<article><p class="lead">Rising costs because of a surge in dry bulk freight rates for Supramax and Panamax vessels, fuelled by strong Chinese grain import demand, are dampening demand for Australian and Indonesian coal. Some market participants expect freight rates to remain firm for at least another month. </p><p>"Just before the 11-17 February lunar new year holiday, we were quoted around $13/t for a supramax vessel carrying coal from south Kalimantan to east China river ports for March loading. Today we were quoted at $20/t," an official with a Chinese state-owned coal importer told Argus. "The surge in freight rates has wiped out any theoretical profits we would have made on these trades and we have no choice but to wait out the expensive freight before buying seaborne coal."</p><p>The strength in dry bulk freight rates has also dented bidding activity for Australian coal. "We have not received any firm bids this week. Most buyers from India are unwilling to bid because Panamax rates have not eased from the recent surge," an international trader of Australian coal told Argus. Many Indian consumers prefer to book Australian cargoes on Panamax vessels as the few discharge ports capable of handling Capesize vessels are not easily accessible, market participants said. The Capesize market has been relatively less affected by the recent surge in freight rates. </p><p>Most of the vessels booked for delivering grain from the Americas to China for March loading could be out of the market for about two to three months because of the nature of the long-haul route, depending on vessel origins. Some shipowners may also be holding vessels back from the market as they expect rates could increase further. It is possible that some Chinese coastal vessels could be diverted to international waters because of the attractive rates, which will raise availability. Most of these vessels are old and not suitable for long-haul routes, although they could be used to ship Indonesian coal to China. </p><h3>China's pork supply woes</h3><p class="lead">The surge in dry bulk freight for supramax and Panamax vessels has been fuelled by China's efforts to rebuild its hog industry with grain feed after it was decimated by the African swine fever in early 2020. Beijing has been under pressure since then to rein in prices of pork, a staple meat in China, after supplies dwindled. With the swine fever outbreak largely being brought under control in recent months, China's efforts to increase its hog stocks have intensified, pushing up demand for grain shipments from the Americas and Australia. </p><p>The most difficult period for pork supplies in China is over and supplies will be reinstated to the level seen at the end of 2017 by this year's second quarter, China's ministry of agriculture said. But even if China's hog herd is fully restored by the second quarter, it will still need large amounts of grain to sustain the industry, potentially continuing to keep dry bulk freight rates firm. But the ministry also said that the onset of warmer weather could bolster the country's agricultural output, potentially reducing its reliance on imported feedstock.</p><p>China experienced serious floods during June-August last year, which may have restricted its harvest of wheat, soybeans, corn and other grains that are important as feedstock. This also boosted demand for imports. China could import 10mn t of wheat between July 2020 to June 2021, the highest in 25 years, according to the US Department of Agriculture. </p><p>It is unclear if China's feedstock deficit is structural or whether it will last. The country's grain output in 2020 grew by 0.9pc compared with 2019, according to data from China's national bureau of statistics. This is despite the impact of Covid-19 last year. Some market participants are generally sceptical that China's grain output will rise significantly this year.</p><p class="bylines"><i>By Kelvin Leong</i></p></article>
