaled 6.4 MMT. With approximately 2/3 of German steel still produced in blast furnaces, which consumes more energy than electric arc, the sector would be particularly exposed to any energy shortages. The German steel industry imported 13.7 MMT of iron ore in 2021, mostly from Norway (27%), Canada (20%) and South Africa (21%). Rationing would also impact Germany’s aluminum industry, which imported 2.7 MMT of Bauxite from Guinea in 2021. Additionally, Germany’s energy-intensive automobile sector would likely be subject to rationing, pushing down demand for steel and aluminum. Germany also produces chemicals essential to many industrial production chains. The sector is highly reliant on natural gas for production, accounting for 15% of German consumption. The German Chemical Industry Association has warned that disruptions to German chemical production could trigger a “huge domino effect through almost all industries.”

Argentinian grain transporters union announces strike action

The Federation of Argentine Transporters union has announced a national strike of its grain transportation workers, to begin at midnight on Monday April 11. The union claim that grain freight rates have not been adjusted appropriately, given the large rise in fuel costs. The union is also demanding improved security in the vicinity of ports and better infrastructure on port access routes. The announcement added that the strike will continue indefinitely until demands are met. With global agriculture markets already under significant pressure following the absence of Black Sea volumes, such a major disruption to Argentina’s grain supply chain could cause an even greater rise in prices. While most of the region’s wheat has already been exported, the country’s corn and soybean crop is currently being harvested and is likely to be most affected by this development. As of March 30, Argentina’s 2021-2022 corn harvest was 14.4% complete with 6.26 MMT harvested, according to the Buenos Aires Grain Exchange. Given the lengthy transportation times from farm to port, any disruption in exports will only be seen in the weeks following. A prolonged strike could cause a large buildup of vessels near the main exporting ports of Argentina, namely in Parana, as vessels wait for the dispute to be resolved. Farmers themselves have also been affected by the rising fuel costs for tractors and other equipment, particularly as corn and soybean harvesting commenced in the past month.

The Russian invasion of Ukraine combined with already lower assumptions for China’s appetite for dry bulk commodities is expected to cut demand growth to 1% this year, according to Howe Robinson. Speaking on a Baltic Exchange commodities forum during Singapore Maritime Week, the ship brokerage’s head of dry cargo research Janina Lam said she has had to keep on reducing demand estimates as the conflict continues. A considerable drop in grains trades is to be expected from Ukraine, but volumes are expected to continue from Russia if it can get shipments out of the country, given that most product goes to what Russia considers “friendly” nations, she said. Both countries account for about 24% of total grains trades.

Less corn was expected to make it to China this year as its pig herd recovered from swine flu, while for wheat, Australian volumes were forecast to drop to 10 MMT this year, from 20 MMT last year. However, India is looking to increase exports to about 10-15 MMT of wheat. A loss of 20-30 MMT of coal is expected to be made up by an increase in tonne-miles as Europe sources the commodity from Australia, Colombia, South Africa, and the US, Ms. Lam said. However, China is planning to increase domestic coal production by 300 MMT, supplanting a chunk of imported volumes. In addition, China is “not desperate for iron ore” as stockpiles are high and it continues to move towards using scrap metal in electric arc furnaces, she said.

Rahul Kapoor, head of research at S&P Global Platts was also bearish on the market prospects given that the Russian war in Ukraine will lead the global economy to slow down this year after the rapid post-pandemic recovery seen in 2021. Price inflation is expected at 6.4% versus 3.9% last year, with global GDP growth pegged at 3.3%, lower than previously forecast.

Russia exports about 12%-15% of all dry bulk commodities and “not all volumes will be replaced,” he said. For example, coal supply availability with Europe sourcing backhaul cargoes, will not equate to the 30%-40% of lost volumes from Russia. Meanwhile, China is resuming long-term deceleration, with 5.1% GDP, he said, adding that the country’s stimulus will come in “bits and pieces” which means it will not have the same level of impact on dry bulk demand as in previous years. Although China’s iron ore imports could rise by 2% this year, from a contraction of 2.8% last year, marginal growth is expected from 2023, he said, adding that while overall coal trades should grow, imports into China will shrink. As short-term demand for coal rises, structurally it is on a downward trend, he said, adding that the seaborne market has reached its peak.

