34 week: Russian River, Azov Sea, Caspian Sea; Coaster shipments

34 week: Russian River, Azov Sea, Caspian Sea; Coaster shipments

On the 34th week, there was a high demand for spot tonnage in the Azov region; this was caused by the need to close all previously agreed contracts by August dates. As the market expected a further decline in grain prices and a subsequent increase in freight rates, Receivers made it clear that there would be no contract extensions. Realizing this, Shippers preferred to close contracts with shipments dates in August in order to avoid fines and losses on already purchased grain parcels. Seizing the moment, Owners with open spot vessels tried to get the highest possible freight. As a result, during the reporting week, the rate level for shipments in August increased to USD 17 (+ USD 1-2) per ton of wheat on the basis of the voyage from Rostov to Samsun. A similar trend is also observed in the Black Sea region in whole.

Pending the results of the Turkish Grain Board (TMO) tender, traders are in no hurry to sign contracts for September. The tender results will be announced on Tuesday, August 25; active negotiations will resume and deals will be concluded at the end of the next or early 36th week. Thus, in the first half of September, all participants will look closely at the market movement, postponing contract signing. Freight rates will not differ much from ones at the end of the 34th week. Freight level may increase by USD 1-2 in the first week of September, but not exceeding this level. A significant number of vessels will open in the first days of September, and they have not yet been fixed. There is also no reason rates will decline. Exports will continue to increase, especially in view of currency fluctuations. The fact that producers decided to hold back grains in order to sell it more expensive in accordance with the results of the TMO tender will not significantly affect the market.

More and more grain processors are trying to lobby their interests on the domestic market. There is a growing talk that it is necessary to increase twice the export duty on oil- and sunflowers seeds. Some stand for a complete ban on the export of these goods. Processors stem from the short-term prospects for market development without taking into consideration the interests of Exporters and Producers. The latter will not be interested in increasing of planted acreage amid high risks of a monopolized domestic market. The introduction of export quotas will also put them at a disadvantage: the price and its formation, terms of payment and other conditions will become less attractive for them. Thus, the prevailing interests of some market insiders over others will negatively affect the dynamics of the market development in the region, both grain and freight. However, the introduction of quotas starting from January next year is widely discussed.

In the past two years, there already has been severely felt monopoly and the “invisible hand of big players”. The Azov region freight market is no more as attractive as it used to be. The rates of USD 30 or more are unlikely to be expected in the Black Sea region in the near future. At the same time, in the second half of the grain season this year, the recurrence of May-June situation is possible, when the freight market was at rock bottom. This will be quite challenging for Owners of old and unpopular vessels.

In the Caspian region, due to the lack of cabotage fleet, there is an increasing demand for river-sea vessels for voyages from elevators on the Middle Volga to Iranian ports with new crop barley and wheat. It is expected that in 35-36 weeks, the demand for these vessels will reach a peak, and the freight market will begin to grow rapidly. The main Owners of the Russian-flagged fleet are in no hurry to sign contracts for long-term dates with shipments of grain from the river. There is observed a tendency to close deals in spot.