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Coal Asia
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Freight Market Report
(23 February 2016)
Freight Market Continues to Fall
Freight Market Overview
The slump in the dry bulk market has continued with the Baltic Exchange Dry Index falling further to a new all-time low of 290 points by 10 February. The current index level of 291 compares with a year-ago value of 540.
Average Capesize (180k dwt) earnings, traditionally weaker in the 1q, slumped to $2,662/day on 19 January and are now just under $2,700/day. This decline is reflected in the Gladstone-Japan Capesize coal rate which has fallen from $4.05/t in late December to $3.15/t at the end of last week. Similarly, the Capesize one-year period rate has slumped to $5,300/day compared with $7,000/day at the end of December 2015.
The Panamax 4 TC average (for 74k dwt vessels) fell to a new low of $2,260/day on 1 February before a slight upturn in Pacific rates caused a small gain to $2,597/day. The Newcastle-Qingdao Panamax coal spot rate fell from $5.65/t in late December to $4.45/t at the end of January, but has since climbed to $5.35/t.
Average earnings for geared vessels have followed the lead of their larger counterparts, falling sharply through January with the pace of decline slowing in early February to the current levels of $2,544/day for 52k dwt Supramax and $2,703/day for 28k dwt Handysize vessels.
Dry Bulk Trade Developments
Iron ore trade volumes traditionally weaken from the 4q at the start of the year and January data showed falling shipments from both Brazil and Australia. In January iron ore exports from Port Hedland dropped to a 19-month low of 33.8 Mt, down 3.0 Mt year-on-year, while Brazilian iron ore exports fell to the lowest level in 12 months at 25.0 Mt. In both cases this represented a significant slowdown from the 4q15.
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Full-year coal export data from the US provided further evidence of the slump in the global coal trade that has contributed to the extremely weak Panamax market. US coal exports (excl. cargoes to Canada) dropped sharply to a six-year low of 61.6 Mt in 2015, down 20.5 Mt six-year-on-six-year, according to official data, with coking coal exports plunging to 37.9 Mt, down 15.4 Mt, as shipments to Europe fell by over a third to 21.1 Mt.
Similarly, Canadian coking coal exports (excl.US shipments) fell to a four-year low of 26.9 Mt in 2015 as shipments to Japan, China and South Korea all declined, cutting trans-Pacific trade.
However, depressed freight rates have provided opportunities for exports to non-traditional markets, such as reported interest in Colombian coal into India for the first time in two years.
Brazil’s corn exports, although down from December’s all-time high of 6.3 Mt,
were still up 1.3 Mt year-on-year in January at 4.5 Mt. However, the ongoing weakness of the coal trade has meant that, despite this continuing strong push from Brazil coinciding with the main US grain export season, there has been no observable boost to earnings. In recognition of the strong pace of Latin American exports and the expectations of strong crops in 2015/16 the US Department of Agriculture has again raised its forecasts for Argentine and Brazilian corn exports in the 2015/16 market year (Oct-Sep) to 19.5 Mt and a record 36.5 Mt, respectively. This has been accompanied by a further downgrade in forecast US corn exports to a four-year low of 42.0 Mt as US shipments struggle to compete with lower cost South American suppliers.
Fleet Supply Developments
January saw the strongest month for bulk carrier newbuilding deliveries in three years with 105 vessels (8.6 Mdwt) delivered, according to SSY data. This was higher than the combined total for the final three months of 2015.
Against such a bleak backdrop for shipowners, interest in demolition and vessel up has naturally heightened. Amid frequent reports of intended lay-ups, however, actual instances of full lay-up are limited at present.
The rapid pace of deletions seen in December continued at the start of 2016 with 50 vessels (3.6 Mdwt) scrapped in January, including a monthly record of 19 Panamaxes (1.4 Mdwt). With a further 48 dry bulk vessels (3.9 Mdwt) due for scrap, including an additional 20 Panamaxes (1.5 Mdwt), the trend for strong demolition numbers looks likely to continue.
In spite of these deletions from the fleet, January still saw the highest net growth in the dry bulk fleet since January last year at 5.0 Mdwt.
Market Outlook – Freight Futures
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4 TC average at $5,150/day/day at close of business on 12 February. This compares with a calendar year 2016 price of $6,050/day at the start of January. This decline has been matched by the Panamax 4 TC average with the Feb-Dec16 contract trading at $4,675/day, as opposed to $5,188/day at the beginning of the year.
SSY Consultancy & Research 15 February 2016
