Rusting Coal Giants

Official data show Australia exported 296.4 Mt of coal Jan-Oct, up 2.6% y-o-y. Vessel movements data show that November shipments were even stronger, up 4.9% y-o-y. One of the key developments in the dry bulk market in 2024 has been the shift in the share of this trade carried in Panamax vessels at the expense of Capesizes– in 2023 47% of seaborne Australian coal was shipped on Capesize vessels compared to 49% on Panamaxes; in 2024 (Jan-Nov) the Capesize share has shrunk to 42%, whilst the Panamax share has grown to 55%.

Yet whilst this has been an important shift covered in more detail in other SSY reports, here we want to highlight another change to the Australian coal trade namely the increasing age of the fleet servicing the trade. Since 2021 the average age of the Australian coal fleet (i.e. any vessel that loaded coal in Australia that year) has grown from 9.1 to 11.5 years for Capesizes (+2.4 years) and 8.0 to 8.9 years for Panamaxes (+0.9years). Over the same time period the average age of the Capesize fleet has increased from 8.7 to 10.8 years (+2.1 years) and the Panamax fleet has increased from 8.7 to 9.9 years (+1.2 years).

In other words, the Capesize fleet carrying Australian coal is older than the total Capesize fleet and is aging at a faster rate. In practice this means that a greater number of 20+ year old Capesize vessels are calling at
Australian coal ports. In 2024 9.3 Mt was shipped on 20+ year old vessels, up 96% y-o-y (even without
accounting for the last few weeks of 2024). Whilst this phenomenon is most striking in Australia
there have also been sharp increases in 20+ year old Capesize vessels shipping coal from South Africa (up 143% y-o-y to 4.6 Mt) and Indonesia (up 24% y-o-y to 2.4 Mt).

The annual growth in Russian coal cargoes on older Capes is more modest at 8% y-o-y, but since the invasion of Ukraine in 2022, volumes on over-age tonnage were already at high levels (reaching 10.5 Mt this year).

There are two main drivers behind this: a sharp drop in the number of older vessels used in the iron ore trade in the past five years (and therefore an increase in older vessels available for the coal trade) and the strong influence Chinese buyers have had on the coal market.

In 2019, 77% by volume of shipments in 20+ year old vessels were iron ore shipments, by 2022 this had dropped to just 6%. This drop was almost entirely due to restrictions on older vessels loading in Brazil – in 2019 Brazil shipped 33.5 Mt of iron ore in older vessels, for the past two years the figure has been 0 (with 1 shipment each in 2022 and 2021). The increase in iron ore trade on older vessels since 2022 has been driven by the high-risk iron ore shipments from the Black Sea.

The influence of the Chinese buyers on the market is clear when considering that 35% of China’s seaborne coal imports were shipped on 20+ year old vessels this year, a far higher proportion than most countries. For example, only 7% of Indian coal imports this year were on such old vessels. China imported an extra 4.6 Mt of coal from Australia on 20+ year old Capesize vessels this year compared to last year (again, not accounting for the last few weeks of the year). So long as this trend continues we can expect Capesize scrapping to remain at low levels. On the other hand, should safety concerns drive a reversal we could expect scrapping to pick up significantly, reducing capacity and therefore supporting rates.

By William Tooth, Senior Dry Bulk Analyst, Research, SSY.