Ships are skipping China and it’s causing turmoil for trade

Monday, 17 February 2020 00:00 - - {{hitsCtrl.values.hits}}

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Fiat Chrysler Automobiles NV is planning to halt operations at its assembly plant in Serbia due to a lack of parts from China because of the coronavirus, people familiar with the matter said.

The issues afflicting shippers of finished goods are also being felt in energy and commodity markets.

Traders of oil from West Africa, Latin America and the North Sea initially reported weaker demand from China, while some buyers of Saudi Arabia’s barrels have asked to get less than they would normally take for March. There were signs that falling crude prices encouraged some refineries in the Asian country to accelerate purchases.

In gas markets, one Chinese company declared force majeure, potentially allowing it to walk away from contractual commitments. The measure was rejected by Total SA and Royal Dutch Shell PLC. There are now 12 empty liquefied gas carriers sitting off the coast of Qatar, one of the world’s biggest producers. While the precise reasons for the idling vessels aren’t known, the timing coincides with ship diversions, cargo cancellations and reduced demand in Asia since the virus took hold. Oil tankers have been dawdling off China.

Chinese buyers of liquefied petroleum gas that’s used in cooking and heating are re-offering and diverting cargoes elsewhere because of weakening demand.

On top of that, shippers of bulk commodities like coal and iron ore have been battered as the virus delayed the resumption of demand after the typically slow China Lunar New Year period. Day rates for giant freighters to move the two cargoes are earning less than $2,500 a day – a fraction of what they need even to pay their crew.

“You obviously have lost demand that it’s difficult to recapture,” said Clarksons Platou Securities AS equity research managing director Frode Morkedal, whose company is an investment banking unit of the world’s biggest shipbroker. “You can’t discharge your ship, you can’t load as fast as you want, so it’s impacting the global supply chain.”