After last week’s attack by the Houthis on a ship carrying Chinese steel, the market has been preparing for the consequences. However, so far most market sources do not see any major impact in terms of trade flow disruptions from Asia to the Middle East or Europe, and only some small increases in freight rates are seen, but not everywhere.
On March 6, the attack was carried out on the ship named True Confidence which was transporting over 40,000 mt of steel from Tianjin, China, to Jeddah, Saudi Arabia. The ship was damaged and was expected to sink, like the previous vessel hit by a missile a few weeks earlier. This was the first time an attack by the Houthis resulted in fatalities, causing the deaths of three ship crew members.
Although risks for ships going through Red Sea are still high, the impact on trade flows has been limited. “We heard about this, but shipments to the Middle East are continuing as previously, only freight rates are up,” a large Chinese trader said, adding that he had witnessed only a $3-5/mt increase in freight rates depending on the destination and cargo. Also, a source from Saudi Arabia said that prices for freight have increased, “but to Dammam I think there is no problem. Vessels are approaching easily.”
One large flat steel producer from China commented that, with the current slow demand in the local market, exports are very important, and, though he said that the market under pressure is Asia, he said he thought that supply to the Middle East will remain stable.
The risks of the Red Sea situation impacting trade beyond the Suez Canal, particularly in the EU, are also limited. Particularly, in some segments, like HRC, some European buyers may naturally seek to replace some import volumes with material of nearby origins, like Turkey or Egypt, or may insist on discounts from Asia as compensation. In the long product segment, Asian suppliers have been mainly inactive for a couple of months now, given the competition with Turkey and North Africa and the weaker market in the EU itself. However, in the segments like steel slab, where supply is basically limited to only Asia and Russia, negotiations are continuing with European buyers, although discounts are preferred due to the downturn in the HRC segment.