Will dry bulk be the top-performing shipping sector for 2022? That is the conclusion of a Capital Link survey of five top equity analysts as disclosed during a webinar on Wednesday by founder Nicolas Bornozis. Bulkers got the win not necessarily because individual analysts were wildly enthusiastic about their prospects. Indeed, two of the five had container ships as their top pick and two more chose tankers. But because Capital Link asked analysts to rank their choices using a points system, dry bulk emerged as the safe choice as pundits had divergent views on the other two major sectors and the gas trades.

Jefferies analyst Randy Giveans told moderator Bornozis that dry bulk’s strong 2021 had been built not so much on capesizes as on smaller units ranging from handysizes to ultramaxes. “Are we going to see the same rates in 2022 as 2021? Maybe, maybe not. But strong rates across all asset classes? I’d say yes,” Giveans said.

Clarksons Platou Securities analyst Omar Nokta agreed that 2021’s returns – the best since 2008 – had been achieved with China partly absent from the capesize market in the year’s second half as steel production was scaled back 20%. “They backed off. It will be interesting to see what happens from March onward with the Chinese back in the market amid some pent-up steel production requirements fed by iron ore,” Nokta said.

Jorgen Lian of DNB Markets said he is forecasting a $25,000 a day rate overall for bulkers this year, with the ability for public owners to return 25% shareholder dividends. “This could be the early days of a lasting up-cycle,” he said.

If dry bulk was the solid rather than the sexy choice, the latter might come in tankers or container ships. But the question is how quickly will boxships lose steam from the dynamics that made them the top-performing carriers in 2021, and how soon will tankers pick it up after suffering the worst year in decades.

Both Giveans and Citi’s Christian Wetherbee had container ships as their top choice. Boxships “won the pandemic” with help from capacity restrictions and port congestion, Wetherbee noted. And while the supply disruptions are likely to diminish, it won’t be until the second half of the year, he said. “We would expect what has worked to continue to work,” Wetherbee said. Giveans noted that some had started to write off container ships in October, only to see rates rebound in November and keep going. “We think rates throughout 2022 will stay above anything we saw pre-2021,” Giveans said.

When it comes to tankers, both Nokta and Stifel analyst Ben Nolan had the sector top-rated. “We said in late-December that out of any category the potential for the most upside is in the tanker market, but it probably doesn’t materialize until the second half of the year,” Nolan said. Nokta said rising tanker valuations amid a brisk sale-and-purchase market are “a leading indicator” for the market’s expectation of a rates rebound. “You have a significant amount of buying interest, bidding up values more than we’ve seen in five-to-seven years,” Nokta said. “It’s substantially strengthening without the freight market being there.”

Rio Tinto has forecast weaker-than-expected iron ore shipments this year due to the threat of Omicron and absenteeism once Western Australia reopens its borders. Australia’s biggest exporter expects to ship between 320 and 335 MMT this year from the Pilbara region in Western Australia. The company also reported a 5% year-on-year decline in fourth quarter shipments to 84.1 MMT, while annual shipment levels were down 3% 321.6 MMT.

Rio Tinto chief executive Jakob Stausholm said that while in 2021 the miner continued to experience strong demand for its products, operating conditions “remained challenging, including due to prolonged Covid-19 disruptions”. Rio Tinto’s bauxite production of 54.3 MMT was 3% lower than 2020 due to severe wet weather in the first quarter impacting system stability throughout the year, equipment reliability issues and overruns on planned shutdowns at its Pacific operations.

Fearnley Securities said having cut its low-end guidance for 2022 in December by 5 MMT to 320-335 MMT versus 321.6 MMT in 2021, the export growth from Rio Tinto will be in the -1% to 4% range. Analysts Peder Nicolai Jarlsby, Erik Gabriel Hovi and Ulrik Mannhart said they would expect numbers to end up towards the lower end of the range. “Similarly, we have seen Vale lower its 2021 guidance and like Rio, its low end of guidance suggest limited (if any) volume growth for 2022,” they added.

RBC Capital Markets analysts said that Rio Tinto’s operations continued to “meander” and mine capacity issues in iron ore are likely to weigh again in 2022, albeit on an already reduced forecast production profile. “Although iron ore prices have provided the shares some solace in recent weeks, we continue to see a challenging outlook for iron ore over the course of 2022,” they added.

In contrast, BHP has left production guidance unchanged for 2022 at between 249 and 259 MMT in an update released Wednesday. The company also posted a 5% rise in second-quarter iron ore production but warned of possible disruptions in Western Australia due to rising Covid-19 cases. The proposed easing of Western Australia’s border restrictions on 5 February may cause some short-term disruption to the operating environment as the pandemic evolves in the state, the company said.

