Pockets Of Positivity In Bulk Sector

17 August 2020 – The South African bulk sector’s roller coaster ride is unlikely to end anytime soon as the commodities yo-yo continues – with some on an upward trajectory and others on a steep downward spiral. Coal, most notably, has not been doing well in recent months – and while loadings have rebounded somewhat, experts maintain the outlook for exports remains challenging. With countries around the world still in lockdown due to the novel coronavirus, demand has plummeted and it is uncertain to what extent it will pick up as countries start to reopen their economies. According to consultancy and provider of commodity price benchmarks, Argus Media, plentiful South African supply amid slim demand in the international markets is not good news.

In its latest report it found that not only had coal prices fallen to a 14-year low but the Richards Bay Coal Terminal had exported only six million tons of coal in May. With no change in production costs, low prices and low demand will squeeze producers’ margins. There are increased fears about the sustainability of the situation, with some traders indicating that some mines could face closure unless there is a bigger uptake in foreign markets. According to the latest S+P Global Platts third quarter dry bulk outlook, coal demand is expected to be subdued with current spot prices close to the marginal cost of production, with output expected to fall. Internationally seaborne thermal coal volumes are expected to contract by around 100 million tons in 2020 compared to last year.

But, says the report, there are pockets of strength expected across dry bulk markets in the third quarter of the year. “Signs of improvement in the macroeconomic environment, especially in China, and robust iron ore prices have spurred iron ore minors to maximise throughput, in turn creating more shipping demand,” reads the report. South Africa is one of the countries that is set to take advantage of the strong iron ore prices, already exporting high volumes at present. “While freight rates will continue to face headwinds from the drop in demand, they have seen some recovery to date as some markets start to recover from Covid-19.”During the first four months of the year the Saldanha Iron Ore terminal has already loaded 15.6 million tons. Grain exports are expected to bring some positivity to the market with expectations of a local record crop.

One trader told Freight News that increased exports were expected into Southern Africa this year – and despite challenges at border posts where long delays were being experienced, impacting negatively on truck turnaround times, the outlook was very positive. “The first six months have been very good in the grains market. Not only did we see an increase in demand from neighbouring countries but also locally,” he said. “In July and August we had a peak in deep-sea maize exports and we also saw a peak in our wheat imports. We expect to see somewhat of a slowdown from September onwards, but to what extent is difficult to say.” He said while volumes had been good so far, there was no denying that uncertainty had been introduced by Covid-19, affecting company operations at all levels. Source (Freight News)