The Dry Bulk Weekly Review in Shipfix Data
In the past week, Shipfix’s forward-looking data set has highlighted, among other things, that exports of Ukrainian grains and Russian fertilisers have come under pressure in June amid rising tensions. In addition, low cargo order volumes for rice look set to contribute to elevated global food prices.
Russian Fertiliser Exports Under Pressure After the Spike in May
In the past few weeks, grain prices have been recovering from recent lows amid increasing uncertainty over the future of the Black Sea Grain Initiative. In addition to rising tensions in the wake of the recent dam destruction in eastern Ukraine and increasing military activities, Russia has signalled that it is unhappy with the deal and may terminate its participation or refuse a further extension. The Russian complaints over the agreement have been that the country’s exports of agricultural commodities and fertilisers, which are not covered by any sanctions, have not seen the expected positive effects from the country’s participation in the arrangement.
After trending lower throughout the early parts of the year, cargo order volumes for fertilisers loading in Russian ports surged by 43 per cent (MoM) in May to 4.8 million tonnes. Rising demand for seaborne transportation to Brazil, India, China and Southeast Asia was chiefly responsible for the month-on-month increase. Cargoes destined for Brazil and India alone accounted for 50 per cent of the total volumes. Hence, the forward-looking nature of the data suggests that there will be increasing volumes of Russian fertilisers discharged in those countries in the coming months. However, the current month has come off to a slow start, with order volumes for the first third of the month suggesting that the aggregate will fail to match what was recorded in May. The development may fuel further uncertainty over the prospects of the BSGI.
Low Demand for Seaborne Transportation of Rice Suggests Prices Will Remain Elevated
Front-month US rough rice futures have been trading close to the highest levels recorded for nearly fifteen years amid extensive volatility. Growing concerns over global supplies amid lower production following unfavourable weather conditions in rice-producing countries such as China and Pakistan have supported prices. The development has also led Fitch Solutions to suggest that the global rice market is on course to reach its most significant shortfall in two decades during the current year. In addition, India has moved to curb exports to safeguard domestic supplies, with a duty of 20 per cent on some overseas shipments imposed last year.
Global cargo order volumes for rice have come under pressure during the past year. Much of the decline is due to falling demand for seaborne transportation from India, as export curbs and duties have taken effect. Following the introduction of the measures to safeguard domestic supplies in September last year, monthly volumes for rice loading in Indian ports have declined significantly. Aggregate cargo orders fell to 647,500 tonnes in May from nearly 3.9 million tonnes during the same month in 2022.
While monthly global aggregate volumes trended higher during the year's first quarter amid a modest recovery in Indian exports, the past two months have seen a reversal of the positive momentum. The renewed pressure on demand for seaborne transportation from India has put volumes back on a downward trajectory. Hence, with the current month unlikely to buck the recent developments, the forward-looking nature of the cargo order data suggests that rice prices will remain elevated.
Rising Tensions Darken the Outlook for Ukrainian Grain Exports
Front-month wheat prices have gained more than fifteen per cent since the end of May, as traders are becoming increasingly concerned over the global supply situation. The recent destruction of a dam in eastern Ukraine and more military action have seen rising tensions that could lead to an end to the Black Sea Grain Initiative. The country could also see lower grain production as the flooding has badly affected large swathes of farmland. In addition, dry weather conditions across the US Midwest could reduce the size of the upcoming harvest, a development that has also contributed to the rising prices.
While weekly cargo order volumes for agricultural commodities loading in Ukraine recovered somewhat from recent lows over the past month, demand for seaborne transportation of grains remains well below what was recorded at the beginning of the year or during the third quarter of last year. The lingering uncertainty over the BSGI’s future and reports of problems with approvals appear to have tempered shippers' appetite for transportation. In the past few weeks, there has been a tendency towards rising demand for seaborne transportation of grains from Ukraine. However, the past week bucked the trend, with the aggregate being one of the lowest weekly readings for the year. A total order volume of around 750,000 tonnes represented a weekly drop of 37 per cent. The development suggests that the rising tensions and a missile attack on the port city of Odesa could lead to lower quantities being shipped through the safe corridor across the Black Sea.
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