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Coal Asia
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Freight Market Report
(07 September 2015)
Bunker Price Falls Accentuate Freight Market Falls
Freight Market Overview
A downturn in the freight market has been accentuated by another drop in bunker fuel prices to lead voyage rates sharply lower. As the accompanying charts show, the Capesize spot rate from Gladstone to Japan has slumped by $3.65/t since the first week of August to finish the month at $6.25/t, a four-month low. In terms of timecharter rates, which exclude bunker costs, the average for 180,000 dwt vessels has dropped from a 2015 high of $20,601/day on 5 August to below $8,300/day by the end of August, according to Baltic Exchange assessments.
The indicative spot rate from East Kalimantan to East Coast India has retreated to a four-month low of $4.85/t, which also represents a four-month low. The drop in TC rates has been modest in comparison with the volatile Capesize sector, with the average at the end of August standing at $7,766/day compared with $8,400/day two weeks earlier.
For 52,000 dwt Supramaxes, average vessel earnings has demonstrated some resilience in the face of rate declines for larger bulkers outlined above. The average of the 6 TC rates at the end of August was around $9,700/day, having risen from less than $9,400/day at the start of the month.
Dry Bulk Trade Developments
Chinese data for July indicated a sharp jump in iron ore imports, but also implied a drop in iron ore consumption. July crude steel production in China fell by 4.6% on an annual basis the first fall of more than 4% since 2010. This contributed to a worldwide decline of 3.8% as global output slipped to its lowest level since the short month of February this year. China’s steel production will be impacted in the north of the country by anti-pollution measures ahead of the Second World War anniversary parade in Beijing in early September. Apparent steel demand in China fell 8.1% year-on-year in July, the weakest performance of 2015.
Steel prices in China rose in early August, but have since come under negative pressure. A better indication of underlying demand will emerge later in September, but confidence has been shaken by the slumping Shanghai Composite and disappointing lead economic indicators.
A monthly 2015 high for Brazil’s iron ore exports of 34.0 Mt in July, which helped lift the Capesize market was followed by a drop in chartering activity.
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(USDA) has lifted its 2015/16 (Oct-Sep) coarse grain export forecast for Brazil by 1.5 Mt from July to a record 28.0 Mt. This follows exceptional Brazilian grain exports in May-July, when the combined 3-month total for soya and corn of 34.3 Mt was up 33.5% year-on-year. The USDA has forecast record Russian/Ukrainian wheat exports of a combined 36 Mt in 2015/16 (July-June) and raised coarse grain by 4 Mt to 29.5 Mt (Oct-Sep).
Although a devalued Chinese currency could discourage coal imports further (already down 62 Mt annually to 121 Mt in Jan-July) and may encourage exports of steel (which were up 13 Mt to 62 Mt in Jan-July) and potentially of coal, much will depend on whether this is a one-off adjustment, as stated by the People’s Bank of China, or the start of an extended period of currency depreciation.
In addition to grain, Supramax demand has been supported by robust steel trade volumes. Having overtaken Japan in 2011 and seeing volumes rise to double those of Japan last year, Chinese steel exports have recorded further annual increases from 2014’s record, despite some tightening on export tax rebate eligibility by the PRC government at the start of the year. July’s 9.7 Mt brought year-to-date exports to 62.2 Mt, a sizeable annual gain of 13.1 Mt or 27%. he first seven months of 2015. Meanwhile Brazil’s steel exports hit a 13 -year high of 1.5 Mt in July.
Fleet Supply Developments
After months of contraction, positive Capesize fleet growth in dwt terms in relation to 1 January 2015 has finally returned, with SSY fleet data revealing year-to-date deliveries of 11.78 Mdwt (60 vessels) compared with ytd deletions from the Cape fleet of 11.15 Mdwt (67 vessels). There has been net growth of 0.2% since the turn of the year, the slowest expansion of the four main bulker sizes. In contrast, at this stage last year corresponding Cape net fleet growth was up 3.1%.
Cape demolition activity in July/August has so far been limited to two vessels (with another five due for scrap), while newbuilding deliveries have numbered 14. The recent drop in demolition follows (1) appreciating secondhand ship values (including price rises for older tonnage), (2) July being the strongest month for the Panamax 4 TCs since November last year and (3) low ship scrap prices. The latest Baltic Exchange Demolition Assessment (BDA) for the Indian Sub-Continent was $302/lwt, the lowest assessment since 2009.
Nine newbuilding deliveries in July took the ytd total for Panamaxes to 88, compared with 119 in the first seven months of 2014.
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Market Outlook – Freight Futures
The freight futures contract for the Capesize 4 TC average (172,000 dwt vessels) was trading around $13,000/day for the 4q15 and $10,275/day for the calendar year 2016 at close of business on 28 August. The Panamax equivalent for the 4q15 was priced at $7,350/day and $7,000/day for the 2016 calendar year.
SSY Consultancy & Research
31 August 2015
Whilst care has been taken to ensure that the information contained in this report is accurate, it is supplied without guarantee. SSY Consultancy & Research Ltd can accept no responsibility for any errors or omissions or any consequences arising therefrom. The views expressed are those of SSY Consultancy & Research Ltd and do not necessarily reflect the views of any other associated company.
