The Dry Bulk Weekly Review in Shipfix Data
Cargo order volumes for coal loading globally have been under pressure in recent months, with demand for shipments to China and India trending lower. Despite a rebound during the past week, coal prices remain well below the levels recorded during the middle of August. Hence, the forward-looking qualities of the Shipfix data sets suggest that the upside for coal prices is limited.
Global Demand for Seaborne Transportation of Coal Remains Soft
After trending lower between the middle of August and the middle of September, the benchmark futures for the Asian coal markets gained more than four per cent last week amid suggestions that Chinese domestic production could face headwinds amid adverse weather conditions and safety inspections. Still, despite last week’s increase, the Newcastle futures for delivery next month ended Friday’s trading session more than 20 per cent below the level recorded a year earlier.
Contrary to the patterns usually developing during the year's third quarter, weekly global cargo order volumes for coal have been under pressure for some time. While there were tentative signs of a recovery during August, the development failed to maintain the positive momentum into the current month.
Compared to last year, demand for seaborne transportation of coal fell by more than 25 per cent in August and with half of the current month behind us, September looks set to be on course for a similar fate. As a result, coal prices are unlikely to stage a robust recovery in the immediate future. While a seasonal rebound can be expected in the coming months, it will start at a lower level than last year, limiting the upside for coal prices.
Indian Coal Imports Are Likely to Decline in Coming Months
Weaker Indian demand for seaborne imports of coal is among the factors contributing to recent weakness in global cargo order volumes. While robust ordering activities six months ago saw imports peak in May, subsequent developments have seen discharged volumes coming under pressure.
Cargo order volumes for shipments to India were nearly a third lower in August than during the same month a year ago. While the past week delivered an improvement relative to the volumes recorded during the preceding one, the aggregate for September remains on course for a significant year-on-year decline, potentially by as much as 50 per cent. The current month will also fall well short of August’s reading.
While Indonesia remains dominant in the Indian seaborne coal trade, the island nation has faced the stiffest headwind in recent months. At the same time, demand for transportation of imports from Australia, South Africa and the US has shown more stability.
Demand for transportation of the dirtiest of fossil fuels to India usually sees a seasonal rebound during the third and fourth quarters of the year. Still, this year, the development has yet to materialise. Hence, as India is one of the world’s leading importers of the commodity, the case for a significant coal price recovery remains weak.
Chinese Demand for Seaborne Coal Remains on a Downward Trend
As highlighted above, concerns over domestic Chinese production provided support for coal prices. However, despite those concerns, weak Chinese demand for seaborne imports of the dirtiest of fossil fuels has contributed to the trade’s unseasonal global weakness.
Chinese demand showed some signs of recovery at the end of August, but the development proved short-lived and weekly cargo order volumes for discharge in China have been on a downward trend since then. The aggregate demand for August was around 41 per cent lower than a year ago, and September appears to be on track for a similar fate. While China is sourcing an increasing portion of its coal imports from Mongolia, weak growth and greater use of renewable sources for energy production contribute to the weaker demand for seaborne transportation of coal.
The current downward trend for weekly cargo order volumes for coal bound for China is at odds with developments a year ago. While there was some volatility in the weekly cargo order volumes then, there was an upward trend during the second half of last year’s third quarter. Hence, unless there is an imminent shift in fortunes, weak Chinese demand and similar developments in India will limit the scope for any recovery even as demand in the rest of the world shows more stability.
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