The Dry Bulk Weekly Review in Shipfix Data
Higher European natural gas prices have increased the demand for seaborne transportation of coal to the continent’s ports. European sanctions on Russian coal mean that supplies have to be sourced from more distant shores, with shipments from the US and Australia to fuel higher imports in the future. As a result, the trade in Russian coal from the Baltic Sea has become less critical, with ports in the Far East gaining market share.
Elevated Natural Gas Prices Pushing European Demand for Coal Higher
In recent days, European coal futures have been trading around the highest levels since early November last year. Still, despite gaining around 30 per cent over the past five weeks, the prices remain around 25 per cent below what was observed nearly a year ago. Rising natural gas prices have fuelled the somewhat unseasonal surge over the past month amid supply disruptions, which has led to higher demand for the dirtiest of fossil fuels. The developments for the European coal market have diverged sharply from the fortunes of the Asian benchmark futures. Concerns that the Chinese market may become over-supplied have seen the Newcastle contracts shedding around eleven per cent in the past fortnight.
Weekly cargo order volumes for coal to be discharged in European ports have seen some volatility since the beginning of the year. The past two weeks have seen volumes of around two million tonnes, but this followed a significant weakness during the preceding fortnight.
Still, despite the recent rebound, cargo order volumes remained below what was observed a year ago. Last week’s volumes showed a ten per cent decrease year-on-year. Additionally, aggregate volumes since the beginning of the year are well below the past year’s. The depressed levels of the demand for seaborne transportation of coal to Europe suggest that the recent price rally may prove shortlived, as the end of the continent’s heating season is rapidly approaching.
The recent rebound in ordering activities has seen a boost for the average cargo sizes as some of the increasing demand has been satisfied with shipments from Australia. The development has benefitted the panamaxes and capesizes. At the same time, the US remain an important supplier for the European market, primarily fuelling demand for midsized vessels. Hence, the rebound in European coal demand will provide some support for freight rates in the mid and large-sized segments.
Longer Voyages for Russian Coal from the Baltic Favour Larger Tonnage
Traditionally, supplies from the nearby Russian ports in the Baltic Sea would have satisfied a rise in European coal demand. However, with European sanctions in place for Russian coal imports, the coal trade from the Baltic Sea has lost some of its previous importance. While the loss of the European market has led to lower cargo order volumes, the nature of the trade has also changed, with voyages becoming longer.
While weekly cargo order volumes for Russian coal loading in the Baltic Sea have been trending higher since the middle of January, they still remain relatively low in a historical context. Also, the data for the past three weeks suggest that demand may hit a soft patch. The depressed ordering activities have, to a great extent, weighed on the market for seaborne transportation onboard the smaller vessel segments. The longer voyages in the trade to destinations such as India have greatly favoured the panamaxes. The segment has accounted for around 55 per cent of the market since the beginning of the year, compared to 43 per cent during the same period last year.
Shipments from Ports in the Far East Are Increasingly Dominant in the Russian Coal Trade
After remaining relatively robust for much of last year, Russian coal exports have come under pressure over the past six months. While higher demand and prices saw an increase in cargo ordering activities during February, the bounce proved somewhat shortlived and weekly volumes have since come under pressure yet again.
Still, the downward pressure on demand for seaborne transportation of Russian coal has not been universal. The past two weeks saw a pick-up in cargo order volumes for coal loading in Russia’s far eastern ports. The development has been driven by a rising appetite for Russian coal among Chinese buyers. Last week, seaborne transportation to the world’s second-largest economy accounted for nearly 40 per cent of the future shipments from the region’s terminals. However, the current week has seen Indian demand on the rise, while Chinese buyers have been less active. As a result of waning Chinese demand, the aggregate volume for the current week is on course for a significant decline. With markets becoming increasingly concerned over a potential over-supply in the Chinese market, it is unlikely that Russian shipments to the country will recover in the near future.
The downward pressure on demand for seaborne transportation has chiefly affected the supramaxes. Since the third quarter of last year, the segment has lost out both in terms of market share and volume. At the same time, the panamaxes have gained a more significant portion of the shrinking market.
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