DRY BULK QUARTERLY: Atlantic Panamax markets disrupted by delayed harvests, record fixtures

London — The Atlantic Panamax dry bulk markets capped a record-breaking first quarter of 2021 with time-charter rates across the basin at multiyear highs.

February's headline-grabbing Baltic Sea coal fixtures notwithstanding, time-charter levels for both Panamax and Kamsarmax vessels have settled comfortably above Q1 benchmarks in recent years. However, much of the core strength of the Atlantic Panamax segment has come from delayed Brazilian and Argentinian soybean harvests, as low levels of available spot tonnage were out of position as these cargoes hit the ports.

With Atlantic time charter levels appearing to have found a new ceiling, market participants are divided on whether rates have also found a new floor.

Record fixtures prompt rethink

Freezing temperatures across Europe drove up coal demand on mid-sized dry bulk ships through the first quarter, and low levels of spot tonnage -- especially of ice-class ships -- saw time-charter rates spike to levels not seen since before the 2008 global financial crisis. Despite low numbers of coal cargoes out of iced-over Baltic loading ports, an even lower supply of spot ice-class or Institute Warranties Limits-breaching ships meant time-charter rates went parabolic in mid-February. Two ships were reported fixed above $100,000/d on Feb. 16, causing a highly visible stir among market participants who had mostly accepted that pre-2008 rates would not reappear.

However, caution has mostly prevailed since, and although shipowners are generally bullish about 2021 prospects, a distinctly wary sentiment is widespread about the summer months.

"Between 2002-2009 shipowners went out of their comfort zones and then lost big time," a shipbroker said. "With the bubble back, shipowners are conscious that once demand is fulfilled then market trends will change -- neither a dump market nor too booming is good for business, as both pull rates sky high. Let's wait and watch. By July, steam should condense into water."

Delays in South American harvest

Widespread delays in both the harvest and planting seasons in Brazil have disrupted the tradition seasonality of the grains freight markets to such an extent that the traditionally slow Q1 has instead seen the usual Q4 heights in level and business.

According to data from Companhia Nacional de Abastecimento (Conab), nearly 25% of the second corn crop area in Brazil will be sown outside the ideal planting window this year, exposing the crops to possible weather risks. Under usual circumstances, the first corn crop in Brazil is planted between September and December and harvested from February to May, while the second crop is planted after the soybean harvest in February and March and harvested in June and July.

However, initial delays in sowing for much of Brazil's soybean crop in the South and Center-West regions were compounded by rains during the soybean harvest period, which have greatly hampered second corn planting in the country. Despite the delayed harvest, demand for Brazilian soybeans from Chinese feed buyers remains strong, and soybean cargo inquiries may even accelerate further in the early weeks of the second quarter as the harvest matures. Yet shipowners continued to keep their options open as the first quarter ends.

"It seems, despite being a booming market, shipowners are still preferring single time charter trips, which clearly shows that no one is keen to take a blind risk," a second shipbroker source said. "Having said that, I think we are on track for a good Q2; we have found a new floor on many routes."

US Gulf Coast exports aid bullish outlook

Further north, strong grain export levels from the US Gulf Coast have lent support to the demand side of the Panamax equation. With US Department of Agriculture data showing a 4.7 million mt greater-than-forecast corn export volume for the 2020-21 marketing year so far -- a year-on-year rise of 31.1 million mt -- market participants remained bullish for the quarter ahead.

Similarly, a string of period fixtures on Panamaxes and Kamsarmaxes in the Pacific basin came with worldwide redelivery clauses, meaning the ships can be used for long-duration fronthaul cargoes and trips throughout the summer. As charterers and operators snapped up even ex-dry dock tonnage, the trans-Pacific routes firmed above the $20,000/d threshold on time-charter basis. With reduced congestion at the Panama Canal, and high prices worldwide of 0.5% sulfur marine fuels, it may be that US Gulf Coast round trips prove attractive to shipowners.

"I'm definitely bullish for the second quarter," said one particularly optimistic shipowner/operator source. "I'm operating on an average 10% less in earnings across the board as my worst-case scenario."