It appear as the Chinese central government is shifting its approach to Covid. This week, cities and provinces have been gradually lifting lockdown restrictions, likely driven by new economic weakness and widespread protests.

Shenzhen and Shanghai have scrapped the requirement for commuters to present PCR test results to travel on public transport, after Tianjin, Chengdu and Chongqing removed such rules. However, the politburo standing committee, has not yet made an announcement on the official view.

China is the most important country for many shipping segments, especially for dry bulk. The country imports more than 70% of all seaborne iron ore and more than 20% of coal, and a reopening should, all else being equal, be good news for the segment.

On the back of slow activity in China as well as a significant easing of congestion, the peak season has been a disappointment, and we are now heading into what is usually the low season (towards Chinese New Year). As such, we see few immediate triggers, but note that a potential reopening of China would bode well for demand growth in 2023.

We will report much more about China changing, but wanted to put out an update now letting clients know that it does appear that the central government is finally shifting.  Over 4,000 new daily coronavirus cases were reported in China again today and yesterday, but at the same time more provinces and cities have been lifting lockdowns.  Guangzhou in particular this week has announced a lifting of all lockdowns, and Beijing this week has been gradually lifting its own restrictions.  We believe that the protests and riots seen in recent days, combined with recent new economic weakness, has led the central government to finally shift and move towards fully reopening.  Telling now, though, is that China’s iconic Guangzhou Tower last night displayed the message “每一个人都是健康责任第一责任人!” which roughly means “We are all individually the first person responsible for our own health“. 

If ever there was a (literal) sign that reopening is actually coming, it was last night.

Mining giant Rio Tinto said it expects iron ore shipments in 2023 to be in the same range as this year. It expects to ship between 320 and 335 MMT of the steelmaking ingredient next year, according to figures released Wednesday. The world’s largest iron-ore producer reiterated guidance for exports at the low end of the same range in 2022. The Anglo-Australian company said Pilbara shipments guidance remains “subject to risks around commissioning and ramp-up of new mines and management of cultural heritage”.

Rio’s head of economics and markets, Vivek Tulpule, told a London investor seminar that the company expects broadly flat future growth for primary steel demand “as India and Asia take over from China in terms of absolute growth”.

Iron ore prices have jumped 25% in November amid signs that China is preparing to loosen some of the restrictive measures of its zero-Covid policies. “Iron ore was dragged higher as sentiment was buoyed by the apparent shift in China’s zero-Covid strategy,” said Daniel Hynes, senior commodity strategist at ANZ Bank. “However, weakness in the property sector persists. New home sales by the 100 biggest producer developers dropped by 26% year-on-year…in November.”

Breakwave Advisors founder John Kartsonas told TradeWinds earlier this week that the current zero-Covid policy has greatly affected economic activity in China, which includes real estate development, infrastructure spending and general construction activity, leading to a slowdown in commodity imports into the country. “A potential relaxation of such strict Covid measures could lead to a revival of economic activity, leading to increased commodity demand and thus imports into the country,” he said. “Such a development will positively affect shipping, as demand for ships to transport such commodities will increase.”

China’s imports of iron ore from Australia are up 3.5% in the first 10 months of 2022 to 609.6 MMT, according to Italian shipbroker Banchero Costa. Australia accounted for over 82% of China’s imports. While this is an increase on the 589.2 MMT imported in 2021, it is still below the all-time record 614.8 MMT shipped by Australia to China between January and October 2020.

Seanergy Maritime Holdings trumped analyst estimates despite reporting a slump in profits in a weaker market. The Greek owner of 17 capesizes reported net income of $7.1m for the third quarter, down from a profit of $20.1m a year earlier. On an adjusted basis, New York-listed Seanergy posted a $7.6m profit, down from earnings of $22.8m in the same period of 2021. The results translated into adjusted earnings per share (EPS) of $0.04 for the quarter, beating Wall Street consensus of $0.02 but falling short of the $0.11 reported a year earlier.

