SIMIC

 Asia’s dry bulk shipping market has found support from robust coal demand from Vietnam and China as well as plentiful iron ore flows to China, despite COVID-19 pulling down consumption in other pockets, Vivek Kumar, managing director of Western Bulk Pte Ltd. told S&P Global Platts in an interview.

The trend that may continue in the third quarter, Kumar said.
On the agriculture commodities side, the flow of fertilizers and grains to leading Asian consumers have largely been going on as normal in recent months despite the pandemic creating operational hurdles, Kumar added.

“If you look at the positives for the dry bulk market in Asia, I would say number one has been coal flows to Vietnam. Demand from Vietnam has been the sole driver for South African coal in recent months,” Kumar said.

Western Bulk is a global operator of dry bulk ships and the world’s leading operator of Supramax ships. Globally, the company in 2019 had 150 ships performing 1,300 voyages and transporting 45 million mt of cargo.

Kumar said India’s appetite for South African coal had fallen because of bulging inventories at ports and power plants, while demand from Europe for cargoes had largely been weak in recent months. Therefore, South Africa’s desperate bid to sell cargoes at lower prices had whetted the appetite of Vietnamese importers.

“Vietnam has been taking advantage of low FOB prices for South African coal and have been buying cargoes left, right and center,” Kumar said.

He added that China’s coal demand has been strong as the country’s importers plan to use up their import quotas well in advance before the year ends.

“I don’t think Chinese coal importers will wait until the last minute because the quotas don’t get carried over — if you don’t use the quotas they expire. Last year also, Q3 coal demand in China was strong. We do expect a very similar thing to happen this year,” Kumar said.

IRON ORE
In the iron ore segment, Kumar said that Brazil’s iron ore exports have been falling because of reduced mining operations. As a result, Chinese buyers have been snapping up small-sized Indian cargoes in Supramaxes, mainly from India’s east coast.

“Iron ore prices are good and it makes sense for India to sell. China will buy iron ore from wherever cargoes are available. We believe they will continue to invest to build up inventories so they can benefit when the market picks up,” Kumar said.

Seaborne iron ore prices inched up Wednesday amid a flurry of trades concluded for medium grade fines. S&P Global Platts assessed the 62% Fe Iron Ore Index at $95.1/dry mt CFR North China on Wednesday, up 50 cents/dmt from Tuesday. The front-month June TSI swap was up $1.25/dmt from Tuesday at $93.95/dmt Wednesday.

“In a nutshell, we will see less number of ships coming to the Indian Ocean because of less coal imports, but more ships going out because of iron ore. “That’s how we are reading the market and positioning ourselves,” Kumar said.

Supramaxes closed on Wednesday with lower freight rates across the Asia-Pacific region on Wednesday. In the Indian Ocean, time charter rates were heard at $10,500/d to $11,000/d, compared to $13,000/d to $13,500/d last week.

GRAINS AND FERTILZERS
Kumar said that flows of grains and fertilizers to key Asian markets have been robust in recent months and the outbreak of the pandemic had not affected shipments.

“Grains shipments from South America and the United States have not been affected. Similarly, fertilizer shipments from the Middle East to India have been quite steady,” he added.

“Overall, today, Asia’s dry bulk market is performing better than the Atlantic market. Therefore more ships want to be in Asia. The flip side is that at some stage they will pile up and all these ships will eventually end in the Pacific,” Kumar said.

Commenting on the outlook for Q3 and Q4, Kumar said he expects healthy demand for dry bulk shipping in Southeast Asia and in the Indian Ocean region.

“I think someone who is looking between Southeast Asia and Indian Ocean should fare well because these are raw material driven markets,” Kumar said.

Kumar said that the dry bulk market is unlikely to see major consolidation as the market was too diversified.

“Some smaller players may go out of business. But that also creates an opportunity for new players to come in. Today, the cost of borrowing is nothing — almost close to zero. If things do worsen may be it will go to negative. So companies sitting on cash will be looking for opportunities,” he added.