China’s biggest steelmaking hub Tangshan, located in the Hebei province says it no longer plans to limit steel output. Instead, it is taking a three prong approach likely to be replicated nationwide, to keep steel industry on path with decarbonization. Reducing limits, output is set to rise in the short term within the next months, weighing on prices. China’s crude steel output is set to reach close to 2.9 MMT/day in March. This figure remains lower than March 2021 of 3 MMT/day, but higher than the output levels seen in Jan-Feb 2022 period.

However, long term developments in Tangshan are shifting to encourage steel mills to develop grade A level environmental output. So far four steel mills have reached grade A standard. These have a combined crude capacity of 48 MMT/day, or 37% of Tangshan’s total crude steel capacity.

Under the same plan, local mills are required to undergo facility upgrades that will see 16.7 MMT/year of new crude steel production capacity commissioned in 2022, predicated on the closure of 20.4 MMT/year of existing crude steel capacity, hence resulting in a net decrease of 4 MMT/year.

New facilities take several months to begin operations, while old facilities must shut down by the end of the year; negatively impacting Tangshan’s crude steel production.

Shipping equities across maritime improved on Friday amid US, UK and European Union sanctions imposed against Russia for its heavy-handed invasion of Ukraine. Tanker stocks continued to advance from notable gains seen on Thursday in the hours after Russian forces stormed into Europe’s largest country. Bulker stocks also moved forward, building on Thursday’s late day rebound that offset sharp declines earlier in the day.

Shares of New York-listed bulker owner Diana Shipping saw the biggest leap, jumping 15.6% to close at $4.75 after posting a fourth-quarter net profit of $41.1m on Friday morning. Equities held by Teekay Tankers came in a distant second, still bounding 8.7% to end trading at $13.73. Stock for bulker owner Navios Maritime Partners gained 8.4% to close at $33.67, while Star Bulk Carriers’ shares moved up 8.3% to finish the day at $31.76. Eagle Bulk Shipping’s shares improved 7% to $56.50, and those for Genco Shipping & Trading gained 5.9% to $19.90. Bulker owner Golden Ocean Group’s stock leapt 5.7% to $12.80. Shares of tanker owner Tsakos Energy Navigation edged up 3.4% to $7.81.

The White House on Friday said the US would impose sanctions on Russian President Vladimir Putin and Foreign Minister Sergei Lavrov, Reuters reported. Earlier on Friday, EU states and Britain agreed to freeze Putin and Lavrov’s assets. The sanctions targeting Putin are the latest punitive action from western powers over Russia’s aggression against Ukraine. The US on Thursday imposed sanctions on Russia’s two biggest banks, among others, and members of the elite, according to Reuters.

Shipowners are refusing to sail to the Black Sea following attacks on vessels including bulk carriers and major shippers are declaring force majeure at their production facilities in Ukraine. Both factors have complicated the immediate outlook for bulker markets. Conflict in Ukraine has plunged the supramax market in the eastern Mediterranean into turmoil. Whereas tankers have been earning premia for trips to the Black Sea, bulker owners are largely refusing to go to the region at all, TradeWinds has heard.

Rates for supramax trips from the Black Sea to Asia plunged by 5% on Friday. The benchmark route from Canakkale in Turkey to China-South Korea via the Mediterranean or Black Sea was assessed at $28,979 per day, which is $1,471 lower than on Thursday. Grain business in the Black Sea has been at seasonally low levels, but the outbreak of conflict this week has made matters much worse for bulker demand in the region. Market sources said they expect news of the attacks on bulk carriers in the Black Sea to all but end grain business in the region for the time being.

Danish owner-operator Norden said it has vessels in the Black Sea but did not get into specifics as to how they are being affected by the conflict. “We are keeping a close eye on the situation as we currently have several vessels in the region including two chartered vessels in Ukrainian ports,” Norden said. Aside from cargoes from Ukraine, Russia and the Black Sea, market sources said supramax demand was holding firm with many owners out to book March cargoes. The weighted average of supramax spot rates across 10 key routes was assessed $20 higher on Friday to $26,587 per day. This is the assessment’s highest level since the end of December.