The Athens-based bulker owner issued an unchanged shareholder payout of $0.025 per share for the third quarter. “We are pleased to report another profitable quarter for Seanergy, despite the challenging macroeconomic and market conditions,” chief executive Stamatis Tsantanis said in a statement.

For the quarter ended 30 September, the company earned $34m in revenue, down from $48m a year earlier. The slump was rooted in a decline in time charter equivalent rates that averaged $20,614 per day during the quarter, down from $30,764 per day in the same period last year.

The company posted a $16.7m profit for the first nine months of 2022, a dip from $20.7m profit during the same time span in 2021. Revenue totaled $96.5m during the first nine months, just beating the $96.4m reported a year earlier. The daily TCE of the fleet for the first nine months of 2022 was $20,996 per day, down from $23,449 per day in the first nine months of 2021.

Despite the lower profit and weaker market, Tsantanis remained optimistic. “With dry bulk fleet growth at the lowest levels on record, we remain confident in the long-term prospects of the market and are constantly evaluating our options with respect to returning capital to shareholders and accretive vessel acquisitions,” he said.

Tanker giant Frontline is continuing to be a draw for big-name investors as Morgan Stanley became its second-biggest shareholder. A filing to the Oslo Stock Exchange reveals the Delaware investment bank has acquired a 5.25% stake in the John Fredriksen-controlled company in recent weeks, passing the threshold for notification of ownership. The holding is worth $166m, based on the market cap of $3.16bn. The share closed at $13.83 in New York on Wednesday, up nearly 7%. So far this year, the stock has put on 83%.

A US filing from 14 November shows Morgan Stanley had built a holding of 1.34m shares, worth $14.6m at that time. This followed a move in October that brought its stake to 1.18m shares. Frontline has worked with Morgan Stanley as an agent for share offerings in the past. The investment bank is a co-owner of LNG carrier company Hoegh LNG.

Frontline’s net profit for the third quarter was $154.4m, compared to a loss of $33.2m in the same period of 2021. Revenue grew to $382.2m from $172m. The tanker owner, listed in both New York and Oslo, is currently trying to tie up a big combination with Belgian partner Euronav. On Wednesday, Frontline said it was delaying a likely $66m dividend for the third quarter until after it completes a takeover offer for the Belgian company in the first three months of 2023. A prominent seller of Frontline stock in recent weeks has been Swiss bank UBS, which offloaded 810,000 shares on 8 November. That deal was worth around $11m. The lender retained 10.41m shares, or a slice of 4.63%.

The stock has been a big draw for major investors lately. US investment giant BlackRock announced a big holding last month. The move followed a similar investment in Fredriksen’s bulker giant Golden Ocean Group in September. BlackRock said it had amassed a stake of 5.13% — a slice worth $153m. But the fund later issued a correction, saying that “following identification of correct issued shares, holding remains below 5% in aggregate”. The exact ownership is therefore unknown.

Goldman Sachs also holds about 5% of the tanker owner after share deals in recent months, most likely on behalf of other investors.

Fredriksen himself controls about 36% of Frontline.

In the wake of unprecedented protests Beijing’s zero covid stance looks to be easing. The strict pandemic rules have stymied industrial production all year, and put a brake on shipping earnings. However, following mass protests across the nation last weekend, the authorities do appear to be looking for a way to move on from the pandemic way of life.

Vice premier and covid tsar Sun Chunlan yesterday held a meeting at the National Health Commission with experts and said: “With the weakening of the pathogenicity of the omicron virus, the popularization of vaccination and the accumulation of prevention and control experience, China is facing a new situation and new tasks in epidemic prevention and control.” Her comments follow an announcement earlier in the week that vaccinations among the country’s older population will increase, widely seen as a key move towards a reopening of the Chinese economy.

Meanwhile, lockdown restrictions in key cities including Guangzhou and Chongqing have been lifted in the past 24 hours, while certain neighborhoods in the capital and elsewhere have instituted their own new form of domestic quarantines, something very different to earlier enforced lockdowns on entire areas. “We believe that Chinese authorities are shifting to a ‘living with Covid’ stance, as reflected in new rules that allow people to do ‘home isolation’ instead of being ferried away to quarantine facilities,” ANZ Research analysts said in a note.

