Shipping Rates Seen Rising 55% for Japan Cargo: Freight Markets
Rates for panamaxes, the largest coal and iron-ore carriers to pass through the Panama Canal, may jump about 55 percent as Japan buys more raw materials to generate power and rebuild after its worst-ever earthquake.
Forward freight agreements, traded by brokers and used to hedge or bet on future transport costs, will rise to $22,000 a day for the fourth quarter, from $14,200 today, said Philippe van den Abeele, the managing director of Castalia Fund Management (U.K.) Ltd., a London-based adviser to a hedge fund trading shipping derivatives. His forecast in February for a rally in rates was followed by an almost doubling in charges.
Japan, the biggest importer of coal and second-largest buyer of iron ore after China, estimates that the temblor and 23-foot tsunami on March 11 caused as much as $309 billion of damage. The reconstruction will mean more cargoes, Wei Jiafu, chairman of China Cosco (Holdings) Co., which operates the most panamaxes, told reporters in Hong Kong on March 30. Importers will favor the vessels over ships with extra capacity because they can call at more ports, Van den Abeele said.
“It takes time and resources to rebuild the amount of infrastructure, buildings and cities that have been lost,” said Erik Folkeson Jensen, an analyst at First Securities AS in Oslo, whose recommendation on the shares of shipping lines made 36 percent in six months, according to data compiled by Bloomberg.
Returns in the spot, or single-voyage, market fell 5.3 percent this year to $13,937, according to the London-based Baltic Exchange, which publishes costs for more than 50 maritime routes. Rates are volatile, moving 34 percent or more in 10 of the last 11 years. Companies usually have vessels on long-term contracts at fixed prices and in the spot market.
Nippon Yusen K.K., the second-biggest panamax operator, has 62 out of 80 such ships on longer charters and about 800 vessels in its fleet, according to Ryota Himeno, a senior analyst at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. Kawasaki Kisen Kaisha Ltd. (9107), the third-largest operator, has 52 of its 60 panamaxes chartered out and a total fleet of about 500, he said.
Japan may need to buy an extra 6 million metric tons of coal after the disaster crippled nuclear plants, Credit Suisse Group AG estimates. That’s enough to fill about 90 panamaxes. About 90 percent of global trade moves by sea, according to the Round Table of International Shipping Associations.
The country will increase coal purchases 5.2 percent this year to 209 million tons, according to the research unit of Clarkson Plc, the world’s biggest shipbroker, which had forecast a gain of 1.6 percent before the temblor and tsunami.
Factories, homes and businesses are facing power shortages after the disaster knocked out plants including Fukushima Dai- Ichi, the worst nuclear disaster since Chernobyl a quarter century ago. The total number of dead and missing from the disaster was 27,681 as of 4 p.m. Tokyo time today.
Japan generated about 34 percent of its electricity from nuclear plants in 2009, according to Credit Suisse. Utility companies will replace about 20 percent of the lost capacity with coal, with the rest coming from liquefied natural gas, crude and fuel oil, the bank said.
The anticipated surge in imports may not happen immediately because repairs are still being made to roads and ports and the disaster also knocked out coal-fired power plants. Coal exported from Newcastle, Australia, an Asian benchmark, fell 6.8 percent since March 11, according to IHS McCloskey, a research company based in Petersfield, England.
Steel production also may be disrupted, curbing demand for iron ore and coking coal. Scheduled blackouts to cope with power shortages will affect smelters, Japan Iron and Steel Federation Chairman Eiji Hayashida told reporters March 29.
Demand from manufacturers may also weaken. Canon Inc., Daihatsu Motor Co., Honda Motor Co. and Mitsubishi Motors Corp. were among companies that had plants shut as of April 6, according to data compiled by Bloomberg.
“In the long term, we would view it as a bullish tone,” said Guy Campbell, head of dry-bulk shipbroking at Clarkson in London. “It has to be bullish for commodity prices, and most of what they import has to be shipped in.”
Cosco, based in Tianjin, China, will report earnings per share of 0.56 yuan this year, against 0.67 yuan last year, according to the mean estimate of 15 analysts’ estimates compiled by Bloomberg. Nippon Yusen, based in Tokyo, will make 38.32 yen a share in its fiscal year that began this month, compared with 42.85 yen, and Kawasaki Kisen Kaisha, based in the same city, will report EPS of 34.61 yen this fiscal year, compared with 42.80 yen a year earlier, the estimates show.
The three companies also operate other types of ships. Profit on capesizes, which can carry about twice as much cargo, slumped 58 percent to $8,381 a day this year, Baltic Exchange data show. Panamaxes have been more profitable than capesizes since Jan. 6, the longest stretch in a decade. Supertanker earnings slumped 77 percent this year and the cost of putting boxes on container ships rose 29 percent.
Of the five biggest panamax operators, Athens-based Excel Maritime Carriers Ltd. (EXM) has the highest proportion relative to fleet size, according to data from Clarkson. Fourth-quarter rates of $22,000 would mean its full-year earnings before interest, taxes, depreciation and amortization rising 10 percent above the current estimate of Nordea Securities, said Anders Karlsen, an analyst at the bank in Oslo. Karlsen’s earnings estimate is based on a rate of $15,000.
Panamaxes normally haul 50,000 to 80,000 tons of cargo, according to Rob Lomas, secretary general of Intercargo, a London-based trade group representing owners of the vessels. There are 1,790 of the 750-foot-long vessels, compared with 1,081 capesizes, according to data from IHS Fairplay. The panamax fleet will expand 11 percent this year, 6 percentage points less than for capesizes, Clarkson estimates.
Panamax rates will also increase by the fourth quarter because global demand is expanding, said Castalia’s Van den Abeele, who correctly forecast that capesize rates were bottoming at the beginning of February. Trade in dry-bulk commodities, which include grains and sugar, will expand 6 percent to a record 3.5 billion tons this year, Clarkson estimates.
Japan, the world’s second-biggest steelmaker after China, will import 3 percent more iron ore this year, Clarkson estimates. Japanese steel plants are mostly back to pre-disaster levels, the Brussels-based World Steel Association, whose members account for about 85 percent of global production, said in a statement March 25.
Wheat shipped into Japan came to 5.5 million tons in the marketing year that ended in June 2010, making it the third- largest importer, according to data from the U.S. Department of Agriculture. The country is still buying and cargoes aren’t being delayed, Tom Puddy, head of grain marketing at CBH Group, Australia’s largest grains shipper, said March 31.
Japan bought 23,220 tons of feed wheat and 63,715 tons of feed barley in a tender yesterday, according to the Ministry of Agriculture, Forestry and Fisheries.
“You’re talking about grain products, you’re talking about iron ore, steam coal and coking coal,” said Van den Abeele. “There’s going to be a big increase in cargo bound for Japan later this year.”
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