The most dramatic slide in freight rates was seen in the capesize market, where average rates slid by 15% on Friday. This continued the dip seen the previous day, which Baltic Exchange analysts called “less of a move on market fundamentals and more a reflection of global tensions”. The 5TC weighted average of spot rates across five key capesize routes was assessed on Friday at $14,026 per day, down by $2,560. Freight-rate assessments were down across all the Baltic Exchange’s benchmark routes. Worst affected was the China-Japan transpacific round voyage, which saw $6,088 wiped off its assessment. Panelists put the route at $11,154 per day on Friday. Brazilian miner Vale was reported on Thursday to have fixed an unidentified capesize for a trip from its Ponte de Madeira terminal to Rotterdam earlier this week at a rate of $10.50 per tonne, loading in mid-March. This is Vale’s first reported fixture for iron ore since 25 January, signaling the miner’s return to the market following the rainy season in Brazil. Michael Gardiner, chartering manager for Vale, told TradeWinds the miner is “optimizing” its fleet by controlling vessel speeds and making careful port selections. “From the Vale side, we remain in the sidelines, having made a concerted effort to optimize our dedicated fleet of around 150 ships,” he told TradeWinds on Friday. “Moving into Q2 [second quarter], any chartering activity will be focused around optimizing berth efficiency.” Average panamax spot rates fell by $282 on Friday, following a dip in rates on routes originating in Europe and the Mediterranean. The weighted average of panamax rates across five key routes was assessed at $23,922 per day. Dry freight derivatives looked a little better on Friday with bids rising higher, but not enough to reverse the effects of the dramatic route seen on Thursday, which hit front-month contracts especially hard.

Railways and ports in Ukraine have ground to a halt, which has forced major exporters to halt production in the country. Miner and iron ore pellet producer Ferrexpo declared “force majeure” at its production facilities in Ukraine on Friday, according to a statement. Ferrexpo said its operations have also been hampered by a shutdown at the capesize terminal at Pivdennyi in the Ukrainian port of Yuzhny. Market sources said the iron ore pellet market will be directly affected by the drop in Ukrainian volumes but said the effects may be offset by stems of high-quality sinter feed from elsewhere. Ukrainian steelmakers Metinvest and ArcelorMittal Kryvyi Rih have also suspended operation at their steel production facilities, which would affect demand for any supramaxes and handysizes willing to call in the country.

Ukraine: has officially halted operations in its large Black Sea deep seaport Yuzhny declaring force majeure. Yuznhy exported 25 MMT of iron ore last year (2% of global supply). Market participants said vessel movements in and out of all Ukrainian Black Sea ports have ceased. Many shipowners expressed unwillingness to commit vessels into the Black or Baltic Sea. Not only iron ore, but grains, coal and minor bulks are also impacted by the halt in operations. There are a lot of enquiries from the usual customers of Black Sea dry cargo volume about buying commodities from other destinations. However, it is doubtful whether the rest of the world can swiftly and easily substitute the export volumes now lost from the Black Sea. This was clearly reflected yesterday, as iron ore, coal and grains prices rose markedly.

Russia: exported 165 MMT of coal last year (20 MMT from the Black Sea). Russia also exported 8 MMT of Fertilizers, and 22 MMT of Wheat. Other parts of the World cannot make up for these volumes in the event of direction sanctions on commodity exports. So, we think the impact for dry bulk markets overall will be limited but expect disruptions and changes to trade flows.

As Russia invades the Ukraine, there is growing talk about sanctions to be imposed by Western Europe and the USA on Russia. Such sanctions, however, are likely to exclude energy exports from Russia, and that’s simply due to the huge volumes involved and the level of Europe’s dependence on Russian energy. Let’s look at the numbers for Russia:

In 2021, Russian seaborne coal exports reached 177.2 MMT, of which 22% (38.8 MMT) was shipped to the European Union. Russia is the third largest seaborne exporter of coal in the world, accounting for 15% of global supply.

