Rising freight stings US bulk scrap exporters
Pittsburgh, 29 November – Bulk freight rates for ferrous scrap exports from the US east coast and Gulf coast have surged in November, putting additional pressure on already narrow exporter margins. Hindered by slow inbound flows and fierce competition with domestic mills, exporters are grappling with the rising costs of shipping.
The congestion at the Panama Canal caused by low water conditions has reverberated across dry-bulk markets, further exacerbating the strained period of vessel availability. To navigate through the challenges, some dry bulk ship operators are forced to opt for longer routes, including the strait of Magellan, the Cape of Good Hope, or the Suez Canal, due to the delays and elevated costs of transiting through the Panama Canal.
The longer transit times have compounded the problem by intensifying the competition for dry bulkers preferred by scrap exporters. Ship demand has risen from grain shippers following a bumper US corn harvest, while vessel congestion in Brazil has added to the scarcity of available ships.
As a result, dry bulk shipowners along the US east coast and in the US Gulf coast have quickly raised rates in the latter half of November. Supramax rates for bulk scrap cargoes from New York to Turkey have surged to a minimum of $40 per tonne this week, marking a 15% increase from mid-November’s $34-35 per tonne. Market participants anticipate further rate hikes in the near future, with some expecting fixtures in the mid-$40 per tonne range shortly.
These elevated freight costs, coupled with already thin margins, present a new challenge for exporters. They must now attempt to pass on these additional costs to end-users in the global seaborne market.
The fourth quarter has proven to be a difficult period for US bulk exporters. In October, they sold into a rapidly declining Turkish ferrous scrap market, only to face the repercussions of collecting against those lower-priced sales as seaborne pricing to Turkey unexpectedly recovered in November. Meanwhile, the US domestic market experienced a rapid strengthening with the resurgence in hot-rolled coil (HRC) prices. This put further pressure on exporters, who found themselves competing with domestic scrap consumers.
Consequently, exporter margins were squeezed, causing the spread between collection prices for average #1 HMS scrap and average east coast fob bulk HMS 1/2 80:20 prices to drop to $51 per tonne in late October, a four-month low.
So far, exporters have managed to mitigate prolonged damage to margins by carefully managing increases in dockside collection prices along the east and Gulf coasts, as well as reducing the number of bulk sales. This has led to a slight recovery in the spread between collection and fob export prices, which currently stands at $69 per tonne, $2 per tonne above the average level of the past year.
However, as strained intake volumes face further seasonal declines and competition with US domestic mills shows no signs of easing, US bulk exporters will likely face more tests in their efforts to maintain margins throughout the rest of the year.
In conclusion, US bulk scrap exporters are grappling with the rising freight rates, which are placing additional strain on their already narrow margins. Congestion at the Panama Canal, longer transit times, increased ship demand from other sectors, and vessel congestion in Brazil have all contributed to the freight rate surge. Exporters are now attempting to pass on these costs to end-users while grappling with a challenging market environment. The resilience of exporter margins will continue to be tested as intake volumes decrease and competition with domestic mills persists.
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