The capesize bulker sector continued falling on Tuesday amid January’s rough weather, but futures suggested better days to come soon. The capesize 5TC, the weighted average of spot rates across five benchmark routes, dropped 10.5% since Monday to $10,913 per day, according to Baltic Exchange data. “I do expect such an environment to persist for the foreseeable future, but once we get past those tough months, the balance of the market favors higher rates,” said Breakwave Advisors founder John Kartsonas told TradeWinds. “It is not only the futures that are optimistic for such an outcome, but also period deals remain well above current spot rates, signifying the optimism from owners and the caution from charterers for the rest of the year.”

The forward freight agreement (FFA) rate for February contracts gained $204 per day on Tuesday to $14,043 per day, while March contracts came $17,695 per day after picking up by $675 per day. But only one of the 5TC’s underlying routes — the C10 transpacific leg that moves iron ore from Brazil to China — improved on Tuesday, gaining $846 per day to $8,500 per day. “I don’t think there is a point of focusing on the individual routes, especially when you look at percentages, as the values are quite low and the percentage seems high,” said Kartsona, whose company runs a dry bulk exchange-traded fund. “We are in January, and historically this is a weak period for capesizes as both demand and supply suffer for various reason, mainly weather.”

Glencore fixed an unnamed capesize to move 170,000 tons of iron ore from western Africa to China at $20 per tonne. Loading is set to take place from 22 January to 31 January. No rates were available for fixtures on benchmark routes on Tuesday. The capesize market did show some optimism in the Pacific basin on Tuesday, but the Atlantic market ultimately sank the 5TC, said Nick Ristic, lead dry cargo analyst at Braemar ACM Shipbroking. For example, the average spot rate for the C14 China-Brazil round voyage, which ships iron ore across the Atlantic basin, slid 5.1% on Tuesday to land at $7,877 per day. “We have also started to see capes fixing panamax stems with the former weakening further today,” he told TradeWinds.

Spot rates for smaller bulkers also continued their steady decline amid the bad weather, despite reports of Brazilian miner Vale reopening rain-stricken mines in Minas Gerais. The panamax 5TC slid 4.4% on Tuesday to $20,011 per day.

Malaysian state power company Tenagah Nasional has put out a spot tender for coal, calling for prompt delivery from as far afield as Australia, South Africa, and Russia. The utility, which finance group CGS CIMB estimates takes 60% of its coal from Indonesia, is one of a growing number of regular buyers of Indonesian coal seeking alternative supply sources as they grow fed up with delays by Indonesian authorities in allowing loaded ships to depart the country’s clogged coaling anchorages and terminals. Tenagah Nasional’s managing director Nor Azman bin Mufti put it diplomatically when he told media that the tender was issued to mitigate the effects of the ban.

A Singapore-based coal trader at a large commodities company was blunter. He told TradeWinds that Indonesia’s big Asian coal buyers are fed up and furious at the way they have been left in the lurch. “The Malaysians are not the only ones who are putting out tenders,” said the trader, who did not want to be named as he was not authorized to speak to the media. “Everyone is getting increasingly impatient with the way authorities in Jakarta have been dragging their heels getting coal exports moving again. Every day this continues is going to lead to longer and longer delays,” he added.

Indonesia released 34 bulk carriers, mostly panamaxes and supramaxes in the days immediately following the lifting of the coal export ban late on Thursday 13 January. On Monday, Indonesia’s ministry of energy and minerals said a proposal to release 22 more vessels had not yet been approved. Even if those ships are allowed to depart in the upcoming days, the combined volume of cargo they would be carrying would represent only a small fraction of the 30 to 40 MMT of coal that Indonesia would have exported during the month of January based on figures from 2020 and 2021. “If you take the average size of the bulk carriers that load in Indonesia — about 65,000-dwt — those 56 ships will only be moving about 3.6 MMT of coal,” the trader explained.

The agreement reached between the Indonesian government and the country’s mining sector on Thursday 13 January only allows coal producers who met their domestic market obligation of supplying 25% of their 2021 production volume to state utility Perusahaan Listrik Negara (PLN) to resume exports. The delays in issuing export clearances have been attributed by senior Indonesian government officials to the verification process that is required to scrutinize mining companies to see whether they complied. Coal industry sources in the country described this as a slow and bureaucratic process that requires multiple layers of checking and approval from several government ministries. “It is going to take a long time given the number of coal producers we have,” said one Jakarta-based source.

