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Surging European ton-mile demand fails to lift inbound Panamax coal freight

Vessel oversupply in the Atlantic Basin has pushed Panamax freight rates to multiyear lows in January, despite robust growth in ton-mile demand for inbound coal shipments in Rotterdam fueled by lingering security of supply concerns and European sanctions on Russian coal.

Freight performance so far in 2023 appears to have little in common with the surging Atlantic dry bulk markets of the past two years, with the daily Panamax rates on key routes sliding to hire levels last seen in 2020.

“There isn’t too much movement due to China stalling, but this will change,” said a ship operator. “In general, a lot of vessels have returned to the Atlantic, and this pushed numbers lower,” with a significant portion of those vessels carrying coal from Australia and South Africa.

Platts, part of S&P Global Commodity Insights, assessed the 70,000-mt coal Panamax run from Hampton Roads, US East Coast to Rotterdam at $13/mt Jan. 25, down 28% from mid-December and the lowest since December 2020.

“Owners keep accepting these rates, seems there is not a lot of resistance unfortunately,” said a shipowner. “Mild winter in the Continent so far, seems there are no gas shortages, hence no more extra coal required — at least we are lucky not to have a lot of vessels around to fix.”

Time-charter equivalent rates last stood at $7,333/d Jan. 25 for Panamax vessels opening in Gibraltar for a trip via Hampton Roads with a 70,000-mt coal cargo destined for Rotterdam, trending close to the lowest daily levels observed since June 2020.

“Vessel oversupply everywhere, including US East Coast South America and the Pacific Basin. [There are] limited cargoes [and the] EU steel mills [were] closed last year,” said a Panamax freight trader, pointing to a historical number of ballaster vessels, with no bottom in sight. “Indonesian market remains low, hence pushing ships over.”

“When you see a very quick fronthaul like the US East Coast to India at only $17,000/d or so on a decent ship … it says a lot,” said another shipowner, referring to the 2014-built Nord Pluto, 81,944 dwt, which was fixed to open Montoir Jan. 20 via the US East Coast with a dry bulk cargo, redelivery India, at $17,500/d with Bunge.

More recently, the 2013-built Sudety, 82,138 dwt, was taken on subjects to open APS North Coast South America Feb. 4 with a dry bulk cargo, redelivery Continent, at $13,250/d with Bunge, according to market sources.

“Sudety must work out around $5,000/d basis delivery Gibraltar for that trans-Atlantic run, really awful stuff,” the shipowner said. “I can imagine a few owners having to close their eyes and fix with people off due to the Lunar New Year. Let’s see how the rest of the first quarter takes shape.”

Challenged by significant macroeconomic headwinds and lingering uncertainty regarding growth stepping into 2023, global dry bulk freight has remained under pressure, with the Platts KMAX 9 Index, a weighted average of spot time-charter equivalent rates on key Kamsarmax routes, last standing at $7,591/d Jan. 25, dropping below $10,000/d for the first time since November 2020 and 61% lower than the $19,684/d average for 2022.

Shifting coal trading patterns escalate ton-mile demand

Ton-mile demand generated by coal shipments arriving in Rotterdam during January were last estimated 35% higher on the year, according to ship-tracking data Jan. 25 from S&P Global Commodities at Sea, with tracked coal inflows expected to reach close to 2.4 million mt by the end of the month, significantly higher than 1.7 million mt in January 2022.

“We’re clearly on the rise this year, numbers make sense,” said the ship operator. “It just needs a bit of time to kick in, we are heading into the core winter period.”

Following the European ban on Russian coal, shipments from distant suppliers, such as South Africa, stepped in to fill the gap amid expectations of strengthening regional demand for coal on the back of persistent security of supply concerns in the continent.

“We didn’t have our normal short Baltic coal trans-Atlantic flow like before,” said a shipbroker. Another market participant cited the strong moves observed in the 2022 backhaul run carrying coal to Europe.

Russian flows claimed almost a third of imported coal volumes in Rotterdam in January 2022, according to CAS, but due to the proximity of key Russian ports of origin, such as Ust Luga, ton-miles generated from the Russian coal trade accounted for less than 8% of the total ton-mile demand for coal in Rotterdam in January last year.

The elimination of Russian coal ports from the supply equation in Rotterdam resulted in a much more diversified supply base in January 2023, which saw coal imports from the US overtaking the top spot from Australia, claiming some 45% of the inbound volumes.

Australian coal trade into Rotterdam continued in the top ranks for ton-miles, claiming almost 38% of the total expected ton-mile demand for coal in Rotterdam during January 2023, from a staggering 74% during January 2022.

A notable development has also been the steep rise of Colombian coal flows into Rotterdam, with CAS data pointing to a six-fold jump in inbound Colombian coal volumes compared with January 2022 and expected to reach close to 338,000 mt in January 2023.

In addition to the absence of Russian coal inflows into Rotterdam during January 2023, CAS did not detect any coal shipments from Latvia so far this month, with Mozambique staging a dynamic start to the year to claim about 5% of both volumes and ton-miles during the month, owing to strong performance of coal exports from the Port of Maputo.

Source: Platts

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