Researchers see conflict in Ukraine as a bearish sign for dry-bulk trade in the Black Sea in the short term, but it could be positive for tonne-mile demand if sanctions alter commodity trade flows. Analysts from Braemar ACM Shipbroking and Arrow Shipbroking Group drew contrasts between what could happen to bulker markets in the immediate term and what could happen later, if sanctions and trade restrictions are enforced. “Strict sanctions and protracted fighting could grind seaborne exports to a halt, yet a swift resolution of the conflict and a light Western response could see minimal change,” Arrow Shipbroking Group said in a research note on Thursday. “So far, the sanctions have avoided key commodity trades as reliance on Russia is so high, this reliance is deepened by already high commodity prices.”

European countries are very dependent on Russia for coal, as well as natural gas and are also short on fertilizer. Arrow said the EU “would be very cautious to slow this trade. The huge flow of grains exported from the Black Sea means any disruption to trade will continue to support the rally in the agricultural complex,” the shipbroker added. Effects on dry bulk markets are also expected to be shaped by the extent to which operations are impacted by infrastructural damage or blockades. Ukraine’s military has suspended all activity in its commercial ports in the wake of the Russian invasion. Attacks have been reported at the Ukrainian ports of Odessa and Mariupol, but it is too early to know the extent of the damage, Arrow said.

Braemar thinks the conflict is bearish for bulker trade in the Black Sea but said this could turn around in the longer term. “Overall, the impact on the dry bulk market will be negative in the short-term, as indicated by the sell-off in the paper market this morning, given the surge in bunker prices, loss of Ukrainian grain volumes and tonnage oversupply in the Black Sea/Med,” the firm said in a research note on Thursday. “However, if sanctions are sustained for a prolonged period of time, they could be a net-positive for the market as Europe would have to source coal and grains from further afield.”

Dry freight derivatives tumbled in value on Thursday across all vessel segments. Front-month contracts for capesizes and panamaxes lost more than $3,000 when markets closed. Supramaxes got off more lightly, with 2022 contracts settling as much as $2,000 lower than Wednesday. “Any disruptions due to sanctions on Russia will initially result in a drop in dry-bulk rates, mainly within the smaller segments. A surge in oil prices will drive bunker costs to new highs,” Braemar said. The broker’s research team pointed to the fact that the price of very low-sulphur fuel oil (VLSFO) in Singapore rose to $768 per tonne on Thursday, up by $15 since Wednesday. “A double-whammy of lost Ukrainian grain exports and tonnage oversupply in the Black Sea and Med will further weigh on [bulker] earnings,” Braemar said.

Handysizes are the bulker segment that are most exposed to any disruption to Black Sea trade, according to Arrow’s research. Around 16% of trade carried on handysizes either loads or discharges in Russia or Ukraine, and around 10% calls in the Black Sea, the firm said. A third of this trade is coal and the rest is mainly split across grains, steel and fertilizers, Arrow said. Panamax bulkers are exposed to trade disruption primarily from Baltic coal exports, as well as some Black Sea grain, the firm said. Capesizes have a limited exposure from coal and iron ore. But is it feasible to divert trade flows of coal and grain that would otherwise have been exported from the Black Sea? Braemar said the answer is yes — in theory. “However, the process requires time as suppliers will be initially hesitant to redirect volumes unless it’s determined that sanctions will be strictly implemented and last,” its research team said. “Fundamentally, it boils down to the premium buyers would be willing to pay for trade patterns to shift, rather than the logistics of trade-flow changes.” Arrow thinks that potential EU sanctions on Russian exports could push Baltic coal to China, even though the country imports the fuel from Russia’s east coast. If this happens, the EU could soak up other Atlantic coal from the US, Colombia and South Africa, Arrow said.

Ukraine’s military has suspended all activity in its commercial ports in the wake of the Russian invasion. The ban extends to all Black Sea and Azov Sea ports — Odessa, Chernomorsk, Pivdenny (Yuzhny), Nikolaev, Dneprobugsky, Berdyansk and Mariupol, according to the West P&I club. Vessels currently in the terminals should seek to leave immediately if it is deemed safe to do so, London-based maritime security agency Dryad Global said in a note to clients. However, with port movements officially stopped, it might be difficult to obtain clearance to depart, ship managers following the situation told TradeWinds. Russian reaction to vessels sailing in the area is an additional risk factor. Any ships “challenged by Russian military vessels should comply fully with instructions,” Dryad recommended.