In 2021, Russian seaborne crude oil exports reached 212.0 MMT, of which 54% (114.2 MMT) was shipped to the European Union. Russia is the second largest seaborne exporter of crude oil in the world, accounting for 11% of global supply.

In 2021, Russian seaborne LNG exports reached 30.3 MMT, of which 40% (12.1 MMT) was shipped to the European Union. Russia is the fourth largest seaborne exporter of LNG in the world, accounting for 8% of global supply.

However, for Europe:

In 2021, 43% of the European Union’s total seaborne coal imports; 28% of crude oil imports; and 20% of LNG imports, were sourced from Russia. And this does not include pipeline shipments.  If we consider both pipeline and seaborne, Russia accounts for about 50% of the European Union’s total gas imports. Therefore, any sanctions on Russian energy exports would be a huge headache for BOTH sides.

As the West looks to cripple Russia’s economy in the wake of its invasion of Ukraine, shipping appears to be in regulators’ sights once more. Amid all the headline-grabbing black-listings undertaken or threatened by the US, UK, and European Union — freezing oligarchs’ assets, banning Aeroflot from British airports and potentially cutting Russia off from secure Swift financial messaging services — shipping companies have been sanctioned. It is a trend Bruce Paulsen of Seward & Kissel expects to continue.

“Obviously, there’s a lot of shipping in and out of Russia,” said Paulsen — who chairs the law firm’s sanctions practice group — on a webinar with attorneys from Simmons and Simmons discussing Russian sanctions. “Going back to 2014, sectoral sanctions [were] aimed at oil exploration in the Arctic. I expect those things are in play and may be expanded. Shipping is highly involved in those sectors. I think shipping, as ever, will be in the crosshairs.”

As it stands, the US blocked Sovcomflot from issuing new debt or equity to investors there, while five ships ended up blacklisted due to their financing arrangement with Russia’s PSB bank. The sanctions came on Tuesday and Thursday as Russia pushed deeper and deeper into its neighbor, ostensibly over security concerns in Ukraine’s Donbass region near the Russian border. Despite Russia’s explanation, attacks have been reported all over Ukraine and forces are reportedly invading from its southern coast and eastern and northern borders.

Moving forward, Paulsen and Simmons and Simmons attorney Thomas Bowen said they expect the US, UK, EU, and others to move in conjunction to levy further sanctions, though exact targets are still to be seen. Should shipping continue to be a target — and US President Joe Biden said on Thursday US sanctions would be levied on Russian shipbuilding — it could hit tankers and LNG carriers.

VesselsValue analyst Vivek Srivastava said as much as 7.4% of the world’s tanker fleet could be at risk for blacklisting along with 3.5% of the total LNG carrier fleet. “With cripplingly weak utilization and freight rates afflicting both of those sectors for the past several months … sanctions on Russian shipping companies could remove some excess supply of ships from the openly competitive market without causing as large an upward movement in freight rates,” he said in a note. For LNG carriers, the at-risk fleet identified by the ship valuation firm represented 7% of total cbm miles, while tankers only contributed 2.1% of total tonne miles.

Srivastava said given the reliance some countries have on Russian oil and gas and the current high prices ships could present an attractive target. “From looking at the data, one would expect policymakers to consider very carefully the impact on Western consumers and households before sanctioning oil and gas,” he said. “However, there could be more scope to sanction the ships and companies that carry them, due to the lesser impact on global trade and exports.”

