Major shipyards in China will not be lowering their newbuilding prices as they face rising material costs and have built up strong orderbooks, according to market sources. The firm newbuilding price, and possibility of a price hike by major Chinese shipyards, contradicts the view of Liu Xunliang — the founder of the Shanghai-based China Newbuilding Price Index, or CNPI. Liu recently said that yards in China are increasingly facing internal and external pressures to fill newbuilding slots because some restructured yards of significant size are coming to life. He added that the “rate of increase in new orders and newbuilding price has slowed down recently, and the prices of some ship types have even eased”.

Several shipbuilding brokers told TradeWinds that owners hoping that China’s top-tier shipbuilders — such as China State Shipbuilding Corp outfits and privately-owned Yangzijiang Shipbuilding and New Times Shipbuilding — will drop prices in the coming months will be disappointed. Shipyards are determined at the very least to maintain current prices or follow their South Korean rivals in increasing them. Brokers said Hyundai Heavy Industries — a price leader — has been raising its price and is now seeking more than $90m for a conventionally-fueled 7,000-teu scrubber-fitted container ship, up from the high-$80m level. The Chinese yards are said to be watching HHI “very carefully” and are ready to join the world’s largest shipyard in raising prices from the current $82m-to-$83m price range.

A manager of a privately-owned shipyard in Jiangsu confirmed that his company would not be cutting its newbuilding prices. Rising material costs and a hike in steel plate costs were cited as key reasons that would prevent reductions. Steel accounts for about 25% to 30% of shipbuilding costs. He said the steel plate price in China has recently increased by about CNY 300 per tonne to CNY 5,700 ($900) per tonne, adding that he expects prices to continue to rise as Beijing is pushing for economic growth. “If the state is seeking economic growth, more infrastructure will be built and this would drive up demand for steel,” said the shipyard manager. He is expecting the price of steel plate to surge but not by the same magnitude as last year when it shot up to over CNY 7,500 per tonne.

The high price of steel plate has a knock-on effect on other ship components. The price of a main engine and equipment have increased significantly in the past 12 months. “Makers will not be reducing their price unless [they are] in a very bad market,” said the shipyard manager. A tight labour force and rising inflation have also caused shipyard labour costs to shoot up.

Brokers said the major Chinese shipyards are not in a hurry to sign newbuilding contracts, as they have built up strong orderbooks over the last year. Most of them have their berths booked until end-2024 and into 2025 and are reluctant to take in new orders too far ahead due to risk factors. With sellers in a strong position, some shipyards are said to be seeking a higher initial down payment of 20% for the newbuildings, as compared to the 5% to 10% payment during the lull shipbuilding market.

John Fredriksen’s Golden Ocean Group reported the best quarterly and full-year results in its 26-year history in figures released on Wednesday. Net earnings in the fourth quarter of 2021 were $203.8m, against $28m 12 months earlier, while full-year net profit was $527.2m, reversing a loss of $137.6m for 2020. The Oslo-listed owner reported time charter equivalent rates for its capesize and panamax/ultramax vessels of $39,304 per day and $29,635 per day, respectively, and $35,256 per day for the whole fleet in the fourth quarter.

For the first three months of 2022, capesizes have cover at $26,100 per day for 75% of available days, and panamaxes have 72% booked at $21,100. For the second quarter, Golden Ocean said its capesize fleet has cover at $31,400 per day for 22% of available days, while for panamaxes it is $22,700 per day for 14% of the available days. “Today, we release the best quarterly result and the best full-year result in the history of Golden Ocean,” chief executive Ulrik Andersen confirmed. “The record result has been made possible through attractive market conditions, timely acquisitions and strong chartering performance.”

Andersen said Golden Ocean has a “considerable amount of fixed profitable charter cover” for the first quarter of 2022, which will protect its dividend capacity and “build a bridge into what we expect to be a much more attractive second half of the year”. Despite the recent weakening in freight rates, which he attributes to seasonality, he believes the outlook for 2022 and beyond is positive due to a combination of “steady demand growth and fleet supply that is at generationally low levels”.