Hours after the shutdown, a Cargill-charter vessel was hit by a projectile off Odessa, without causing any human casualties. Speaking to TradeWinds earlier on Thursday, ship managers with vessels and agents in Ukraine said the invasion had not caused any physical damage to port facilities yet. Despite explosions heard nearby, probably from incoming missiles, the crew of a ship berthed at Odessa, a major port in southwest Ukraine, saw no military activity in the terminal. Similar reports reached TradeWinds from Mariupol — a far smaller port in the east that is very close to the breakaway republics recognized by Russian president Vladimir Putin on 21 February in a move igniting the conflagration. For a long time on Thursday morning, loading and unloading operations proceeded normally in Ukrainian ports. Speaking later in the day, one ship manager said that some vessels continued loading operations even after the military’s shutdown order. The prevailing mood, however, was one of confusion. “Hard to predict situation right now,” one local agent in Odessa wired to clients.

Hamburger Hafen und Logistik AG (HHLA), a German operator of a terminal at Odessa, expressed concern about its 480 employees there. “All HHLA employees have left the terminal,” the company said in a statement. Meanwhile, Russia has banned shipping in the Azov Sea, a nearly landlocked maritime area wedged between the Russian-controlled Crimea, Ukraine, and Russia. There are no major oil terminals there, but the Azov Sea is the gateway to Rostov-on-Don, a major Russian port. According to unconfirmed Russian reports, two Russian cargo ships were hit in the area. The maritime situation could escalate if Turkey acquiesces to an official request by the Ukrainian government to shut down the Bosphorus strait to Russian shipping. Turkey’s security council deliberated under President Recep Tayyip Erdogan on Thursday. In a public speech right after the council meeting, Erdogan made no reference to closing the Bosphorus to anybody.

((This article was updated since original publication))

US-listed tanker and bulker owners are proving to be a tale of two sectors on Wall Street as investors respond to Russia’s attack on Ukraine. Tanker shares have risen steadily since Thursday’s opening bell in New York, while dry bulk equities have continued to slide as the conflict dominates headlines across the globe. The mixed day came as global stocks sold off amid the violence in Eastern Europe but tanker spot rates received a lift.

Scorpio Tankers shares, which can be found on Nasdaq under ticker symbol STNG, have jumped 8.6% to $17.22. The owner of 130 tankers holds $993m in market capitalization. Teekay Tankers’ shares, which trade on the New York Stock Exchange (NYSE) under the ticker symbol TNK, rose 7.8% to $12.73. Its market cap, which is backed by 51 midsize tankers, stands at $495m. Stock held by Ardmore Shipping, which trades on the NYSE under the ticker symbol ASC, have leapt 5% to $4.40 per share after six hours of trading. The Anthony Gurnee-led owner of 25 product and chemical tankers has $153m in market capitalization. NYSE-listed International Seaways, with ticker symbol INSW, gained 5% to reach $17.39. It owns and operates 86 tankers and maintains a market cap of $857m.

Dry bulk shipping equities drifted in the opposite direction on Thursday. Eagle Bulk Shipping’s stock, which trades on Nasdaq as EGLE and owns 53 bulkers backed by $725m in market cap, slid 4.6% to $53.50. Golden Ocean Group’s shares, which trade on Nasdaq as GOGL, dropped 4% to $12.05. It owns 99 bulkers and has $%2.41bn in market cap. Shares of Seanergy Maritime Holdings, which trade on the Nasdaq stock exchange under the ticker symbol SHIP, declined 6.7% to $1.11 per share. The Stamatis Tsantanis-led company owns 17 capesizes and has $191m in market capital.

The broader stock market slipped on Thursday amid the Russia-Ukraine conflict. The Dow Jones Industrial Average lost 271 points to reach 32,874 points by the sixth hour of trading.

