During the reporting week the number of cargo offers from suppliers of the new crop grain increased significantly. This led to the export prices lowering (on basis of FOB Rostov reduced by an average of USD 5) and to an increase in Charterers’ demand for tonnage. Rates grew, adding another USD 3-4 and reaching a level of USD 27 on the basis of the voyage from Rostov to Marmara, and Owners preferred short voyages. This circumstance can provoke the abundance of tonnage in the Turkish Black Sea ports on the 29th week. For example, there were about 20 vessels waiting for discharge on the roads of the port of Samsun at the end of 26th week, and July the 15th is the National Holiday in Turkey, therefore cargo operations were not being performed.
The demand for grain transshipment at the roads of port of Kavkaz increased markedly, which is explained by more favorable grain prices on basis of FOB Kavkaz. The sticking point for the further growth of shipments is the lack of the Russian-flagged tonnage supply. The average rate on basis of Rostov-Kavkaz at the end of the week was about USD 14 per ton.
The activity of shipments from the Volga River Basin remains weak. The accumulation of grain parcels at the river elevators has actually just begun, so Charterers are still busy with preliminary calculation of the transportations cost. The major freight market from river ports will be formed at the end of July. The main factor of influence on the market will be the heat and drought, which have settled in over the South of Russia in the second half of June and influenced the decline in the forecast of current year’s harvest in the Volga region.
Generally speaking, market sentiment is determined by the dynamics of the harvesting campaign, which has begun earlier than usual. 29.3 million tons of grain was harvested on the 28th week (5.2 million tons more compared to a year earlier). And while the harvesting rate still exceeds the level of 2018, the total crop yield is reducing and has already equaled last year’s figures: 37.8 cwt of grain per hectare. Reasoning from this fact, inference should be drawn that the 2019 harvest will not break the records of 2017.
When if the quality of grain and yield in Russia was affected by heat and drought, in Ukraine the harvest is threatened by heavy rains and high humidity. Such weather conditions are especially unfavorable for barley, making it difficult to harvest. As the result, there is a similar situation: the harvesting rate is growing, and the total grain yield is reduced. It is expected that freight rates from the Ukrainian ports of the Black Sea will grow the quickest at the end of July, and the increase will gradually slow down in the future.
The Caspian region shows an improvement in demand for the fleet from Astrakhan and Volgograd. Rates are growing, and another factor influencing this was the sharp reduction in the available Iranian-flagged fleet, most of which switched to contract work.
When if the freight rate on basis of Astrakhan-Northern Iran was USD 26-27 per ton of barley at the beginning of the week, it reached USD 29-30 at the end of the reporting week. Also, the comparably low density of the new crop barley (stowage factor) makes its contribution, so that vessels can intake it substantially less. Owners compensate this shortage by means of dead freight, which is included in the rate.
Freight rates moved into an active phase of growth on the Azov market. The demand for tonnage clearly exceeds the number of available fleet, and that fact is forcing Charterers to improve their offers in order to avoid breakdown of executed contracts. Key differences of the 27th week from the previous ones were an almost full absence of the spot fleet in the region, as well as the tendency to shortening of sea-legs distance from Owners’ side. For the sake of profitable freight Charterers have to remove all options further than Marmara, considering that Owners prefer to make short voyages on the growing market.
Georgian importers express concern about the current geopolitical environment. It is whispered on the market about a possible imposition of embargo by Russia on the supply of wheat in Georgia, which historically was very dependent on supplies of Russian provisions, including grain. At the same time Exporters believe that if any restrictions will be imposed, the process of issuing phytosanitary and quarantine documents will likely become more complicated, which will increase the transit time and freight rate.
At the moment, the grain of the new crop is supplied to sea ports primarily, and the demand for tonnage from the river is low. This is most pronounced in relation to shipments to Turkey, where are not many real deals, apart from the pre-contracted volume. Amid a backdrop of the decrease in the activity of fertilizer flow from the Caspian Sea (due to difficulties at the Garabogaz Fertilizer Plant), vessels working in transit faced the problem of lack of firm cargo offers from the mid-Volga. Basically, on the market there are offers from the Rostov region: Rostov, Starocherkassk, Volgodonsk.