A combination of high demand and unprecedented supply chain inefficiencies supported record freight and utilization rates at the start of the fourth quarter. “At its peak, tonne-mile demand was up 5.7% year to date over 2020, with import volumes exceeding pre-pandemic levels,” Golden Ocean said. “Driven by high waiting times at ports, fleet productivity decreased by 7% year over year despite a 3.4% increase in fleet size, significantly reducing effective fleet supply. “The Omicron variant of the Covid-19 virus contributed to a resurgence in supply chain problems as borders tightened once again, and both factories and port operators struggled with labour shortages.”

Golden Ocean has 99 vessels on the water or under construction, with an aggregate capacity of about 13.9m dwt. It announced a 6% increase in its cash dividend of $0.90 per share in respect of the fourth quarter of 2021, payable on or about 10 March.

Supramax bulk carriers have been the stars of the show so far during 2022, with spot rates over one-third higher today than they were a week ago. Average supramax time-charter equivalent earnings were assessed by Baltic Exchange panelists at $24,508 per day on Monday, more than any of the other main bulker segments. This is more than $10,000 per day above the level seen at this point in 2021, according to analysis by shipbroking giant Simpson Spence Young (SSY). The supramax 10TC assessment, the weighted average of spot rates across 10 benchmark routes, is also up by 35% compared with last week. The assessment hit its strongest point relative to the equivalent for capesizes for 22 months during January, SSY observed.

The Baltic Exchange’s forward curve implies supramax rates of just over $27,800 per day for the first three months of this year and just under $25,700 for the second quarter, according to settlement data on Monday. Charterers also have been active in taking cover in the period market. Ultramaxes open in Southeast Asia can expect to get around $30,000 per day for medium-term periods, the Baltic Exchange said in its weekly market report on Friday last week.

The last reported period deal was done at $25,000 per day on 9 February, when an unnamed charterer was reported to have booked Sea Traders’ 56,763-dwt supramax Knossos (built 2011). The spot market for supramaxes has been buoyed by the ongoing renaissance of coal and the resumption of exports from Indonesia, which were banned during January. Strong demand for supramaxes is being seen particularly for trips from Indonesia to India because shippers have been unwilling to increase parcel volumes of cargo, according to Athens-based Xclusiv Shipbrokers. “The infrastructure constraints at both load [and] discharge ports favor geared vessels and there is still a backlog from the period when Indonesia had banned coal exports,” the firm’s research team said in a report on Monday.

These factors contributed to weekly gains of $10,000 per day on the Baltic Exchange’s two Indonesian round-voyage benchmark rate assessments last week. But the upturn in the supramax spot market has not just been about Indonesia. Chartering activity has been lifted for all kinds of cargoes, all around the world, according to SSY. “Grain orders from East Coast South America, clinker cargoes from East Mediterranean plus coal and petcoke from the US Gulf have all contributed to the positive tone in the Atlantic supramax market,” SSY said in its report.

Looking ahead, Clarksons Research expects grains and minor bulk cargoes to become increasingly central to dry bulk trade growth, as demand for iron ore and coal cools off. Trade growth is expected to decline by around 1% for both iron ore and coal by 2023 as Chinese demand softens, according to Clarksons’ latest Dry Bulk Trade Outlook. In contrast, the firm expects trade growth for grain to rise by 2.5% this year and by 2.3% for minor bulk cargoes — and again in 2023 by roughly the same proportion. On the other hand, supramaxes could come up against more muted demand for the transportation of soybeans from Brazil later this year due to months of dry conditions in key growing areas, according to SSY.

The US Department of Agriculture last month cut its export forecasts for Brazilian soybean exports by 3.5 MMT to 90.5 MMT. Its projections for Chinese imports were also cut by 3 MMT to 97 MMT, which SSY said would be the first decline in three years. Then, of course, there is the threat of conflict in Ukraine, which would have a negative impact particularly for grain exports from the region — a major source of demand for supramaxes. Ukraine exported around 49 MMT of grains in 2021, mainly through Black Sea ports, according to Clarksons. In the meantime, Xclusiv pointed to other signs that there is still plenty of life in the coal trade, especially as countries seek to exploit coal production to combat the international energy crunch. “China recently announced plans for a new 2 GW coal plant, the French government has allowed electricity producers to burn more coal to ensure a secure electricity supply and India, having a demand-supply gap, announced that it is aiming to increase domestic coal production to 1.2 BMT by 2023-24,” Xclusiv said in its report.

