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Governments are starting to prepare for extreme weather

Governments are starting to prepare for extreme weather later this year as the world tips into an El Niño. According to the World Meteorological Organization, there is a 60% likelihood for a switch from El Niño-Southern Oscillation (ENSO) - neutral to El Niño during May - July 2023, and this possibility will increase in June-August to about 70% and from July to September to around 80%. The El Niño-Southern Oscillation (ENSO) is one of the Earth's most important climate phenomena. It describes the changes in ocean temperatures in the tropical Pacific from year to year and usually last 9 to 12 months. Variations in these variables affect weather patterns in the tropics as well as globally. The last two times the El Nino occurred was in 2018-2019 (categorized as less strong) and 2015-2016 (categorized as very strong). There is no indication of the strength or duration of El Niño at this point, however there are estimations which of 56% to be a strong event, while there are chances of at least a moderate event are about 84%. A new forecast by Australia's Bureau of Meteorology indicates a 70% chance of an El Nino developing in 2023, up from 50% in the previous forecast. Adverse weather conditions have already affected the shipping trade, with drought and wildfires surrounding the north hemisphere, and with El Nino's possible entering later this year things may worsen. A few weeks ago, the Panama Canal announced new draft restrictions, with the allowed maximum draft being 13.41 meters, limiting the types of vessels which can travel across the Canal or minimizing the quantity of loaded cargo, as the drought has hit the area. El Nino severe weather conditions will likely have an impact on the production prospects of key crops, such as wheat, corn, and oilseeds and might alter trade routes. Australia's production of winter crops is forecasted to fall by 34% to 44.9 million tonnes in 2023-2024, which is almost 3% down compared to the 10-year average (2013-2023) of 46.4 million tonnes. The El Niño may intensify the current drought, as back in 2015-2016, when the event was defined as very strong, it forced the Panama Canal to limit vessels' maximum draft, to well below compared to currents levels, at around 11.88 meters. It may also generate intense rainfalls in the southern hemisphere, creating production issues at many mineral mines, giving another headache to the dry bulk market. As the El Niño may occur by the end of 2023, there is a possibility to destabilise the dry bulk market depending on its severity.

Despite coal prices stuck at around USD 140 per tonne, the lowest level since July 2021, down almost 70% from its record high of USD 457.8 reached in September last year, it's still cheaper for Europe to switch to gas. As the dynamics of the market have changed, European power generators continues to switch back to natural gas leaving coal far behind, keeping thermal coal demand in Europe at significantly low levels and stockpiles at high ones. Coal traders have noticed that Europe is trying to export Coal surplus mainly to India and North Africa with over 1 million mt of coal shipped ytd. In Asia, the unexpected slow real estate and infrastructure development in China has driven the demand of major dry bulk commodities as iron ore, coal, and cement to significantly low levels, while Chinese exports have been reduced following a more cautious attitude of Western countries towards Chinese goods. Favourable weather conditions in the second quarter in China and India, along with the increase of their domestic coal production have kept coal stockpiles at healthy levels in these countries additionally decreasing the coal demand for imports. So, all these have resulted to a free fall of Asia-Pacific Supramax, Panamax rates from their mid-March highs of USD 14,786/day and USD 17,783 to USD 6,117/day and USD 8,022/day respectively.

On the wet market we must highlight the great switch of Venezuelan crude exports towards the US. As the US sanctions against Venezuela have eased, nearly a quarter of Venezuelan crude headed to the US in the first four months of 2023, adding more food for thought in the volatile tanker trading patterns of the western hemisphere. According to market reports the acceleration of the tightening of the oil market by OPEC+ is a fact, as the group's crude oil output shrank by 670,000 b/d in May after the widening of voluntary cuts. Six countries (Russia, UAE, Iraq, Iran, Kuwait) have introduced voluntary cuts, amounting almost 1.6 million b/d but but have not achieved the goal of crude oil price increase. WTI still trades around USD 70/barrel, on track to decline for the second straight week. The prospect of further interest rate hikes from major central banks and economic uncertainties in top crude importer China could negatively impact overall demand but sanctions, new trade routes and added ton-miles support market's endurance.

Sale and Purchase:

On the dry S&P activity, on the Cape sector, Greek buyers acquired the "Herun Zhoushan" - 181K/2017 SWS for USD 41.5 mills basis T/C free delivery July - November 2023 in Singapore/ Japan range, while the 6-year older "Zampa Blue" - 178K/2011 Mitsui was also sold to Greek buyers for USD 30 mills basis delivery July - September 2023. The Panamax "Santa Barbara" - 76K/2011 Oshima found new owners for mid USD 17 mills. On the Supramax sector, the "Cf Diamond" - 58K/2016 Tsuneishi changed hands for high USD 23 mills, while the OHBS "Stove Ocean" - 56K/2013 Oshima was sold for region USD 21 mills to clients of Gearbulk. Finally, the Handysize "American Bulker" - 36K/2016 Shikoku changed hands for excess USD 23 mills.

For second consecutive week, the tanker S&P activity was subdued with the IMO III, CAP 1 MR2 "Eagle Bay" - 47K/2008 HMD sold for USD 24.2 mills basis surveys passed.

Xclusiv Shipbrokers Inc.