The Caspian market has come alive again for the first time in weeks owing to the appearance of new crop barley in Astrakhan. In the meantime, the Russian-flagged vessels are in short supply. Charterers are ready to overpay an average of USD 2-3 for them as compared to the fleet with foreign flags. Sanctions against Iran continue to have a profound effect on Caspian trade. Market insiders expect that the Azov market may be flooded with additional volume of grain intended for Iranian supplies, which will affect significantly the power landscape in the region. In this case, the price of grain will reduce seriously, and the activity of importers will grow, which can lead to a record demand for tonnage.
Some farming units in the Saratov and Samara regions have already started harvesting, and most producers are going to start harvesting next week. For today, there are no clear forecasts for the quality of grain from this region. Upon preliminary information, the grain-unit may be low due to lack of rain, but many shippers still hope solid performance.
Freight rates continue to grow in the Azov region. Those Owners, whose vessels open at the end of 26th week, prefer to wait for the beginning of July, rather than to fix the spot cargo. They are assured that at the beginning of next month the market growth will be so rapid that it may cover for the loss of a few days of idleness.
Charterers who planned shipments for the first half of July also prefer to wait for spot dates, as they consider that the current Owners’ expectations are inflated, and in fact the market will grow slower, so closer to the dates it will be possible to find a vessel at the more favorable rate.
Besides, there are factors that place in question the fact that the market will unconditionally side with Owners in the coming weeks. Due to the lack of rain the grain-unit of the new crop is quite low, and not all buyers are ready to enter into contracts having such quality of goods, despite the fact that the shippers are trying to issue the situation and make their offer more attractive by mixing new grain with the previous harvest. It is expected that the freight will increase by another USD 2-3 on the 27th week, but a more rapid growth is unlikely.
This year, the Rostov Universal Port is planning to move away from transshipments of general cargo and to reorient completely to work with bulk cargoes. The terminal has already signed contracts for large volumes with the major grain Exporters. One-time processing of small lots of general cargo will only slow down the contract transshipment of grain and may cease to be commercially reasonable for the port. Most likely, it will increase the demand for the Russian-flagged vessels for performing of transit voyages to the ports of the Volga due to the reposition of cargo flow, which previously was being shipped with transshipment in Rostov.
The Caspian market shows weak activity in comparison with the Azov market. Major companies continue to work quite steadily, small Exporters can not always make a sale and solve problems with the payments. Despite this generally downward dynamic, Iran has become a leader in grain purchases from Russia since the beginning of June this year. During this period, it was shipped about 194 thousand tons of corn and barley. Some Traders expect that Iran will also start buying wheat in the near future. Problems with payments execution by Iranian buyers are forcing participants of the highly marginal Caspian market to search new schemes of work. Thus, many Exporters now enter into contracts through major grain Traders who have a possibility to get money for the goods. In addition, the market has new players who have not previously engaged in grain trading, but who has the financial ability to handle the deal.
On the 25th week in the Azov region the freight rates continue to increase by USD 2-3 averagely. Now the freight rate for a “classic” voyage ex Rostov to Marmara is USD 18 per ton of wheat, with tendency for an increase generally. Wheat of the new crop has already begun to appear at the ports of the Azov Sea, which is caused by the continuing heat in the southern part of Russia. According to the forecasts, such weather will last the next two weeks, so the producers began to harvest ahead of schedule out of concern for loss of goods, which may affect the quality of the grain of the new crop.
The major Azov Charterers have already started discussing contract works with Owners for July. Such offers (with the rates above current spot level) give Owners reason to believe that the grain season has begun, so the market will only grow now. Nevertheless, many sea-river type vessels open around the same dates of June 22nd – 24th, and they are on the lookout for cargo. By such manners, abundance of spot tonnage supply warms up the rates for prompt shipments, as Owners are busy searching for cargo for the next dates, and a small number of those who is ready to fix for two weeks in advance creates an artificial deficit.
