When we bid 2021 farewell and entered 2022, an abrupt month-long coal ban by Indonesia authorities and a war happening between the two countries collectively known as the ‘Breadbasket of the World” are certainty not on everyone’s wish list. Yet here we are, as Indonesia has been busy clearing January order backlogs while meeting fresh demand (amidst limited capacity) to Europe. Meanwhile, the invasion of Ukraine is now in its second month with no end in sight.
In this issue, we will take stock of how these events have impacted the relevant commodity trade flows over the last three months before delving into detail on 1Q22 dry freight rates in next week’s issue.
On 1 January, Indonesia's government imposed a month-long ban on coal exports in a bid to ensure adequate domestic supplies. As such, Indonesian coal export volumes had a horrendous start for 2022, shipping out only 1.7 mln mt in Week 2. But by 20 January restrictions were being eased with 139 companies allowed to ship the fuel overseas. We observed a sharp spike in weekly shipments and stayed above the 5- year range until the time of writing. This sudden export ban is yet another striking reminder to shipping markets on the consequence of high commodity prices and threat of resource nationalism.
Following this export ban, some industry stakeholders initially pointed to a more worrying future for seaborne coal in Asia. Emphasizing the longer-term impact was that the narrative of this dirty fuel being cheap and reliable, promoted by the coal industry in its battle for survival against cleaner energy alternatives, were seriously compromised. However, with Russian coal being shunned or ‘self-sanction’ by European buyers (see below), such concerns had been tentatively, shelved as they seek Asian-origin coal for substitution across the short to mid-term.
Russian coal exports in 2021 hit a 5-year high, with strong signs that this trend would continue into early 2022 as China continues to shun Australian coal.
Accordingly, weekly shipments peaked in Week 8 at 4.3 mln mt before de-escalating quickly once the sanctions began to be imposed on Russia. By the time of writing, Far East weekly shipments remain intact with losses concentrated in Black Sea, Baltic, and North Continent loading regions.
In response to this new development, Indonesian coal producers had voiced their intentions to expand their exports in response to overseas buyers who are increasingly shifting their purchases to Indonesia from Russia. Nonetheless, these producers have that stated ensuring local power companies receive adequate coal supplies will be top their priority. The Indonesian Coal Mining Association (APBI) said it is working with the government to ensure that major power plants, controlled by state utility Perusahaan Listrik Negara, receive adequate coal supply.
While 1Q20 started off the wrong foot as heavy rains in Brazil delayed harvest by a month, this quarter had been an absolute blast for ECSA grain (namely soybeans), registering 38.6 % y.o.y growth. This boost in front-haul shipment volumes helped to support the Panamax market in January when the Indonesian coal export ban was fully enforced. That said, given the early ramp up in exports and that the projection of Brazilian grains supply has been revised down from over 140 mt to around 125 mt, there remain downside risks to ECSA volumes over the next few months. Indeed, it is likely that soybean volumes may have already peaked.
Black Sea grain exports also experienced a promising start to this year, which supported Supramax and Handy rates in the Med/Black sea. That quickly derailed once all Ukrainian ports were shut in the wake of Russia’s invasion. Russian ports in Novorossiysk and Taman continue to export modest volumes in smaller parcel size mainly to Samsun, Turkey. Under normal circumstances, peak Black Sea grain exporting season would normally arrive in July and August. Considering the current situation, this seems an unlikely prospect this year.
Capesize rates have been relatively lackluster in 1Q22 as compared to the sub-cape segments as its fortunes ultimately is still tied to the availability of overseas iron ore (namely from Australia and Brazil). While Australian iron ore shipments have stayed steady, the longer-haul Brazil shipments failed to impress, falling by 8.7 % y.o.y, thereby failing to provide the boost to ton-miles needed to lift C5TC beyond the $20K ceiling.
Taking a step back, looking at the global seaborne volumes (include cabotage) for all commodities, despite the aforementioned two events, the decline in total volumes is only at a mere 2.8% y.o.y, a fact that trade and economy enthusiasts could take comfort in. However, if the Ukraine-Russia war continues to fester, the possibility of demand destruction due to price inflation down the road cannot be ruled out, which would ultimately smash global dry bulk demand.
