The surge in oil prices on Monday, March 9, due to the escalation of the war in the Middle East, has triggered strong volatility in freight rates, thereby impacting the steel and raw material markets. Long transit routes and MENA destinations have been impacted the most.
After the significant increase already seen last week, freight rates surged again on March 9, while some logistic companies have stopped quoting prices. “Freight has become a big issue now. I am hearing lots of the shipping lines have either asked for cancellations or are increasing by $20-30/mt for various destinations. This is not only for the Middle East, the conflict zone, it is everywhere, worldwide,” a market source said. Freight for steel products in large lots of 50,000 mt from China to Turkey is estimated by different sources polled by SteelOrbis in a range from $50-55/mt to $60/mt, which is up from $40-45/mt seen last week and pre-war rates of $35-37/mt. Moreover, some Chinese trading companies have stopped offering to Turkey, claiming that none of the shipowners are able to offer freight.
“Freight will cause a problem unless things calm down. Many cancellations [for imported steel products] might happen as well,” a trader in Turkey said.
In the Turkish scrap segment, freight volatility is also high. While last week the freight rates for standard scrap vessels from the US East Coast to Turkey increased to $41-42/mt, they are now estimated by some sources to be already at $50/mt. Moreover, sources have told SteelOrbis that market participants were failing to book vessels to Turkey, independent of the rising freight rates.
Even freight rates in markets far from the war zone have been going up. “We got a $10/mt increase in freight for Southeast Asian directions [compared to normal rates]. So, I would have expected Turkey to have increased a lot more actually,” a Chinese trader said. At least two Singapore-based sources said that today’s increase was $3-5/mt in in the Southeast Asian steel market.
As for the major raw materials markets, like iron ore, prices have posted an increase today, fully driven by freight, sources said. Fines with 62 percent Fe content have added $1.8/mt today to $106/mt CFR.
International benchmark Brent crude prices surged by over 12 percent on Monday to $105 per barrel, with prices over $100 last seen in 2022 after Russia invaded Ukraine. This happened after announcements over the weekend and today of production cuts in Kuwait, the UAE, Iraq and Saudi Arabia. These major oil suppliers have faced significant disruptions in shipments through the Strait of Hormuz, while their storage felicities are full, preventing them from keeping oil production at normal levels. Brent crude briefly touched $119 per barrel earlier today, but eased later after talk that the G7 countries will release petroleum from reserves, coordinated by the International Energy Agency (IEA).