Soaring freight adds momentum to steel price gains

Soaring freight rates are increasing purchasing costs for seaborne ferrous metal buyers that are already faced with limited spot supplies of steel and its raw materials.

Freight for hot-rolled coil (HRC) from China to Vietnam and South Korea has jumped to $13-20/t from $10-12/t after China's lunar new year holiday because of tight vessel supply, market participants said. Freight for rebar from China to Singapore has increased to $25-30/t from $20/t. Freight for steel products from China to Peru has doubled to around $50/t during the same period.

Steel freight from India to Vietnam has also rose by $8-10/t to more than $45/t, Vietnamese market participants said.

Traders attribute the higher freight rates to Covid-19 effects on logistics, higher oil prices, rising vessel rental costs and increased global shipping orders.

"Now we are living in a cheap world of money, while prices of commodities keep increasing," a Vietnamese trader said. Consumers now have to accept higher steel costs as prices are rising around the world.

The price premiums for steel in the Americas and Europe are wide enough to absorb the higher freight costs. The US Midwest HRC price, at an equivalent of $1,366/t ex-works, is nearly double the fob Tianjin HRC index at $693/t yesterday. Northwest Europe HRC at an equivalent of $896.69/t ex-works yesterday was nearly $200/t higher than 51,500 rupees/t ($702/t) in west India.

Soaring demand from China for agricultural commodities, coal and metals, increased grain and soybean shipments from the Americas and severe ice conditions in Baltic ports have combined with sustained demand for scrap and other dry bulk shipments to drive rates to multi-year highs.

Freight increases after China's lunar new year holiday, combined with rising fob basis steel offers, have pushed up delivered HRC prices. The Asean HRC index rose by $82/t to $734/t cfr Vietnam by 2 March from pre-holiday levels.

Shipowners have stopped offering freight from China to South America for steel given the tight vessel availability. This has left some Chinese mills unable to provide cfr basis offers for HRC, a north China mill exporter said. South American buyers could accept much higher prices compared with levels from other countries. Brazil is a major destination for spot sales to the region and its steel inventories are relatively low, especially as steelmaker Gerdau has halted operations at the country's largest integrated mill Ouro Branco in Minas Gerais for three weeks of unscheduled maintenance.

The lack of freight options could limit Chinese exporters from capitalising on any increased shortage of steel in Brazil.

Tight vessel and rising freight may stimulate seaborne buyers to place steel orders faster than expected as they may not able to guarantee enough cargoes for normal operations and there is no sign that prices will fall in the short term, Asia-Pacific market participants said.

Rising seaborne prices and freight costs led Vietnamese steel producer Hoa Phat to pull HRC export offers for April to early-May shipments so it can save on costs by using the steel internally.

Some steel shippers blame the shortage of containers as a driver of higher bulk rates. Container freight jumped before China's lunar new year holiday in February, and bulk rates were unaffected then. But bulk rates were pushed up as more shippers began to choose bulk cargo vessels instead of container, steel market participants said.

Container rates hit nine-year high

US exporters of ferrous scrap are having difficulty acquiring containers for bookings because of a shortage in Asia, which has shipping lines since late 2020 preferring to send empty containers out of US ports to speed their return to Asia rather than loaded with scrap.

Containerised ferrous scrap freight rates from Los Angeles to Taiwan have almost quadrupled to a nine-year high of $40/t from $11/t since late November. The higher freight has not significantly discouraged spot trade but acted as strong support for the Taiwanese containerised scrap index that rose by $115/t to $430/t cfr Taiwan over the same period.

Containerised shippers are also having to contend with congestion at ports and fewer free days on arrival in Pakistan and India.

There is also no relief from soaring freight costs for bulk scrap shipments.

Short-sea bulk rates for scrap from Asia's biggest exporter Japan have risen by $5/t to $39-40/t to Vietnam and to $29-30/t to Taiwan, adding another barrier for traders to conclude export deals.

Deep-sea bulk freight to the world's biggest scrap importer Turkey has risen by $6-8/t from different origins over the past month.

Bulk ferrous scrap rates from the US had mostly hovered around $25/t this year through February. The rates averaged $19/t in 2020. US bulk scrap exporters have been able to pass on the higher freight costs to buyers but that may be short-lived if US domestic scrap prices jump in March.

Further freight rate increases are anticipated for mid-March.

Iron ore freight rises for smaller vessels

Freight rates are falling for Capesize and Panamax vessels that, together with Valemax vessels, handle the bulk of seaborne iron ore shipments. But rates for smaller iron ore vessels are rising.

Freight rates for 50,000t Supramax cargoes from India to China have increased to $20-25/t from $12-15/t in mid-January. Ship chartering is tight as Indian producers are trying to sell more cargoes before the start of the rainy season. Demand from China market remains strong, so freight quickly increased after the lunar new year holiday, iron ore market participants said.

Freight for a 170,000t Capesize cargo from Tubarao in Brazil to Qingdao in China fell to $15.75/t by 2 March from a 2021 high of $21/t in mid-January. The route rose to as high as $28.75/t in 2019.