On the 7th week, the weather increased the freight rates for river-sea type vessels for voyages from the Russian ports of the Azov Sea. Fleet rotation have been prolonged by often occurrences of weather worsening periods in the Kerch Strait, Marmara Sea, Bosphorus and the Aegean Sea, which sometimes followed each other, increasing the duration of the voyage by 4-7 days. For many vessels that are now fixed to Marmara Sea’s ports or for more distant ones, there is no longer an opportunity to perform a voyage before the end of February. Therefore, the rates of the level of USD 30-32 per ton from Azov/Rostov to Marmara will most likely add a dollar or two at the end of the month for vessels ready loading in February.
Exporters are already showing an interest in rates for March and are trying to form up the sales economy for the next month. When forecasting for March, it is worth considering that at past state tenders for the purchase of grain in Turkey and Egypt, Russian grain did not take such key positions as in the last few months. This is explained the issue of purchasing grains from producers at a price offsetting the export duty, but not everyone is able to do this in such volumes so far. In terms of price development on the domestic market, wheat is already experiencing a decrease from the side of processors, as well as a decline in CPT prices in ports. The pivot point will be in mid-March, when the duty on wheat will be increased; until then, spot/prompt shipments in small parcels will be a higher priority, which will keep the demand for tonnage in the Azov Sea.
It is worth noting that great demand for tonnage is observed in almost all regions; rates for large coasters and handy size vessels have increased. Exporters who are not involved in regular shipments have found themselves in a difficult situation. Grain Charterers in any case have space to discuss the freight level due to the volatility of purchase prices and rising prices from the side of importers. Companies that are engaged in the supply of minerals, lumber, secondary raw materials, etc. do not always have such a margin in the transaction economy in order to offset the difference between the expected freight rates in February/March and the current level. Therefore, a sufficient amount of cargo is open in spot and ready for shipment. It can be assumed that due to these orders, the freight market will be supported in case of a decrease in grain exports from the Russian Federation or similar factors.
On the 6th week, opinions of the parties on the Azov freight market were quite strongly divided. There was discussed the tonnage ready for loading after February 15. Charterers insisted on a sharp decline in freight rates, trying to achieve a reduction of about USD 10 per ton; they offered rates on the level of about USD 30 per ton of corn on the basis of the voyage from Azov to Marmara. Owners were not led by such attitude: at the beginning of the week, high 30s were offered for such voyage; a while later, they confirmed the average 30s. During the week, this level was kept from both sides. Some Charterers increased the freight rate though in order to have time to make shipment in February. At the end of the week, there is a reduction in rates, but the priority still remains on Owners’ side. The phased introduction of duties supports the demand for tonnage. At the moment, shippers are interested in shipments of corn during the free of duty period, therefore the freight level of the 6th week is likely to remain; at the end of the month, it will even increase for tonnage with loading dates in February.
In view of Owners’ desire to return their tonnage to the Azov ports as soon as possible for loading, it becomes more difficult to import goods to Russia through the Azov ports. Freight rates on the basis of voyages from the Black and Marmara seas to Azov/Rostov have grown, but there is no firm interest from Owners yet. Now is the priority to make voyages with grains, and Charterers of backhaul cargo are forced to show flexibility in negotiations, so as not to disrupt delivery schedules.
The Black Sea coasters market from deep-sea ports has reached a certain level, and the growth of rates has stopped a little. There is clearly visible Charterers’ focus on forming and shipping bigger lots. Now the main receivers of grain in the Mediterranean region import goods from Western Europe; a significant part of it is shipped under the state purchases tenders. Small parcels such as 4-7k are not in demand at the current high prices, despite the availability of a sufficient number of open vessels. Quotations of USD 20+ on the basis of the voyage from Kherson to Marmara per ton will be revised to a level below 20.
