Navigating the Dry Bulk Shipping Storm
A cloudy outlook hangs over dry bulk rates amid the raging economic storm, however, a silver lining has emerged. Thanks to an unprecedented surge in coal imports by China, the industry has not plunged into despair. The Asian superpower is projected to import a colossal 400 million tonnes of coal this year, shattering the previous record of 327 million tonnes set in 2013 and outpacing last year’s total by a substantial 100 million tonnes. This projection has been corroborated by the Chinese National Coal Association.
Riding on Rising Coal Consumption
A growing appetite for international thermal coal, spurred by more affordable prices and an emphasis on energy security, has led China to this coal-buying frenzy. Faced with sweltering temperatures exceeding 50 degrees Celsius in its western districts, China has been stockpiling coal in preparation for this consuming heatwave. The initial six months of 2023 witnessed a doubling of coal imports to a staggering amount of 221.93 million tonnes, compared with the same period last year, based on data analysis from the UK’s Shipping Strategy consultancy.
Decoding Price-Driven Opportunism
This explosive growth, an astounding 66% over the comparative period in 2022, has been aptly labeled “price-driven opportunism” by Ralph Leszczynski, the global research head at the Italian brokerage firm, Banchero Costa. Despite being nearly self-sufficient in domestic coal production, consuming a mere 10-15% of imported coal, China witnesses a soar in imports when international coal prices dip below those of domestically produced coal. These imports retreat when global rates and/or freight charges go skyward. Since international coal prices hit their zenith in 2022 and have been steadily declining, reaching early 2021 levels, China has capitalized on this trend.
The Battle of Coal Suppliers
Indonesia has emerged as the predominant supplier of coal to China, contributing 54% to the total fuel stack this year. However, a dramatic turn of events has seen Australia re-enter the fray after years of bans due to the pandemic-origin dispute. This Australian comeback tripled the capesize proportion of inbound coal shipments to 24% in Q2 2023, up from 8% in Q2 2022, as per Braemar data. In addition, an overall doubling in imports has meant heightened volumes on both panamaxes and geared bulk carriers even with the squeezed share of each.
Coal Imports: A Glimpse into the Future
There’s a continued optimistic view in the foreseeable future as forward-looking cargo order data suggests sustained high imports in the offing. Senior Economist Ulf Bergman from chartering platform Shipfix believes the high demand for marine transportation noted in the March-May period portends robust import data for current and subsequent months. While slowing down in recent activities may exert some downward pressure on official import data towards the Q3 end, weekly data remains comparatively high. Giuseppe Rosano, founder of UK broker Alibra Shipping, attests, “Without these coal imports, the bulk markets would be in the pits,” acknowledging the lame performance of iron ore imports due to a lethargic construction sector.