Looking at the supply side, Ms. Lam expects net fleet growth at 2.6% this year, or 24.4m dwt, while scrapping is unlikely given the strong freight rates. Removals are pegged at less than 5m dwt this year versus the 7m dwt scrapped in 2021, mostly the old converted very large ore carriers. While ordering has increased — at 30m dwt last year versus 20m dwt in 2020 — the orderbook as a percentage of the existing fleet is low, at less than 7%, she said. Fleet growth has been slowing over the past eight to nine years, and if considering all vessels over 20 years of age (amounting to 68.1m dwt) against the current orderbook at 64.4m dwt, it makes for “a positive story.” Inefficiencies and increased congestion, combined with a container market that is four times higher now than during the boom year of 2008, have benefitted handysizes the most, but these factors will not last forever, she said. The efficiency regulations coming into force next year is not expected to have a big impact on the market as vessels have already slowed down over the past several years, she added. In terms of newbuildings, Ms. Lam said yard capacity was an issue, while it was also difficult to know which technology to use. It was difficult for owners of smaller-sized ships to pay a premium for dual-fuel technology as asset values were lower than the larger sizes, she said. In addition, there were no incentives on offer at the moment. A 15-year-old vessel was more expensive than a newbuilding, while resales were the same price, with delivery now rather than in 2025. New regulations will however force older tonnage out of the market, according to the Baltic Exchange’s chief executive Mark Jackson. “There is need for a new fleet,” he said. “You cannot be frightened to say new ships need to be ordered.”

It was announced today that the EU has proposed to ban coal imports from Russia, while the details of the ban and timing of the phaseout are still under discussion. According to data from UN Comtrade, the EU imported 68.7 MMT, 57.1 MMT and 44.2 MMT of coal from Russia in 2018, 2019, and 2020, respectively. In total, the EU imported 124 MMT of coal in 2019, meaning Russian exports account for c50% of the EU’s overall imports. Furthermore, Russia’s total coal exports were 199.5 MMT, 205.4 MMT and 197.9 MMT in 2018, 2019, and 2020, respectively. Among the top coal importers in the EU, we find Germany, the Netherlands, Turkey, and Poland. According to the data, between 2018 and 2020, Germany imported on average ~17.6 MMT of coal from Russia, while the Netherlands imported ~6.0 MMT, Turkey imported ~13.8 MMT, and Poland imported ~11.2 MMT.
 
According to Clarksons, the EU’s seaborne coal imports totaled 138 MMT, 109 MMT, and 67 MMT while total Russian seaborne coal exports were 136 MMT, 150 MMT and 154 MMT in 2018, 2019, and 2020, respectively. This compares to global dry bulk and coal trade of 5,200mt and 1,200mt in 2020, respectively. Russian seaborne coal exports therefore contributed to c3% of global dry bulk trade and c12% of global seaborne coal trade, making it a major supplier of coal to the global seaborne trade flow. Should the Russia-EU coal trade fully shift to seaborne imports, it would add roughly 50% to shipping demand. Meanwhile, Russian coal exports could be redirected to further afield, as we believe Asian importers are unlikely to impose similar bans. Thus, such a shift could be a positive to tonne-mile shipping demand for coal trade if aggregate Russian coal export volumes are not severely disrupted by the recent events.

Chinese shipping newcomer Huaxia Financial Leasing has returned to Nantong Xiangyu Shipbuilding & Offshore Engineering for more ultramax newbuildings. The state-owned company has ordered two 63,500-dwt bulk carriers, bringing its order tally at the Chinese yard to six. Its earlier four vessels were ordered in November. According to Nantong Xiangyu, this latest pair will be classed by Bureau Veritas and meet the IMO’s Energy Efficiency Design Index Phase 3 standards for greenhouse gas emissions. The yard did not disclose the price or delivery dates. A shipbuilding source said Huaxia Financial is paying about $32m each for the ships and will take delivery of all six in 2024. This latest contract at Nantong Xiangyu brings the total of ultramax newbuildings on its orderbook to 16.

China State Shipbuilding Corp’s Chengxi Shipyard is building eight vessels and Sino-Japanese shipbuilder Nantong Cosco KHI Ship Engineering (Nacks) is constructing two ships. According to Clarksons’ Shipping Intelligence Network, Nacks is due to deliver the duo in October and December next year. Chengxi is scheduled to deliver one ship in November 2023 and the other seven in 2024. Huaxia Financial was reported to have paid about $32m each for the Chengxi and Nacks newbuildings.

The leasing house joined the shipping segment late last year through the order of bulker newbuildings at domestic shipyards. It has a business presence in logistics/warehousing, new energies, and commodities, and is said to have total assets worth more than CNY 13bn ($2bn).

Nantong Xiangyu said it has signed 11 newbuilding contracts this year, including Huaxia Financial’s two-ship order. It did not disclose the buyers’ names, but TradeWinds has learnt that they are domestic companies.

Shipbuilding brokers said the Jiangsu-based yard has expanded its shipbuilding capacity by renting slipways and a dry dock from Sainty Shipbuilding (formerly Sainty Marine). The company has lined up six ultramax bulkers to be built at Sainty for delivery starting in 2024. A Nantong Xiangyu manager confirmed the “cooperation” with Sainty Shipbuilding and said his company will be sending a team there to supervise production and ensure quality. “Sainty Shipbuilding still has its own shipbuilding team,” the manager added.

