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Dry Bulkers Reel as Seaborne Coal Trade Remains Weak

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Nov. 27 2015, Updated 7:06 p.m. ET

China’s coal imports fell

In addition to iron ore imports by China, coal imports have been another major driver for the dry bulk shipping industry. The coal imports in China peaked in 2013 when it became the world’s (ACWI) largest coal importer. Then, things started to change. The government was concerned about air pollution. It introduced import taxes on coal in addition to other quality control measures. This caused China’s coal imports to fall 10% in 2014.

For October 2015, China’s coal imports were weak. They fell by 31% YoY (year-over-year) to 13.9 million tons. This is likely due to the continued weakness in the steel and iron ore markets. For the first ten months of the year, the imports fell by 30% compared to the same period last year.

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A shipment of 40,000 tons of coal from Australia was turned away from China on environmental grounds. The shipment was in the port for three months. In the past, many coal shipments have been returned from China for environmental reasons. On the sidelines of the East Asia Summit, both of the countries agreed that they will work together to improve the export process. However, the industry isn’t anticipating a rise in China’s coal imports.

India’s coal trade

The dry bulk shippers were looking forward to India after the waning coal import demand by China. However, the recent coal imports from India don’t offer much hope. India’s coal imports fell for the fourth straight month in October. They came in at 14.52 million tons—a fall of 5% YoY. This is due to government’s push to open a new mine each month in order to become self-sufficient in coal in the next three years.

According to India’s union coal minister, Piyush Goyal, “I have been on record to say that I judged that by 2017, India should not need to import coal except for those coastal plants where it is very difficult to transmit coal. I am fairly confident the era of shortages is over.”

While India could provide temporary relief to dry bulk shippers, its increasing domestic coal output doesn’t bode well for seaborne coal trade and dry bulkers’ fortunes. These dry bulk shippers include Ship Finance International (SFL), Navios Maritime Partners (NMM), Scorpio Bulkers (SALT), DryShips (DRYS), and Star Bulk Carriers (SBLK).

The SPDR S&P 500 ETF Trust (SPY) provides exposure to the broader industry.

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