Events on the Azov region commodity market and its state had an increasing impact on the development of the freight on the 38th week. It has long been noticed that the formation of cargo flows or their restrictions may not only affect, but also bring down the Azov region freight market, which is not as volatile as before. The minimum and maximum thresholds of rates have decreased compared to previous years; this is a very serious challenge for many Owners. Owners of vessels aged more than 30 years are particularly affected. On a low market, they are considered in the last turn, and their ownership cost and operation is higher than that of more modern vessels.
The tender of the Turkish Grain Board (TMO), which was held during the reporting week, formed a sideways vision of the development of the commodity and freight markets for Charterers and Owners. In total, according to the results of the tender, about 440 thousand tons of Russian grain will be delivered. This is quite a large volume; however, the demand for parcels of 3-5 thousand tons with shipment by coasters has declined from Turkey’s side at the moment. It looks as if Turkish Traders decided to try to mark the freight rate, and in a good scenario, to fix it on the growing market. Shipments will be made in a relatively short period of time (from September 23 to October 16) and in large parcels; this should cover the need for goods and reduce the speculative pressure on price formation.
Owners also believe that the number of voyages from the Azov Sea ports will grow, and this will pull the freight market. They have already offered rates at the level of USD 24 on the basis of the voyage from Rostov on Marmara, and at the level of USD 45 and above to Adriatic Sea. At the same time, on the 38th week, the working rate was USD 21 to Samsun and USD 23 to Marmara per ton of wheat from Rostov. However, at the end of September, the market still does not have such amount of cargo, so the rates from the Azov Sea ports cannot continue to grow actively in accordance with Owners’ wish. The situation is different for Russian-flagged vessels, especially those that may perform cabotage voyages. The number of grain transportation from river for roads transshipment is growing significantly; in the meantime, some Charterers may show more flexibility during negotiating rates than for shipments from the Azov Sea ports.
On the 39th week, a standstill in grain shipments is expected, which is primarily resulted by the International Grain Round, which will be held from September 22 to 25 in Gelendzhik. The main part of Exporters and Traders will participate in it, therefore the activity in concluding deals with Turkish Buyers will decrease. This standstill is likely to have a negative impact on the freight market, which may experience a slight drawdown.
In the Azov region, the 37th week can be considered a key one before the market formation at the end of September and the beginning of October. If the freight market was still trying to grow at the beginning of the week, then at its end Owners were already paying attention to voyages with minimal margins in order to wait out the period of falling rates. Thus, on Monday-Tuesday, when discussing shipments of already paid parcels for the middle of the month, it was possible to get from Charterers a rate at the level of USD 22 per ton of wheat on the basis of the voyage from Yeisk to Marmara. However, amid news about the situation on the commodity market, participants assumed that in the second half of September, there will be less volume of grain in the Azov Sea ports than at the beginning of the month. This may be resulted by problems with cargo delivery; almost all market participants have faced this issue. In view of this, at the end of the week, voyages from Azov or Rostov to the Adriatic Sea became quite competitive at rates of just under USD 40. However, there is expected no freight collapse; the market will be supported by upcoming corn crop.
During the 37th week, there was observed a lack of spot tonnage the Azov region, which was completely fixed a week before. As is usually the case on the growing market, short voyages were favored at the beginning of the week. It was needed to add USD 2-3 for the long-distance voyage in order to arouse the Owners’ interest. And only Owners of small vessels with deadweight of up to 2000 tons were eager to compromise on rates: due to the low cost of port call, they made a good profit in the economy of the voyage. They most likely will be in high demand in the near future, since the entire river-sea fleet will be sought on a short leg.
The freight market in the Azov and Black seas regions generally follows in the wake of fluctuations and changes in prices on the global commodity market. At the moment, in the context of growing FOB prices for grains, trading is carried out in small parcels. The Russian ports of the Azov Sea are the most convenient for working with parcels of 3-5 thousand tons. This is one of the reasons why, amid low rates from Ukraine, the Azov market does not fall, despite the problems with the delivery of grain.
