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Coal trades at risk from short-term disruptions

A train derailment this month in South Africa has yet to impact coal shipments, although unrest in the country poses risks. Elsewhere, a new wave of coronavirus cases in Indonesia’s coal-mining region is causing concern

MSI expects reduced exports from South Africa in the second half of this year due to infrastructure problems

COAL trades may be subject to short-term disruption following a derailment in South Africa and a new wave of coronavirus infection in Indonesia.

Some delays in cargo being delivered to South Africa’s Richards Bay port were reported following a 30-wagon train derailment earlier this month, according to local ship agents. It is the second such incident this year.

But while the situation was improving as one line had re-opened albeit at reduced speeds, civil unrest in the country this week has had a negative impact on port operations. 

The dry bulk and multipurpose terminals were currently not in service, the ship agent said, as roads are blocked and employees are unable to get to work safely.

A suspension to all port movements, including coal loadings, has been issued from July 12 until further notice.

Wilhelmsen ship agents said that Transnet, the country’s port authority, was endeavouring to continue operations at the terminal where labour was available. 

According to Lloyd’s List Intelligence, 19 bulk carriers are destined for the port in the week to July 16. They comprise eight capesizes, eight supramaxes/ultramaxes, with the rest panamaxes. 

As of July 9, seven bulkers were at port, the data shows. Only two have been in anchorage for more than a week. 

South Africa’s exports dipped to 32m tonnes in the first half of this year compared with 36m tonnes in the year-earlier period, according to London-based Maritime Strategies International. The figure is also 7m tonnes lower than the past six months of 2020.

MSI expects reduced exports in the second half of this year given the country’s infrastructure problems. 

Brokerage Braemar ACM saw a boost in capesize sentiment when the situation looked to be returning to normal, although the effect was seen as small given increased iron ore starting to emerge from Brazil.

The relatively expensive freight on panamaxes has also likely nudged shippers to up stem sizes, providing support to the capesize segment.

When the derailment news broker out however, the July Forward Freight Agreement contracts dropped 14% to a one-month low.

Capesize spot rates fell 3.2% to $30,272 per day at the close on the Baltic Exchange on July 13 from the day before. 

Capesizes have lifted 56% of the coal exported from Richards Bay so far in 2021, according to Braemar, with supramaxes responsible for 31%.

Most of the coal, 13.8m tonnes, headed to India in the first six months of this year, followed by China at 8.9m tonnes, the highest level on record.

Meanwhile, Indonesia — China’s largest supplier — also has some downside risks to coal flows this quarter after an increase in coronavirus cases in coal-mining regions of the country. At least one miner was heard declaring force majeure.

Arrow’s head of research Burak Cetinok said that seaborne supply may also be affected by wet weather and miners directing more coal to domestic power plants as per a 2018 government directive. That could cut exports later in the year. 

However, an upcoming religious holiday next week in Indonesia is seeing frenzied barge movements to anchored capesize vessels in ship-to-ship transfers.

According to Lloyd's List Intelligence, there are five capesize vessels in anchorage around main Indonesian ports, with two that have not shown any signs of movement for two-to-three weeks.

One Hong Kong-based charterer said that coal shipments to China have so far not been affected, with safe loading being reported as there is minimum interaction between vessels, although there were restrictions on ships from India, Pakistan and Bangladesh, which had to complete 14 days of quarantine before being allowed into port. 

China was in a restocking drive for summer requirements, according to a Singapore broker, who did not see any impact to shipments despite virus cases in the Kalimantan region. 

In the first six months of this year, Indonesia’s exports fell 4.3% to 162.9m tonnes versus the same period last year, according to data from Banchero Costa. That was partly due to the virus, but also due to the fact that it has struggled to remain competitive, with Australian supplies picking up share in markets like India and Japan.

While volumes from Indonesia increased 13.5% to China at 69.7m tonnes in January to June 2021, it “was not enough to compensate the declining volumes to India and Japan,” said Banchero’s head of research Ralph Leszczynski. 

Despite the apparent downside risks, global coal trade is steadily recovering “in an encouraging way,” he said.

Total coal loadings in June rose 8.1% to 101.9m tonnes compared with the same month last year, and were the highest since March 2020, although January-to-June volumes were down 0.5% year on year to 577m tonnes.

According to Arrow, shipments have been increasing from Colombia in recent weeks, and with Newcastle coal futures surpassing $140 per tonne, it expects exports to continue ramping up over the coming months.  

“Indonesian exports may underperform, which could encourage Asian buyers to seek even more cargoes further afield,” Mr Cetinok said, adding that the capesize segment is primed to benefit from incremental Atlantic coal volumes as they are increasingly tonne-mile heavy.

MSI echoed the view, saying that while Colombian volumes have recovered from a very weak latter half of the past year, they are still 16% lower than the first six months of 2020.

With a tight global coal supply market, MSI expects exports from the South American country to increase later this year, although the pandemic remains “an acute” downside risk. 

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