Market insight
Shifting our focus away from Chinese demand and directing it towards the consumption of bulk commodities in India, it is apparent that coal is dominating India’s seaborne dry bulk demand. Despite the competition from natural gas, the prevailing consensus asserts that coal remains a cost-effective and secure choice. The conflict in Russia and Ukraine has imparted a valuable lesson to European nations, encouraging them to accelerate their transition to renewable energy sources by investing billions in their development. However, in Asian countries, concerns persist regarding the high cost of energy. A rapid transition to renewable energy sources is perceived as prohibitively expensive due to the substantial investments required to reconfigure electricity grids to accommodate the variable generation of wind and solar power. Although wind turbines and solar panels may be relatively cost-effective compared to constructing coal-fired power plants, the infrastructure necessary to sustain renewable energy sources is still costly. Furthermore, there is a prevailing belief that Asia’s energy demand will experience significant growth in the forthcoming decades, and meeting this demand will necessitate the utilization of all available resources, including the abundant coal reserves in countries like India.
India is actively pursuing the development of 65.3 GW of coal power capacity. Within this capacity, 30.4 GW is currently under construction, while 35 GW is in various pre-construction stages, including 14.4 GW that has received permits, 11.8 GW that is in pre-permitted stages, and 8.8 GW that has been announced. Notably, 3.9 GW received permission in the first five months of 2023, a substantial increase from zero in 2022.
The critical question at hand is whether India genuinely requires all this additional power capacity. In August, the country experienced a record breaking energy consumption, reaching 152 billion kWh, with a significant portion of the additional generation stemming from coal-fired units, contributing an additional 16 billion kWh. Despite a slight decline in energy consumption in September (-7.8% month-on-month) due to rainfall, it remained higher than the same month the previous year.
The increased energy demand, particularly in the hot month of August, was met with improved fuel availability, preventing severe power shortages and blackouts. This improvement was driven by an increase in both domestic coal production, which saw an 11% rise in the first eight months of 2023 compared to the same period the previous year, and a surge in seaborne demand. Notably, a total of 145 million tonnes of coal was imported in the first eight months of 2023, marking a 3% increase from the same period in 2022. Furthermore, it’s worth mentioning that South African coal is once again finding its way to Indian consumers, following a period of European demand from the same supplier last year, prompted by EU sanctions on Russian coal.However, when we look at the long-term perspective, the landscape undergoes a significant shift. According to the National Electricity Plan’s (NEP) ten-year coal projections, there is no requirement for new coal projects to enter the pre-construction phase. Even if all the coal capacity in the pre-construction stages were to become operational, and the projected retirement of 2.1 GW was to occur as per the NEP’s estimates, the installed on-grid coal capacity would reach 275 GW. This figure far exceeds the NEP’s projected need of 259.6 GW in the fiscal year 2032, according to the base case scenario. In simpler terms, there is no necessity for an increase in proposed coal capacity; instead, there is a need for a reduction.
It is evident that for India, which generates approximately 70% of its electricity through thermal power plants, coal will continue to play a crucial role in supporting its electricity generation in the near future. This is due to coal’s proximity to ensuring energy security and its cost-effectiveness.
Looking further into the distant future, the situation becomes less clear concerning the phasing out of coal. Recent history has shown that when circumstances demand it, factors such as energy security and costs can take precedence over climate policies.
Chartering
The ongoing conflict between Hamas and Israel has introduced significant geopolitical risks to oil markets, potentially on par with the impact of Russia’s invasion of Ukraine. While Israel isn’t a major energy producer, there’s concern that the conflict could spread to key oil-producing regions in the Middle East, potentially disrupting oil and gas flows. Potential complications include the possibility of the U.S. tightening sanctions on Iran, which could disrupt oil supplies, and the Saudi-Israeli deal being at risk, which could impact oil output. In the crude freight market, owner sentiment has remained positive due to robust cargo demand, especially in the MEG and West. Against the backdrop of geopolitical tensions and potential oil price volatility, the BDTI on Friday, October 13th, closed at 1149, marking an increase of 278 points w-o-w.
In the VLCC market, key routes to Asia showed promising signs of gaining stronger momentum after a downward correction in early October. Specifically, TD3C demonstrated notable upward momentum, gaining 21.71 points week-on-week to settle at WS 58.17 on Friday. This was driven by increased activity and fixture rates as Asian charterers returned following the holiday period. TD15 also surged 19.9 points on the week, surpassing the WS 60 mark on Friday. Additionally, the rate for a 270,000 mt US Gulf to China increased by $2,188,889 w-o-w to reach $9,505,556, translating to a round trip TCE of $40,970/day. Meanwhile, Suezmax vessels operating in WAF continued to experience a positive market, with rates demonstrating resilience, primarily driven by a highly active USG market.
TD6 gained 26.55 points w-o-w, settling just below the WS 100 mark on Friday, due to increased activity in the Atlantic, leading to upward pressure on rates. Aframax rates, particularly in TD19, strengthened during
the week, rising above WS176. This uptrend was attributed to strong demand and limited natural tonnage in the region. Rates across the Atlantic, especially on the TD25 route, recorded significant gains of 90.63 points w-o-w, reaching WS211.88 by the end of the week. This remarkable performance led some owners to consider ballasting West.
VLCC T/C earnings averaged $5,836/day, up + $20,206/day w-o-w, and closed off the week at the -$17,038/day mark.
Suezmax T/C earnings averaged $22,092/day, up + $23,628/day w-o-w.On the Aframax front, T/C earnings averaged $27,094/day, up + $21,363/day w-o-w.
The sentiment in the dry bulk market appears to be mixed, but there is an overall stabilization in the average Time Charter (T/C) earnings for vessels of different sizes. On the Capesize segment, a tight North Atlantic market, along with increased coal shipments to Europe, have bolstered rates, despite weaker iron ore exports from Brazil and Western Australia. In the Panamax sector, a surge in cargo demand occurred in the Pacific market following the conclusion of the Chinese holidays, leading to rate increases. In contrast, the Atlantic market experienced reduced activity across its main routes. Geared owners, on the other hand, saw a reversal in activity, with stronger exports from the US Gulf and the US East Coast regions for front-haul routes, while demand for Pacific tonnage remained limited due to a decrease in both North Pacific grain shipments and Indonesian coal exports last week.
Cape 5TC averaged $ 27,890/day, up +16.17% w-o-w. The transatlantic earnings increased by $ 5,031/day with transpacific ones declined by $3,641/day, bringing transatlantic earnings premium over transpacific to $15,374/day.
Panamax 5TC averaged $ 14,348/day, down -1.95% w-o-w. The transatlantic earnings decreased by $1,355/day while transpacific earnings in-w-ow increased by $1,300/day. As a result, the transatlantic earnings premium to the transpacific narrowed down to $1,150/day.
Supramax 10TC averaged $ 13,810/day, up +0.83% w-o-w, while the Handysize 7TC averaged $ 12,263/day, up +0.97% w-o-w .
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Source : Capital link