Precious Shipping has said its financial performance in 2021 was the second best in its history and was only bettered by the blockbuster results of 2008. The Khalid Hashim-led shipowner said full-year net profit for last year was $136.96m just shy of its all-time high net profit of $148.14m seen 13 years earlier. The Thai shipowner enjoyed a particularly strong fourth quarter with net profit reaching $52.7m and its highest earnings per day, per ship topping $50,000.

During the fourth quarter, the Baltic Handy Size Index (BHSI) averaged 1,743 points, as derived from an average time charter (TC) rate of $31,370 per day. In comparison, the Precious handy size fleet earned $25,062 and underperformed the BHSI TC rate by 20.11%. Similarly, the Baltic Supramax Index (BSI) averaged 2,771 points, as derived from an average TC rate of $30,472 per day. In contrast, the average earnings for the Precious supramax and ultramax fleets was $27,958 per day and underperformed the BSI TC rate by 8.25%.

Precious said there were “three reasons for our underperformance” including that it ships were “different” from the index ships. “On an apples-to-apples comparison, our handysize ships are ranked 25% below and the supramaxes are 10% below the index ship TC rates,” it said. Secondly, it said seven of its handysize ships, out of its fleet of 19, are on long term charters are fixed at $19,083 per day and one supramax, out of its fleet of 17, is fixed at $13,421 per day. “And finally, if we see the way the market has gone down, during the fourth quarter, if you had fixed all your ships on day one of the fourth quarter at the index level – BHSI $35,769 and BSI $37,212 – despite our ships not being as well ranked as the index ships, you would outperform the average index ship TC by 14% in handy and 22.1% in Supramaxes,” Precious said. “If we had applied these three adjustment factors to our result, we would have outperformed the handy index by 3.7%, and underperformed the supramax index by 12.7%.”

Precious said rates started out in 2021 at a low level and then accelerated to a peak on 7th October with the Baltic Dry Index (BDI) hitting a 13 year high at 5,650 points, and since then, has fallen consistently. “Demand/supply for dry bulk at the start of 2021 was in perfect balance, and as ton-mile estimated demand by Clarksons grew at 4.2% compared to net fleet growth at 3.55%, rates skyrocketed,” the shipowner said. “But when China decided to reign in their out-of-control real estate sector by letting Evergrande and its brethren collapse, imposed strict anti-pollution controls on coal fired power plants post COP26, curtailed steel production, and insisted on blue skies during the winter Olympics, ton-mile demand, of necessity, took a hit and rates fell for the opposite reasons that they skyrocketed to a peak on 5th October.

“As can be seen, all the reasons for the slowdown in the fourth quarter of 2021 and into the first quarter of 2022 are due to decisions made by governments. These decisions have curtailed demand, but when reversed, they will allow demand to flourish once again, and we could be back at the same point we were at the start of 2021,” Precious said.

Precious Shipping said it foresees “extreme volatility” in the dry bulk market this year and sharp rate movements. Despite the volatility, last year’s perfect balance of demand-side recovery and supply tightness due to pandemic-related inefficiencies is expected to be sustained this year, said Khalid Hashim, managing director of the Thai dry bulk operator.

“We expect more fleet inefficiencies for 2022,” he said. “This factor will tighten net effective supply of ships, aided by the very low ordering activity in 2021, to easily counteract the increased supply generated from the faster speeds that ships are expected to sail at in stronger markets.”

He noted the progressive increases in the average quarterly time charter rates last year for capes, panamaxes, supras and handies. Capes started 2021 at $16,656 and closed out the year at $19,176 on December 24 with the average for the year at $33,333.

Panamaxes started at $18,493 in the first quarter of last year and ended with an annual average of $26,898. Supras had an average time charter rate of $16,633 in the first quarter of 2021 and fetched an average of $26,768 for the year. Handies commanded an average $16,610 in the first quarter and closed last year at an annual average of $25,702.

Precious Shipping’s forecast for 2022 comes as it reported a sharp turnaround in its operations, bouncing back into the black in 2021 with a net profit of Baht4.47bn ($136.96m) from a loss of Baht1.29bn a year earlier.

