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Panamax freight prices on a roll as aggressive Chinese grain buying spooks seasoned traders

By Philippe van den Abeele on February, 16 2021

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Philippe van den Abeele

30 years experience in freight and freight related commodity derivatives trading. Instrumental in the development and marketing of financial products aimed at providing hedging tools for the worldwide shipping community.

Spot Panamax freight rates (PMX 4TC, Feb-21) increased by 130% in the last 3 months, reaching $15,625/day on 11th Feb-21 vs. $6,825/day on 2nd Nov-20). How will commodity houses, charterers and operators deal with current uncertainties, given the highs in the Panamax/Kamsarmax spot market relative to longer-term contracts they have in place?

 

 

Current market conditions underline the crucial importance to predict volumes as precisely as possible, with the growing role of the Shipfix Platform in supporting its clients to predict market movements based on global market orders on a spot-onward basis, aggregated and anonymised. Shipfix signals are derived from the earliest stages of the supply chain, i.e. days or weeks before cargoes are physically loaded and well in advance of import/export publications, bills of lading, or any other trade data source.

 

What are the reasons behind soaring freight rates and factors on the watchlist in 2021?

In order to understand the main reasons behind skyrocketing Panamax freight rates we would like to look in more detail at the main commodities shipped in the panamax/kamsarmax segment, i.e. agricultural products, thermal and coking coal

 

1. Grains & Cereals trade flows

The graph below illustrates Shipfix Grains & Cereals daily seaborne order volumes as well as Shipfix Grains & Cereals Index vs. Panamax Freight Rates (PMX 4TC, Feb-21). There is a satisfactory correlation (pearson correlation coefficient of 43%) between climbing February Panamax Freight rates and order volumes in the beginning of January this year, when the freight rate rally started. Freight rates for grain related dry bulk products rose this week as aggressive hedging by the major grain houses combined with short-covering drove the Kamsarmax/Panamax/Supramax sectors higher.

 

 

China’s record purchases of agricultural products affecting tonne-mile demand in Panamax-Kamsarmax sector 

Shipfix Agri/Grains/Cereals Index from the US to China tracks record export volumes of agricultural products on the trade route from the US to China, supported by the US-China trade agreement  . Furthermore South American deteriorating weather conditions combined with export restrictions by Argentina pushed the Chinese even further towards the US grain markets. Graph below illustrates a significant increase in order volumes since the beginning of April 2020.

 

 

While port congestion in Brazil is already high and could get worse because of  deteriorating weather conditions and consequently could delay the soybean harvest season by a “couple of weeks”, latest USDA data is showing exceptionally high soybean & corn exports from the USA for the month of January 2021. This illustrates the prolonged grain exports campaign not seasonally expected, with combined grain exports last month surging +60% MoM to 18.2mt for agricultural products in January 2021.  

 

USDA

 

Additionally Shipfix's unique Forward Curves allow our clients to analyse commodity import and export activity. This graph below shows the volume of agricultural products orders currently, loading from the US to Asia and China in particular, from today (‘spot’) and over the course of the next 1 week, 2 weeks, 3 weeks, 4 weeks and beyond. We therefore anticipate the continuation of the strong purchases of US agricultural products (e.g. corn, soybean) by China in the weeks to come, which is illustrated in the spike in long orders beyond 4 weeks. 

 

 

2. Coal trade flows 

The graph below illustrates Shipfix Coal daily seaborne order volumes as well as Shipfix Coal Index vs. Panamax Freight Rates (PMX 4TC, Feb-21).

 

 

China's ban on Australian coal forces trade flows to realign

China’s ban on Australia’s coal imports is forcing a realignment of flows between the world’s two biggest importers and two largest exporters. Indonesia and Australia dominate the global seaborne coal trade, with Indonesia leading in thermal coal, used mainly in power plants, while Australia is the biggest shipper of coking coal for steel production. On the demand side, China is the world’s biggest coal importer, while India ranks second. After China’s unofficial ban and drop of Australian coal imports to China to nearly zero, the trade flows changed significantly: Australia switched coal export to India, while Indonesia is refocused on China (illustrated by Shipfix data below). 

 

      

 

Demand is also being boosted as well by colder than usual weather across much of north Asia, and the limited availability of spot cargoes of LNG (Reuters, 8 January 2021).

The shift in coal flows can be clearly seen in the chart below “Top-5 Importers & Exporters Coal Trade Routes 2021” compiled by Shipfix. 

 

 

Shipfix coal flows data clearly show the changes caused by China’s ban on imports from Australia, which is affecting both coal prices and freight rates as coal is mainly shipped in Panamax - Kamsarmax vessels. 

The graph below illustrates the tonnage opening trend in Australia for the Panamax sector, confirming an upward trend since the moment when China banned Australian coal.

 

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