A report by Japanese investment bank Nomura said in a report last week that coal comprised 14% of Indonesia’s exports in 2021 and had the export ban apply during all of January, the country’s total exports could have been reduced by around $4bn, enough to shift the trade balance to a deficit from a surplus.

Closing the Gap is the title of a new report launched this week by the Getting to Zero Coalition, outlining policy measures that could close the competitiveness gap between fossil fuels and zero-emission alternatives in shipping as well as enable an equitable transition. The report has been prepared by UMAS for the Getting to Zero Coalition – a partnership between the Global Maritime Forum, Friends of Ocean Action, and the World Economic Forum. For international shipping to decarbonize, zero-emission fuels need to become the dominant fuel source by the 2040s, the report points out. However, there is an urgent need for the development of policies that can close the competitiveness gap and accelerate the maritime zero-emission trajectory.

“The cost of zero-emission fuels must be significantly reduced to close the competitiveness gap with fossil fuels. To bridge this gap, we need to realize the potential of public-private collaboration. As companies, we must develop and deploy solutions at scale while policy makers must put in place the necessary regulation to make zero-emission shipping commercially viable and the default choice by 2030,” said Christian Ingerslev, CEO of Maersk Tankers.

According to the report, there are multiple potential policy options for closing the competitiveness gap. A preferred way forward to support the shipping sector through an equitable zero-emission transition is to adopt a policy package, which combines the strengths of the different policy options whilst mitigating their weaknesses. A policy package could consist of a global market-based measure that collects revenue which is then used fairly to support the transition, and a direct command-and-control measure to send an unequivocal signal to the market that a fuel transition will take place. This could be usefully complimented by voluntary initiatives, information programs and national and regional policy measures to stimulate investments, encourage knowledge sharing and support capacity development.

The report emphasizes the need to consider the equitability of the transition when designing measures and combining policy options. “Decarbonization policy for shipping needs to be as much about equity and fairness as it is about climate change mitigation. Vast inequalities exist globally, many of which are worsening in the face of climate change. With careful policy design and use of carbon pricing revenues, we can ensure that maritime climate policies do not exacerbate these inequalities. Furthermore, embedding equity into policy measures will help secure the multilateral agreement that is urgently needed,” said Isabelle Rojon, principal consultant at UMAS and lead-author of the report.

The report estimates the carbon price required under full decarbonization by 2050 or 50% decarbonization by 2050 and finds that there is no big difference in average price levels between the two scenarios. An average carbon price of just under $200 is required for shipping’s full decarbonization, whereas under the 50% reduction scenario it is around 10% lower. “The report shows that the introduction of a relatively low carbon price in the 2020s that is gradually increased to around $200 will make it possible to fully decarbonize shipping and create an industry that is powered solely by net-zero energy sources by 2050. This level of carbon price is in line with what is estimated by, for instance, the International Energy Agency as needed across all industries to achieve the Paris Agreement goals, indicating that shipping is not a unique case,” said Kasper Søgaard, managing director of the Global Maritime Forum.

While national and regional action are important and have a role in the transition, the work on a global package of policies to close the gap will be key, the report urges. “This year will be critical for decisions on climate policy in the IMO. Our report shows that there is no single perfect policy and that a successful transition will likely hinge on developing and deploying a mix of policies which can address different aspects of the transition. The imposition of market-based measures on the shipping industry is relatively uncharted, so the sooner policy-makers can surmount this challenge together, the better for the transition, the industry, and the environment,” said Dr. Alison Shaw, research associate at UCL and co-author of the report.

Chinese industrial production for December revealed the highest monthly steel production since June 2021 at 86.4 MMT for an annual steel production of 1,033 MMT, 1.9% down YOY after September-December averaged 18% down YOY. The number compares to our July forecasts of 1,121 MMT and our 2022 estimate of 1,153 MMT.

Raw material-intensive pig iron production was 72.3 MMT and the highest since July, which represents 84% of steel production in line with the total for 2021 which saw pig iron production decline 2.1% YOY. The 2021 total of 869 MMT compares to our estimate of 923 MMT from the July sector report, which we forecast to grow to 954 MMT in 2022.

Despite steel production picking up in December to a run rate production above 1,000 MMT from the September-November average of c850 MMT, it remains to be seen how Chinese steel production will hold up entering 2022. With a lower import price on iron ore (and also coal) steel margins should be improving, and soon the winter Olympics with the associated blue-sky policy will be behind us.

