China’s coal cuts push up bulk carrier rates

coal shipping

International charter rates for bulk carriers, particularly those for midsize vessels, are currently hovering around their highest levels in almost three years. This has the shipping industry in high spirits — its prolonged slump appears to be over.

The biggest contributor to the recent surge is rising demand for shipments of coal and iron ore to China. However, transactions involving China are often speculative, and it remains unclear how long the strong trend will continue.

Nevertheless, relief is spreading throughout the shipping industry. The feeling is that charter rates have hit bottom. It was “too cheap” before, is a common refrain.

The average rate for Panamax-class carriers, the benchmark of midsize vessels with capacities of around 80,000 tons, now stands at around $12,000 a day, the highest level since January 2014. This is double the rates from early October and triple the range of a year earlier.

Exports of U.S. soybeans and other grains tend to increase at this time of the year. But this time, surging charter fees are being attributed to increasing demand for shipments of coal to China.

We’ve got balance

In an effort to reduce its glut of coal supplies, China this past spring began cutting the number of coal miners’ working hours. With shortages resulting, China has urged steelmakers to increase their imports of coking coal. More coal is also being imported to fire thermal power plants.

According to the Tokyo-based Japan Maritime Center, China’s coal imports in October stood at about 21.6 million tons, up more than 50% from a year earlier.

In addition, demand for coal shipments to thermal plants in Europe and elsewhere has surged. The number of spot contracts for Panamax-class bulkers in October and November was up year-on-year to more than 200 respectively. The supply of and demand for shipping tonnage have grown more in sync, particularly along Atlantic routes that begin along the Gulf of Mexico, where ports are better known for sending off shipments of grain.

Shipping companies will likely benefit from surging charter fees. Nippon Yusen, for instance, has estimated the rate for Panamax-class carriers at $6,000 per day for the latter half of fiscal 2016, while Mitsui O.S.K. Lines has predicted a $5,300 rate. Today, though, shippers are already getting twice Nippon Yusen’s estimate.

If the trend continues, shippers are in for bumper earnings.

The bulk carrier market remains largely dependent on what happens at China’s coal mines. Now that prices are surging, there is a move afoot to moderate the coal production cuts. A ship broker sees China’s coal imports eventually declining. Accordingly, demand for midsize bulk carriers should level off.

Panamax-class or slightly-larger bulkers, with capacities of around 100,000 tons, also transport iron ore. If coal shipments to China taper off, a rivalry could ensue between these vessels and capesize carriers, capable of carrying loads of around 170,000 tons.

But the shipping industry could easily run into the doldrums again. All it would take is a single move by Beijing.

Source: Nikkei

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