Ocean freight rates slowly coming down off peaks
While ocean
freight rates are still strong, shippers are reportedly negotiating more reasonable numbers than they were a few months ago, and market experts expect the market to slow down in the first and second quarters of next year. Current shipping activity is still robust, as the normal end-of-the-year shipping frenzy has begun. The rumored VAT rebate reduction on long products is spurring increased cargoes coming out of
China, with shippers struggling to get shipments out before December 14. More VAT rebate reduction is in the works (possibly from 8% to 0%), though no official announcement regarding the new VAT rebate reduction has been made.
However, shipping activity should start to slow in the next couple months. Overall, break bulk activity is expected to go down as we approach the winter months, and this reduction in volume should soften prices further (Steel trade makes up a large portion of break bulk activity). However, this price depreciation is more of a market adjustment to the previously exorbitantly high prices than it is indicative of a steep decline in shipping activity. There is every reason to believe that like 2006, 2007 will be another strong year for steel imports.
On the whole, steel shipping rates have come down by approximately $3 /mt since last month.
Rates for: (Minimum 15k tons of
rebar,
wire rod, hot rolled - big tonnage)
(Handymax)
Baltic to US East Coast: $47 /mt to $52 /mt
Baltic to US Gulf Coast: $42 /mt to $47 /mt
Black Sea and Mediterranean Sea to US East Coast: $45 /mt to $50 /mt
Black Sea and Mediterranean Sea to US Gulf Coast: $42 /mt to $47 /mt
East Asia to US Gulf Coast: $68 /mt to $73 /mt
East Asia to US West Coast: $60 /mt to $65 /mt
Ports: The worst is over
Major steel ports in the US are still busy, but the incredible congestion witnessed earlier in the year is now over. The ports are now taking a breather and catching up with business, as more space is available and business is no longer operating at 110 percent capacity. In general, the ports are still busy with ships coming in from third quarter business, and there are still some storage issues at major steel ports like Houston and Philadelphia. However, tightness at the ports has let up significantly, and it should continue to ease for the remainder of the year as import shipments slow.
A main problem at major steel ports in the last few months has been shipments that have not been picked up at the ports, most likely because distributors' inventories are so high. This is still occurring but is not as large of a problem now, as there are less new vessels coming into the ports.
Barge market – Lower rates anticipated for Q1
Right now in the barge market there is plenty of availability as there is a lack of activity in bookings. Spot market rates are less than contract rates for the first time this year. Barge rates for 2007 are currently being negotiated, though customers are not too certain yet where these numbers will be next year. Larger carriers are trying to maintain higher levels and the smaller carriers are more aggressive. Experts don't expect a very strong first quarter in the barge market, so on the whole, rates should be down in Q1. We will also see further softening in barge rates as a result of the decrease in the fuel surcharge. As we mentioned last month, this should have a significant impact on the overall price, as Q4 fuel surcharges are as high as 40 percent for some carriers.
Rail – UP ups steel transportation rates
Major rail carrier Union Pacific announced to customers recently that as a result of a $2.9B capital investment in 2006 and further
investments in 2007, the company will adjust transportation rates upward in order to maintain and expand infrastructure. As of January 1, rates for finished and
scrap steel will be adjusted upwards by approximately 8 to 10 percent.
The major rail companies will lower their fuel surcharge for rail cars from 15.5 percent in November to 13 percent in December. The surcharge will remain at 13 percent in January as well.
Trucking – New security measure could ramp up costs
As part of a number of new measures being taken at US ports in order to tighten up security, a new program will now require all truck drivers to show identification at the ports. As many truck drivers are illegal aliens, steel traders are worried that this could exacerbate the current shortage of truck drivers which could eventually result in higher trucking costs. The law is expected to be enforced as of next year.
The fuel surcharge for trucks is back up again, at 16.5 percent, compared to 15.5 percent the previous month. This is the result of a slight up-tick in the price of diesel, now at $2.62 /barrel.