Nena News

Six-month low freight offers new coal trade opportunities

(Montel) The global dry freight index has fallen to a six-month low, prompting coal sellers and buyers to seek less common, longer-haul trade routes.

The Baltic Dry Index (BDI) – which tracks global dry bulk freight rates – was last assessed down by more than 30% on the month at its lowest level since late May, of 1,064 points. 

This was due to a drop of nearly 50% for the Baltic Capesize Index, to a seven-month low of 1,153 points, while the equivalent panamax index was also down 16% over the past month to 1,498 points. 

“The fall in freight is certainly opening up arbitrage opportunities for different origins,” said an analyst with a Colombian coal supplier, noting for example some Australian supplies had been shipped to Turkey in recent weeks. 

There have also been increased incidences of Indonesian and South African coal being shipped to European destinations over the past month, participants said. 

Montel reported recently that European buyers had been snapping up surplus lower-quality coal from the Pacific basin, while Chinese and South Korean buyers were seeking higher calorific-value and low-ash coal due to government restrictions on the quality of coal burnt at plants. 

However, producers of higher-grade coal in Colombia were unable to benefit from the bump in Asian demand because they had largely sold out until the end of March 2019, the analyst said. 

“That said, if freight continues to remain low into early next year, I think you will see [Colombian] coal being offered into non-traditional markets at a higher volume than previously seen.” 

Open arbitrage 
“From a theoretical perspective, the arbitrage from the Atlantic to the Pacific is wide open, so one could expect Colombian coal to be drained out of the Atlantic and into the Pacific basin,” said Hans Gunnar Nåvik, senior analyst with Oslo-based StormGeo Nena Analysis. 

US producers were less able to take advantage of the long-haul export opportunities, due to tight prompt supply and the prospect of strong domestic demand this winter, he said. 

“[However] Colombian should be a serious competitor to higher-grade Australian coal going forward.” 

And for those who had already purchased fourth-quarter 2018 and first-quarter 2019 cargoes from Colombia, they would still have the option to redirect their cargoes to Asia, rather than the currently well-stocked Europe, Nåvik said. 

Capesize vessels are generally between 125,000-220,000 deadweight tonnes (dwt), operating the long-haul coal and iron ore routes, while panamax ships average 60,000-80,000dwt.

Reporting by:
Laurence Walker
12:02, Wednesday, 14 November 2018