Bulk freight rates for ferrous scrap exports from the US east coast and Gulf coast have jumped through November, pressuring already narrow exporter margins as inbound flows remain slow and competition with domestic mills remains stiff.
Congestion at the Panama Canal because of low water conditions has continued to ripple across dry-bulk markets, adding further tension to an already seasonally strained period for vessel availability.
Delays and elevated costs to transit through the Panama Canal have forced some dry bulk ship operators to opt for longer routes through the strait of Magellan, the Cape of Good Hope or through the Suez Canal.
Longer transit times have been compounded by heightened competition for dry bulkers favored by scrap exporters. Ship demand has increased from grain shippers following a bumper US corn harvest, with availability further hampered by vessel congestion in Brazil.
These myriad factors have prompted a swift hike in rates by dry bulk shipowners in the US Gulf coast and along the US east coast in the second half of November.
Supramax rates for bulk scrap cargoes from New York to Turkey have been heard at a minimum of $40/t this week, up by around 15pc from $34-35/t in mid-November. Market participants expect rates to rise further in the near term, with some expecting fixtures in the mid-$40/t range shortly.
Faced with elevated freight costs and already thin margins, exporters now must attempt to pass through the costs to end users in the global seaborne market.
The fourth quarter has so far proven to be challenging for US bulk exporters, as shippers sold into a swiftly falling Turkish ferrous scrap market in October, only to be forced to collect against these lower priced sales while seaborne pricing to Turkey abruptly recovered through November. During this period US domestic market fundamentals also rapidly strengthened with the bottoming out and rebound in hot-rolled coil (HRC) prices, which placed further pressure on exporters competing with US domestic scrap consumers.
Exporter margins were squeezed as a result. The spread between collection prices for average #1 HMS scrap — which bulk exporters process into HMS 1/2 80:20 — and average east coast fob bulk HMS 1/2 80:20 prices in the latest round of sales — a netback from Turkey including bulk freight — fell to $51/t in late October, a four-month low.
So far exporters have been able to stave off a prolonged hit to margins by metering increases in dockside collection prices along the east and Gulf coasts, while reducing the number of bulk sales. The spread between collection and fob export prices has since recovered to $69/t today, $2/t above the average level over the past year.
Despite this slight recovery, US bulk exporters efforts to maintain margins through the remainder of the year will likely be further tested as strained intake volumes face further seasonal declines and competition with US domestic mills shows no signs of abating.