Drastic times call for drastic measures for Chinese coal

China’s December coal production jumped to 10% YOY growth and closed the year at 4,041 MMT, a 5.9% increase from the 2020 record production of 3,844 MMT. The production increase is a response to galloping energy prices despite the country’s earlier actions to scale down domestic output. The soaring demand stems from thermal electricity generation increasing 9.3% in 2021, in line with overall electricity production (9.4%) as hydro disappointed (-2.5%) and alternative sources like wind (36.7%), nuclear (11.3%), solar (29.3%) failed to make up for the shortfall. Thermal electricity generation accounted for 71% of the energy mix in 2021, in line with the prior year, while hydro was 15%, wind 7%, nuclear 5% and solar 2%. As mentioned last week, Chinese coal imports ended above the unofficial 300mt limit and near 2013 highs.

As a result of elevated imports and the Chinese domestic production increase, we find Chinese coal prices have come off their highs above USD350/tonne in October. During November various coal prices were around the USD150/tonne mark, but Chinese prices have since then dipped to cUSD110/tonne. In the meantime, European and South African coal prices have hovered around USD150/tonne, while Australian coal prices have surpassed USD200/tonne on the latest events in Indonesia. Hence, the current differential of cUSD100/tonne between Chinese and Australian coal would signal China is well supplied, while other Asian counterparties look to have bid up Australian coal in a scramble to secure supplies as Indonesia, the world’s largest coal exporter, recently imposed its export ban. The large discrepancy is likely short-lived, but in our view illustrates a more diversified demand base for coal countering the intuitive price response when Chinese prices weaken on production hikes.

Operations in Minas Gerais partially resumed

Vale has partially resumed operations in Minas Gerais and estimates the impact for its iron ore production to be limited to 1.5 MMT. In the Southeastern system, production has resumed while some transportation lines are still affected. For the Southern system, half of the production capacity has resumed operations, while the other half is expected to resume production within the coming days. Based on Vale’s trailing twelve-month iron ore production, we estimate that roughly 25% of Vale’s daily production has been affected by heavy rains. Of note, Vale reiterates that the company considers the seasonal impact of the rainy season and reiterates its iron ore production guidance of 320-335 MMT for 2022.

The Indonesian government lifted its ban on coal exports late on Thursday. As expected, permission to resume selling coal abroad was granted only to mining companies that met their domestic market obligations by selling 25% of their 2021 coal production volume to state utility Perusahaan Listrik Negara (PLN). Coal industry sources told TradeWinds that the first phase of the ban’s lifting covered the majority of the large coal producers that dominate the export trade, although traders who source their coal from a variety of smaller mines that did not meet their domestic coal quotas in 2021 are still prohibited from exporting.

An official joint circular issued by three government ministries seen by TradeWinds indicated that 37 foreign-flagged bulk carriers that were loaded with coal from approved companies are allowed to depart Indonesian territorial waters. A further 18 bulkers were listed as loading coal supplied by approved producers Adaro Indonesia, Borneo Indobara, Kideco Jaya Agung, Multi Harapan Utama, Marunda Graha Mineral, Granda Alam Makmur, and Bina Insan Sukses Mandiri. However, a further 16 bulkers that were either loaded or loading coal supplied by companies that did not meet their domestic market obligations will not be allowed to depart, at least not for now.

The export ban, which was implemented with almost no notice on 1 January is believed by brokers and shipping agencies to have tied up in the region of 200 panamax and supramax bulkers that were either loaded, loading, or awaiting loading on 1 January, or had arrived at the loading port on the days following the ban. Other bulkers are reported to have diverted to Australia or South Africa as coal buyers sought urgently needed coal supplies elsewhere.

While Indonesian politicians are crediting the ban for resolving PLN’s acute coal shortage, it has also led to a major shakeup at PLN, which has seen several top executives replaced. The fallout from the ban has also hit the country’s coal sector, with the government cancelling the operating licenses of more than 2000 small coal producers who had neglected their domestic quotas and were found to have breached other regulations.

Indonesia exports about 400 MMT of coal in a year, and with half of January exports removed from the market, many shipping sources involved in the country’s coal sector expect that it will take weeks, if not months for the backlog of exports and waiting vessels to clear.

They expect that there will be a high number of maritime disputes between owners, charterers and shippers over demurrage costs and cancelled fixtures due to Force Majeure having been declared by many mines and shippers.

According to Chinese customs authorities, iron ore imports for December came in at 86 MMT, down 11% YOY, taking total iron ore imports for 2021 to 1,124 MMT, down 4% YOY compared to 2020, versus an increase of 191% by May, due to the events of last year with Evergrande and the country’s strict blue-sky policy ahead of the 2022 Beijing Olympics.