The rates in the Caspian region are still stable. The lots of new crop corn have not yet appeared, and the shippers are trying to hold barley amid hopes that export prices will increase, which may be caused by drought in the southern regions of Russia. The low level of cargo offers is parried by the weak tonnage supply, in a point of fact, by its low turnover due to known delays in payments. Currently, the freight rate on the basis ex Samara to Iran is USD 45 per ton of the old crop barley.
The intensity of General cargo flow from the Adriatic to Azov and from the Black Sea to the Caspian Sea remains at a comparably low spring level without sharp ups and downs. Most freight forwarders are planning shipments at August, more precisely at the peak of the grain season, when the freight rates for similar voyages will be much higher than today.
On the 24th week in the Azov region there was a tendency to increase freight rates at the end of June / beginning of July. According to the data of a significant part of Owners, there are already offers USD 26 per ton on the basis of wheat ex Rostov to Marmara on the market (which is USD 10 above the current working level). Therefore, Owners are trying to employ the fleet on short legs, so as not to miss the moment when a new crop will appear on the market and the rates will begin to grow actively. Long-distance destinations are already traded with an extra premium. Backhaul cargoes from the Mediterranean and Black Seas to Rostov also began to be quoted higher due to the lack of sea-river navigation tonnage in the Eastern Mediterranean.
From the perspective of Exporters, on the basis of prices in the domestic market and the fact that traditionally the grain from the southern regions of the Russian Federation is shipped mainly from Novorossiysk or the roads of Kavkaz, barley shipments from the Azov ports will not be enough to justify the Owners’ sentiment at the high rates in the first half of July.
Major Charterers continue to consolidate the fleet under their contracts for the grain season or negotiate several consecutive voyages at a fixed rate to protect themselves in case of a sharp spike on the market.
Business activity of Turkish Importers is still low. The reason for this is not only the native currency volatility, but also the decrease in demand for Turkish flour on the international market. The Turkish millers don’t need to purchase wheat yet.
The situation on the Caspian market is more complicated. Many players still have difficulties with settlements with Iran, so the grain prices are reducing. But those companies that have found ways to solve the problem with mutual payments, behave aggressively and with self-assurance on the commodity market, this affected the fact that the rates stopped reducing, and a slight growth dynamics is noticeable.
In the grand scheme of things, all players working in the Caspian region agree that the market will be unstable and exposed to high volatility for quite some time due to the strong uncertainty towards Iran and the geopolitical environment. Therefore, unlike the usual practice of long-term contracts, Charterers prefer to take the vessels on the spot basis.
The 23rd week saw XX International grain round in Gelendzhik where the participants discussed the current trends of the grain market at the forefront of the new season. In connection therewith, as well as due to Muslim holidays, there was no activity in the market. The abundance of tonnage supply is expected in the Azov region at 24-25th weeks, but since the freight market for Owners is already on the fringes of profitability. If the rates reduce, then the decrease will be minimal, despite the expected increase in the spot tonnage supply.
The low activity in the region stems also from the fact that producers almost run out of carry-overs compared to a year earlier, and those who have them prefer to hold back the grain amid rumors of high demand in the new season due to crop failure in the USA. This is confirmed by the fact that sales on FOB basis ex Kavkaz roads also stopped because the proposed price is unacceptable for the sellers.
According to the data of Exporters, the new crop barley will be harvested in the coming weeks, and it will arrive to ports in early July. An increase in cargo offer could be a pivot point for freight rates surge in the Azov Sea. Most likely, spot shipments offers will appear on the market at the end of the month, and until that time, positive dynamics is not expected.
