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.

Dry Bulk Tonnage Anchored at Major Chinese Ports

Post Panamax vessels carrying coal from Australia to China have borne the brunt of the delays in  receiving customs clearance for on board cargoes over the past few months. Though this issue has received more press coverage of late, tonnage with Australian coal on board has in fact been sitting off Chinese ports since June. The reduction of what now numbers around 40 Panamax/Post Panamax has undoubtedly had some impact on Pacific tonnage supply in this sector and is probably a factor, together with strong grain exports ex Canadian West Coast/US North  Pacific and increasing coal enquiry ex Indonesia for a recent bounce in the Panamax Pacific Round Voyage rates; P3A (Pacific Round Voyage) on The Baltic Panamax Index(BPI 82) rising from $9,580 on 9th November to  $12,569 on Friday’s close.

The 6.5mt of coal currently being held (mainly in the Northern Chinese ports) represents only a fraction of Australian exports to China, which to the end of October totalled 77.5mt (+0.5mt yoy) though 43mt of this figure was  shipped in the first four months of the year. In fact, Australian is one of the few countries not to have  suffered reduced exports to China this year as total seaborne trade excluding Australia at 152mt is down 20mt yoy to October.

In the three months since August there has been an overall sharp reduction in world coal exports to China; just 53mt in total compared to  89mt in the corresponding three-month period in 2019. In part this might be due to the record imports in the first half of the year(174mt) such that importers have been running well ahead of their annual quota(c300mt). One reason for such concentrated imports in first half 2020 was the disruption to domestic coastal coal movement at the height of the pandemic in China (January to April);  In these 4 months only 203mt was carried by Chinese flag tonnage mainly from the north to the south of China  compared to 255mt in the comparable period last year.  Since then coastal coal trade has recovered strongly such that by the end of October it stood at 610mt only now down 6 per cent yoy.

Clearly Australian coal is not favoured by China at present (a mere 2.5mt was shipped from there to China in October) and this coincides with an active shipment programme instead out of Indonesia(boosting the sub cape market in South East Asia) amid rumours that the Chinese government China may extend the coal import quota this year to 310-320mt. Additionally China has recently signed a three-year US$1.46 billion deal with the Indonesian Coal Mining Association (APBI) to buy increased quantities from Indonesia from 2021 which may mean less reliance on Australian thermal coal in future.

Meantime should a solution be found to enable the current tonnage sitting off China with Australian coal to be discharged, significant numbers of additional Post Panamax’s, in particular, may end up coming back on the spot market. (Howe Robison Research)

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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