Ferrous markets brace for Suez Canal delays, costs

Shippers of steel and steelmaking feedstocks are bracing for higher freight costs and delays following the closure of the Suez Canal.

The 400m long container ship Ever Given has blocked the critical waterway since it ran aground on 23 March. The Suez Canal Authority said today it is unclear when the vessel will be refloated and traffic can resume.

Spot deals for Taiwanese ferrous scrap yesterday extended delivery timings to May to account for possible disruptions from the Suez blockage. Ferrous scrap container rates, which are already near decade highs, will rise to $900 per container for the US-to-Taiwan route on 1 April, from $800 this month. The rate is typically around $300-400, but a shortage of containers has sent costs higher since mid-2020.

Some Japanese scrap exporters increased offers for H1/H2 50:50 scrap to Taiwan by $10/t to $410-420/t cfr today in response to rising bulk freight costs.

Seaborne iron ore and steel markets have strained to keep up with a post-Covid rebound in demand, and rising freight rates have added to upward price momentum.

The Argus ICX 62pc fines index rose to $176.25/dry metric tonne (dmt) cfr Qingdao last month, its highest level since its launch in 2013.

The canal blockage also threatens to disrupt China's supply of iron ore concentrate and pellets from Europe.

China imported 24.8mn t of iron ore from Ukraine in 2020, although this is only a small fraction of total imports that exceed 1bn t/yr.

China's Ukrainian imports have risen this year, with mills relying more on its direct-charge ores that do not require sintering as they look to meet tightening emissions standards.

"Concentrate and pellet vessels from Europe all go through Suez Canal. If the blockage lasts long, it may push up concentrate and Atlantic pellet prices," a concentrates trader said.

"Our vessel is still waiting. The estimated delay is around 7-8 days for us," a pellet trader said.

The blockage does not cut China off from Europe. Vessels could sail around the Cape of Good Hope as an alternative route, but this could add about 23 days for shipments from the Black Sea, and about 12 days for shipments from northern Europe.

The blockage has not affected rates for the dominant iron ore route from Brazil to China. The Argus Tubarao-to-Qingdao Capesize assessment held flat at $21.25/t yesterday.

"But 7-8 days of delay, at a calculated Capesize rate of $30,000-35,000/d, may mean an additional $210,000-280,000 costs for us," an iron ore shipping official said.

Not all charterers will have to pay for delays. For shipments fixed on a $/t basis, shipowners will have to absorb the costs caused by the delays.

"If the blockage lasts for long, freight rates may also rise," the shipping official said.

By Kitty Xie, Terry Chuay, Andrew Khaw and Chris Newman