Genco Shipping & Trading is confident that the dry bulk market will continue to improve amid low supply, despite Russia’s attack on Ukraine on Thursday. Any disruption to commodities out of Ukraine should not have a major sector impact against a very low orderbook, chief executive John Wobensmith said. “I think overall as a macro view, with the low supply and the low orderbook in dry bulk shipping, you just don’t need much demand growth overall to continue to build on 2021,” he said on Thursday during a fourth quarter earnings call with analysts. He said Ukraine does export corn, wheat, and iron ore, but major producers Brazil, Australia and the US could easily offset any commodity shortfall from Ukraine because of Russian invasion. “We do believe that the US could make it up if there were significant cutbacks on the grain side, so that could be a tonne-mile increase there,” he said. “So, we still believe in the cyclical upturn.”

The Baltic Dry Index on Thursday fell 57 points to 2,187 points as the capesize 5TC, which takes the average spot rate across five key routes, slid 8.8% to $15,856 per day. On the other end of the dry bulk spectrum, the handysize 7TC edged up 2.2% to $24,914 per day.

Rio Tinto on Wednesday fixed an unnamed capesize to ship 170,000 tonnes of iron ore from Dampier, Australia to Qingdao, China at $10.30 per tonne. Loading will happen from 10 to 12 March. On the previous day, Rio Tinto hired Capital Executive Ship Management’s 178,900-dwt Attikos (built 2012) to carry the same volume of ore on the same route at $9.40 per tonne. Loading is set for 9 to 11 March.

And Ukraine produces most of its grains in August anyway, he said. “We’re quite some time away from that,” he said. And Ukraine accounts for a very small part of global iron-ore trade compared with Brazil, Australia, and India, he said. Wobensmith is confident that Genco is well prepared to handle market tremors because of the Russia-Ukraine conflict by keeping to its low-leverage, low-breakeven business model.

“I think it’s a little early, I guess, to see exactly what’s going to go on here,” he said. “There’s a very large group of Ukrainian seafarers around the world, and as far as we’re concerned, the focus should really be on them. Our hearts go out to them and their families, and we hope they stay safe.”

Russia’s invasion of Ukraine could hit bulker markets in the short term, but tonne-miles could rise over a longer period. This is according to Danish handysize specialist Lauritzen Bulkers’ chief executive Niels Josefsen. Speaking to TradeWinds hours before Russia began bombing Ukrainian cities, the boss said there had already been a slow-down in commodity markets. “As always when there’s a crisis everybody is holding back,” he said. “I’m not sure about shipping, but commodity trading — there is a wait and see [approach]”, he added. “Right now, there is less activity, but it’s not like we have seen an effect yet on spot markets,” the CEO continued.

Josefsen explained that in the short term, a crisis like Ukraine would usually have a negative effect. “And then a little bit longer term, it could be positive because trading patterns will change and normally that means more tonne-miles,” he said.

Speaking more generally about the outlook for bulker markets, the executive said he believes 2023 will see a positive trend due to emissions regulations. New rules on fuel efficiency will reduce ship supply because vessels will have to slow their speeds to comply. “There will actually be a possibility for a fairly good market to 2023 and going forward,” Josefsen said. “Each vessel will simply not be able to carry the same amount of cargo per year as they are doing right now,” he added.

Bulker rates have been rising this week, brokers and analysts have reported. “Uncertainty abounds, but this will likely impact the shipping markets as flows of crude oil, natural gas/LNG, coal and grains will all be disrupted, probably boosting tonne-mile demand depending on the degree of sanctions and trade dislocations,” Jefferies analyst Randy Giveans wrote in a note.

Oil prices jumped above $100 for the first time in seven years and global stock markets slumped after Russia launched what appeared to be an all-out invasion of neighboring Ukraine. Japan’s Nikkei index was down nearly 2%, Hong Kong’s Hang Seng was off 3.5% and Singapore’s Straits Times Index fell by 3.07%. Europe’s main stock markets opened 2.5% to 4% lower, with London’s FTSE 100 down 2.7%. Brent crude surged $5.63 to $102.47 per barrel, while West Texas Intermediate leapt 4.6% to $96.22 per barrel. Nymex natural gas contracts were up 4.5%.

