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The Best Links

Insights 📈

• Oil cap breach fails to stop compliant shipments from Russia (Link)

• What is Transit Time? Everything you need to know (Link)

• Trade slows but containership orderbook remains strong (Link)

• Taking a dangerous shortcut? (Link)

• The interesting details about Ireland’s huge cocaine bust (Link)

• WTI continues to shine as hedge funds cool down on Brent buying (Link)

Deeper Dive

• Macroeconomic development Trade Views

• VLCC’s fate in the hands of OPEC+ and China Vortexa

Macroeconomic development Trade Views

Macro economy

• CHINA – New bank loans in China surged in August to 1.36 trillion yuan, nearly quadrupling from July’s total and providing a sign that China’s beleaguered property sector may be finally starting to recover. On a negative note, trading in shares of property development giant China Evergrande Group were halted again in late September and the company’s chairman and founder put under police investigation.

• UNCTAD – UNCTAD has published its latest 2023 review of maritime transport. The report found that maritime trade volume contracted marginally by 0.4% in 2022 but is expected to grow by 2.4% in 2023. Over the medium term out to 2028, total seaborne trade is expected to grow by 2.1% to 2.2% per year. As a result of disruptions from the war in Ukraine, shipments of grain travelled longer distances in 2023 than any other year on record.

• WTO – The World Trade Organisations’ latest World Trade Report confirms that geopolitical tensions are beginning to affect trade flows, including in ways that point towards fragmentation of trading relationships. The WTO looked at two hypothetical geopolitical blocs base on voting patterns at the UN General Assembly. They calculate that trade flows between the blocs had grown 4-6% more slowly than trade within the blocs. However, despite these findings, the WTO contends that international trade continues to thrive and that talk of de-globalisation is on balance still not supported by the data.

World Trade Report Findings:

Steel

• OECD – The OECD Steel Committee has expressed grave concern about the deterioration in global steel market conditions currently being driven by growing overcapacity, softening demand for steel, and government interventions in some economies. They noted that world steelmaking capacity has swollen to a record-high of 2.5 billion tonnes in 2023 leaving a gap 612 million tonnes between global capacity and global production.

• EU – The EU’s Carbon Border Adjustment Mechanism (CBAM) comes into force on 1 October 2023. The European steel association EUROFER said that the initial phase of CBAM, with simplified monitoring and reporting, will be crucial to assess how watertight its functioning is in preventing carbon leakage to other countries that continue to invest in highly CO2 intensive technologies.

• The increased electrification of steelmaking in Europe is expected to boost EU scrap consumption resulting in shortages of feedstock which could eventually result in creating demand for scrap imports according to participants at the European Steel Congress in Poland.

• JAPAN – The Japan Iron and Steel Federation said that the country’s crude steel output is expected to stay below 90 million tonnes in the fiscal year to end-March 2024 due to weak domestic demand in the construction and other sectors.

Coal

• INDIA – The Indian government has directed domestic coal-based power generating companies to blend 4% imported coal through to March 2024 to ensure ample stocks at power plants. This followed a surge in power demand in August amid hot weather and what turned out to be the driest August in a century. According to the Grid Controller of India, electricity consumption in August hit a record 152 billion kilowatt-hours, way above the previous record of 140 billion kWh set in June. Electricity generation in August increased by 21 billion kWh year-on-year of which 16 kWh came from coal-fired units.

Agriculture

• FAO – The UN’s Food and Agriculture Organisation’s world food price index fell in August to a two-year low reversing the July rise which reflected the termination of the Black Sea Grain Initiative and India’s trade restrictions on rice exports. Price declines in most food commodities offset price rises for rice and sugar. The rice price index rose 9.8% to reach a 15-year high.

• Global exports of rice in the 2023/24 season were reduced by 0.84 million tonnes with a forecast reduction of 1.5 million tonnes in exports from India partially offset by minor increases in exports from other source countries. The USDA had already cut Indian rice exports by 4 million tonnes in its August report following government restrictions on the trade announced in July.

Forestry

• FINLAND – Finland’s forest products sector is facing a shortage of supply due to the ending of raw timber imports from Russia. Stora Enso has announced that the Sunila pulp mill in Kotka is to close by the end of the year due to no longer being profitable following the loss of Russian timber supply.

• ROMANIA – The European Commission has authorised a Romanian scheme worth 200 million euros to compensate forest owners for timber not cut for mandatory ecological reasons. The scheme, which runs to the end of 2027, aims to halt and reverse biodiversity loss, improve ecosystem services and preserve habitats and landscapes.

Download the full report here: Link

VLCC’s fate in the hands of OPEC+ and China Vortexa

As the crude market struggles to supply stable volumes of crude amid OPEC+ voluntary cuts as well as seasonal declines in Russian crude exports, prices have continued to trend higher.

• The supply-side restrictions had kept crude tanker rates low, particularly for VLCCs heading to China

• However these are now finding support

There has been slight demand side support, partly driven by a small pickup in VLCC tonne-days towards Asia out of Saudi Arabia, as m-o-m preliminary exports have shown a sharp increase in September.

• This could indicate rates have reached a floor for 2023

• However, with crude volumes towards China remaining low due to inventory draws supporting high refinery runs more than crude imports, demand upside for VLCCs is likely to remain capped in

  the short term.

If rising crude prices prompt a reduction of the current voluntary cuts, this could support VLCCs heading towards the end of the year.

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Rory Proud

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