Coal terminal

Historical coal market recession hurts the dry bulk market

We have already discussed the importance of coal for the Dry Bulk Shipping Industry since it is one of the three major commodities transported in bulk carriers. From all the 3 major dry bulk commodities, the coal is the only one which has experienced lower trading activity during 2015 and 2016, while the seaborne trade of iron ore and grains has grown both in 2015 and 2016. The below table analyzes the trade volume for the three major dry bulk commodities during the last 5 years along with their change during 2015 and 2016.

Dry Bulk Trade 2012-2016 (in Million Tonnes)
analytics for dry bulk commodities during the last 5 years along with their change during 2015 and 2016 ⚹ — Estimates for full year 2016

Apparently, the recession in coal trade has highly affected the dry bulk industry but the OpenSea marketplace is here to help its users overcome the hard times of the freight market by offering new opportunities and giving them access to new clients. In this article it would be interesting to discuss on the recent developments of the coal industry and some of its future expectations.

2015 was one of the worst years in history for the coal market

Global coal production in 2015 decreased, for the first time since 1998, with about 4%. The decrease was noticed in both the steam coal and coking coal while the highest decrease of production happened in Indonesia (-14.4%) and USA (-10.4%) while China’s production also decreased by 2%. This decrease in production has occurred mainly due to the lower economic growth and weak demand in the major economies which also affected the global coal consumption. Coal consumption declined in most of the regions worldwide (except of Asian Pacific and Central/South America) and thus the global consumption fell by 1.8% in 2015, which is one of the largest declines in history. The entire net decline was accounted for by the US (-12.7%) and China (-1.5%), partially offset by modest increases in India (+4.8%) and Indonesia (+15%). Coal’s share of global primary energy consumption fell to 29.2%, which is the lowest share since 2005.

As expected, the negative production and consumption indices had a bad effect in the world seaborne coal trade which, as shown in the above table, fell by about 7% for thermal coal and almost 5% for the coking coal. As far as the thermal coal trade is concerned, the highest fall is attributed to the seaborne imports of China and UK which fell by 32.90% and 46.74% accordingly. German imports also fell by about 6% putting pressure on the seaborne trade. On the other hand, the major fall in coking coal trade is related with the much less imports in China, Japan and UK where the seaborne imports were declined by about 26%, 4.5% and 2.3% respectively.

In view of the above developments in the coal industry, the dry bulk market was driven to historically low levels during the second half of 2015 and the first half of 2016. The average earnings of a capesize vessel during 2015 was about 45% below the average earnings of 2014, while the average earnings of supramax bulkers was about 28% less than the average earnings of 2014. The average freight rate for a coal cargo of about 150,000 MT from Australia to Japan was about $6 per MT down from about $10 per MT in 2014. The average freight rate for a 70,000 shipment from USA to ARAG was quoted at $10 per MT in 2015 down from about 14.25 per MT in 2014.

The recession continues in 2016

The decline which appeared in 2015 has not yet come to an end. The seaborne trade of coking coal is expected to decline by the end of 2016 with about same as in 2015 with the trading volume to be decreased both in European countries and Asia. In the meantime, the coking coal imports of China have been slightly improved as compared to 2015 mainly due to a fall of the local production. However, the increase was not such high in order to boost the global coking coal seaborne trade. On the other hand though, the decrease of the seaborne trade of thermal coal is less than the relevant decline in 2015 and for this reason the dry bulk market has also been considerably improved as compared with the second half of 2015 or the first quarter of 2016. This time, the major decline is coming from the European countries since the European imports have been decreased by about 18% as compared with 2015 or about 26% as compared with the imports in 2014 mainly due to the ongoing softening of the European economies. Asian imports have been slightly improved mainly driven by the total Chinese coal imports which rose and they are expected to close the year by about 8% higher than the imports of 2015. This is mainly driven by a drop in the country’s steam coal output. The introduction of a 276 working days per annum limit for coal mines in March 2016 tightened the domestic coal market, creating a surge in steam coal prices and increasing the imports.

Will the coal market recover? What are the prospects?

Provisional projections for global seaborne coal trade indicate a very marginal growth in 2017 for both the thermal coal and coking coal markets mainly due to a small growth in the imports of Asian Markets. A few main points for consideration in regards with the future coal market expectations.

- China’s slowdown hurts the market

China has played an important role in the coal market as a leading importer of thermal coal between 2010 and 2014 as well as a major importer of coking coal during the same period. However, the country’s slowing economic growth, the stricter quality regulations and a rise in domestic steam coal output resulted in a considerable drop in Chinese steam coal imports in 2015 at a 5 year low. Despite an increase in the thermal coal imports during 2016, Chinese steam coal imports are projected to further drop in 2017, as growth in the country’s power generation eases and the Chinese government loosens domestic steam coal production limits. In the meantime, the government authorised coal mines to rise working days per annum to 330 in Q4 2016. While the full impact of this measure remains unclear, it seems that the potential steam coal output will be increased during the last quarter of 2016, which could weaken Chinese steam coal import demand in the period. However, given the typically cold Chinese winter, maybe the country’s steam coal imports will remain unaffected from the new rules in the short term however the situation remains quite unclear for the long term.

- What about India? Can it boost the coal market?

India experienced some signs for positive growth during the first half of 2015 however its imports finally dropped during the whole year and the decline has continued during 2016 and it is still projected to drop by about 6% in the full year 2016. On the other hand, Indian steam coal output fell in August-September 2016, mainly due to poor weather conditions and destocking at Indian power plants. While reports indicate limited Indian steam coal import demand in recent months, domestic output disruptions present a potential upside for imports in the future.

- European imports do not show any positive signs of recovery in the near future

European coal imports have been very negative recently. Imports for both thermal and coking coal are expected to decline with more than 10% in 2016 as compared with the 2015 while 2017 is expected to experience further decline of about 1% for coking coal or up to 5% for thermal coal. Furthermore, the economic conditions in Europe remain quite unclear and the GDP is expected to be positive during 2017 however slightly less than the GDP of 2016.

After all, it seems that the prospects of the global coal trade remain negative since the economic environment of China is unclear with the GDP at its 10-year lowest point and its coal imports to remain weak without any strong signs for recovery. India’s imports, despite a few positive signs, seem insufficient to boost the coal market, while the overall weakness of the European economy does not allow much room for growth in the European coal imports. Even a situation with a few spikes from India and China are not sufficient to lead the coal market in recovery, at least in the short term.

Over the last few years, the dry bulk segment has suffered much more than other segments of the shipping industry due to the oversupply and the lower trading volume in coal and other commodities. In these difficult times for the shipping community, OpenSea marketplace has appeared to help the dry bulk shipowners find new clients and explore new opportunities. Our aim is to provide more potential cargoes to choose from and support quicker decisions by helping the ship chartering professionals to find the best paying cargo in just a few clicks.

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