Coal news and updates

Firm freight rates globally, especially for Capesize vessels, are expected to persist for the rest of this year due mainly to increased Chinese buying activity for iron ore, market sources said Thursday.

 

Carriage rates for other vessels, including Panamax, Supramax and Handymax, are also expected to firm up, but to a lesser extent compared with the price expectations for Capesize vessels.

 

Coal traders contacted by Platts said the higher freight rates are putting pressure on FOB thermal coal prices, causing an "even wider spread" between bids and offers for the commodity.

 

One Singapore-based trader said the effect will be mainly on Australian and South African coals, which are mainly transported on Capesize vessels to China.

A second trader in Indonesia said the rising freight is surely a concern but will have only a "marginal impact" on coal sales.

 

Although C&F prices are expected to rise with the higher freight rates, Indian coal buyers have bigger issues to worry about, mainly pertaining to the depreciating rupee which makes it extremely expensive to import coal, the trader said.

 

The first trader said the rising freight rate is just another issue facing coal shippers in the currently bearish thermal coal market.

 

A Singapore-based shipping source said: "Market sentiment for bulk freights suggests the balance of this year will remain firm." He said the rise in Capesize rates is mainly due to the manner by which China imports iron ore.

 

"Chinese steel mills have this stop-start way of chartering. They suddenly hit the accelerator and the Capesize market takes off. The Panamax, Supramax and Handymax rates move as market sentiment improves but the moves are not as great as in the Capesize sector," the shipping source said.

 

"Then just as quickly as they started, they stop chartering and the market goes into reverse."

 

Capesize freight rates started to show signs of improvement in mid-June from previous lows and have significantly risen in the last three weeks.

 

CHINA MILLS INCREASE IRON ORE IMPORTS

 

The shipping source said he believes Chinese mills have increased their iron ore imports on expectations that prices will rise.

 

"China is a centralized economy and who really knows what they are thinking? My personal belief is that they simply decided their stocks needed replenishing and that delivered costs were acceptable," the source said.

 

"Now that delivered costs have increased, they may well decide to take the foot off the accelerator and apply the brakes -- having done what they wanted. The same happened several times in 2009."

 

The Chinese mills are importing iron ore whose current landed prices have risen by about 20% from mid-June.

 

Platts assessed the 62% Fe Iron Ore Index at $113.75/mt on June 14, at $140.50/mt on August 15 and at $138/mt on September 4, CFR North China.

 

According to the Baltic Exchange, the daily time charter rate for Capesize vessels on June 14 was $6,300, rising to $12,909 on August 15 and to $17,854 on September 4.

 

In mid-June, the daily Panamax and Supramax time charter rates were higher than Capesize rates but this trend has lately been reversed.

 

Baltic Exchange data showed the daily time charter rate for Panamax and Supramax vessels at $6,405 and $9,408 on June 14, respectively; and at $7,374 and $9,552 on August 15. On September 4, the daily time charter rates for Panamax and Supramax vessels were $7,456 and $9,856, respectively.

 

"The rise in freight rates will obviously mean coal charterers will pay more for Panamax and Supramax ships. This is a direct effect of the rise in Capesize vessel rates. But the rise for smaller ships will not be as big because they are not too involved in the carriage of iron ore," the shipping source said.

 

 

Source: Platts