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Dry bulk: Atlantic Supramax market set for firm Q1



2018 Shipping Outlook



The Atlantic Supramax market is set for a strong first quarter of 2018, with a relatively late Chinese Lunar New Year holiday providing a some respite in January and early February for trade to resume after the holidays, while March is also set to be firm, with near-record high harvests anticipated in Latin American corn and soybeans.



  • Chinese New Year to support freight in January, February
  • Brazilian corn, soybean harvest near record highs


The later Chinese New Year, from February 15 to 21, is a bullish factor for freight, leaving a month of uninterrupted trading after the end of the Orthodox holidays on January 8 for activity to resume before the start of the Golden Week.


This compares with Q1 2017 when freight levels were battered by the rapid succession of the Western and Orthodox Christmas holidays followed by the Chinese New Year in January 27-31, which drew front-haul activity to a stand-still and depressed intra-Atlantic rates as vessels competed for limited cargoes.


The Houston to Aliaga petcoke route, basis 50,000 mt, plummeted from $21/mt in December dates to just $16.75/mt in early February on the reduced activity.


Strong demand for US coal and petcoke from Egypt and Turkey is also expected to translate into higher rates on the year, with a flurry of cargoes already in the market for early Q1 2018, and additional support seen from the Indian Supreme Court's decision on December 13 to exempt cement producers from a petcoke ban in the northern States of Uttar Pradesh, Haryana and Rajasthan, which saw exports from the US Gulf Coast to India slow to a trickle in Q4.


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With India absorbing 8.6 million mt of US petcoke last year, according to US Census Bureau data, the renewal of this flow is expected have a material impact on both front-haul activity and freight.


While shipowner sentiment for January and February dates was further buoyed by the expectations that US Gulf Coast corn exports would begin in earnest in the new year after a disappointing end to the year, more favorable pricing for material out of the South America, the US West Coast and Canada in recent months has left this scenario unlikely.


Thin front-haul activity in Q4 capped gains in the US Gulf Coast, as vessels angling for trips to the Far East faced fierce competition in order to secure business.


The New Orleans to Kashima grains route was assessed at $46/mt on December 11, a year-to-date high, but well shy of levels anticipated at the start of the quarter.


Another factor which is expected to lend support to voyage rates in Q1 2017 is firmer bunker prices, which are hovering near two-year high across the Atlantic on the back of stronger crude oil.


380 CST Fuel oil 3.5% delivered Rotterdam was assessed at $344/mt on December 12, while the delivered Houston price, same basis, was assessed at $374/mt, a far cry from the Q1 2017 averages of $295/mt and $311/mt respectively.


The supply picture is also favorable for freight, with significantly lower volumes of new-builds expected on the year lending support to owner sentiment.


Supramax and Ultramax deliveries are expected at around 4 million dwt in 2018, the lowest levels since 2010, and well below the 10 million dwt delivered in 2017, Banchero Costa data showed.



LOOKING TO MARCH

March 2018 is set to be firmer still, as Brazilian soybean and summer corn exports are expected to hit their stride late in the first quarter, and near-record volumes are anticipated for both crops.


Brazil is set to export 64 million mt of soybeans in the 2017-18 marketing year -- down 1 million mt on the year, but close to its record high of 65 million mt in 2016, national grains reporting agency Conab said.


And corn exports are expected to remain steady also at record highs of 30 million mt, after much-needed rains boosted planting in November.


March is traditionally a month of rising freight across the Atlantic as activity resumes following the winter months, and this pattern is expected to continue in 2018.


Voyage rates ranging from the US Gulf Coast to the UK Continent were lifted in March 2017, with the Houston to Krishnapatnam petcoke route basis 50,000 mt gaining $4/mt to $28/mt from February lows, while the Rotterdam to Aliaga scrap route, basis 45,000 mt, surged nearly 50% to $15/mt over the same period as scrap began to flow ahead of the construction season in April.


These factors combined have left a stronger picture for Q1 2018 on the year, with firmer demand for the start of the quarter anticipated against a backdrop of higher bunkers, lower newbuilds and increased opportunities for trade due to the later Chinese Golden Week.


Petcoke exports from the US Gulf Coast remain under threat however, as environmental concerns are high on the Indian domestic agenda, which could see front-haul activity stalled once more in the New Year.


--James Duff, james.duff@spglobal.com
--Edited by Maurice Geller, maurice.geller@spglobal.com







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