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Following IHS Markit's previous update on the upside risk of
winter demand, dry bulk vessels anchored near the northern Chinese
ports have increased significantly to an average of 372 vessels in
week 3 (starting on 11 January 2021) from an average of 281 vessels
in week 50 (starting on 13 December 2020) a month ago, and an
average of 130 vessels a year ago owing to record-breaking cold
weather in China that caused the delay in vessel operations in
northern China. As of 14 January 2021, around 36.2 million
deadweight tons of dry bulk fleet are sitting off the coast of
North China, including 11.8 million metric tons of iron ore, 6.2
million metric tons of thermal coal, and numerous coastal vessels
awaiting for domestic coal shipment to South China.
Since China transports domestic coal from northern Chinese ports
to other Chinese regions, the delay in northern Chinese ports
worsens the coal shortage situation in China amidst the already
severe tightness in domestic supply. Many domestic coal mines in
China had announced plans to cut production at the end of December
to ensure safety at the end of the year along with the ongoing
crackdown on illegal mines. Moreover, recent increase in COVID-19
cases made inland transportation more difficult. Consequently,
Indonesian shipments increased significantly to South China (8.1
mt, up 89% y/y) and East China ports (8 mt, up 123% y/y) to
replenish thermal coal stockpile of power plants in these areas,
while shipment to North China slowed to 1.3 mt during December
2020, according to Commodities at Sea.
IHS Markit CMM (Coal, Metals and Mining) group believe that
despite the rise in temperatures, buying interest remains strong
and continues before the Lunar New Year, because domestic miners
are already operating at full utilisation rates and are expected to
soon prepare shut down for the long holidays.
All of these factors are expected to support count-seasonal
strength in dry bulk freight rates in the short-term However,
downside risk still remains for vessels opening in February because
(1) China's import control will continue after winter period, with
China affording no new quota for traders yet and (2) restocking
activities will slow around the Lunar New Year period. (3) Most
importantly, there will be an increase in the number of ship's
opening in the Pacific once the weather improves, and will likely
face high competition to find next employments until (4) the
Brazilian new grain season starts which is expected to be
delayed.
Chart 1. Panamax congestion in northern China by
origin
Chart 2. Supramax congestion in northern China by
origin
