Dry bulk Atlantic: US Gulf front-haul levels under pressure

Dry

The Atlantic Panamax market is currently trading at very low values and the major front-haul route from the US Gulf to China is well below last year’s levels due to lower grains exports and an over-supplied Panamax market, sources said.

The front-haul grain route from New Orleans, Louisiana, to Qingdao, China, basis 60,000 mt, was assessed by Platts at $27.50/mt November 16. Cargoes were being fixed at $41/mt a year ago, sources said, a $13.50/mt reduction.

According to shipping sources, the lower prices are due to an over-supply of dry bulk vessels, allied with reduced demand. Lower bunker prices also have a bearing because fuel makes up the majority of the cost of a ship’s voyage, sources said.

Grain demand has been muted this year out of the US Gulf, sources said.

According to the US Department of Agriculture’s (USDA) latest report on world agricultural supply and demand, soybean exports have dipped and are projected to reach 46.68 million mt in the 2015-16 harvest, compared with 50.17 million mt last year, a 6.9% drop.

China and the European union are the largest importers of soybeans for the US and this drop in exports has been having a direct impact on freight rates, pushing down front-haul and trans-Atlantic freight, with fewer vessels being used, sources said.

A number of front-haul grain cargoes have also been canceled in the US Gulf, with large grain houses paying compensation to shipowners, sources said. According to an operator, the reason they have done this is because they took cover for a number of cargoes, which now effectively don’t exist as they don’t have buyers over in China to take them.

“The trouble is that US grains are expensive compared to material from South America,” said a shipbroker. Brazilian soybean exports are projected to reach 57 million mt this year, compared with 51.11 million mt last year, according to USDA data.

The USDA report also said: “[Wheat] Exports would be the lowest since 1971/72; ending stocks are the highest since 2009/10.”

Wheat exports from the US were projected to reach 21.77 million mt for the 2015-16 harvest, compared with 23.25 million mt in 2014-15, a 6.3% drop. Total grain exports, including coarse grains and rice, were projected to reach 79.16 million mt in 2015-16, compared with 83.13 million mt in 2014-15, a fall of 4.7%. Exports have reduced this year due to “continued lack of US price competitiveness,” according to the USDA.

The fourth quarter is usually a period of raised activity for shipowners as the volume of exports in grains from the US Gulf peaks, which in turn pushes up prices on other freight routes, as it tightens the supply of Panamaxes.

However, with exports lower this year and the supply of vessels still generally long, the outlook for the rest of the fourth quarter is bearish, sources said. The market is usually backwardated at this time of year as exports are largely completed by January, sources said.

On November 17 last year, Freight Investor Services data on the freight forward agreement market showed that December Panamax paper was selling at $8,725/d, compared with $7,900/d for the first quarter.

This year, FIS data is actually showing the market is in contango for the first quarter of 2016 compared to December 2015. Panamax paper for December has been settling at $4,550/d, against $4,950/d for the first quarter of 2016, according to FIS data released November 16.

“The only real hope for a market improvement is for more grain cargo to emerge in the US in Jan/Feb,” a shipbroker said.

Source: Platts

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