Fuel prices and freight rates have surged since the US and Israeli forces began airstrikes on Iran last week, and this could drive up the cost of producing Asian palm kernel shells (PKS) and delivering them to Europe, market participants told Argus.
Dry bulk freight rates for Supramax or Ultramax vessels used to transport PKS from east coast Sumatra to Europe have risen to $60-75/t since 28 February, when the strikes on Iran began, from $45-55/t previously, one Asian trading firm said.
The trading firm has offered PKS cargoes to European buyers on a cfr basis and is confident their fleet will be able to transit the Suez canal, it said. The company reported an unconfirmed PKS cargo trade this week at $165/t cfr to a European country.
Argus could not immediately confirm the deal, but that price would likely net back to around $90-105/t fob east coast Sumatra, depending on the freight rate.
Asian biomass market participants were hopeful of European demand, but said they had received few enquiries. And no PKS-loaded vessels were headed to Europe as of 5 March, according to preliminary data from shiptracking platform Kpler.
Freight costs to Japan have also increased, but less than for larger vessels bound for Europe, market sources said. Freight rates to Japan for a 10,000-20,000t PKS cargo from Indonesia have risen to $29-39/t this week from $26-33/t previously, a trader said. That cost increase might limit profit margins for Japanese buyers and traders and prompt sellers to ask for lower fob prices.
An extended US-Israel-Iran war could continue interrupting Qatari gas and Saudi oil production as well as ship movements through the strait of Hormuz, which has already reduced global energy supply and supported fuel prices worldwide.
Rising diesel prices means higher operating costs for Malaysian and Indonesian PKS suppliers that use trucks to collect PKS from palm oil mills and move it to stockpiles. And PKS suppliers already face supply-side challenges.
Indonesia this month increased its PKS export levy to $5/t from $3/t previously and its PKS export taxes linked to crude palm oil prices to $8/t from $7/t, effectively boosting combined taxes and levies on PKS shipments to $13/t from $10/t.
PKS suppliers in eastern Indonesia's Riau province have also had to move stockpiles to other export points because the Tanjung Buton industrial port in Sumatra remains closed for repairs, though some firms carried out limited barging and transshipments there last month.
