AGRI-BULK TRADE AND THE COVID-19 RECESSION


2020/1 is not 2008/9

Despite their different origins, the economic fallout of the current pandemic is frequently compared with the recession of 2008/9, with most observers anticipating a more prolonged and severe outcome this time round. But one sector of the world’s trading system that appears relatively unscathed and is cur-rently out-performing its 2008/9 predecessor, which experienced price spikes, shortages and trade re-strictions is trade in agri-bulks. The complex supply chains underpinning trade in foodstuffs have, de-spite worries about panic stockpiling, travel prohibitions on immigrant crop pickers, withdrawal of credit facilities to farmers and mass closures of restaurants and cafes, so far remained robust in the face of mass shut-downs elsewhere in the global economy.

USA Coal Exports – Changing Trading Pattern

Last year USA lost 21mt seaborne coal trade with thermal down 12.5mt(-35 per cent yoy) at 24mt and met down 9.5mt(-21 per cent yoy) at 35mt. To date demand for its coal is at best flat though as a greater proportion of current sales are heading to Asia and the sub-Continent, changes in coal  trading patterns are impacting the wider dry bulk market. Central to these changes has been China’s decision not to buy any coal from Australia for the past nine months. Due to this high level decision China has been forced to source metcoal in particular from other countries, of which USA has one beneficiary. So in 2020 US exported 1.6mt metcoal to China most in the second half of the year; whereas In Q1 2021 alone USA exported 2.1mt metcoal to China as well as 0.4mt thermal (from virtually zero in 2020).

But though China has now become USA’s number one export market for metcoal, overall USA metcoal exports has fallen yoy in Q1 by 1.3mt to 9.1mt as other Asian countries have taken advantage of more readily available Australian product; thus USA exports to India and Japan are both down 0.4mt at 0.7mt whilst shipments to South Korea have fallen by a massive 0.8mt(-80 per cent yoy) at a mere 0.2mt. Other sharp falls in Q1 metcoal shipments include Brazil (down 0.4mt at 1.4mt), Ukraine (down 0.4mt to 0.6mt) and Turkey where exports have almost halved at 0.2mt though in this instance Turkey increasingly sources metcoal from the nearby new Russian installation at Taman in the Black Sea.

The picture is somewhat different with USA thermal coal shipments where exports are up 0.7mt yoy at 9.1mt with high quality anthracite from east coast ports proving especially popular. In contrast to met, thermal coal shipments to India are up 0.6mt at 3.8mt and up 0.3mt at 0.7mt to Japan. Only South Korea down 0.5mt at 1.1mt has imported significantly less thermal coal in Q1. There has also been a partial recovery in some trans-Atlantic trades with The Netherlands doubling imports in Q1 to 0.8mt whilst comparatively big rises to Egypt (up 0.3mt to 0.45mt) and Morocco ahead by 0.13mt at 0.3mt have also been evident.

Clearly changing demand for USA coal is impacting dry bulk markets as shipments to India and the Far East at 10mt in Q1 (up 8 per cent yoy) now surpass traditional Atlantic trades (now down to 8.3mt in Q1 having been as high as 14.1mt as recently as Q1 2019).Not only has this development provided greater tonne:mile demand but with more longer haul shipments, a greater proportion of cargo is now being carried by the larger vessel sectors. Thus in Q1 coal shipments in Capesize are ahead by 1.1mt (+36 per cent yoy) at 4.2mt and Post Panamax up 0.6mt at 2.7mt(+ 30 per cent yoy) whilst shipments in Supramax(down 0.6mt at 4.8mt) and Panamax (minus 0.8mt at 6.5mt) have decreased around 11 per cent yoy.

China Corn Imports

With record quarterly corn imports in Q3 and around another 1mt reportedly on the water, China looks set to breach the annual foreign import quota (this year set at 7.2mt). To date China has imported 6.9mt (up 3mt yoy) on the back of increased consumption and concerns that this year’s domestic harvest might have been negatively affected by an earlier drought, localised typhoon’s prior to harvest and increased pest damage.

Chinese corn production is usually around 250mt but demand has increased over the last two years due to increased poultry numbers and the government decision to ban the feeding of swill to the nation’s pig herd. So, despite pig numbers being decimated by African Swine Flu over the past three years, corn stocks appear to have been significantly drawn down and a possible shortage of supply evidenced by domestic corn prices have accelerated to a record high 2,608 RMB per ton on the Dalian Commodity Exchange last week.

In recent years Ukraine has provided the vast majority of China’s corn imports though last year’s record shipments 4.1mt have already been eclipsed with 4.9mt landed in China by the end of Q3. However this year’s major development is the return of consistent shipments from USA since June with Chinese imports rising to 1.5mt by the end of Q3, already five times greater than the sum of last year’s last year’s total figure.

However, much more cargo may still be on the water as an analysis of USDA data reveals a half the 1.2mt shipped in September sourced from US Gulf unlikely to have reached discharge as yet whilst another 0.7mt corn has been reportedly been shipped during October from US Gulf loading ports. As most corn shipments to China are carried by Panamax-Kamsarmax tonnage these incremental volumes and longer employment days would be a major boost for the sector going forward. Looking back in history, the boost from the additional 5mt corn shipped from USA to China in 1995 was sufficient to push Panamax annual rates up to decade high levels  of nearly $15,000/day, up from $10,500 in 1994 before falling back to just under $10,000 in 1996 when China no longer required additional imported corn.

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