Intermodal Report – Week 37 2021

Market insight 

By Christopher Whitty,

Director, Towage & Marine Port Services

The unfolding last week of a trilateral defence pact between the United States, Australia, the United Kingdom (AUKUS) envisages a wide range of collaboration, but at its core is an agreement to start consultations to help Australia acquire a fleet of nuclear-propelled submarines. Believe AUKUS is an interesting development in the context of the already intensified geopolitical tensions between Australia and China, which have already led to a shift in trading patterns, particularly as far as dry bulk trade is concerned.

In particular, China’s ban on Australian coal since Q42020 has triggered inefficiencies in coal trading, with wide price arbitrages developing between China and the rest of the world for both metallurgical coal used by the steel industry and thermal coal used in power generation. The supply tightness has been more severe on metallurgical coal, the price of which has surged to record high levels, with China scrambling for supplies simulateneously with the rest of the world, steel production of which continues to grow. Australia is the world’s largest met coal exporter (approx. 59.0% of global seaborne met coal exports) and 2nd thermal coal exporter (approx. 22.0% of global seaborne thermal coal exports). China’s coking coal imports from Australia have come down to zero YTD 2021 vs a more than 50% share in imports during the previous two years. Imports from Mongolia so far have failed to meet increased demand amid COVID related supply disruptions and China had to increase its met coal imports share from Russia and the West (particularly the US and Canada), the last traditionally being primariy origins of imports for Europe. On the other hand, Australia coking coal is absorbed by steel mills outside China, as global steel production excl. the latter is up 16.0+% y-o-y (YTD Jan-Jul) and Australia coking coal has turned out cheaper than US coking coal despite the overall price surge. This trade shift has increased ton-miles and dry bulk fleet inefficiencies supporting Atlantic freight rates higher for longer.  

In the meantime, China’s policy pledge for emissions cuts seems to be further supporting ton-miles for dry bulk, despite the country’s crude steel production declining y-o-y over the past two months and iron ore price collapsing below $100/ton recently from $230/ton in mid-July. We believe that in the short term, the severe coking coal and coke shortage in China as a result of the above policies is forcing crude steel production to adjust downwards earlier, but is incentivizing purchases of cheaper iron ore particularly from the Atlantic.

Till recently, demand for cargoes of crucial raw materials like iron ore and coal have overall jumped this year, outpacing active fleet growth, particularly if congestion is factored in, as economies recover from the pandemic. As new market dynamics develop and shape a new post pandemic landscape, we want to believe that these will become new fundamentals that can continue to propel ultimately demand for seaborne transportation of dry bulk commodities in the long run.

Chartering (Wet: Stable- / Dry: Firmer)

Impressive gains materialized in the dry bulk market for another week. Capesize paved the way with an increase of 853 points on its main index while the rest of the sizes enjoyed notable improvements as well. The BDI today (21/09/2021) closed at 4,410 up by 189 points compared to previous Tuesday’s (14/09/2021) levels. The overall picture remains depressed in the crude carrier market, as all sectors reported T/C earnings well below their OPEX levels while any increase in demand cannot provide meaningful support at the time of writing. The BDTI today (21/09/2021) closed at 607 points, a decrease of 7 points, and the BCTI at 486, an increase of 7 points compared to previous Tuesday’s (14/09/2021) levels.    

Sale & Purchase (Wet:

Firmer / Dry: Firmer)

The SnP activity maintained its strong volume of deals this past week. A total of 16 dry bulk and 8 tanker units changed hands with buyer’s interest being distributed in all sizes. In the tanker sector, we had the sale of the “MINERVA ZOE” (105,330dwt-blt ’04, S. Korea), which was sold to undisclosed buyers, for a price in the region of $14.0m. On the dry bulker side sector, we had the sale of the “PROSPEROUS” (179,100dwt-blt ’11, S. Korea), which was sold to Turkish owner, BEKS Shipping, for price in the region of $31.0m.

Newbuilding (Wet:

Softer / Dry: Softer)

After a short-week break, owners’ appetite for Container units resumed with the number of deals surfacing in the past days highlighting that interest for contracting in the respective sector has remained robust. Indeed, a total number of 6 Panamax and 14 feeder boxships were ordered last week. Among them, the six LNG fuelled 7,600teu units that were ordered from French owner CMA CGM have been the most notable one. All vessels will be built at Samsung yard at a price of around $120.0 million each. CMA deal have followed its previous mammoth order four months ago when CMA has ordered 22 containerships in China for a total value of almost $2.3 billion. The lack of activity on the crude carrier side continued this past week with bulker units following suit; the only one order that came to light last week consisted of six 5,350dwt ice-class 1A Hybrid electric bulkers on behalf of Finnish owner ESL. The construction of the vessels was assigned to Chowgule yard in India for a price of around $13.6 million each.

Demolition (Wet: Stable- / Dry: Stable-)

Uncertainty remained in place across the main demolition nations last week. The iron ore sharp decline has affected the overall breakers’ skeptical approach who saw volatile steel plate prices during the past days. However, a decent number of tanker deals have been concluded to Bangladeshi buyers, yet with levels now below the $600/ldt mark as breakers have started to adopt a more conservative approach when it comes to fresh candidates. Pakistani breakers have been more aggressive with their bids competing the rest of the Indian subcontinent offers, however with most of the vintage units being destined to their Bangladeshi counterparts. In India, offered scrap levels remained non-competitive for the majority of the conventional type of units with cash buyers in the region gearing towards their favorable HKC green recycling units. In terms of scrap levels, average prices remained unaffected. While we expect that rates will persist, an injection of larger LDT tanker units last week, which may follow a further increase in demo volumes if tanker freights do not find their key for a sustainable market, could add pressure on levels as we are moving towards the last quarter of the year.