The Dry Bulk Weekly Review in Shipfix Data
A close shave with recession for Europe at the end of last year may have been as bad as it gets, as Shipfix’s forward-looking cargo order data point towards increasing appetite for steel in the region. Still, subdued demand suggests that the recent brief rebound for the European coal futures had limited momentum. In contrast, higher demand for long-distance shipments of agricultural commodities indicates that European imports will rise in the coming months.
Cargo Order Volumes for Steel Discharging in Europe Suggest Some Life Ahead
According to data released last week, the Euro Area avoided a recession during the past year’s final quarter by the smallest of margins. The zone’s economy expanded by 0.1 per cent during the three months compared to the same period in 2022. The reading was also marginally better than market expectations of continued stagnation. At the same time as the currency bloc survived its close encounter with recession, for now at least, data for two of its largest economies, Germany and France, showed that inflation rates continue to decline, raising the prospects for lower interest rates later in the year.
Demand for seaborne transportation of steel bound for European ports for the past month looks set to be marginally lower than during the same month last year. However, cargo order volumes during December were substantially higher than a year earlier. The aggregate for the past two months was around 25 per cent higher than a year earlier. Hence, the forward-looking qualities of the cargo order data suggest that the European economy may show some life in the coming months amid the greater demand for steel.
Beyond the continued importance of the intra-Euorpean trade, an increase in demand for Indian steel has contributed to the month-on-month growth of cargo order volumes. The rise will primarily benefit the smaller vessels as average cargo sizes remain around 20,000 tonnes. There is also the possibility that tonne-mile demand will increase more than under normal circumstances as shipments may need to take the longer route around the Cape of Good Hope.
Brief Rebound in European Demand for Seaborne Transportation of Coal Insufficient for Further Price Gains
After briefly dipping below 90 dollars per tonne during the second half of January, European coal prices have recovered parts of the losses sustained during the first few weeks of the year. Still, despite a surge of more than eight per cent during the last week of January, the futures for delivery in Rotterdam in March are currently trading around five per cent below the levels seen at the end of last year.
The rising tensions in the Middle East, and the developments in the Red Sea in particular, have contributed to the volatile conditions for European coal prices. While the seaborne imports of coal are not directly affected, higher natural gas prices and concerns over the flow of LNG imports saw a renewed interest in the dirtiest of fossil fuels. Still, the high European inventories of natural gas have led to coal prices fluctuating less than they would have in recent years.
While demand for seaborne transportation of coal to European ports has fallen since 2022, weekly cargo order volumes recorded a relatively robust start to the year as the situation in and around the Red Sea escalated. The second week of January saw the aggregate volume topping 2.6 million tonnes, with an increase in demand for transportation of Indonesian coal contributing to the spike. However, since then, volumes have been trending sharply lower as milder weather and an approaching end to the heating season have weighed on demand.
Despite a limited increase in ordering activities last week, the general decline in weekly cargo order volumes suggests that the price rally seen during the latter parts of January will not have the momentum to carry into the current months. Also, at this stage, a repeat of the surge in cargo order volumes seen in February last year looks unlikely against the background of high natural gas inventories across the continent.
Rebound in Cargo Orders for Agricultural Commodities Discharging in Europe Fuelled by Long-Distance Trade
Against a backdrop of farmers’ protests across several European countries, the demand for seaborne transportation of agricultural commodities to the continent’s ports has had a robust start to the year. While the month-on-month growth was weaker than a year ago, aggregate cargo order volumes in January were more than 40 per cent higher than during the same month last year.
Over the past month, the higher demand for shipments from Ukraine and the East Coast of South America has contributed to the solid readings. While the cargo order volumes from Ukraine may need to be taken with a pinch of salt amid higher uncertainty, the volumes since September are nevertheless substantial and account for a large part of Europe’s agricultural imports.
The first month of the year has also seen an increasing demand for seaborne transportation of agricultural commodities from more distant shores. The non-European cargo order volumes more than doubled in January compared to December and are nearly 25 higher than during the same period last year.
The robust start to the year has primarily benefitted the handysizes and the supramaxes. However, the positive developments for the supramaxes have predominantly been for cargoes originating outside of Europe. For the handysizes, the gains have been more broad-based. For the panamaxes, the past few weeks have seen a greater demand than during the same period last year, especially for shipments from South America. Hence, there could be some support for freight rates as the harvest gets underway in earnest.
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