Unfavorable weather conditions in the Black Sea region have sharpened interest in river-sea type tonnage for shipments from the Azov ports in the Russian Federation. For a long time, due to the closed Kerch Strait, a large congestion has formed at TFK-1 in waiting for ice convoy. Even after the opening of the strait, the waiting time was about 2-3 days. As a result, due to delays in the rotation, the lack of tonnage only increased on the 5th week.
The expectations of some Charterers for a reduction in freight rates in the first half of February were not met. The average level of freight is about USD 40-42 per ton of wheat on the basis of the voyage from Rostov to 1 port of the Marmara Sea for vessels ready for loading before February 10.
All market participants are interested in freight rates for the second half of February. Currently, wheat and corn that are covered by the quota and duty are mainly shipped from the Azov Sea ports. Such cargoes as bran, sfs meal, sweet beet pulp and others are still on pause, with the rare exception for those who may offer competitive rates.
The rush for tonnage on the 4th week on the Azov Sea market led to a significant increase in rates, the level reached a peak in the past two years. At the beginning of the week, Charterers were ready to pay USD 34-35 per ton of wheat on the basis of the voyage from Rostov to the Marmara Sea, with shipping dates in January. At the end of the week, the rates were at the level of USD 39-40 per ton. Such a notable rise is still explained by the duty and export quota introduced from mid-February. Considering the continued growth on the commodity market, receivers are forced to agree to prices and confirm deals but with smaller volumes, in anticipation of lower prices in the future.
Despite the sharp rise of the market, there are already prerequisites for disvolution. The fact that the confirmed volumes of purchases on TMO are significantly less than expected suggests the upcoming decline in market shipments. Rates of about USD 30 per ton of wheat on FOB basis from deep-water ports of the Black Sea already look not workable. This is also shown by the cancellation of the last GASC tender and the decrease in purchased volumes of TMO. Besides, it is worth noting that there are problems with the issuing of cargo documents in the Russian ports. Charterers are now leery of vessels opening on the 6th week and try not to confirm ships with late dates due to the high risk of getting trapped in processing of quotas and export duties.
The market did not fall at the beginning of January, as it usually happens every year. The introduction of export restrictions and duties since mid-February has led to a significant increase in new sales and shipments of grain. Also, the long downtime of ports and ships in December has resulted in a situation when receivers of processors in Turkey have faced the shortage of raw materials. As a result, the rate on the basis of the voyage from Rostov to the Black Sea increased to USD 25-26 per ton of wheat. There is also remains the dynamics of demand for the river-sea type tonnage.
The situation with shipments from the Ukrainian deep-water ports has not yet been fully formed. In Russia, the introduction of export duties on wheat in a certain period of time left Russian grain outside of competitive prices, as demonstrated by the GASC tender at the end of December. However, other exporting countries in their turn raised the price ideas, and the offers at the last tender were close already. Shipments in handy and ultra parcels are performed under the frame of tenders. Though, the parties cannot reach close figures on the coasters market, where the participants of deals are more dependent on the response time of the final receivers’ markets and on their readiness for high prices for raw materials. Shippers do not ignore the dynamics of price growth from tenders’ reports; therefore, Traders try to ship the parcels sold before the last hike in raw material prices on the agreed date. Charterers offer less than USD 18 per ton from Kherson to Marmara for new sales.
Interest in Russian grain with shipment dates until mid-February is quite high in the region; it is a key factor that will shape the strategy before the new grain season. Shippers and producers are reducing prices in a bid to have time to sell and ship goods before mid-February. Traders who ship from other countries are forced to adjust in the formation of their offers for buyers. Therefore, the situation with coasters in the Black Sea will remain at the same level as it is now, before the introduction of new restrictions, so the fall in rates is not yet expected.
There is observed a severe shortage of river-sea type fleet on the Azov freight market. During a long period of adverse weather conditions, a large number of unshipped parcels have occurred. Technically, the market is growing, rates have added USD 2 per ton for voyages with laycan in December, but in fact, there are no offers from Owners. A significant part of the fleet was fixed back in early December, and the vessels still cannot go for loading. And those which have been open consider long-distance voyages on the brink of long holidays.