Since its peak on 10 February, Chinese iron ore prices have fallen by ~10% amidst fears of domestic investigations into iron ore inventories and trading. The developments follow as China’s state planner, the National Development and Reform Commission (NDRC), stated it would investigate the commodity exchange and key ports due to concerns of price manipulation given the combination of rapidly rising iron prices and domestic inventories at multi-year highs. Weekly Chinese iron ore inventories in port is currently quoted at 156m tonnes – the highest figure seen since 2018 when iron ore inventories peaked at 162m tonnes. In our view, recent event mirrors 2021, when Chinese authorities vowed to punish price manipulation and sent iron ore prices lower. 

Berge Bulk has lined up the first capesize recycling deal of the year by selling one of its oldest bulkers for green recycling in Bangladesh. On 11 February, the Singapore-based bulker giant sold the 172,000-dwt Berge Aoraki (built 2003) to PHP Shipbreaking and Recycling Industries, Bangladesh’s only certified green recycling facility. Following Berge Bulk’s lead, Voyager Trading & Investment, a Chinese-backed investment vehicle based in Hong Kong, was reported by brokers on Monday to have sold its 171,000-dwt Alam Cetus (built 2003) to cash buyers for onward sale to an as-yet undisclosed destination.

Brokers told TradeWinds that given the relatively healthy rates still being enjoyed in the capesize sector, both would have been able to find a trading buyer willing to pay a small premium over their scrap value, but their owners elected to sell them for recycling instead. The Berge Aoraki was reported sold on a green scrapping basis for $642 per ldt, or $13.5m. This is the same value that VesselsValue pegs on it as a trading vessel, although slightly below the fair market value that MSI Horizon estimates for the current quarter. VesselsValue data indicates that Berge Bulk, which has been steadily selling off its older capesize bulkers, has a strong preference for selling its ships only for recycling. The platforms’ data on the company shows that it has not sold a ship for further trading since 2014. However, between 2014 and 2022, it sold 20 capesize bulkers for recycling, with Bangladesh accounting for 13 of those ships.

Berge Bulk’s ship recycling policy posted on its website also indicated a strong preference for recycling over trading sales. “Berge Bulk has rigorous maintenance and repair processes to ensure that our vessels are used as efficiently as possible for as long as possible. As we add newer, more efficient vessels to our fleet, we consciously retire those that are older, less efficient, and have reached the end of their economic life. Ship recycling is the most environmentally efficient solution for disposing of old vessels,” the policy statement said. The recycling policy also said that as from the end of 2021, the company would only sell vessels to facilities that were certified as compliant with the requirements of the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships.

PHP, where the Berge Aoraki will be recycled , was certified as such by ClassNK in January 2020. PHP managing director Mohammed Zahirul Islam, who has frequently complained that the unwillingness of owners to accept a premium for green recycling has served as a strong deterrent for other Bangladeshi recycling facilities to follow suit. He said he was therefore very pleased that Berge Bulk had selected PHP to recycle the Berge Aoraki. “I would like to thank Berge Bulk for choosing a Hong Kong Convention-compliant facility to recycle their ship. I hope more shipowners will follow them when they send their ships for recycling,” Islam stated.

Pricing details for the Alam Cetus deal have yet to emerge in the market. Voyager Trading could not be reached for comment on the deal.

The “partial blockade” of Ukraine appears to be over, but the US is warning the country might be on the verge of war with Russia. Ukrainian officials lifted restrictions on ships transiting the Black Sea and the nearby Sea of Azov on Friday, following their denouncements that Russian naval exercises on the Black Sea as part of a hybrid war against the country. “The movement of ships by recommended routes to the seaports of Ukraine in the Sea of Azov is open,” Ukraine’s seaport authority said in a report cited by Reuters. The move comes amid evidence that the winds of war may already be impacting trade.

An analysis by VesselsValue found dry bulk exports from Ukraine are on track to fall by 44% in February after what it described as a particularly strong January and are 15% off their typical pace. Oil exports, the valuation service said, are forecast to fall by 45% from January and are 37% lower than normal, though oil demand remains weak globally. Ukraine’s LPG exports appear to be fairing the best, VesselsValue said, but are still on course for a 27% drop this month and are behind yearly averages by a quarter. “The data shows that trade from the Black Sea is suffering at least a partial blockade,” VesselsValue analyst Vivek Srivastava said in a note.