Global commodity trading patterns are set for their greatest upheaval in decades following today’s full-scale invasion of Ukraine by Russia. Russian president Vladimir Putin sent troops into four different regions of Ukraine this morning in an attack world politicians have warned is the largest seen on European soil since the end of World War II in 1945.

Sanctions raining in from the US and Europe, combined with crucial sea lanes becoming unstable, will rapidly change commodity flows in the coming days and weeks. Among companies sanctioned is the firm leading the building of the Nord Stream 2 gas pipeline from Russia to Germany, while five ships belonging to Russian container line FESCO have also been slapped by sanctions from Washington. Further Russian merchant ship sanctions are expected to be revealed shortly.

Ukraine has asked Turkey to close the Bosphorus and Dardanelles straits to Russian warships while Russia has just suspended movement of commercial vessels in the Azov Sea with a noticeable buildup of ships at the southern end of the Kerch Strait. In Odessa, a host of ships find themselves stranded, including three boxships, unable to leave the port. The port city has come under attack today.

“The energy markets, from natural gas to oil and coal, can only watch the unfolding as bystanders and attempt to make updated assessments on the repercussions of the conflict on supplies of the fossil fuels needed not only by Europe but also the rest of the world,” brokers Lorentzen & Co stated in an update today. Grain shipments are also braced for severe dislocation out of the Black Sea. Oil prices climbed above $100 a barrel as the first shots were fired in today’s war, likely pushing bunker prices to new record high levels.

Eurostat data shows that Russia delivered 46.8% of natural gas imports to Europe during the first semester last year. Russia’s share of oil was 24.7%, ahead of Norway’s 9.1% and Kazakhstan’s 8.9%. The country is also the top supplier of coal to the continent. Russian and Ukrainian wheat exports combined, meanwhile, total about a quarter of the global trade. Any dislocation, whether because of sanctions or skirmishes, will inevitably push up the tonne-mile scenario for most shipping segments as Europe would need to source commodities from further afield.

Danish container analysts at Sea-Intelligence have pointed out that the escalating crisis carries a risk element for shipping services into the ports in Ukraine, but also has a risk element related to cyber-attacks against infrastructure – such as shipping and ports – in many NATO countries.

Chinese authorities are reportedly in discussions with ports to introduce cost hikes to prevent hoarding of iron ore, but market sources think the news can only be good for bulker markets. China’s state planner, the National Development and Reform Commission (NDRC), has stated it would increase efforts to stabilize commodity prices and supply this year. The NDRC reportedly aims to stimulate further growth in China’s industrial and manufacturing sectors, which depend on imported raw materials such as iron ore. Chinese regulators have also begun conducting port checks and increased fees on futures trading for iron ore to cool prices. Bloomberg reported on Tuesday that the NDRC is preparing a “single state-backed platform” to help stabilize volatility in iron ore prices. It remains unclear whether the NDRC will mandate a single buying point for spot cargoes or return to the old system of annual pricing negotiations, which was discontinued in 2010. Industry sources told Bloomberg they believe the NDRC is more likely to establish its own system for benchmarking iron ore prices and mandate spot-cargo sales to be reported, to crush speculation and profiteering by traders. But with expectations of fresh economic stimuli in China, firm demand from Chinese importers has already been priced into the iron ore market, according to trading sources. This has meant that while prices are down from the highs of $155 per tonne, as seen earlier this month, they have not fallen far.

The NDRC and China’s State Administration of Market Regulation last week called two meetings with major Chinese and international traders, who were urged to provide information on iron ore stockpiles. They were also requested to help the government verify whether there are any irregularities in the market, such as tactics to hoard or drive-up prices, a statement from the NDRC said. Some traders were also ordered to release excess inventories of iron ore. But any efforts to reduce iron ore prices or stockpiles at Chinese ports would have little real effect on bulker markets, especially not for capesizes, according to a commodity firm that was present at the meeting in Qingdao. “The main origin of all the cape[size] cargo is from the major miners and whether the iron ore price is $150 [per tonne] or if it’s $100 or if it’s $50 even, they’re going to carry on shipping,” the company’s bulker chief told TradeWinds. “If the iron ore price did come off significantly as a result of this, maybe you lose a bit of demand for the smaller [bulker] sizes.” But he said it does not have a huge impact. “The prices are still super-high, so even if they came off by 40%, it’s not going to impact the bulker space.” the source said.