Uncertainty on the commodity market does not allow properly forming parcels and predicting the movement of rates. Shippers are ready to postpone the shipment dates to the first days of January for the contracted volumes. However, Traders are wary of the information that the customs authorities have started checking export shipments, which may take up to ten days. Market participants bother that such actions are related to the duties and the export quota which will be imposed in February. Amid restrictions coming into effect from February, declining purchase prices on the Russian domestic market are beginning to stimulate exports, but the conclusion of contracts for January and early February is currently in question.
The events of the 51th week allow making a short-term forecast. Rates for December will rise to the level of USD 24-25 per ton of wheat on the basis of the voyage from Rostov to Marmara. For the same parcels with shipment dates in the first days of January, the rate will be significantly less, about USD 20-22. Considering the upcoming holidays, many market participants have already completed their work this year. With certain exceptions, there is expected no business activity in December.
During the reporting week, the lack of open vessels has occurred in the Azov region due to the increased period of the fleet turnaround. Vessels have been standing near the Dolzhanskaya Spit and waiting for the passage through the Kerch Strait for quite a long time. At the moment, ice convoys for the passage of the Kerch Strait are forming only upon receipt of confirmation from the port of loading. According to forecasts, the situation is expected to improve at the end of the 51st week when weather conditions become more favorable.
During the past two weeks, Charterers making shipments from Yeisk, Temryuk or Taganrog have tried to reduce freight rates by USD 1-2, taking advantage of the fact that many vessels are not currently considering voyages from Rostov. However, the market did not go down due to the lack of spot tonnage, except in a few isolated cases. Amid the fact that shippers need to make shipments before the end of December, the rates for fixtures with laycan for the rest of the month are expected to be inflated.
Christmas and New Year holidays limit the work period for some companies. A chain of banking holidays in the USA, and then in the Russian Federation, forms an undesirable distance of time: due to banking holidays, a transaction party is at risk of not receiving their money, or causing a long vessel’s idleness. This is especially true for companies selling from the Russia on CIF basis: vessels with the nearest opening dates will be a priority for them.
Uncertainty with the introduction of restrictive measures on exports from Russia does not allow the formation of the one movement direction on the commodity market. Amid various news that an export duty on wheat will be introduced separately or together with the permitted volume for export purchase prices have slightly decreased. Prices can be reduced by companies which are export-oriented and already have purchased goods. Producers, for their part, are not in a hurry to decrease their offers.
The market is still facing the low December after the high November. There is an extremely small number of new sales on the Black Sea market, as well as a significant difference in price expectations between buyers and sellers: about USD 8-10. Cargo is available at ports, but customer demand is lower than usual, since notable volumes are being traded via state tenders. Aside from that, parties have different views on the development of the situation with prices, and they are waiting for concrete news on the introduction of export quotas and duties in Russia. Once this is done, either shipments of Russian grain will go in a large number on coasters, and sellers would need to “reduce appetite”, or by contrast, only the major companies of Russia will continue to make shipments, and much of the “market work” will shift to the Ukrainian ports.
One of the major events of the 49th week in the Azov region is the confrontation between the weather and the market. Due to the dramatically low permissible draft in the ports of Rostov and Azov, the loading and movement schedule of vessels was disrupted. The water level was less than 3 meters, which led to idleness of the fleet. Demand from the side of buyers is still low, and some Charterers are trying to get a correspondingly low rate; however, due to delays in rotation caused by weather, freight remains at the same level: about USD 23 on the basis of the voyage from Rostov to Marmara per ton of wheat.
According to the weather forecast, the situation in the Azov region may not change until the end of the year. Only the fleet opening in December is expected to be active. Considering the fact that many vessels will have time to make only one voyage, and Owners will try to fix their tonnage on the brink of holidays in such a way as to avoid idleness, the struggle for “final voyages” will be at its highest in the second half of the month. Even now, there is coming up an imbalance in the rates between long-distance voyages and short ones: while the former are declining due to high demand among Owners, the latter keep at the same level amid the small number of confirmed fixtures.
