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CONTAINERS Like dominoes they have been falling in March - Shenzhen, Shenyang, Dongguan, the entire province of Jilin and latterly Shanghai, all experiencing lockdown thanks to Xi Jinping’s strict zero-Covid policy. The difference this time around compared to previous Chinese Covid outbreaks? They have not been able to halt the lengthy slide in container spot rates. Ought liners to be concerned that the plateau has passed and weakened consumer demand is here to stay? Congestion is hitting new highs yet rates are not following suit. The total containership capacity caught up in worsening port congestion globally exceeded 14% of the fleet for the first time last week, according to Linerlytica, with further increases expected following the Shanghai lockdown news. “Unlike last year, the rising congestion has not been enough to push up freight rates in the face of weak demand,” Linerlytica warned in its latest weekly report. The Shanghai Containerized Freight Index (SCFI) has been falling week in, week out now since November. Other box indices operated by the likes of Drewry and Xeneta have also been coming off in March, although historically container fortunes tend to slide in the weeks following Chinese New Year. There is growing concern among analysts that the retail boom across much of the western world is coming to an end, with soaring inflation and the war in Ukraine forcing consumers to put their wallets back in their pocket. “Recent retail sales figures indicate that North America consumer demand for Far East imports may have plateaued,” commented Niels Rasmussen, chief shipping analyst at BIMCO in a recent container update. Lars Jensen, CEO of liner consultancy Vespucci Maritime, argued last week that the decline in the various indices is still at a level where it is impossible to reliably distinguish it from the normal decline after Chinese New Year. April will tell us where we are in the cycle. DRY BULK The bifurcation of the dry bulk market has been rather stark this month, a reminder of how dependent the bigger ships are on a healthy economy in China. While all vessel types have been profitable in March, capes have been the weak link, making a little over opex at a time when smaller ships are cashing in with sizeable daily profits, making roughly twice as much as capes all month. Capes are comparatively immune to the war in Ukraine compared to their smaller cousins. The Black Sea region accounted for just 2.5% of capesize demand in 2021, according to Braemar ACM. According to the latest figures from the World Steel Association, global crude steel production totalled 142.7m tonnes in February, declining by 5.7% year-on-year. Chinese production fell 10% month-on-month, and seaborne trade in coking coal trade has declined by 8.1% year-on-year in January and February due to steep declines in Chinese demand. Lockdowns in major steel producing regions such as Tangshan in Hebei province have weighed on output while lockdowns elsewhere have caused significant transportation disruptions. According to data from Refinitiv, daily discharge rates for iron ore in Chinese ports has declined to 1.8m tonnes, the lowest level in the past 12 months as port operations are affected. AXSMarine data shows global iron ore flows have been declining since January. Quantities so far in March are 10.8% down year-on-year. China reduced iron ore imports by over 5.2% year-on-year in February marking one of its lowest levels in four years at just over 86.6m tonnes. China’s financially troubled real estate scene is widely seen as the main reason for this slump in demand. Evergrande’s woes are not an isolated case – signs of distress are starting to emerge at other Chinese developers too. And that’s bad news for iron ore miners, as property construction accounts for about 42% of Chinese steel demand. The weakness in Chinese property sales is clear to see with sales down close to 50% year-on-year in January and February. "The Chinese property market, a Ponzi scheme if ever there was one, has spread risk into the savings accounts of millions of newly minted middle class Chinese consumers. The developers/speculators can no longer fund their debt payment instalments through new sales, a situation that will only get worse given the demographics in China," a new report this week from Shipping Strategy suggested. TANKERS When the west decides to ostracise the world’s largest energy producer, tanker analysts have to get creative, providing clients with a host of non-Russian alternatives for oil and what this means for the overall global tonne-mile picture. Suffice it to say, for those involved in forecasting tanker fortunes, March has been a busy month. Volumes of crude oil and products export from Russia are sharply down since the beginning of the invasion of Ukraine. Compared to the three weeks before the war, volumes were down 30% as of last Thursday according to data from BIMCO. In terms of crude exports, analysts at broker Poten & Partners note Russian exports to Asia have picked up in the period since the invasion. The export volumes loaded in Russia destined for Asia averaged 1.4m barrels per day in the 10 days prior to February 24. Since then, volumes have increased to an average of 1.75m barrels per day by mid-March with India and South Korea noticeably to the fore as well as stalwart ally, China. However, what seems certain is that China and India cannot take all of Russia’s 5m barrels per day of crude exports. Looking at non-Russian alternatives for western consumers, BRS suggested Brazil’s pre-salt crude is a good match for Russian Urals. However, a significant portion of Brazilian exports are shipped to China where many of the refineries commissioned over the past five years have been geared towards processing these barrels together with heavier, sourer Middle Eastern grades. Here BRS sees an opportunity for China to scale back its purchases of Brazilian barrels in favour of cheaper Russian crudes. On the flip side, these “backed out” barrels will head to Europe. If this occurs, it will see a switch from these barrels being carried to Asia on VLCCs to being carried to Europe on suezmaxes and potentially aframaxes if the stems are small. Away from Brazil, and there is the potential that Europe could increase its intake of sour Mexican and Colombian barrels. The market needs extra incremental Middle Eastern crude with BRS expecting a hike in western sailings from April onwards, likely on suezmaxes. The wildcards - and the source of much analyst conjecture this month - are the potential return of crude from Iran and Venezuela to international markets. The lifting of oil sanctions could also reignite and legitimise the long-haul trades to India and China, creating additional long-haul employment for VLCCs and reducing the trading opportunities for the rogue tanker fleet, something Poten hailed recently as a “win-win” for the large tanker market.

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