Pacific Panamax dry bulk freight rates fell to a five-week low on 7 July, pressured by reduced coal demand in key Asian markets in June.
The cost to move a shipment from Indonesia to south China fell by 16pc to $6.10/t on 7 July from $7.30/t on 20 June. Rates on the route were previously near these levels five weeks ago, at $5.90/t on 1 June.
Demand for coal from China had been muted in June because of abundant domestic coal supplies. A weaker Chinese economy had also limited demand, which subsequently led to high vessel supplies in the Pacific basin.
Chinese economic activity has been broadly weak in the first half of 2023, as manufacturing activity did not recover significantly following the end of China's zero-Covid policy in late 2022. The yuan's depreciation against the US dollar also made imports costlier, which encouraged several coal market participants to remain on the sidelines in June. Pacific freight rates remained under pressure through June, as heavy rainfall in south China reduced peak power demand, which curtailed coal-fired generation.
But freight rates stabilised this week with recent Chinese utility tenders lifting the market, as utilities look to build up inventories ahead of the peak power demand season. Northern China is experiencing high temperatures surging to over 40℃, lifting coal-burn at utilities. Combined coal burn at utilities in China's eight coastal provinces, which mainly use imported coal, was at 2.21mn t/d as of 4 July, up from 2.08mn t/d a month earlier.
Demand for seaborne coal is rising as imported Australian and Indonesian coal has regained its competitive edge against domestic Chinese coal, which is likely to support freight rates.
Long-term demand for coal imports continues to be strong in China, which could raise Pacific dry bulk freight rates. Chinese coal imports grew by 97pc during Jan-May 2023 from a year earlier, following the lifting of the unofficial ban on Australian coal imports. The current downward momentum in the market will be reversed by the recovery of Chinese demand, since overall coal demand in China is "far from weak", according to shipbroker Intermodal's report on 27 June.
Meanwhile, interest in seaborne coal is likely to pick up in India, as Delhi has extended a directive invoked under emergency rules, ordering utilities using imported coal to boost electricity generation. The directive, originally valid till 15 June, has been extended to 30 September.
