Congestion related to cold weather and coal shortage in China supported counter–seasonal strength in freight rates
Since China transports domestic coal from northern Chinese ports to other Chinese regions, the delay in northern Chinese ports worsens the coal shortage situation in China amidst the already severe tightness in domestic supply. Many domestic coal mines in China had announced plans to cut production at the end of December to ensure safety at the end of the year along with the ongoing crackdown on illegal mines. Moreover, recent increase in COVID-19 cases made inland transportation more difficult. Consequently, Indonesian shipments increased significantly to South China (8.1 mt, up 89% y/y) and East China ports (8 mt, up 123% y/y) to replenish thermal coal stockpile of power plants in these areas, while shipment to North China slowed to 1.3 mt during December 2020, according to Commodities at Sea.
Chart 1. Panamax congestion in northern China by origin
Chart 2. Supramax congestion in northern China by origin
IHS Markit CMM (Coal, Metals and Mining) group believe that despite the rise in temperatures, buying interest remains strong and continues before the Lunar New Year, because domestic miners are already operating at full utilisation rates and are expected to soon prepare shut down for the long holidays.
All of these factors are expected to support count-seasonal strength in dry bulk freight rates in the short-term However, downside risk still remains for vessels opening in February because (1) China’s import control will continue after winter period, with China affording no new quota for traders yet and (2) restocking activities will slow around the Lunar New Year period. (3) Most importantly, there will be an increase in the number of ship’s opening in the Pacific once the weather improves, and will likely face high competition to find next employments until (4) the Brazilian new grain season starts which is expected to be delayed.
Source: IHS Markit