John Kartsonas, the founder of Breakwave Advisors, commented that a potential relaxation of strict covid measures could lead to a revival of economic activity, leading to increased commodity demand and thus imports into the country. “Such a development will positively affect shipping, as demand for ships to transport such commodities will increase,” he said.

John Michael Radziwill, CEO of Monaco-based shipowner GoodBulk, described China’s covid restrictions as the “the 800-pound gorilla” which has been holding dry bulk back all year. The risk of easing the rules could be a spike in infections, something that could have its own impact on supply chains.

Judah Levine, head of research at container rate benchmarking platform Freightos, commented: “An easing of China’s zero covid policy could ultimately result in more lockdowns that could affect manufacturing and port operations.  Though with demand easing and vessel capacity available, these disruptions would not be expected to have the same impact on logistics as they did earlier in the pandemic when demand was surging and capacity was already constrained.”

Container and bulker player Costamare announced late on Tuesday the establishment of a new venture to operate dry bulk vessels. The US-listed company said in a statement it is willing to invest up to $200m in the outfit, which “will charter-in/out dry bulk vessels, enter into contracts of affreightment and utilize hedging solutions, including forward freight agreements and bunker hedging”.

TradeWinds understands that the figure mainly relates to amounts set aside to cover market volatility for the venture’s trading activities, or eventual purchase options for the ships it will charter in on a long-term basis. The establishment of the new venture is therefore understood to leave ownership and management of Costamare’s existing fleet of 45 bulkers unaffected. TradeWinds broke information about the new venture on 24 October, saying it will be set up largely by former staff of Oldendorff Carriers who left the German company to set up the scheme called Costamare Bulkers.

In its statement on 29 November Costamare didn’t reveal any information on the venture’s personnel other than to say that it consists of “a team of experienced professionals who will join Costamare in investing” in it. Costamare confirmed, however, that the platform will start business by the end of the year from offices in Athens and Monaco and that it will also operate through agencies in Copenhagen, Hamburg and Singapore.

The company said the new venture “is expected to employ minimal, if any, financial leverage” and that it provides “an attractive risk-reward profile” for the deployment of Costamare’s capital. No details were offered on the types of ships the new venture aims to employ. TradeWinds reported in October that it would focus on capesizes and panamaxes.

Costamare’s current bulker fleet, all acquired in a forceful secondhand buying campaign last year and employed in the spot market, mainly consists of supramaxes and handysizes. Costamare has currently no capesizes and owns just eight kamsarmaxes or panamaxes.

Costamare, also an owner of 73 container ships, said in a conference call on 2 November that it saw no reason to spin off its bulker fleet in current market conditions.

Markets have rallied amid signs that China is preparing to loosen some of the restrictive measures of their zero-Covid policies. Following protests over the weekend, China’s National Health Commission said the excessive curbs should be avoided, even as the virus spreads. The country is now reportedly pushing greater vaccination of the elderly, driving speculation that it may ease some of the rules even further. “The specter of China shifting away from zero-Covid policies saw commodities rally across the board. Signs of colder weather also boosted sentiment in energy markets,” said Daniel Hynes, senior commodity strategist at ANZ Bank.

Hynes said Iron ore was little changed following strong gains last week, but sentiment remains buoyed by recent measures to support the country’s beleaguered real estate sector. China’s imports of iron ore from Australia are up 3.5% in the first 10 months of 2022 to 609.6 MMT, according to Italian shipbroker Banchero Costa. Australia accounted for over 82% of China’s imports. While this is an increase on the 589.2 MMT imported in 2021, it is still below the all-time record 614.8 MMT shipped by Australia to China between January and October 2020.