The volume of high-grade durum wheat of Russian origin can significantly increase in the new grain season, which should notionally mean more shipment contracts to the EU, where this product is most in demand. This may affect the swift growth of freight rates for voyages to the Mediterranean Sea and the Adriatic Sea.
Freight rates to Iran stopped their reducing and even increased a little during the reporting week. The key reason for this was the delay of vessels on discharge due to holidays, as well as the fact that many Owners preferred to move their fleet from the Caspian region behind of a sharp decrease in rates during the past weeks. As a result, there appeared a trend for the fleet deficit, which did not allow the rates to reduce.
Freight rates in the Azov region are still at annual minimum, the main reason for this is the unwillingness of sellers to release the remaining goods at the proposed prices. According to the data of market insiders, sellers are guided by world grain prices, while buyers take into account the current situation in the Azov-Black Sea region and underestimate the value at the forefront of the new crop consequently. As a result, few deals are made, and this fact inhibits the growth of rates. At the same time, the freight level does not decrease, since the number of spot tonnage is strongly influenced by holidays in Turkey, where a significant part of the fleet is delayed on discharge.
Turkey imposes a protective import duty on sunflower seeds from 20th of June, which causes a surge in activity among Exporters of this type of product. High stowage factor makes the shipment of these goods independent of the canal draft, thereby attracting Owners of high cubic vessels.
Many Traders agree that the Caspian market is monopolized, and small companies are displaced as a matter of course. The reason for this is lack of the possibility of long-term lending to their customers, and the issue of respite on payment is of fundamental importance because of problems in mutual settlements with Iranian counterparts. Keeping the current game play in the region, we will soon be able to see a more stable Caspian market where a small number of players will dictate pricing.
Low grain season directly affects Charterers of General cargo. Rates for back hauls with equipment from the Adriatic Sea are reducing. Despite the low-level market, shippers expecting to send their equipment to the Caspian Sea as part cargo may face some difficulties. Considering the weak freight flow, there are not many options for a combination on the market. Therefore, Charterers have to either wait or, if taking delivery time as a matter of priority, to pay for a voyage as a sole cargo.
The freight market of the Caspian region is showing a sheer fall. Due to the lack of sufficient cargo offers freight rates showed a decrease of USD 3-5. The abundance of tonnage supply with the Iranian flag applies pressure on freight rates in the Caspian Sea ports. After the imposition of latest sanctions against Iran, many Charterers abandoned the idea of using vessels with the Iranian flag, for which reason Owners are forced to dump amid hopes to get cargoes at low rates. Owners of the fleet with the Russian flag turned out to be hostages of this circumstance, because they have to compete with the abundance of cheap Iranian tonnage.
Transit cargoes from the Black Sea to the Caspian Sea are not in great demand among Owners. The key reasons for this are the reduction of freight rates at this direction and the lack of back hauls from the Caspian Sea. The situation may be changed by the commissioning of nitrogen fertilizers plant in Turkmenistan, but the completion of the repair is postponed for a long stretch of time. According to the latest update, the launch of the conveyor line at the plant is scheduled for the beginning of June.
It is expected that most of Owners working in the southern regions will try to fix their vessels this week, because the business activity will be extremely low from 3rd to 9th of June. The reason for this will be Ramazan Bayrami in Turkey, as well as holding Russia’s largest Grain Round in Gelendzhik, where gather together key market players.
The Azov-Black Sea market remains stable. The lack of rates dynamics, low demand for tonnage and increased interest of Owners in long voyages with back hauls are outstanding features of the region.
Trading activity in the Azov-Black Sea region began to decline again, but this fact does not particularly affect freight rates, as they already are on the fringes of profitability. Most Owners continue to search for cargo on a long distance amid hopes for combining a direct voyage with a back haul. Firstly, such strategy would increase the transit time, which would allow Owners to wait through of the low season, and secondly, it would allow keeping variability in regard to cargoes not only from the Azov Sea. In the meantime, on 21-22 weeks it is expected to open a large number of vessels which have been loaded on May holidays, and now returning for cargoes to the Azov Sea, so market insiders predict an increase in spot tonnage in the region.
