Low water levels in the Panama Canal are causing concerns for imports into Latin America, even as higher freight rates on Asia-Latin America polymers trade routes are expected to ease and return to more normal levels.
Freightos-derived Argus polymer freight rates on the Busan, South Korea, to Santos, Brazil, route rose to $111/t on 23 June from $68.5/t on 31 March. The Freightos-derived Argus polymer freight rate on the Shanghai to Santos route rose to $103/t from $68.5/t over the same period. Freight rates slightly eased in the first week of June, but have since been on an uptrend. Still, market participants are expecting prices to stabilize in the near term.
The higher freight rates in April and May did little to slow trade over the period, with low prices for imports of polyvinyl chloride (PVC), polyethylene (PE) and polypropylene (PP), offsetting the higher freight rates.
Polymer prices have been on a downward trend and demand is not expected to improve until the fourth quarter, if not next year.
But a new challenge caused by low water levels at the Panama Canal is beginning to impact the market. The Panama Canal Authority (ACP) imposed additional surcharges on vessels in late May, as the region is suffering from a strong drought and the situation is set to worsen during the next few months with the arrival of the El Nino weather phenomenon.
According to the ACP, the maximum authorized draft allowed for vessels transiting the canal's locks was reduced to 13.41m (44 feet) on 19 June, its second reduction from normal draft at 15.24m (50 feet). Another draft reduction to 13.11m is set to take effect on 19 July.
Polymers transiting the canal are usually loaded on Neopanamax container vessels, which normally have a maximum draft of 15.24m. The draft reductions put into effect to transit the canal are already impacting trade flows.
In April alone, a total of 285 Neopanamax vessels, half of them container ships, transited the Panama Canal, according to global data analytics firm Xeneta. "Each incremental cut [in draft] has significant volume ramifications," Xeneta said.
Traders of polymers operating in Latin America are aware of the situation, especially those on the west coast of South America (WCSA) which trades polymers from the Middle East, Europe, and from the US Gulf coast, and relies on the canal as a trading corridor.
Additional surcharges stemming from the Panama Canal situation were heard between $500-600/feu in mid-June — equivalent to $20-24/t — and any additional expenses on trade fees will be a challenge for both importers and exporters, especially at a time when polymers demand has been falling in Latin America.
