The Dry Bulk Weekly Review in Shipfix Data
Coal prices have come under pressure over the past month as demand from major Asian buyers has eased, with Shipfix’s forward-looking data sets indicating that the headwinds will persist. A decline in demand for electricity produced in coal-fired power plants in China has contributed to lower cargo order volumes. In the rest of the Far East and Southeast Asia, seasonality has limited the appetite for seaborne imports of the dirtiest of fossil fuels. Seasonality is also having an effect on Indian demand, but new policies have provided an additional squeeze.
Rain Fuelled Rise in Hydropower Output Weigh on Chinese Coal Demand
The Newcastle coal futures for delivery next month ended last week at the lowest level since the first few days of April. However, the contracts were on an upward trajectory in April, which ended at the beginning of May, as demand from the world’s leading importers of the dirtiest of fossil fuels rose. After remaining rangebound for much of May, the futures had, by the end of last week, declined by around eight per cent month to date. For the longer-dated contracts with delivery later in the year, there have been some signs of a minor recovery over the past few weeks. Still, prices remain below the levels seen at the end of May.
For China, the world’s leading importer of the dirtiest of fossil fuels, cargo order volumes have seen significant headwinds in recent weeks. While China has substantial domestic coal production, output has been under pressure amid accidents and a focus on restructuring the industry. However, a surge in hydropower production amid significant rainfalls during the spring and higher output from other renewable energy sources have seen lower demand for electricity from coal-fuelled power plants. In May, Chinese electricity production using coal fell by nearly four per cent compared to the same month in 2023.
The past four weeks have seen cargo order volumes for coal to be discharged in Chinese ports under significant pressure. While last year showed similar developments, volumes this year are almost 30 per cent lower than a year ago. The different timing of the Dragon Boat Festival holidays may have contributed to the year-on-year decline, but probably not in a material way. Hence, the current downward trend for cargo order volumes for coal due for discharge in the ports of the world’s leading importer suggests that coal prices will continue to face resistance in the short term.
Seasonality and Policy Weigh on Cargo Order Volumes for Indian Coal Imports
According to reports last week, Indian demand for coal-generated electricity has risen to an all-time high, with a 7.3 per cent increase so far this fiscal year. Continued elevated temperatures across large parts of the country have pushed electricity consumption higher in the world’s most populous nation as demand for cooling soars. India largely depends on coal for its electricity production, with around 75 per cent of supplies coming from power plants using the dirtiest of fossil fuels. The India Meteorological Department has predicted that temperatures will remain above average in the northwestern and central regions of the country during the current month, suggesting that coal use will remain high.
The Indian government also reported that the country’s domestic coal production has increased by more than nine per cent over the past year to safeguard supplies and reduce reliance on imports. However, imports have risen during the early parts of the year, with recent data suggesting that volumes grew by thirteen per cent in April from a month earlier.
Still, the official policy of an increasing reliance on domestic coal production and an ambition to reduce imports has had an effect. Shipfix’s forward-looking cargo order data set indicates that the amount of coal discharged in the country’s ports will come under pressure in the coming months. After peaking in early April, weekly cargo order volumes for coal discharging in India have been trending lower. While the time lags in the trade suggest that actual imports during May remained robust, the volumes should decrease in the coming months. There is also an element of seasonality in the reduced demand, but the decline is more substantial than last year. As a result, should Indian cargo order volumes fail to stage a seasonal rebound in the near future, it will add to the headwinds facing coal prices, with knock-on effects on demand for seaborne transportation.
Soft Patch Ahead for Coal Demand in the Far East and Southeast Asia
Beyond China and India, other parts of Asia are also contributing to weaker demand for seaborne coal imports. Countries in the Far East, such as Japan, have seen discharged volumes under some pressure in recent months. On the other hand, imports in Southeast Asia have been on an upward trajectory in the past few months. However, according to Oceanbolt data, the current month looks set to fall short of the levels recorded in the region during May.
Shipfix's forward-looking cargo order data point towards a period of seasonal weakness for the seaborne coal trade in the Far East beyond China and Southeast Asia, thus suggesting recent declines in trade flows are not temporary. After elevated, albeit volatile, weekly cargo order volumes during the past three months, recent weeks have seen demand under pressure in the two regions. In the Far East, excluding China, weekly volumes have dropped from around four million tonnes to three million tonnes in the past two weeks. In South East Asia, current weekly volumes are less than half of the average for April. Still, demand in South East Asia should start to recover during the second half of August, with the Far East following suit shortly after.
Together with the downward trend for cargo order volumes for coal discharging in China and India, the seasonal weakness in the rest of the Far East and Southeast Asia will contribute to continued pressure on the short-dated Newcastle coal futures. The softer demand for seaborne transportation of coal will also contribute to headwinds in the dry bulk shipping sector, primarily affecting the panamaxes and the supramaxes.
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