Sainty Marine was reported to be China’s first listed shipyard to apply for bankruptcy in 2016 after being hit by the downturn in the global shipbuilding industry. It was restructured a year later and renamed Jiangsu Guoxin Corp.

CHICAGO, April 4 (Reuters) – Chinese buyers bought 1.084 MMT of US corn, their biggest purchase of US grain since May 2021, the US government said on Monday.

The deal comes as shipments from Ukraine, the world’s fourth biggest exporter of corn, are snarled following Russia’s invasion. China had been a big buyer of Ukrainian corn and the fighting, which also has disrupted spring planting season, has created uncertainty about their reliability as a supplier.

The US Agriculture Department said that the deal was for 676,000 tons of corn to be delivered in the 2021/22 marketing year that ends Aug. 31 and for 408,000 tons to be delivered in 2022/23.

USDA said last week that US farmers plan to cut their corn plantings this spring despite the strong global demand, with high prices for inputs such as fuel and fertilizer cutting into potential profits for growing the yellow grain.

According to Clarksons newbuild prices are experiencing the sharpest increase for almost two decades thanks largely to the extremely high number of containerships and LNG carriers ordered over the past 15 months.

Vessel newbuilding prices have been rising for over a year, and the overall Clarkson Newbuilding Price Index now stands at 156 points, up 25% since the November 2020 low, indicating the highest prices – in nominal terms – since 2009. “The pace of increase has been rapid and the gain in our index over the last 16 months is the sharpest percentage rise over any equivalent period since 2005,” the latest weekly report from Clarkson Research Services stated.

Moreover, any owner wanting to order a ship today faces a considerable wait. Shipyard forward cover has increased to 2.9 years from 2.4 in November 2019. Despite the 25% increase in overall newbuild prices, shipbuilders are not making massive profits. This is thanks to soaring costs. Steel prices, for instance, remain elevated after big increases in 2021. Chinese steel plate today costs around $800 per tonne, up by around $250 per tonne since April 2020. “A basic inflation adjustment suggests that in ‘real’ terms newbuild prices are actually still below start 2016,” Clarksons suggested.

Rival broker BRS published an extensive annual markets report last week, which covered the massive amount of container and LNG orders last year and the increasingly full-up nature of most Asian yards. Containerships orders jumped by more than 300% in 2021, BRS data shows with container carrier orders surpassing bulker and tanker orders for the first time in history. On top of that, there were 86 large LNG carriers ordered in 2021, an all-time record.

As a result of the ordering frenzy, BRS stated last week that most Chinese yards are now full for the next three years, with the situation similar in South Korea.

75% of the world shipbuilding production is now in the hands of just nine shipbuilding groups, BRS data shows.

The country’s wheat exports are likely is cross 10 MMT during 2022-23, due to increasing demand for the commodity in the world market, Commerce and Industry Minister Piyush Goyal said on Sunday. The exports have crossed 7 MMT in 2021-22 (worth over Rs 15,000 crore) as against 2.155 MMT (over Rs 4,000 crore) in 2020-21. It was only 200K tons (Rs 500 crore) in 2019-20.

The minister said wheat exports have helped several countries in meeting the requirements of food security. “We will continue to export wheat in a big way and meet the needs of the countries that are not getting their supplies from the conflict areas, and my own sense is that this time we will probably exceed our wheat exports (of) over 10 MMT comfortably,” he told reporters here.

Russia and Ukraine together account for almost a quarter of the global wheat supply. Their wheat crop will mature in August and September this year.

Farmers are focused on increasing production also, and regions like Gujarat and Madhya Pradesh are exporting in a big way from last year, he added. India is in final talks to start wheat export to Egypt, while discussions are going on with countries like China, Turkey, and Iran to begin the outbound shipments of the commodity.

Director-General of Foreign Trade (DGFT) Santosh Kumar Sarangi said that there is also an effort on the part of the departments of commerce and food and public distribution to facilitate exports from other ports. Maximum exports are routed through Kandla port. Discussions are on with railways for facilitation of wheat exports from different ports, such as Vizag, Kakinada, and Nhava Sheva, Sarangi added.

India exports wheat mainly to neighboring countries, with Bangladesh having the largest share of more than 54% in both volume and value terms in 2020-21. It has entered new wheat markets such as Yemen, Afghanistan, Qatar, and Indonesia. Wheat exports to Bangladesh have crossed 3.5 MMT in 2021-22. The top ten importing countries for Indian wheat in 2020-21 were Bangladesh, Nepal, United Arab Emirates, Sri Lanka, Yemen, Afghanistan, Qatar, Indonesia, Oman, and Malaysia.

