India Shaping Dry Bulk TradesPosted on 30 May 2022
By Derek Langston, Head of SSY Consultancy & Research
A series of global events has put India centre stage for dry bulk trade flow developments in the 2q.
Fears of runaway inflation in India have this month prompted an outright halt to the country’s wheat exports, a likely halt to outbound iron ore shipments and changed the economics of steel exports.
These events have occurred as a coal import recovery has lifted vessel demand from the geared sizes right up to Capes.
- In the aftermath of the invasion of Ukraine, the US Department of Agriculture wasted no time in adding 3.0 Mt to its Indian wheat export projection, potentially transforming the country from a minor wheat exporter focused on shorthaul voyages to Bangladesh to an exporter of consequence for geared vessel (and Panamax) trades into the Middle East and North Africa, shipping an estimated 1.4 Mt in April. Yet, soaring temperatures in India, plus an alarming rise in inflation, prompted a sudden ban on wheat exports (with exceptions) from mid-May. Some cargoes were reportedly cleared for shipment, but around 1.5 Mt remain at port, the International Grains Council reports, their final destination unclear.
- This has been followed by the sudden introduction of hefty export taxes on iron ore, plus iron products (pig iron and direct reduced iron) and steel, all aimed at preserving domestic supply. At 45-50%, export taxes on iron ore in its various forms have already impacted sales overseas, and China’s imports of Indian iron ore had previously slipped to a monthly pace of 1.4 Mt by April from 6.3 Mt in the same month of 2021. The timing of the export tax on iron ore is also interesting, given the 20 May Supreme Court ruling that exports of iron ore mined in India’s Karnataka province (peaking at 43 Mt in 2010) would be allowed to restart after a hiatus of more than 10 years!
- Alongside steel cargoes from other Asian exporters such as Japan, steel exports from India into the Middle East and Europe have added volume to trade flows, though these now face disadvantages from export taxes of 15% across an estimated 90% of semi-finished and finished steel products.
- Furthermore, the most recent planned export restriction announced by the Indian government (on 23 May) was a cap on annual sugar exports at 10 Mt, the first such restriction in six years.
More positive from a freight market perspective is the flow of coal into India, increasingly significant for geared bulkers to Cape demand. Lower levels of domestic coal supply have assisted the recovery in import volumes, after languishing below the recent monthly peak of January 2021 throughout late 2021 and into 2022.
As a result, coal stockpiles held by Indian utilities stand at their lowest level (7-8 days’ supply) for this point of the year since at least 2014, official data show. Usually such a stockpile drawdown happens during the monsoon season; it is far more unusual to have this develop pre-monsoon. Alongside China, India is one of two coal importers which have the influence to alter the vessel demand significantly.
Given favourable pricing and sufficient credit for traders, India can still be a focal point for Asian coal trades.
SSY Consultancy & Research 30 May 2022
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