The 16th week in the Azov region was marked by a significant decline in business activity. This is largely caused by the sharp rise in the price of wheat, which made it difficult for Traders to enter into spot contracts. Under the prevailing circumstances, Shippers used any reason to cancel the current contracts. As a result, there has occurred available spot tonnage in the region for the first time in several weeks. Owners tried to drive up rates on mere inertia, which reduced to a minimum the number of new deals. Overall, the freight market sank by about a US dollar to all destinations except Italy and Spain, where there is still the lack of tonnage supply due to current quarantine measures.
By the end of the 16th week, half a month after the introduction of restrictions on the number of cereals export, the quota for their supply was already met by more than a third. At the current rate of export, the entire quota volume can be fulfilled by mid-May, latest by the second half of May. It ought to be noted that it is referred to the amount of cargo declared on export, not actually exported out of Russia. It is necessary to conclude an export contract in advance; in addition, the cargo amount under this contract should be customs declared. Thus, even if the quota will be fulfilled at the end of May, this will not affect the freight market much; the demand for tonnage will continue during June. The high rates of export declaration may be explained by the major players’ desire to secure for themselves the volume of grain quota in advance.
Under certain circumstances, the volume of grain allowed for export may be revised towards an increase; however, there is expected no progress in this regard before May. The decision to increase the export may be affected by the demand on the domestic market, the US dollar exchange rate, weather forecast, the progress of planting season and predicted crop in southern regions of Russia. Currently, the wheat reserves in the Middle and Upper Volga are small. It is not enough for consumers on the domestic market, so that some flour mills are experiencing a shortage of raw materials. There are very few shipments of wheat from these regions; corn and barley are mainly offered for export.
At the close of the first weeks of navigation on the inland waterways, the demand for tonnage from the river is low, especially in the Turkish direction. The draft restrictions imposed at the end of March had an impact. However, the situation seems to be changing for the better. If earlier the Administration of the Azov-Don Basin announced that the minimum draft for the passage of a number of locks at the Don River is limited to 2.9 meters, then from April 16 this figure was increased to 3.2 meters. Many Owners are already loading their vessels with 3.1 meters draft, which has a positive effect on the profitability of transit voyages, especially for those who have already signed contracts drawing on the forecast for low water level.
Despite the opening of the Volgograd and Saratov locks, Owners still prefer to take cargo no higher than Volgograd to ensure the high fleet turnover on the good market. Increased demand for such voyages from their side led to a decrease in freight rates in this direction, and to rates growth on longer voyages to the river.
Last week, there was discussed quite actively the decision of the Romanian government, which restricted grain exports outside the EU until May 15. Traders were not ready for this, and the market did not accept the ban. As a result, restrictions on exports from this country were lifted on April 16. Excluding Romania from the export market changed the balance in the entire region, which could lead to a shortage of raw materials in many countries of the Mediterranean and Black seas region.
The decline in business activity also affected the Caspian region. Many Traders expressed concern about the sharp rise in the price of corn, especially corn from the Russian southern regions. This led to a reduction in the number of shipments and, consequently, in the demand for tonnage. Market insiders are waiting for next week; there are expected more interesting offers from Iranian Importers after the weekend in this country. In any case, domestic grains remain the most profitable on the Iranian market.