Iron ore being released from stockpiles would almost certainly be consumed domestically, not re-exported, which would have a limited effect on spot prices for the commodity. China’s efforts to dampen commodity prices are broadly positive for bulker markets, according to the market sources. “Although the Chinese economy continues to perform at reduced levels, further monetary easing policies may help to improve activity and drive increased demand for several dry bulk commodities in 2022,” Braemar ACM Shipbroking’s research team said in a note on Tuesday. Indeed, the immediate outlook for the capesize market looks bullish for this year. Stockpiles of imported iron ore at Chinese ports are at their highest level since June 2018, totaling 160.95m tonnes as of 18 February, according to SteelHome data cited by Reuters. Iron ore and coal together accounted for 51% of seaborne dry cargo during 2021, according to data from Clarksons Research. China is the world’s biggest importer of both commodities.

Forward freight agreements for the second quarter of 2022 settled $974 higher on Wednesday at $28,893 per day. The third-quarter contract closed at $33,171 per day, which is $628 higher than on Tuesday. “China has postponed the decarbonization and ‘greening’ of the steel mills from 2025 until 2030, thus confirming that GDP growth is more important than a ‘green’ steel mill,” a capesize broker told TradeWinds on Wednesday. “With the influx of Chinese government stimuli and firm coal and iron-ore pricing, capesizes are staying heavily in contango in the next three quarters and backwardated from [the calendar years] 2023 to 2026.” John Michael Radziwill, chief executive of bulker giant C Transport Maritime, thinks action being taken by China points to a positive outlook for dry-cargo markets. “I think what’s actually very bullish is seeing that the Chinese government is trying to cool down iron ore prices. If they didn’t care about the price of iron ore, they wouldn’t care about cooling them down,” he told TradeWinds this week.

Shipowners have been warned they could run the risk of breaking recently announced additional US sanctions against Russia by calling at the Sea of Azov port of Mariupol. The West of England P&I club has warned its members on the advice of its US attorney Freehill Hogan & Mahar. The US law firm has assessed the impact of President Joe Biden’s Executive Order which was issued on 21 February in response to Russia’s continued actions in Ukraine.

The latest US sanctions forbids US persons from engaging in activities connected with the disputed regions. The sanctions target Russia’s “purported recognition of the so-called Donetsk People’s Republic (DNR) or Luhansk People’s Republic (LNR) regions of Ukraine. Importantly it might be read to prohibit calls at the port of Mariupol,” the West of England warned.

Mariupol is based in Donetsk in southeast Ukraine and is mainly a coal and steel export port. The warning comes despite Mariupol not being within the DNR and still part of Ukrainian-controlled territory.

Exceptions have been made under the US sanctions which allow for the carriage of agricultural commodities, medicine, and medical services to the region. Licenses have also been granted to allow trade in the region during a wind-down period.

Freehill Hogan and Mahar said that the sanctions may not be limited to Mariupol but other ports in the disputed regions. But it found little else so far in the Executive Order to directly concern shipowners. “It appears at first glance that the impact of this Executive Order on international shipping may be somewhat limited” the law firm said in its assessment. However, it does expect there to be further developments that will impact the shipping industry.

“We continue to monitor developments in this area and are available to assist clients in understanding and examining how these developments may affect their business opportunities. Given the evolving nature of the current situation in Ukraine we anticipate the US will issue additional sanctions against Russia soon,” the law firm said.

The European Union, Japan, UK, Canada, and Japan have also issued sanctions against Russia.

Belships’ bulk carriers are calling in the Black Sea as normal, but conflict in Ukraine would be negative for trade, according to the shipowner’s chief executive. Lars Christian Skarsgard told TradeWinds he hopes for “a peaceful and amicable solution” to the crisis in Ukraine. “As a starting point, I find that it’s a negative factor because it’s a potential hindrance for free trade and dry bulk is, above all, a market that nurtures and feeds off free trade,” he said. “It’s difficult to gauge the short-term effects, but in general it’s a negative. However, we have seen before that conflicts like this are not necessarily fought on the ground; they’re often fought with economic sanctions and trade restrictions.”

