The Atlantic Panamax market is likely to enter the third quarter on a lull as geopolitical tensions and trade disruptions cool what was generally expected to be the busiest period of the year. Market players pointed to the US-China trade dispute as the main culprit for the slowing pace of fixtures as well as a general lack of market direction.
The issue of new sanction lists from the US and retaliation from China has been putting pressure on commodity buyers and on shippers. Several vessels carrying US grain stems that were already at sea were reportedly redirected to countries other than China, which rejected the cargoes as an immediate response to the US sanctions.
With the 25% tax on Chinese goods officially implemented by Washington, China looked to impose similar tariffs on US imports, including soybeans, from July 1.
US soybeans accounted for 33 million mt of the total 95 million mt soybeans imported by China last year, according to the US Department of Agriculture. This leaves a substantial void in the market that China has been trying to fill by lifting sanctions on animal feed from countries such as Bangladesh, India, Laos, Sri Lanka and South Korea.
However, Chinese officials have said that these markets alone will not be able to meet its needed grains volumes.
The international trade dispute could have represented the perfect opportunity for Brazil to step in and increase its market share of exports to China. However, local issues have been getting in the way.
Brazil faced several weeks of strikes in June, initiated by truck drivers protesting against high diesel prices, which they say have stopped them from making a profit on their trips between grain houses and ports.
Despite attempts by the government to reach an agreement, the price proposed was deemed unsuitable by the protesters and they halted all transportation. The situation has mainly impacted Brazil’s northern ports, which rely on truck transport for approximately 80% for the goods being delivered.
Cargo loading during this period hasn’t been halted thanks to the grains stored in silos near to the port facilities, although these cannot guarantee a steady flow of stems in the coming weeks. Shipping sources have reported that grain trades were “reduced to a minimum for several weeks,” with few bookings being made due to the strikes.
The situation in Brazil slightly softened front-haul grain freight rates toward the Far East, so that the Santos, Brazil to Qingdao, North China grain run, basis 60,000 mt, was assessed by S&P Global Platts at $35/mt by the end of Q2, $1/mt down from the end of Q1.
Despite this small dip, industry sources have remained positive on the situation, as the price fluctuations were minimal and didn’t affect the overall market, with thin tonnage from the East Coast of South America helping to maintain healthy levels.
“The Brazilians will have to sell their grains at some point, and the drivers will end their strikes eventually,” said one shipbroker, adding that “this only pushes loading to a later date, it does not cancel them.”
Due to this sustained confidence in the market, higher rates are expected by mid to end August for South American front-haul routes, as another basin will be releasing fresh grain stems at the same time.
Meanwhile, Black Sea grains are expected to enter the market slightly earlier than usual this year, competing with the delayed Brazilian cargoes.
As the two grain producing regions may flood the market at the same time, industry sources say they expect heated competition for tonnage, ensuring some support to the overall market until the end of Q3.