LONDON, Aug 1 (Bloomberg): Record production of hydropower from China's Three Gorges and newer dams is displacing so much coal that rates to transport it have plunged to about record lows, roiling the shipping market.
Daily earnings for Panamaxes, vessels that are about 750 feet long and get most of their spot cargoes from hauling coal, slumped as much as 76 per cent this year, getting to within $26 of an all-time low. China started hydroelectric plants this year with enough generation to replace 26 million tons of coal, or about 370 cargoes, data compiled by Bloomberg show. The extra power means less imports and weaker freight rates, Morgan Stanley estimates.
While global shipments of iron ore and grain are rising, China's decreasing appetite for imported coal is a challenge to transporters already seeing weaker rates because of an oversupply of Panamaxes. The world's second biggest economy's efforts to curb air pollution will help cut imports of power-plant coal by 2.7 per cent this year, according to Goldman Sachs Group Inc., following average increases of 29 per cent annually from 2010 to 2013.
"Because of reduced buying of coal domestically, the price has fallen, therefore there's less incentive to import," Georgi Slavov, head of raw materials research at Marex Spectron Group, an energy and shipping derivatives brokerage in London, said by phone on July 23. "It's having an impact already,"
Panamaxes earned $4,923 a day as of July 31, according to data from the Baltic Exchange in London. Rates fell as low as $3,362 at the end of June. The all-time low was $3,336 in Sept. 2012.
The vessels will make an average of $12,900 this year, recover to a daily average of $17,250 next year, and rise to $17,900 in 2016, according to the median of analyst estimates compiled by Bloomberg.
China increased its hydroelectric capacity by 13 gigawatts in the first half, according to the China National Energy Administration. That's the biggest first-half expansion since at least 2009 and more than enough to power Hong Kong.
China Three Gorges Corp., which built and operates the world's largest hydropower project on the Yangtze river, completed two more dams this year which, as of July, had 20.3 gigawatts of power-generating capacity. One gigawatt translates into about 2 million tons of coal a year, according to a formula from Bloomberg Intelligence.
The largest of the two dams is the 286-meter-high (937 feet) Xiluodu project, a wall of concrete and steel spanning the Jinsha river on the border of Sichuan and Yunnan provinces in the country's south. It's is the second-biggest hydropower project in China, after Three Gorges. The other new dam is the Xiangjiaba, to the northeast on the Jinsha river.