Belships’ supramax and ultramax vessels trade a lot of steel and grain cargoes out of the Black Sea. “Russia and Ukraine are significant exporters of grain and steel, so we are very active there and it’s an important market and segment for us,” Skarsgard said. Belships is conducting “business as usual” in the region for the time being. “We have ships, as we speak, loading in Ukraine and Russia. If anything, the weather now is the main challenge,” he said. “We don’t have long-term cargo contracts, so it doesn’t pose a big threat for Belships, but it’s a very important market.”

Belships has just reported another record-high quarterly profit and plans to share the wealth with its shareholders in an extraordinary dividend this year. Now the company is making a “subtle change of tack”, Skarsgard said. “The last three years, we’ve been on an all-out growth strategy expansion plan. Last spring, we announced the dividend policy, [and] we still managed to expand the company last year,” he said. “We’re going to be much more selective and conservative going forward, protecting the dividend capacity. We’ve been really active on period charter coverage, effectively de-risking our earnings for this year and even for next year already.”

Belships has already covered all its costs for this year and has contract coverage for almost two-thirds of its fleet in 2022. A few bulkers will have their period contracts up for renewal each quarter going forward, so the firm will continue to be active in the period market, Skarsgard said.

Belships has refinanced a $116m loan and has completed three sale-and-leaseback deals so far this year — another part of this “conservative” strategy. The deals secure up to 10 years of financed fixed-rate leases from Japan. Belships just has one lease left to secure for its remaining newbuilding, after which its entire fleet will be fully financed. Belships has become something of the equity analyst’s darling. Its Oslo-listed stock is Pareto’s top dry bulk pick and is top rated by Arctic Securities and Fearnley Securities. But Skarsgard still thinks Belships’ shares are undervalued, based on its cash flows and forward bookings. “If you look at the stock today, there’s basically a price-over-earnings [ratio] of around three. When you have contract coverage for 65% of 2022, I think that’s way too cheap — and the dividend yield returns are extremely high,” he explained. But shares are undervalued in any company that has modern bulkers, simply because asset prices are below where they should be, Skarsgard added. “If you look at dry bulk, the value of a modern ship in relation to whatever you get for a one-year period contract is very closely linked. The correlation is 95%+ and this goes back to the 1970s,” he explained. “Today, you have a one-year time-charter rate for an ultramax close to $30,000 [per day] and it’s been above $20,000 for more than a year. If you look historically at what that should point towards in the value of a five-year-old vessel, it’s obvious that those modern secondhand ships are undervalued.”

Five-year-old Japanese ultramaxes are currently valued at between $30m and $33m, but Skarsgard thinks this is still too low. “My opinion is that modern Japanese ultramaxes, five years old, should actually be worth more or at least the same as the cost of a newbuilding — and the cost of a newbuilding in Japan at the moment is $36m for delivery in the second half 2024.” Skarsgard said the disparity in the values of older vessels and brand-new modern ships began to widen “quite significantly” in January and February. He thinks this trend will continue in 2022.

According to our AIS data, we currently find no material impact from the Eastern European conflict on either Ukraine’s or Russia’s dry bulk exports. However, vessels sailing through either country’s territorial waters are already subject to higher insurance costs, and uncertainties still loom over the severity of pending Western sanctions. 

During 2021, Clarksons estimates that seaborne grain exports from Ukraine and Russia amounted to ~49 MMT (9% of global total) and ~36 MMT (7%), respectively. According to our AIS data, top three export destinations for both Ukraine and Russia in 2021 were China, Egypt, and Turkey – which combined exhibited a lower average sailing distance than the overall grain trade at ~7k nautical miles due to the proximity of Egypt and Turkey.

The dry bulk market rose on Tuesday despite ongoing tension and uncertainty between Russia and Ukraine, posting higher average spot rates across all ship sizes. The capesize 5TC, which looks at five key routes, jumped 9% to $16,709 per day, while the panamax 5TC rose 6.4% to $23,366 per day. Average spot rates for supramaxes edged up 0.5% to $25,950, and those for handy sizes improved 2% to $23,999, according to Baltic Exchange data.

“Uncertainty abounds, but this will likely impact the shipping markets as flows of crude oil, nat 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.