Black Sea grain may still be called the most competitive, and the dynamics of price growth for it on the terms of FOB deliveries was also observed in the region. Due to the poor harvest, the offer of grain from the Western ports of the Black Sea and the Danube is quite small this year. Prices for both Russian and Ukrainian grain have increased significantly, and this process continues. In view of the fact that there is not much cargo on the market for the second half of September, working on sales for September is still underway. Thus, it is expected that the 38th week will form the freight market for the rest of September and the first week of October.
In the Caspian region, the Turkmen “Garabogazkarbamid” plant was stopped due to an accident. For this reason, the main part of the Russian-flagged fleet cancelled its voyages. The repairs are expected to last not less than two to three weeks. Thus, as of yet, until the plant starts working again, there will be observed a growing demand for loading grain from river elevators to the Black and Marmara seas, or for any other loading from ports of Turkmenistan or Kazakhstan with work in transit.
By the end of the 36th week, rates on the coasters freight market in the Azov region settled at a working level of about USD 21 per ton of wheat on the basis of the voyage from Rostov to Marmara. Compared to the week before, they gained an average of USD 1-2; grain prices that grew on the CPT and FOB basis among producers and Sellers kept the rates from further rise. At the same time, the contracts were mostly concluded on shipments in the first half or mid-September. There were announced no new contracts with shipments at the end of September; negotiations on them will begin on the 37th and 38th weeks.
Despite the fact that Buyers are doing their best to stand against price increases, this does not lead to a decline on the Azov market. It is worth mentioning that the rise in grain prices is a global trend, and prices in the Black Sea region only follow the indicators of the European and American markets. At some point, it might have seemed that Receivers would suspend purchases and try to delay negotiations in order to get a more attractive price. However, in fact, they are likely ready to accept price increase. Thus, Egypt, one of the main indicators of the grain market, has purchased though a small amount, but at a higher price.
Deep-water ports announced a hike in transshipment costs; it affects the grain price in the port along with grain elevators’ restrictions on the acceptance of grain trucks that exceed the permissible weight. In the current situation, subject to rising grain prices, working in spot, with small parcels, becomes the most attractive. In that scenario, the Azov ports have few competitors, if any.
The grain price has also increased on UA origin, while sunflower harvesting and rains in Ukraine a bit delay the delivery of cargo to ports. Charterers from Ukrainian ports have reported seasonal difficulties in the work: Producers are more involved in harvest than in negotiations and new sales. However, it cannot be said that there is no cargo at all in the ports. Rather, the available volumes do not allow the market to develop further.
In general, the rates in the Azov and Black Sea regions are likely to remain the same on the 37th week. There may be fluctuations of USD 1-2, as a reaction to the movements of commodity markets, but that is all. The level of rates on coasters for voyages to the Eastern and Central coasts of the Mediterranean Sea has not yet reached the psychological limit of USD 20; there are expected no significant changes compared to last week. This situation may last up to two weeks; it should change by the end of September.
On the 35th week, the Azov region freight market has got the full impact of the new crop grain inflow, and the rates reached the level of USD 18-19 per ton of wheat at a moment’s notice. The number of shipments of cheap grain from the elevators of the Middle Volga has sharply increased for the first half of September. The rates growth is also may be explained by the fact that deliveries under won tenders will be performed from the Kavkaz roads, where grain will be shipped by coasters. Thus, both Novorossiysk and Taman do not buy grains on the CPT basis at a high price, as it used to be. Interest in the use of inland waterways is also fueled by restrictions on transport by road; the latter is only cost-effective over short distances subject to standard load. On more distant leg, the high prime cost of transportation is imposed on the grain price; it reduces the competitiveness of the offer.
In general, the freight market of the Black Sea and Azov regions shows positive growth dynamics. Rates from the deep-water ports of Ukraine rose; thus, rates on the basis of the voyage from Odessa or Nikolaev to Egypt is around the level of USD 16-17 per ton subject to shipment of parcels of 10-11 thousand tons. Owners who work from deep-sea ports are trying to fix for long-distance voyages on the growing market. Thus, shipments to the Black Sea Turkey, Marmara and Izmir are likely to be performed in small parcels by coasters from Russia.
It is possible to evaluate market prospects and make any forecasts only for a short period of time. The factors that influence the formation of both commodity and freight markets are very unstable, and the development vector may change quite quickly. On the one hand, there are observed low yields in Romania, as well as a fall in the ruble and hryvnia exchange rates, which makes Russian and Ukrainian grain prices very competitive. On the other hand, the commodity market of these countries is very sensitive to changes on the world commodity exchanges; this may clearly be seen in the increased grain price on FOB basis from Ukraine.
