Dry Bulk Quarterly: Supramaxes face troubled Q4 despite resurgent US grains exports
The Atlantic basin’s strongest season for dry bulk time charter rates is traditionally the fourth quarter, but 2020 has proved that nothing can be taken for granted.
With European and US grains seasons coinciding in Q4, spot tonnage typically gets hard to come by as ships in the Black Sea and North Atlantic carry grains cargoes into the Pacific. With demand for ships high and supply low, freight rates are usually pushed up to yearly zeniths.
This year though, the ongoing (and sometimes volatile) trade tensions between China and the US and a below-expected wheat harvest in Europe and Southern Russia, means market talk is whether Atlantic dry bulk markets can expect their usual yearly payday in the run up to 2021.
Black Sea continues to weaken
In the Supramax markets, Q4 is typically strongest on the US Gulf Coast and in the Black Sea. Wheat, corn, and soybean cargoes underpin demand for the smaller-deadweight ships, and charterers seek out the most fuel-efficient vessels for these long-duration exports.
Ultramaxes –- the 60,000-66,000 dwt modern, economical design -– are preferred wherever possible as rising global prices of IMO-compliant 0.5% sulfur marine fuel (VLSFO) make fuel consumption critical to traders’ arbitrage calculations.
From the Black Sea and the EU, 50,000-55,000 mt wheat cargoes to Southeast Asia or the Far East are typically common throughout Q3 and Q4. However, lower-than-anticipated EU yields and increased demand for the larger Panamaxes and Kamsarmaxes in the Black Sea have meant Supramax grains inquiry for Q3 has been well below the market’s expectations.
According to S&P Global Platts Analytics, Russia is set to become the world’s largest wheat exporter this season as difficult weather conditions marred wheat crop prospects in the EU, most notably in France and the UK.
Time charter earnings for a 57,000 dwt Dolphin-type Supramax in the Black Sea have trailed Q3 2019 by an average of 12.5% through Q3. However, as demand continues to weaken across Europe, there could be a slower Q4 for the Supramax/Ultramax sector.
Looking further ahead, dry weather in southern Russia was expected to facilitate planting of winter grains for the 2021 crop, Platts Analytics grains analyst Victoria Sinitsyna said.
“Weather forecast models indicate some sporadic rains in Southern and North Caucasus Districts in the first week of September, but on average precipitation is likely to remain below normal at least until mid-September,” Sinitsyna said.
US exports strengthen despite trade tensions
Despite the trade tensions, US-sourced agricultural products have continued to flow steadily from West to East. So far in the 2020-21 marketing season -– that began June 1 -– China’s total commitments for US wheat have remained ahead of both Mexico and Japan, traditionally large buyers of US wheat.
China’s commitments reached 1.47 million mt for 2020-21, inching to a five-year high, according to a Platts analysis of USDA data. Similarly, US soybeans inspected for export in the week ended Sept. 10 were 1.284 million mt, an 8% drop from the previous week, but 92% above the same week in 2019.
That is good news for Supramax and Ultramax vessels off the US Gulf Coast. In 2019, the New Orleans-to-Kashima, Japan, 50,000 mt grains route fell dramatically from Sept. 20 through to Nov. 5 — $53/mt to just $38.50/mt -– as the political-economical rhetoric between the US and China escalated.
But with grains exports appearing to return to pre-COVID, pre-tariff levels, Q4 2020 is looking healthier for the US Gulf Coast dry bulk markets.