India accounts for even less than 1% of world wheat export. However, its share has increased from 0.14% in 2016 to 0.54% in 2020. India is the second-largest producer of wheat. It had contributed around 14.14% of the world’s total production in 2020. India produces around 107.59 MMT of wheat annually, while a major chunk of it goes towards domestic consumption. Major wheat growing states in India are Uttar Pradesh, Punjab, Haryana, Madhya Pradesh, Rajasthan, Bihar, and Gujarat.

Indian buyers have restrained from purchases as coal prices have risen to levels beyond the reach of power utilities in India.

Coal India stated that its pithead inventories are expected to reach 60 MMT by the end of this week, 30% lower than the corresponding period last year, while stocks at utilities stood at 25.5 MMT earlier this week, 13% lower y/y. The fuel’s inventories are sufficient for 9 days, down from 15 days a year ago.

Despite a 5% y/y increase in coal production over the period, market participants report concerns over capacity constraints amid logistical issues stemming from a shortage of freight wagons for railways transportation.

Imports of coal by power utilities have fallen 42% on the year to 23 MMT during April 2021 – Jan 2022. Since the country has shown no signs to doubt energy demand, an increase in imports stand to be a deciding factor on the direction of the situation.

The spot market for panamax and supramax bulkers fell during the past week as demand suffered in both the Atlantic and Pacific basins. The panamax 5TC, a spot-rate average across five key routes, declined 10% over the last seven days to $27,660 per day on Friday, according to Baltic Exchange data. “A distinct lack of demand in the North Atlantic aided a drift in rates,” Baltic Exchange analysts wrote on Friday in their weekly assessment of the dry bulk market. “Further south there returned limited support for the longer grain transatlantic rounds.”

K Line has fixed the 82,198-dwt Iris Bliss (built 2016) to Chinese commodities giant Cofco Agri at $27,000 per day to ship grain from the US Gulf to Spain after ballasting from Hamburg. Loading is set to take place from 5 to 10 April. This voyage compares to a Baltic assessment of a transatlantic roundtrip at $32,250 on 25 March.

The Baltic’s supramax 10TC slid 8.7% over the week to $30,301 per day as supply in the Asian market outweighed demand. “The recent strength within the Asian arena was eroded during the week as enquiry levels from key areas like Indonesia dipped, which lead to a plentiful supply of prompt tonnage,” analysts wrote.

The capesize market also experienced a downward trend but was able to regain most of its losses by the end of the week. The Baltic Exchange’s capesize 5TC dipped earlier in the week but rebounded to register only a $188-per-day loss over the past seven days to $15,460 per day on Friday.

Authorities at China’s commercial hub were forced into a humiliating U-turn yesterday in their battle with Covid-19. Having placed the eastern side of Shanghai, Pudong, into lockdown at the start of the week for what was planned to be five days, officials have decided to keep Pudong citizens in confinement, while the western side, Puxi, went into lockdown as planned today in the original two-stage zero-Covid crackdown strategy hatched last weekend. Nearly all the city’s 26m residents are now forced to stay at home with no confirmation for how long the strict measures will stay in place given that Shanghai now accounts for three out of every four local asymptomatic cases across the country.

Factories are shut as is all public transport. While the city’s many port terminals are operating – dockworkers working in a so-called closed-loop fashion – productivity has fallen dramatically this week, as it has among the local trucking workforces. Hong Kong’s South China Morning Post reported earlier this week that Yangshan container port is operating at half capacity due to Covid restrictions. Yangshan operates a closed-loop protocol where the workers are divided into two teams and must live in a sealed-off area at the port. Similar measures are in place at the Waigaoqiao container port as well as at Pudong airport. Air cargo volumes out of the city have also slumped.

“Though Shanghai port is operating, due to the lockdown, there are not enough longshoremen in the port, so the efficiency for loading and unloading has been impacted. Both Waigaoqiao Port and Yangshan Port are congested,” an update from Crane Worldwide Logistics suggested yesterday.

Some ocean carriers have announced vessel delays or are omitting Shanghai calling of some voyages, and some have announced blank sailings. Many shippers have shifted to Ningbo port to the south with some carriers allocating more space there.

The lockdown in Shanghai comes at a time where congestion at the port had been building for the past month, for all ship types, not just containerships. VesselsValue has provided Splash with data on the spike in congestion recorded over the past month through to today. In Shanghai’s hinterland, local authorities have suspended pilot arrangements at Yangtze River ports for vessels that require NAT/PCR tests. These vessels will be quarantined at anchorage instead. This is effective from yesterday until further notice.

The Shanghai New International Expo Center, which typically hosts trade shows such as Marintec China, has been converted into the city’s largest central quarantine centre with more than 15,000 beds. Marintec China, which was meant to have been held in Shanghai in December, has moved to late June this year thanks to earlier Covid scares.