The growth of freight rates for cabotage transportation has reached its peak. At the moment, the rates for voyages from the Middle and Upper Volga exceed the cost of rail transportation to the Azov Sea ports and Novorossiysk, and their further growth is beyond the verge of profitability. Considering the fact that vessels will have time to perform two or three voyages before the end of river navigation, September is fixed for many Owners; thus, October dates will be discussed. In view of this, the rates for cabotage transportation are unlikely to rise higher; though, in the export direction, the rates still have room for growth.
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.
The Azov region met the 33rd week with bad weather and falling grain prices. However, both of these factors could not negatively affect the freight market. At the beginning of the week, many vessels were delayed in the Black Sea at discharging and in waiting for the Kerch Strait passage due to unfavorable weather conditions, and some Charterers tried to take advantage of this situation. During the negotiations, they appealed to the fact that a wave of cancellations is expected, in consequence of which tonnage will open in spot looking for cargo, and rates will fall. Amid this, some of them offered USD 14-15 per ton of wheat from Rostov to Samsun. However, the situation developed exactly the opposite. The period of bad weather was not long enough for Buyers to cancel contracts against the background of declining grain prices. The rate of USD 15 from Rostov to Samsun was low; the working level was USD 1-2 higher. In addition, due to the fact that the vessels were delayed, there was observed the lack of spot tonnage.
The arrival of the new crop continues to put pressure on the market; Shippers are interested to make shipments at the earliest possible time, which is why spot vessels are very popular. Amid the falling grain prices, Buyers are trying to revise contracts in every possible way by using any excuse. Companies that purchased in early August, but did not confirmed the deals with Owners and Buyers, have found themselves at a disadvantage. Having misjudged the market movement, they thought that the decline in grain prices would stop, so now they are eager to make shipments as quickly as possible in a bid not to lose money.
For Owners, the trend of working in spot will continue for a long time. This will be of interest to both Owners, who see the market growing due to a large number of requests for different dates, and Buyers, who, amid the falling prices, benefit from making shipments of contract parcels promptly. That being the case, Shippers and Producers will take the fall. Of course, it would be possible to assume that they would try to collude and set any price they want, but this scenario is unlikely. Market insiders understand that talking about new quotas on grain exports is not coming out of the blue. Starting from January, if restrictions will be imposed, Exporters will buy grain at an even lower price, and the domestic market is risky enough to build long-term plans based only on it. For example, we see that Russian processing companies are already trying to lobby for restrictions on the export of sunflower seeds and other oilseeds.
On Russian inland waterways, freight rates are growing rapidly, which may be explained by the lack of vessels to fulfill contracts signed earlier. At the same time, the main part of the fleet is switching from the North-West to the South; rates on the basis of the voyage from Samara to St. Petersburg have increased from USD 19 to USD 27 per ton. In the meantime, Producers continue to keep domestic grain prices at the high level, while on the global market the cost of wheat fell from USD 212 to USD 205 per ton amid the increasing forecasts of grain yield in Russia.
The Azov coasters market spent the 32nd week in difficult negotiations on the rates level. As a result, however, nothing had really changed, and the working rates are now considered to be about USD 15-16 per ton of wheat on the basis of the voyage from Rostov to Samsun. At the same time, the number of cargo offers compensated for the low activity on the market due to the holidays. Some of Traders tried to work on the mood that the vessels will simultaneously return from discharging, which will result in a tonnage oversupply. However, this did not happen, and vessels with dates for the next week have been fixed, leaving some of the cargo open; this had stopped the market from falling.
There is still a high demand for tonnage from the river, for transit voyages through the Volga-Don Canal, as well as for cabotage voyages via inland waterways (IWW) and Kavkaz roads transshipment. There have significantly increased rates for transportation via IWW to the ports of Azov and Astrakhan. Thus, if at the navigation beginning the rate for a ton of barley on the basis of the voyage from Chistopol to Astrakhan was at the level of USD 12, then now it may reach USD 24 per ton in same direction. Perhaps, the low activity of Traders due to the Muslim holidays will negatively affect the demand for Russian-flagged vessels for cabotage voyages. However, the increased demand for Russian grain with delivery to long-distance destinations and shipment from deep-water Black Sea ports (to Jordan, Pakistan, Morocco etc.), will not leave room for volatility on the domestic freight market: a reduction in rates is not expected in the near future.