For the dry bulk supply and demand, slower iron ore imports growth continues to be partially compensated by coal imports. For December, Chinese coal imports came in at 31 MMT, down 12% MOM and 21% YOY. Chinese coal imports reached to 323 MMT, an increase from 304 MMT in 2020.

AP Moller-Maersk — the world’s biggest listed shipping company — has once again posted record earnings amid booming container ship markets. The Copenhagen-listed company revealed on Friday that full-year 2021 earnings will exceed estimates it made in early November. Ebitda — earnings before interest, tax, depreciation, and amortization — will hit $24bn compared with the previously estimated range of between $22bn and $23bn, the company said in a trading update. This was a result of “the exceptional market situation … caused by global disruptions to the supply chains” that continued unabated in the fourth quarter, Maersk said.

Average freight rates rose at an annual pace of 80% in the fourth quarter of 2021, far outweighing a 4% drop in transported volumes over the same period of 2020. Underlying Ebit for the full year of 2021 will therefore reach $19.8bn, up from a previous guidance of between $18bn and $19bn. The company generated $16.4bn in free cash flow in 2021, 13% above the $14.5bn indicated in the November forecast.

Some analysts reacted positively to the new set of figures, saying they bode well for 2022 as well. “The revised guidance is well above our estimates,” said Anders Redigh Karlsen, an analyst covering Maersk for Kepler Cheuvreux. “In our view, the fourth-quarter guidance signals a strong start to 2022 as it is likely to reflect a combination of higher contract rates, as well as … continued high spot rates,” added Redigh Karlsen, who has a “buy” recommendation on the stock.

Maersk said it will provide a revised outlook for the first quarter of 2022 and the full year on 9 February. However, Maersk’s stock performance on Friday suggested investors may have been hoping for even higher earnings, or simply pounced on the opportunity to take a profit. The shares were trading down 3.1% at 22,400 DKR ($3,449) apiece in Copenhagen as of 1102 GMT on Friday. They have risen by about 50% since October, giving Maersk a market value of about $67bn.

The container ship bonanza is handy for the Danish company, which has been revising upwards its environmental targets alongside its financial ones. On 12 January, Maersk said it plans to become climate neutral by 2040, 10 years earlier than previously stated. To prove it is serious about this ambition, the company unveiled a set of interim, medium-term emission targets for 2030 that include slashing the greenhouse gas emission intensity of its oceangoing fleet by half from 2020 levels.

Hopes that Indonesia would lift its coal export ban on Wednesday were dashed after government ministers said they still needed to ensure that there was enough domestic supply. Energy minister Arifin Tasrif said at a press briefing following Wednesday’s ministerial review of the ban that the government was waiting for the state utility Perusahaan Listrik Negara (PLN) firm to give formal notification that it had secured enough coal before a decision could be taken to end the ban. Tasrif said that he expected to receive confirmation about PLN’s adequate supplies in the very near future.

He cautioned that once a decision was taken to lift the ban, it would not lead to an immediate full resumption of coal exports. Instead, the issuance of export permits would be done in a step-by-step manner with priority given to miners who had fulfilled their domestic market obligations, which requires them to sell 25% of their production output to PLN at a below market price of $70 per tonne.

The export ban, which was implemented on 1 January is believed by brokers and shipping agencies to have tied up in the region of 200 panamax and supramax bulkers that are either loaded, loading, or awaiting loading. More bulkers are reportedly drifting outside of ports while their charterers or owners ponder their next move after shippers declared Force Majeure. Other bulkers are reported to have diverted to Australia or South Africa as coal buyers seek urgently needed coal supplies elsewhere.

Indonesia exports about 400 MMT of coal per year. With half of January’s exports removed from the market, the countries that are major importers of Indonesian coal have been putting pressure on the Indonesian government to rescind the ban as they too fear shortages at power plants. On Monday Luhut Pandjaitan, Indonesia’s Coordinating Minister of Maritime and Investment Affairs said that 14 ships already loaded with coal would be able to depart. However, on Wednesday it had emerged that none of these ships had sailed because local officials responsible for issuing sailing permits were insisting on formal notification from the Ministry of Transport. Pandjaitan said on Thursday that Indonesia has now allowed 37 vessels with previously loaded coal to leave the country .

Indonesian coal industry sources told TradeWinds on Tuesday that some ships were continuing to load coal at the country’s loading anchorages and terminals, but they expected the delays and chaos caused by the ban to extend for weeks, or even months, after it is finally lifted.