Capesize trading patterns have shifted dramatically in the wake of Russia’s invasion of Ukraine 125 days ago. More coal is heading on large bulk carriers to Europe as the continent seeks urgent energy security having outlined plans to ween itself off Russian oil, gas and coal.
Indeed, if it were not for the return of coal to Europe’s energy mix, capesizes would be in severe trouble amid waning iron ore demand and slackening bauxite shipments (see chart below).
“Base demand for capesizes would have looked dire if it wasn’t for the coal market that remains the lifesaver for most of the dry bulk sector,” a recent report from Breakwave Advisors suggested.
Mothballed coal-fired power plants are being fired up – green targets taking a back seat to keeping national grids delivering electricity to hundreds of millions of Europeans.
Coal remains the lifesaver for most of the dry bulk sector
Two years ago, Austria and Belgium became the first two countries in Europe to completely eliminate coal from their electricity grids. Both countries are now preparing to reopen shuttered coal power stations for operation again. Similar directives are being handed down by many European governments.
Germany plans to reopen around 10 gigawatts of coal capacity to replace gas-fired generation, along with similar moves to increase burning of the fuel in the Netherlands, and France.
A new report from Dutch bank ING suggests both Poland and Germany could fully substitute gas use in their power sectors by running coal-fired power plants at full capacity and to a very large degree in Portugal, Spain, and the Netherlands.
Coal shipments from the US to Europe have emerged as the primary outlet for replaced Russian coal for European buyers bringing more employment to transatlantic cape trades in replacement of those to Asia.
Data from Sea/ shows a sharp slowdown this month of Russian coal exports to Europe as the upcoming EU ban looms in August and preparations are being made to source the commodity from other origins.
As well as the US another emerging contributor is South Africa. Year to date imports now total 4.3m tonnes which is more significant than South Africa’s observed exports to Europe for the entirety of last year. So far this year, about 15% of all coal exports from Richard’s Bay Coal Terminal went to the EU, compared to 4% for the whole of 2021.
Other significant contributors to European coal imports include Australia, Colombia and Canada.
