Asia-Pacific Panamaxes to remain under pressure as coal demand wanes: sources

Singapore — Weak coal demand in the Asia-Pacific region has negated the support provided by the fairly healthy US grain shipments to the Far East, with Panamax rates expected to remain low for the rest of the year, market participants said.

Anemic coal demand coupled with excess tonnage supply resulted in the Platts KMAX 9 Index falling below the psychologically important $10,000/d mark on Nov. 3, a level which had not been seen since late June, and was assessed at $9,395/d Nov. 10. The Index had reached $15,333/d on Aug. 13, the highest since its launch on May 4.

"Normally performance is good in Q4 all the way till Christmas and then it crashes. But in the last two years, it has crashed mid or early November, and this year even earlier," a shipbroker said. "It is the third year in a row where Q4 isn't performing. We have to start accepting that Q4 isn't going to be the strongest period anymore," the source added.

Supply-demand imbalance

"I think the oversupply has finally caught up [with us], and the market has come off," a second shipbroker said.

According to China's customs data, imports of coking coal in September were at 6.72 million mt, down 6.33% on the month.

Winter in the Far East has generally been a period of low demand. During the season, many steel and alumina mills in China close some production to meet air quality standards set forth in the three-year pledge in 2017.

Coal is usually also preemptively imported in the weeks prior to the Chinese New Year, a week-long public holiday in China, which falls on Feb. 12 in 2021.

Despite the ongoing winter stocking, which has seen an increasing number of coal shipments to north China, vessel supply was still abundant, sources said.

Changing trade lanes

Since China's ban on Australian coal, first reported by Platts on Oct. 9, spot fixing activity on the route have come to an abrupt halt.

In the past few weeks, the effects of the ban became more apparent, with increased demand on the shorter Indonesia-China route.

Australian coking coal, which made up more than 50% of Chinese imports between January and September, were being replaced by Mongolian, Russian, and Canadian supply, according to China's customs data.

A ship-charterer source said "Canadian coal is now destined mostly to China because of the Chinese ban on Australian coal." The source added that Canadian shippers would have to discount their FOB prices significantly to be able to sell to Indian customers owing to higher freight compared to Australian coal.

According to China's customs data, the Australian coking coal market share has experienced a steady decline over the year, from 68.4% of total coking coal imports in January and February, to 29.5% in September.

Strong US harvest a bright spot

One bright spot market participants see is healthy grain shipments from the US to China.

According to data from the US Department of Agriculture, 92% of the US soybean crop, and 91% of the US corn crop, have been harvested, compared to last year's harvest rate of 82% for soybean and 62% for corn.

Sales of grains from the US to China, particularly soybeans, have also outperformed the previous year with over a hundred 75,000-mt Panamax-sized loads expected for the remainder of 2020, and the first quarter of 2021, according to data from BIMCO and the USDA.