Liquidity in the Atlantic Supramax market has been low in the first three working weeks of January, with key loading areas such as the US Gulf Coast, UK-Continent and Mediterranean marked by a dearth of fresh stems and surplus tonnage.
Despite this, a number of owners have sought requirements that would take them to the US Gulf Coast, or opted to ballast there from as far afield as the Black Sea. According to shipping sources, though loading opportunities have of late also been scarce in the US Gulf, shipowners cling to the idea that it can be the most rewarding loading area, even at times when trade is sluggish across the Atlantic Basin.
“[Fourth-quarter 2014] did not end on a promising note [for shipowners] in the US Gulf, so one wonders why people expect it to get better in Q1 2015,” a source with an owner said. “But there seems to be a belief within each owner that he will strike gold in the USGC, like in a gold rush, when everyone else around fails to do so.”
The current tonnage overhang in the USGC, coupled with weak demand, has led rates on key routes out of the area to steadily decline from the start of the year. For example, the rate for carrying a 50,000 mt grain stem from New Orleans to Kashima, Japan, dropped from $34.50/mt on January 5 to $30/mt on Thursday. Similarly, the freight rate on the Houston to Aliaga, Turkey, petroleum coke route has fallen from $16/mt to $13.50/mt during the same period.
Another source with an owner said that although a fair amount of spot ships are present in the USGC — which need to clear out before rates can find support — rates can recover swiftly.
“Precedent shows that tonnage in the USGC can tighten quickly once these extra ships are ticked off,” he said.
A case in point was late November, which witnessed a substantial — albeit brief — rise in front-haul demand for grain in the USGC. Combined with tightening supply, this lead Supramax rates on the USGC-to-Far East grain route to climb from $16,500/d in mid-November to $19,000/d by the end of the month.
Also, once the USGC does find a balance between inquiry and supply of ships, “it tends to offer the highest rates,” a shipbroker said. “The returns are rewarding, especially for front-haul, and pay back your costs if you’ve ballasted there.”
In addition, cheap bunkers have encouraged more owners to ballast to the USGC, even from the Black Sea and Eastern Mediterranean, rather than wait out for cargoes, he said.
Furthermore, the US Department of Agriculture’s summer 2014 announcement that it expected a record grain harvest in the US meant owners still hoped there was “something big brewing behind the ports,” another broker said.
“People hope there’ll be one last, big seasonal wave of grain cargoes in the USGC before focus turns to South America,” he said.
According to sources, East Coast South America should start seeing considerable grain stems emerging in March as the grain export season begins there. Until then, some owners will seek requirements that will keep them in the Atlantic, carrying out, for example, inter-Gulf of Mexico runs, or enter deals to carry cargo to West Africa, from where they will be able to reposition to ECSA.
LOW TURKISH APPETITE FOR SCRAP, PETCOKE ADDS TO USGC TONNAGE
Meanwhile, shipbrokers suggest that some owners have also been drawn to the USGC because of weak Turkish appetite lately for scrap metal. Moreover, Turkey’s lack of buying interest for scrap may have resulted in low Turkish appetite for petcoke out of the USGC.
“We have seen very few petcoke inquiries in Houston this month, and they’re either for China, India or the Western Mediterranean, nothing for Turkey,” a shipbroker said.
“[Petcoke and scrap] are both raw materials for Turkish steel,” another broker said. “I won’t be surprised to see Turkish demand for petcoke to pick up the moment they start ordering scrap again.”
Though shipping sources said in October they expected UK-Continent to act as a steady provider of scrap metal cargoes to the Eastern Mediterranean into the new year, this did not turn out to be the case. Turkish demand for scrap metal has been very low since December, depriving Supramax owners of what could have been a stable source of employment, sources said.
“We thought [UK-Continent] would be the one reliable loading area in Q4, but the Turks have not been buying scrap and tonnage has built up in UK-Continent, too,” a shipbroker said. “For a while in October and November there was enough scrap coming out of UK-Continent to keep it from gathering too many ships.” As a result, while owners positioned in the Western Mediterranean would consider ballasting to UK-Continent in search of cargoes, this now is rarely the case. Owners from both the UK-Continent and Mediterranean opt to ballast to the USGC instead.
According to steel industry sources, Turkey has been holding back from buying scrap in the past two months partly because of lower demand for Turkish steel, as well as in an effort to see lower scrap prices. Consequently, the rate for carrying a 45,000 mt scrap metal stem from Rotterdam, Netherlands, to Aliaga, Turkey, has declined from $16.50/mt on December 1 to $13/mt on Thursday.
Looking ahead, sources believe USGC rates will stay soft while a situation of “one stem for five shipowners” persists, as has been the case recently, a broker said. An uptick in front-haul grain demand may be seen right before the mid-February Chinese New Year celebrations, but beyond that, owners hope USGC rates have finally hit a floor as “then they will just drag on at a stable level before the market balances out and freights recover, ” a broker said.