Many Owners, whose fleet opens at the end of the month, are looking for voyages to bypass Turkey in order not to be trapped on Eid al-Fitr. On the 23rd week, Turks and Turkish banks will not work from Tuesday to the end of the week, which can lead to long delays at ports, difficulties with money transfers and low business activity generally, so Owners will be ready to make concessions on voyages to other destinations.
The Caspian market continues to decline, the problem with payments from Iran has not yet been solved, and there are no prognoses relating to the end of its settlement. This fact makes many Shippers to look for new contractors and try to sell goods through the major international Traders who still have options to trade with Iran. According to information from Shippers, the number of direct contracts with Iranian importers is close to zero, or they have to agree to long delays in payments, which can negatively affect the turnover and the ability to buy new crops in the required volumes at the forefront of the new season.
State trading corporation of Iran announced that the wheat harvest in the country is expected to reach 11 million tons. This means that Iran will not import wheat this year either. Only corn and barley will continue to be shipped to Iran mainly. However, in the light of the problems with payments from the Iranian side, the freight flow of corn and barley may slow down, which will inhibit the growth of freight rates in the Caspian region.
Average prices for domestic wheat of the new crop are growing against the background of poor yield in the United States and of concerns about the quality of American winter crops. At the beginning of the new season we can expect an increased demand for wheat from Russia and as a result, a growing demand for the fleet, which can lead to sharp spikes in rates in mid-July.
During the reporting week, in the Azov market there has been observed an increase in business activity, which slightly pushed the rates up. This is mainly due to the upcoming long holidays in Russia. Shippers were trying to find vessels for the next dates and to make shipment before the holidays, amid hopes to get payment for the goods without any latency. Also, the market was influenced by the factor of increasing the goods nomenclature in the region, where there were new offers for shipment of pig iron and fertilizers, in addition to grain and coal. All of these things contributed to the growth of freight rates of USD 1-2.
Many market insiders are placing their stack on the fact that freight in the Caspian and Azov regions will seriously decline in the next two weeks. The key reason for this will be the long May holidays in Russia, during which the shippers would prefer to take a break and to go back to work in full force only from May the 13th. There are expected the overabundance of spot tonnage and subsequent reduction of rates.
The demand for the coastal fleet, which has been used to work for transshipment within recent years, remains pretty weak, therefore the tonnage employed on such voyages is looking for alternative work from the river. In this regard, many Charterers, made shipments from the ports of Volga, change carrying with direct conventional vessels of river-sea type for shipments with coasters to sea ports and further transshipment at Rostov or Astrakhan. On the average, this reduces the cost by 5 USD and at the same time does not allow the river market to grow, despite the full opening of navigation on inland waterways.
The new sanctions against Iran issued by the United States play an important role in the Caspian region. Shipments of many Charterers almost stopped, because there are no payments from Iranian importers for almost half a month, so the Merchants have to deliver the cargoes with large delays in payment, which at long last has a strong impact on working assets and does not allow them to buy new volumes. According to information from some Traders, this situation with the transfer of funds may change for the better in the first week of May, and then in the Caspian region is expected to increase the demand for the fleet and the growth of freight rates after the holidays, but so far it remains at the level of rumors.
Due to the lack of interesting cargo offers from the river to Iran many Owners consider transit cargo as an alternative from the Caspian Sea to the Mediterranean Sea. As a reminder, at the beginning of the navigation a fair amount of contracts were concluded for the export of lots of urea from Turkmenistan to the Black Sea, but today this flow is almost frozen due to problems with shipments at the new Turkmenian plant. Owners, moved out their fleet on the Caspian Sea with the express purpose of taking this cargo, are now in pitch, because part of the fleet is being cancelled, and there are no sufficient offers from the river and the Caspian Sea at the moment. Generally speaking, the increased number of fleet is weighing rates in the region down.