Could you inform us about the company and its operations?
The history of the company dates back to 1995 and it was set up to service shipping requirements of regional scrap and steel exporters. During the years of its existence the company had to diversify its services and nowadays while steel shipments play an important role in the business of our company we also provide handling of rolling stock, break bulk and project cargoes. These changes in our services partially reflected changes in the trade balance of CIS countries and partially was a result of changes in company structures of all major Russian steel manufacturers.
How do you define the link between logistics companies and steel business considering your company's services to steel business?
To be of an interest to a steel trader, the logistics company must provide an additional value to the trade through its expertise and its customized services. These are some of the factors which a vertically integrated steel manufacturer's logistics department often lack and thus often the deal goes to a smaller trading company who are quicker in exploiting trading opportunities offered by more thorough knowledge of the buyer's needs and changes in pricing and demand. A successful symbiosis of a trader / logistics expert can facilitate new trade deals and improve the profitability of existing trade connections. Both partners - the trader and the logistics company play a crucial role in concluding and executing a trade deal - the better is the professional experience of partners the better are the chances of closing and fulfilling a successful sale / delivery.
What can you tell our readers about current situation of freight rates considering the changing target markets in steel business?
The current world steel market has one characteristic that no one argues with and it's an oversupply. This forces steel manufacturers to continuously look for new markets and new buyers outside of their domestic markets. Very often these markets turn out to be "far away" from home and require complex logistics solutions including deep sea transportation. Despite the continuously sliding steel prices the same can also be said about the freight rates. For example just 2 years ago a 10,000 tons parcel of coils from China to North Spain was moving at around $30 per ton. At the end of last year same size parcel was shipped at a level of $18 per ton. This softening of freight costs can be applied for pretty much every deep sea trade route except for some exotic destinations where the drop in freight levels is not so drastic.
Which destinations come forward regarding activity for steel business under current market conditions?
Cheap freight rates may potentially open new trading routes and new trading opportunities to steel traders. Over the last year we had a number of unusual enquiries from traders to quote freight rates for steel billets from Russian Far East to destinations in Spain which are more commonly served by Russian exports through ports in Black Sea.
At the same time the current steel shipping pattern has hardly changed in the last 12 months indicating that the market has formed and that even recent introduction by EU of new antidumping tariffs aimed at curbing Chinese and Russian steel imports are unlikely to have any medium term effects. One must also take a note of the continuous slide in the value of Russian ruble which effectively makes Russian exports more attractive to Russian manufacturers who are battling with a softening domestic demand. Last year the cost of manufacturing a ton of hot rolled coil was estimated at $250 in Russia, $400 in Brazil and $450 in China. Despite the greater inland logistics costs for Russian steel the manufacturers are claiming to operate with around $25 per ton profit margins while allege for Chinese steel importers into EU to be selling their goods with a profit margin of only $5 per ton. Given the competitive advantages for Russian steel exports the main obstacle for its growth remain poor port infrastructure in Novorossiysk - the port that is responsible for almost 50 percent of Russian steel exports.
How do you evaluate the situation of freight markets on global base in the first quarter of 2016?
Cheap freights, the levels of which we have not seen since the mid 90's, are here to remain for at least the foreseeable future. There is an ample supply of tonnage worldwide and the only factor which may push the rates up is the cost of fuel which again, is not likely to increase in 2016. The use of panamax type of vessels for parceling of steel cargoes may produce, just like they did back in 2015, some abnormally cheap freights for long haul shipments but overall we expect the shipping rates to remain relatively static as it seems that there is hardly any more discounts or room for a reduction in freights that ship owners may be able to offer given current ships running costs. There is little doubt that the majority of ship owners operate at a breakeven or below the breakeven level and the recent bankruptcies and continuous lay ups of larger vessels is a good indication of same. Again, looking back at 1995, we recall seeing very similar daily hire levels for handysize ships as we are seeing today. This may indicate that we have finally reached the resistance level that the market may not wish or be not able to break as simply there is no room to give anymore.
Any last words to our readers?
So here we are in 2016 with cheap freights, overproduction and sliding prices for raw materials and finished goods. The consumer confidence in Western Europe seems to have somewhat recovered after the financial crisis but we are yet to see the benefits of it. Once again we need a shift in our paradigm as today many economists have started using the expression "normal abnormalities" - mainly referring to some economic laws not working today in a way that they are expected to e.g. quantitative easing did not result in inflation as it was initially predicted. So perhaps we also should look at the current market as the market that is here to stay for some time and consider it an "abnormal normality". Have a good trading day!
Andrey Duddell
Shipping Manager
TMBC Logistics Ltd, UK
Website www.tmbcl.ru