Taking Russia out of the equation, while the Pacific basin (namely Indonesia and Australia) had been main supplier of this dirty fuel, Atlantic basin suppliers (namely Colombia, South Africa, USA and Canada) remain a critical swing supplier of coal to the world. Since Russian invasion on Ukraine, international coal prices had skyrocketed (though playing second fiddle to LNG prices). While this present an excellent opportunity for these Atlantic origins coal to step up and fill the inevitable void of Russian coal in the European market, the figures in 2022 thus far had been less than promising. According to AXS figures, the 2022 year-to-date (YTD) shipped volumes from these 4 countries had, as a matter of fact, decreased by nearly 6% on a y.o.y basis on an already weak 2021 (five-year low volumes from 2017-2021).
With the risk of Russia shutting/reducing gas flows to Europe, the pending 10 Aug-22 ban on Russian coal imports and reluctance of Germany to reverse its nuclear ‘phase-out’ policy, there should be greater demand by European countries for seaborne coal in Q4-22 (ahead of the winter season) and beyond which in theory should provide tailwinds to dry freight. However, as mentioned above, whether Atlantic countries could step up to the challenge remain the biggest question. If not, then additional supplies would need to be sourced from Indonesia or Australia. But European countries would likely face stiff competition from Asian buyers like Japan which had accelerated move to replace Russian coal with Australia supply. Indonesian supplies also suffered from heavy rainfalls and lack of barges even during normal times. Hence, freight should benefit in greater backhaul (longer tonmile) activity, but the magnitude of upside should have a ceiling as long capacity issues persist.
Source: BRS Group Drybulk Weekly Newsletter – Coal Monitor