In general, market insiders anticipated that Turkish buyers would start actively buying Russian grain after the Eid al-Adha celebrations; this should have put the freight market in motion. Unfortunately, due to the fall of the Turkish lira, all purchases were suspended, which led the market to stagnation; the rates remained at the same level. Buyers think that due to the high grain harvest this year, producers will soon begin to reduce prices; this should result in an increase on the market. In the meantime, Owners are trying to keep their fleet on a short leg, so as not to miss the rise in rates.
The situation with shipments from Ukraine is quite different. The coaster market there froze last week, and the vessels remained open for a long time. To this date, the rate on the basis of the voyage from Berdyansk to Egypt is about USD 16-18 for a ton of wheat, with a parcel of 5-10 thousand tons. In August, there will be long weekends in European grain-importing countries, so Traders’ activity should be expected only for high-margin contracts. Most definitely, the rates for wheat shipments of 5-10 thousand tons parcels from Ukraine to the Adriatic Sea and the Central Mediterranean will remain at about the same level, and the ceiling limit of USD 20 is unlikely to be reached. On the other hand, decrease is also not expected, but the market will rather be on the side of Charterers.
On the 31st week, FOB wheat prices in the Black Sea region decreased slightly. The reason for that was the appearance on the market of grain from the Russian Central region and Ukraine, as well as the decline in the ruble exchange rate; the latter in a short time period allowed traders to conclude contracts, while grain prices did not win back. The reduction on the grain market was also facilitated by a pause among buyers in Muslim countries, most of whom went on the weekend; they suspended purchases due to the fact that the holidays will end on August 4, and everyone will return to activities at the end of the 32nd week. However, despite the long Muslim holidays, the market did not respond to this with decline. The work on the already signed contracts continued, and there was not much of open spot tonnage. Thus, the market is rather on the Owners’ side; in confirmation of this, rates added a US dollar: the rate on the basis of the voyage from Rostov to Samsun was about USD 16 per a ton of wheat.
Over the past week, the demand for tonnage for cabotage voyages has increased significantly on the part of Charterers. Most of the requests were from the middle Volga in both North and South directions. Rates responded to this with a fairly strong growth. For example, the rate on the basis of the voyage from Ulyanovsk to St. Petersburg was about USD 20-21 per ton, and from Samara to Kavkaz about USD 30. Due to the low water level, a considerable part of the fleet cannot load up to full capacity; voyages from the river are quite expensive. Realizing their advantage, Owners of Omskiy type vessels are hiking rates. This has led to a situation where an already scarce fleet becomes even more inaccessible to Charterers, which is why there is lack of open positions. Traders are trying to transport cargo to Azov or Rostov, and in this direction the freight has also increased; it may reach up to USD 20 per ton from Samara.
In the Caspian region, there is a silent period in grain shipments due to Muslim holidays. Activity was observed only on domestic transportation from river elevators to St. Petersburg, Astrakhan, Azov and Rostov. Traders think that the 33rd week will be followed by a spike in grain prices, which will accelerate the freight market. In the meanwhile, all shippers are waiting for good purchase prices from Iranian buyers. After August 15, the warehouses will receive the new crop corn, which will also affect the price market.
On the 30th week, the Azov region freight market had finally revived. Despite all the prerequisites to keeping high grain prices, there was a slight decline in quotations on commodity exchanges due to the strong euro, China’s purchase of large volumes of grain from the USA, as well as due to forecasts about the establishment of food stocks amid the ongoing pandemic. This had driven sales from the dead-lock. Buyers were forced to close the needs for production in grain anyway, so they went for deals. As a result, rates fell by USD 1 to the market’s working level, and the voyage from Rostov to Samsun was traded at USD 14-15 per ton of wheat. However, due to high prices and the forecasts difficulty on the commodity market, sales are still made in spot and prompt, with shipments for a maximum of a week or two ahead. A long-term grain program has mostly not being formed yet.