It is safe to say that unformed supply programs also help the market stay calm: fluctuations in the US dollar exchange rate in Russia, conflicts of interest on the domestic market between exporters and producers in Ukraine: for many Traders, these factors put sales on pause. After the high November, December looks weak and still uncertain, despite the fact that the coasters fleet in the Black Sea is in abundance in the middle of the month. If there will be no significant volume of new cargo, the freight market will go down under the pressure of a plentiful spot tonnage supply.
The Azov market activity remained unchanged on the 48th week. Rates on the basis of the voyage from Rostov to Marmara were at the level of USD 23 per ton of wheat. Owners, for their part, are trying to raise the market by offering equally inflated rates. Despite the fact that Owners are ready to discuss almost any cargo, negotiations are proceeding slowly; there are not much fixed voyages, and there is still enough open fleet. Charterers who have contracts to ship in December see no grounds for the market to grow: it is rumored that demand from the side of buyers is low, despite declining purchase prices.
The Azov market is likely to remain at the same level on the 49th week. Bad weather, which is expected in the region, will give time to “guard” own interests for rates, so the 49th week will be key in forming the market level for December.
The Black Sea coasters market is on standby. November proved to be quite active, both in the volume of shipments from the region’s deep-water ports, and in regard to high freight rates level. There are not much new parcels with laycan on December dates. Namely, prices for grain raw materials from Ukraine are quite high, according to the results of the last GASC tender. On the Ukrainian domestic market, producers are in no hurry to reduce prices, which does not help Traders to fulfill their programs. The domestic market is considered as a serious alternative to exports; the rest of the year is expected to be quiet.
Russian wheat for delivery in January was the most competitive in accordance with the results of the GASC tender. Shipments from Novorossiysk and Taman won on FOB basis. Perhaps two more parcels will be shipped from the Kavkaz roads, but they also have an option for Novorossiysk and Taman. In this regard, there is expected the reduction of the Kavkaz roads transshipment program in January. The freight market continues working on spot/prompt.
The struggle between Traders and shippers for non-TMO deliveries has led to a slight stagnation on the freight market. At the beginning of the week, the rates on the basis of the voyage from Rostov to Marmara were at the level of USD 24 per ton of wheat; at the end of the week, the working level was already USD 22-23. As at the first half of December, the market has not yet formed, since deals were actively concluded on the last dates of November/first days of December, and there are not much new contracts at the moment. The most active companies are those that have a large supply chain without reference to a single region and that are able stay in tune with their customers in terms of conditions and volumes.
Problems with processing of phytosanitary documents for sunflower seeds make it difficult to work with this crop: the wait may take up to 15 days. Amid this, hope for the fact that shipments of sunflower seeds will support the low wheat market is vain. Market participants expect that rates will remain at the current level or slightly decrease in the short term. However, due to upcoming ice situation in the region, the cost of voyages from the Azov ports will grow, therefore even a small decrease in the freight level becomes quite sensitive for Owners.
The Black Sea coasters market is showing steady increase. It is safe to say that on the 47th week, the freight rate on the basis of the voyage from Kherson to Marmara was about USD 20-21 per ton of grain, which is quite a high level for this region. The growth dynamics is on, and Owners believe that the positive mood will continue until the end of the year. It is worth noting the variety of cargo nomenclature and wide geography of destinations, which makes trade from Ukraine look more ‘marketable’ than shipments from the Russia.
If the export quota will be introduced in Russia, the number of active market participants will certainly decrease. Based on the experience of the April-June period, producers will have a narrower market place, and the conditions for discussing of prices will become tougher. At the same time, Exporters will be more aggressive when entering into foreign contracts. Therefore, for those companies that clearly expect to receive the quota, working on the spot is not a priority to this date.