Analysts said that while Asian economies face lower risks than Europe over a possible Russian attack and Western sanctions, the region’s economies that need imported oil will be hit by higher prices if supplies from Russia, the third-largest producer, are disrupted. Australia and Japan said they are closely watching oil prices for any impact from hostilities in Ukraine and are prepared to tap oil stockpiles if necessary.

The equities rout in Asia looked set to continue in Europe and the US, with a sharp jump in commodity prices adding to worries about inflation and risks to economic growth. Shortly after Russian President Vladimir Putin said he had authorized what he called a special military operation, explosions were heard in the pre-dawn quiet of the Ukrainian capital, Kyiv, and the Ukrainian government accused Moscow of launching a full-scale invasion.

Futures for a wide range of grains were up by more than 5%, reflecting fears for the coming growing season in eastern Europe and exports from the region. Safe haven investments such as gold and the US dollar climbed, while the Russian Rouble collapsed. S&P 500 E-minis were down 2.3% and Nasdaq futures fell 2.8%, putting the US index on track towards confirming it is in a bear market.

Chris Weston, head of research at Pepperstone, said an all-out invasion of Ukraine would be one of the worst-case scenarios for markets. “We now have a long night ahead of us trying to understand how bad this gets, and what sanctions get put up, because there has to be a fresh round of sanctions now against Putin and the Russian government,” he told Reuters. “That’s where the worst case, or the bear case scenario, is for markets — and that’s what we’re seeing. There are no buyers here for risk, and there are a lot of sellers out there, so this market is getting hit very hard.”

Pacific Basin Shipping is making a special dividend to shareholders following the most profitable year in its history. The Hong Kong-listed bulker owner recorded net profit of $844.8m for last year, compared with $208.2m for 2020. Revenue totaled $2.97bn during 2021, which is more than double the $1.47bn booked the previous year. The company will pay a special dividend of HK 60 cents ($0.07) per share, bringing its total payout up to HK 74 cents for the full year 2021, including the HK 14 cents interim dividend that was distributed in August. The company said it is making the special dividend “in light of the extraordinary cash flow of the last year and our robust balance sheet and positive outlook. We yielded an exceptionally strong return on equity of 58% and significantly strengthened our available committed liquidity to $668m with net gearing reduced to 7% at the yearend while we continued to expand our owned fleet,” the company said in its annual report.

Pacific Basin’s handysize earned net daily time-charter equivalent (TCE) rates of $20,460 on average last year, while its supramaxes earned $29,350. “2021 saw by far the strongest dry bulk freight market since 2008, driven by robust global demand for commodities and low fleet growth, aided by fleet inefficiencies. This was and remains the strong market that our people have worked hard over several years to set ourselves up for,” Pacific Basin said in its report. “Despite facing significant Covid-related crewing challenges, we deployed our enlarged core fleet, and drew on our experienced teams to capitalize on the strong market while continuing to deliver class-leading service to our customers.”

Pacific Basin’s fleet grew during 2021 through the addition of 11 modern bulkers acquired in the secondhand market and the sale of five of its smallest and oldest handysizes. The company owns 121 handysize and supramax bulkers in its fleet of 250 vessels. It said it wants to grow its supramax fleet further and replace its handysizes with fleet with younger, larger and more efficient vessels “to more easily meet tightening environmental regulation”.

Chief executive Martin Fruergaard, who joined Pacific Basin as executive director in July, said the company is optimistic that vessel supply will remain “under control” going forward, which will help support freight markets in the longer term. “With dry bulk ships now largely operating at full speed, supply cannot be further increased through higher speed, and IMO and EU fuel-efficiency rules are likely to start forcing slower speeds from 2024 — and even accelerate scrapping of the least efficient ships — which will reduce supply,” he wrote in the firm’s annual report. “Despite some new ordering in the very strong market, we expect that the dry bulk orderbook will remain at historically low levels due to decarbonization-related regulatory uncertainty, the high cost of newbuildings and the shortage of shipyard capacity at a time when berths are fully booked with orders for non-dry bulk ship types.”