In general, the mood is such that there is expected an active growth in sales volumes on the commodity market starting from the second half of August, and hence an increase in rates and in number of shipments. However, there should not be much hope for the market revival. There are a number of inhibiting factors. Firstly, this is competition from Ukraine, where the market for cereals and their exports is quite heavily monopolized. Secondly, the structure of the Russian domestic market has changed somewhat. Domestic producers are starting to take more careful and subtle approach to the grain sale; they do not rush and hold it in case of fluctuations in quotations or exchange rates. In the last year or two, they have got an alternative to exports by means of domestic sales. Thirdly, for some time now, VTB group has gained quite significant power on the market; the company is strongly lobbying for its own interests and forming the favorable conditions for the purchase and transportation of grain. As a result, there is expected that rates will rise to USD 20+ to Marmara in August.
After August 4, when the celebration of Eid al-Adha in Turkey ends, there is expected a mass purchase of the new crop grain for deliveries in the Turkish direction. About the same time, the new crop of wheat should arrive at the elevators and warehouses. During the reporting week, there has increased the number of requests for shipments from the deep water: from the Novorossiysk port and the Kavkaz roads to Iran, Iraq and India in parcels of 20,000 to 40,000 tons.
A large number of requests for transportation of grain from the river, mainly from the Middle Volga region, have appeared on the market, and this is grain from the new crop already. It is worth mentioning that shippers in the Caspian region are currently more interested in shipping by inland waterways to Astrakhan in order to get a low freight rate, and not to fall for “hot” offers from Owners promising freight to the Iran ports. A small amount of grain will still be transported from the river to Iran, but Charterers will try to avoid the hype. On the market, there is the cargo in the Black Sea direction already, but Owners still prefer to work from ports of the Lower and Middle Volga area in order to reduce transit time amid the expectations of the growing market.
On the 29th week, the Azov region freight market reacted sharply to changes on the commodity market. Grain increased in price, as far as a significant amount of it was shipped from deep-water ports, where the purchase price is commonly higher. As a result, the sales volume from the Azov ports has decreased, and there are almost no cargo offers with laycan starting from the 31st week; those that appear are being fixed at a moment’s notice. The average rate on the basis of the voyage from Rostov to Samsun fell to USD 15 per ton. It is too early to talk about a stable decreasing trend; rates rather will remain at the current level on the 30th and 31st weeks, with fluctuations in both directions of about a US dollar.
On the domestic market, the price of wheat was pushed up also by lowered yield forecasts. In the Stavropol territory, it is still estimated at 18% less than last year’s level, in the Krasnodar region at 24%, in the Rostov region at 2%. The situation is expected to gradually straighten out after the rate of harvesting increases in the Central regions of Russia and the Volga region.
Rates from river ports, oppositely, are not yet reduced. This may be explained by the number of factors; however, the main reason is the water level in the lower reaches of the Don River, which makes it possible to work normally only for the Omskiy type vessels. The latter are also in high demand for performing of transit voyages. Rates from river ports remained almost at the same level, but below Owners’ ideas by USD 7-8. Thus, Charterers are ready to discuss a rate of USD 32-33 per ton on the basis of the voyage from Balakovo to Samsun, and Owners want to fix at the level of at least USD 40. This is explained by the fact that at the beginning of negotiations on shipments, some Charterers have showed high rates, and then, due to the real economy, they could not sell them. However, they formed the idea of possibility to find the cargo for that kind of money.
Rains in the Black Sea region hamper the harvesting, and there is not much cargo from Ukraine on the market. Grain is mainly shipped by large companies, and it is difficult for small players to compete with them. The latter ship niche goods foremost, sunflower seed meal, wheat bran and derived products. As a result, the growth of rates from Ukraine has stopped; it is kept at the level just above USD 10 per ton on the basis of the voyage from Kherson to Marmara, and to the Adriatic or Eastern Mediterranean it is a little below USD 20.
In the Central regions of Russia, harvesting is well under way, and the new crop grain is already appearing on the market. In the near future, this should have a favorable impact on the Caspian market, where freight rates are still on the verge of profitability. The first to enter the market will be barley, the price of which is quite high in the Caspian region and is more interesting for sellers than in the Azov region. The Caspian market is expected to start grow in the next two weeks.