The possibility of rising demand from less restrictive mobility rules also saw crude oil markets rally sharply, according to ANZ’s Hynes. He said implied oil demand remained subdued at 13m barrels per day (bpd), some 1m bpd lower than average demand as congestion levels in China’s 15 biggest cities showed little improvement over the past week. However, he said any relaxation of quarantine rules, as well as relaxation of travel restrictions would “see demand rebound quickly”.

Breakwave Advisors founder John Kartsonas told TradeWinds that China’s gradual shifting towards a more relaxed Covid policy was “positive for shipping. It increases domestic demand for construction and manufacturing which means more demand to ship raw materials into the country and demand to export manufactured goods from the country to the rest of the world,” he said.

On the potential impact of any further protests Kartsonas said unless the protests escalate to the point where we are dealing with widespread interruptions to the country’s transportation network the ports should remain operational. “The main commerce centers as it relates to shipping are around major metropolitan areas with Shanghai being the most important, so that is something to definitely monitor,” he added.

In Jan-Oct 2022, iron ore shipments declined by -2.6% y-o-y to 1,254.5 MMT, from 1,287.7 MMT in 2021. This was similar  to the 1,254.6 MMT shipped in 2019.

Exports from Australia increased by +0.8% y-o-y in Jan-Oct 2022 to 738.1 MMT, marginally above 2020 levels, and a new record high.

Exports from Brazil, declined by -2.9% y-o-y to 279.7 MMT, from 288.2 MMT last year, although it was higher than in 2020.

Demand is weighed down by China, with iron ore imports down by -2.1% y-o-y to 889.5 MMT in the 10 months of 2022.

Australia is the world’s largest exporter of iron ore, with a 58.8% market share in 2022, well ahead of Brazil’s 22.3% and South Africa’s 3.7%.

Richards Bay coal exports slow in November

According to AXS vessel tracking data, coal shipments out of Richards Bay in South Africa have slowed to an average 122,000 tonnes per day so far in November, a decrease of 32.4% YoY. This puts exports on track to total 3.7 MMT this month. he slowdown follows the derailing of 97 coal wagons on the route from inland mines to Richards Bay earlier in November.

South Africa has seen a surge in demand for its coal from Europe amid the continent’s ongoing energy shortages. EU imports of South African coal have totaled 15.2 MMT so far in 2022, compared to 2.3 MMT in the whole of 2021. European countries imported 2.7 MMT of South African coal in October following minimal disruptions at South African ports in September, though this declined by 33.3% in October following several weeks of industrial action. Another factor driving slower exports is South Africa’s now largest customers’ demand in Europe is slowing. In October, European countries imported 10.9 MMT of coal, the lowest level since March. Most EU coal has been redirected from India and China, as European buyers are willing to pay a premium. Thus, overall exports only grew by less than 0.1% in the first 10 months of 2022, with shipments to India declining by 18.2% to 17.1 MMT and to China by 96.1% to 220k tonnes.

Exports of record Russian wheat harvest pick up in November

According to AXS data, Russian wheat exports have totaled 3.9 MMT so far in November, putting monthly shipments on track to more than double YoY to 4.5 MMT if the current export pace is sustained.

The USDA estimates Russia will export a record 91 MMT of wheat during the 2022/23 marketing year (commencing June), up 21.1% YoY and 16.4% above the 5 year average. Producers had been struggling to export wheat due to US and European sanctions. While Russian wheat is not sanctioned, it has become harder for buyers to transfer foreign funds into the country. Many ships and insurers have also been hesitant to take on even non-sanctioned Russian business. These constraints appear to have eased this month, helped by strong Turkish demand. Shipments to Turkey totaled 1.5 MMT in November, an almost three-fold increase YoY. Previously being an importer of Ukrainian wheat, Turkey has replaced these lost volumes with Russian wheat.

Turkey’s wheat imports are forecast by the USDA to increase by 6.1% YoY in 2022/23 to 10 MMT, as it seeks to replenish stocks. According to the USDA, Turkey’s 2022 wheat stocks are 40% lower YoY, largely due to disruptions to global wheat trade following the war in Ukraine.