Though it denies its intention to invade its eastern neighbor, Russia has reportedly amassed more than 100,000 troops at Ukraine’s border in recent weeks and has mustered its naval forces for drills worldwide. On Friday, US secretary of state Anthony Blinken said a Russian invasion “could begin at any time”, including in the next week before the Winter Olympics in Beijing conclude on 20 February. Blinken’s statement was the latest in a string of warnings from UK and US officials on Russia’s intentions.

Should Russia invade, the US has threatened the country with “the mother of all sanctions”, which would impact the country’s oil and natural gas industries. Russia currently provides Europe as much as 30% of its LNG supply, which analysts have warned could create a “gas crisis” for the continent with little supply to export and prices rising.

HMM has become the latest major liner operator to post a substantial year-on-year increase in full-year results. The South Korean shipowner said on Monday it had made a net profit of KRW 5.33trn ($4.2bn) — marking a 40-fold increase — while its operating profit of KRW 7.3trn was a sevenfold increase on the KRW 981bn seen 12 months earlier. Revenue rose more than two-fold to KRW 13.8trn versus the KRW 6.4trn achieved in the whole of 2020.

HMM, the world’s eighth largest liner operator, attributed the record revenue and profit to a combination of high freight rates and efficient fleet operations. The shipowner has added 20 new container ships to its fleet over the past two years, including a dozen 24,000-teu giants. “Our operating profit last year offset operating losses we had suffered for nine years between 2011 and 2019,” HMM said in a statement. “Our debt-to-equity ratio, which reached 2,000% in 2015, dropped to 73% last year.”

At the end of June 2021, HMM split an order for 12 13,000-teu containerships between compatriot shipbuilders Hyundai Heavy Industries and Daewoo Shipbuilding & Marine Engineering. The deals, worth $1.57bn, will see each South Korean shipyard build six of the neo-panamax container ship newbuildings and deliver them in the first half of 2024. All will be installed with hybrid scrubbers and designed to be LNG-ready.

HMM currently has a container ship fleet of close to 80 vessels of which 83% are fitted with scrubbers against an industry average of just 30.8%, according to Alphaliner. “The fourth quarter is usually an off-season for the container shipping business, but increased loads for Asia-America routes, due to the major promotions like Black Friday, boosted the demand for shipping and drove up prices,” the company said.

State-run Korea Development Bank (KDB) has made no secret of its desire to gradually sell part of its stake in HMM. In early January, TradeWinds reported that rival South Korean container ship owner SM Line had bought a minor stake in HMM, spending $14m to build a stake of just 0.49%. Korea Development Bank (KDB) and Korea Ocean Business Corp own a combined 44% of HMM, but this could rise to more than 70% if bonds are converted into equity.

When coal prices for Australian coal surged up to through $250 per ton in October last year, there was a marked reluctance from Indian power stations to face such inflated prices. Thus, coal inventories fell to dangerously low levels, leading to prices dropping $100 in less than a month and increased international imports. But in recent days, they have risen again to around $260 ton basis Newcastle FOB.

However, unlike October, demand for energy in India seems so underpinned at present that in the past couple of weeks, strong Indian coal demand on the market, from principally Australia but also from Indonesia and South Africa has been a key factor in the sharp increase in rates in February across sub-capes, but particularly in the Supramax sector where this additional demand has sparked some of the rises in the Pacific.

In its most recent report, the IMF has projected the Indian economy to expand by 7.1% in the 2022-23 fiscal year (starting April), the highest growth rate for any major economy. This is potentially positive news for dry bulk as India relies heavily on coal for roughly three-quarters of its energy production. Fluctuations in demand as India wrestled with the pandemic has seen coal imports fall from a high 240 MMT in 2019 to around just 192 MMT last year. Most notable in import patterns has been a move away from Indonesia as the main supplier where imports have dropped from 122 MMT in 2019 to 72 MMT in 2021 , as China due to its continued embargo on Australian coal now takes the lion’s share (198 MMT in 2021) of Indonesian production. Instead, India has turned towards more readily available Australian met and thermal coal with imports in 2021 at around 72 MMT up from 50 MMT in 2019. In the current political climate, it is likely India increase coal imports from Australia which in turn is positive for tonne-mile demand. Another factor when assessing the 2022 coal mix will be how much coal may be mined internally? Coal India’s domestic production sharply increased to 763 MMT last year (with coastal coal now running at close to 40 MMT also given a boost) but forecasts for domestic output are much more modest this year leaving increased imports to probably fill any potential shortfall.