The trend is your friend is a phrase often said when you have no clue whatsoever about where the market is heading. You can clearly see that something is not rational, something is not business as usual, but you cannot nail it down.
Some of that is likely to be new market dynamics brought around be an unprecedented distortion of demand. After a dreadful first half, the tables have turned. China’s stocking up of almost every single dry bulk commodity, but coal, meant that normal short-hauls of wheat out of Black Sea became long-hauls into China.
China tends to surprise on the upside
China has more than doubled its imports from the Black Sea region – all of which goes via the Suez Canal, that has seen bulker transits jump by 26% for the first three quarters as compared to last year. Mainly panamax, post-panamax and capesize transits, which have increased by a jaw-dropping 46% year-on-year.
The increased long-haul voyages have boosted the dry bulk market by almost 160bn tonne miles as Egypt, the Netherlands and other nearby importers saw declining volumes.
As the winter season now looms – your focus should be three-fold: 1) will Chinese economic stimulus continue to boost long-haul demand as they stock up on almost every single commodity? 2) can Vale finally get its act together? 3) how much will Chinese coal imports fall?
In the case of China being unable to uphold the hectic pace of imports – it will be a disaster for the market. Only grains for animal feed have been able to keep flowing into normal destinations. China tends to surprise on the upside – with 2016 being the only exemption on record. You may even forget about the trade spat with Australia – as that is short-hauls only. Having said that, it has been sabre-rattling only up until August.
While speaking of sable -rattling, Vale’s fairly new CEO, Eduardo Bartolomeo is ‘boasting’ about the company being able to produce iron ore volumes that will exceed those of 2018, by the end of 2022 or early 2023. At least he is buying himself a bit of time, while reflecting on Vale’s poor production guidance and execution over past years.
Meanwhile, the Chinese investors behind large scale investments in Guinea Bissau waste no time, as they head for up to 80m tonnes by 2025 from the Simandou iron ore site. This is a move to diversify its suppliers as well as a response to many years of lacking iron ore from Brazil as the only real alternative to Australia.
As Splash Extra forecasted last month, China’s coal imports in September fell year-on-year bringing total nine months coal imports below that of 2019. It was the fifth consecutive monthly decline, coming in because more regions have exhausted their import quotas for 2020. Being down by 4.4% on the same nine-month period last year already, we can start adding the escalating tensions with Australia into the mix. These tensions now bear consequences for ships with a coal cargo currently waiting to discharge in China as they are harassed by local authorities with Beijing sanctioning any such actions.
It is gloves off for China in many ways these days.