Coal market sources reported on August 2 that coal vessels are diverting their normal routes through the Panama Canal, due to increased delays in shipping traffic on the canal caused by the reduction in the daily limit on cargoes allowed to transit per day.
Transit reduction: Panama Canal bypass impacts coal market
One market source indicated that, wherever possible, coal ships heading to Chile from Colombia avoid the Panama Canal and go via Cape Horn, at the tip of Argentina, which is a longer but more reliable route and, given the canal’s delays, could prove cheaper in the end.
“Coal traffic has been affected and is adapting,” added the same source. “Small Capesize vessels bound for Mexico are split into two Panamaxes to facilitate traffic. These are just a few examples of what’s going on. The El Niño phenomenon is likely to exacerbate the situation”.
In a notice sent to all shipping agents, owners and operators on July 25, the Panama Canal Authority, or ACP, stated that daily transit capacity would be adjusted to an average of 32 vessels per day for an “extended period”, starting on July 30. Coal prices have seen mixed movements since the announcement of the CPA, but they have all fallen over the year. Platts, part of S&P Global Commodity Insights, valued the Richards Bay 5,500 kcal/kg NAR FOB price at $88.20/t on August 2, down $21.20 on July 25 and $270.60 on August 2, 2022.
On August 2, appraisers set the price of CIF ARA 6,000 kcal/kg NAR coal at $110/t, up $4.75 on the July 25 price, but down $279.95 on the August 2, 2022 price. Similarly, Platts valued CFR Pakistan 5,750 kcal/kg NAR coal at $101/t on August 2, up $6.35/t on July 25, but down $137.15/t on August 2, 2022.
“There will be problems for Colombian coal, but not for U.S.-origin coal due to limited sales,” said a U.S.-based coal trader.
The Panama Canal disrupts the world coal market: Analysis of Colombian and American coal shipments to Asia
According to data from S&P Global Commodities at Sea, the companies shipped a total of 20 cargoes of Colombian and American coal, or 2.4 million tonnes, between July 26 and August 2. Colombia shipped 1.3 million tonnes of coal from the Cerrjon, Drummond and Predeco mines. The main destinations were Turkey with 599,200 tonnes, Brazil with 249,700 tonnes, Ireland with 170,100 tonnes and the Netherlands with 169,600 tonnes. The United States shipped 1.3 million tonnes between July 26 and August 2, the main destinations being India (536,800 tonnes), Egypt (168,000 tonnes), Morocco (153,100 tonnes) and Japan (117,600 tonnes).
The US trader added that Asia was the strongest coal market, due to abundant supply and low prices for low-energy, high-ash Russian, Colombian, South African, Indonesian and Australian coals, as well as coals from the Amsterdam-Rotterdam-Antwerp hub.
“The marginal ton is killing this market,” said the trader. “This has been a perfect solution for Asian demand, which has been the strongest in the world. This year, Europe notwithstanding, we could see seaborne coal match the highest volume recorded in 2019.”
However, a Pakistan-based trader said that the delay of the Panama Canal will certainly have an impact on the Asian coal market.
“For Pakistan, there isn’t much coal from the US, but petroleum coke is in short supply,” said the second trader. “Coal destined for Pakistan comes mainly from South Africa and Indonesia. The impact will also affect Asia, as India is a major importer of American coal.”
Rising freight rates and natural gas supply challenges in Central America
The impact on freight markets has been a freight premium of $2 to $3 per tonne for cargoes from the US Gulf Coast that normally transit the Panama Canal, according to S&P Global data, as the alternative route via the Cape of Good Hope, around the southern tip of South Africa, remains the most expensive option.
Coal markets are not the only ones to feel the effects of the reduction in the number of transit berths at the Panama Canal. S&P Global previously reported that US natural gas company Cheniere is avoiding shipping LNG through the Panama Canal due to longer waiting times, and that traffic limitations on the canal have further affected bunker fuel delivery and resupply in the Central American region, bunker sources said.