Russian president Vladimir Putin on Monday ordered Russian troops into two separatist pro-Moscow regions in eastern Ukraine after recognizing their independence. Putin is expected to follow those moves with a larger military operation against Ukraine, perhaps at any moment.

Amid the uncertainty, Diana Shipping was able to fix a newcastlemax for at least a year to Koch Shipping at well above Tuesday’s average rate for capesizes.

Semiramis Paliou-led Diana chartered the 208,006-dwt San Francisco (built 2017) at $30,500 per day from last Friday to anywhere from 1 March 2023 to 15 May 2023. It expects to make $11.3m in revenue off the deal’s minimum period.

The New York-listed owner of 34 bulkers previously fixed the ship to Olam International for nine months at $24,700 per day after fixing it for three months at $17,750 per day to Olam.

The outlook for dry-cargo shipping during 2022 could be just as good as 2021, if not better, according to the chief executive of bulker platform C Transport Maritime. A big clue is the fact that Brazilian iron-ore cargoes are absent from the current market, yet capesizes seem to be doing just fine, John Michael Radziwill told TradeWinds. “I think what is really encouraging is you still have capes at $15,000 a day without Brazil, and you have the minor bulks — panamax and down — at between $25,000 and $30,000 a day and, again, that’s with a big portion of the capesize pie not there,” he explained. “Once Brazil does come back and those exports start rolling out, ‘sure’ is a strong word but we’re pretty confident we’ll see some real fireworks in day rates. I would be very surprised if this year is lower than last year. I’ve been thinking that for a while.”

The orderbook for bulkers of all types is near a historically low level. Meanwhile, infrastructure projects around the world are still coming to fruition, which will entail continued demand for hard commodities, according to Radziwill. “I think what’s actually very bullish is seeing that the Chinese government is trying to cool down iron ore prices. If they didn’t care about the price of iron ore, they wouldn’t care about cooling them down,” he said. Coal will continue to “outperform” and soft commodities too. “With everything that’s going on in the world today, it’s a brave person who would bet that governments aren’t going to do everything they can to make sure they have enough food for their people,” he said.

CTM grew its fleet to around 160 bulkers last year, roughly 20 vessels more than in 2020. The fleet rises to 270 vessels including those co-managed with Capesize Chartering Limited. Most of the fleet — which ranges in size from 34,000-dwt handymaxes up to newcastlemax vessels — was traded in the spot market in CTM’s shipping pools last year. Most of the newcomers entering bulkers into CTM’s commercial management are people who have been involved in shipping previously, he told TradeWinds. “But we have seen and we’re working with people who have never had a ship before coming in. We are seeing a little bit more interest in that area from, let’s say, new money — but not hugely significant,” he said. “A lot of the kind of people that would come into shipping are, let’s say, very open-minded about their different global investments, so in this kind of an environment, I think they’ve probably done very well in other places so that’s inhibiting or just not making it that enticing for them to look at shipping. But I think we’re moving into an industrial cycle in general and more of a value-investment world, and I think shipping is very good for that.”

The scale of its platform and the different views of its 35 members gives CTM good visibility of markets overall, Radziwill said. This makes it well placed to advise its clients on what commercial opportunities to seize and which to avoid. “In supramaxes [early last year], suddenly, the period rates went up to $20,000 a day, which is a lot more than they’d been for a long time. So, you saw a lot of people just kind of close their eyes and take that rate — and that was a mistake,” he said. CTM operates a supramax pool, a capesize pool and a smaller panamax pool of up to 10 vessels, in addition to its commercial management and other services.

Radziwill said supramaxes were the best-performing segment of CTM’s commercially managed fleet in 2021. “If you did take up that fixture, you’re probably out $3.5m for that year alone, [by] not running in the spot market. It adds up quickly. If you have three supramaxes, suddenly you could have been $10m richer if you had just discerned a little bit what was going on and not just taken a total critical approach.” At its heart, CTM is “for the shipowner,” Radziwill said. “We want to fight for the owners. I believe that shipowners deserve most of the economic pie in the shipping industry, so that’s kind of a goal in general. Each ship we do it with, whoever it belongs to, I think it just helps the whole owning community.