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India's weak coal demand, sparse China steel exports hit Supramax TCEs

Highlights

Owners' earnings better on Pacific voyages

Tonnage opening in Southeast Asia taking discount

Singapore — Stumbling Indian coal imports coupled with a lack of steel cargoes from China was forcing Supramax tonnage opening in Southeast Asia to accept considerably lower freight returns for trips into the Indian Ocean than for voyages within the Pacific, market sources said Sept. 11.

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The time charter equivalent rate - TCE - or daily income on a 57,000 dwt Supramax-class bulker opening in Singapore to haul coal from Indonesia to east coast India has averaged at a slim premium of $863/d over a similar ship opening in south China since May for moving coal from Indonesia back to China, S&P Global Platts data showed.

Much to the consternation of shipowners, even that premium has been erased since the beginning of September, with the voyage from Indonesia to east coast India currently averaging at a discount of $377/d to the trip to China.

The TCE rates for ships opening in Singapore for new employment are typically higher than for tonnage coming from south China to load Indonesian coal due to the shorter ballast distance.

Over May-September 2019, Supramaxes opening in Singapore were earning $2,708/d higher than ships drawn from South China for these voyages.

CHINA IRON ORE PUSH

A spike in the iron trade from east coast India to China, which has been the backbone of the Supramax market during this period, has largely contributed to this trend reversal, market sources said.

China's huge appetite iron ore in 2020 has helped boost imports from India, with July shipments at 5 million mt rising from 3.12 million mt in April, according to China's General Administration of Customs data.

The drop in Indian coal imports has also created a tonnage supply imbalance, resulting in fewer ships opening at the Indian coast for fresh employment, which had been the dominant factor driving up freight rates in the Indian Ocean earlier.

Market sources cited the lull in back haul cargoes from China to Southeast Asia as another reason for the narrowing of the premium and the resultant discount between the Indonesia to east coast India and Indonesia/China voyages. The lack of steel cargoes from China to Southeast Asian countries like the Philippines and Thailand has resulted in trips toward China attracting a premium, market participants said.

"There aren't a lot of owners who want to go to China. There's still some resistance there because it puts them in a worse position [due to the absence of back haul cargoes from China]," a ship-operating source said.

FERTILIZERS NO MATCH

Meanwhile, some participants cited fertilizer cargoes from the Far East to India to be a viable substitute for the shortfall in steel stems coming out of the region, though the volumes pale in comparison to steel.

The past two weeks have been shaky for the Supramax market, pressured mainly by a shortfall in coal demand and muted activity in the iron ore trade out of India due to the wet weather along the country's east coast.

The pause in activity has led to concerns over whether China's demand for iron ore will continue into the next quarter.