On July 17, Russia terminated its participation in the grain deal signed in July 2022 under the guarantee of Turkey to allow export of Ukrainian grain from Black Sea ports. Just after Russia’s announcement, Russian military forces started actively bombing the main grain export hubs of Ukraine, Odesa and Mykolaiv, resulting in the destruction of several lots of grain, equipment at storage facilities and civil infrastructure. In response to these actions by the Russian Federation, the Ministry of Defenсe of Ukraine officially said that, starting from July 21, all ships heading to/from Russian or Ukrainian ports, occupied by Russia at the moment, will be treated “as carrying military cargo with all the relevant risks.” This is expected to increase significantly risks for the vessels shipping steel and raw materials from the major Russian ports of Novorossiysk (in the Black Sea) and Rostov and Taganrog (in the Azov Sea). In these conditions, vessel owners have already started to voice higher rates for August shipment for steel and raw material sellers and more consequences may be seen by the principal buyer of Russian steel, namely, Turkey, SteelOrbis has learned from the market.
In particular, players in the Turkish steel billet market have been trying to evaluate possible developments connected to the issue, given that the ports of Novorossyisk, Rostov and Taganrog are mainly used for shipments. Most sources are quite sure freight rates will increase shortly since the vessel owners will have to carry much larger risks. According to suppliers, the latest freight rates for 3,000-5,000 mt of billet from Rostov to Turkey’s northern shores are at $22-26/mt and in some cases up to $30/mt. However, as of today, some freight forwarders are already asking for $30-33/mt. “Vessel owners are telling us that the [freight] rates will increase starting from August,” a source told SteelOrbis. As for shipments from Novorossyisk, the latest freights are at $22-23/mt for 5,000 mt lots, and at $18-19/mt and up to $20-22/mt in some cases for 10,000 mt lots, sources say.
Along with the freight rates, insurance may become a more challenging issue. “Some insurance companies may refuse to insure vessels. Some P&I Clubs of vessels may not allow them to go to Russia for loading operations due to this,” a trader commented. Others believe that certain cargoes may sail without insurance. “If you buy on CIF basis, all the headache is for the seller, but CFR means the buyer will arrange insurance and then you need to present an insurance certificate to customs during custom clearance,” a trader said.
It is worth mentioning that some market players are considering the possible effects of the issue on their operations, but they do not yet think there will be a dramatic impact. “It is not that easy as actually the war risk was already applied to insurance rates and freights. I personally don’t think there will be big issues but some vessels will certainly sink,” one billet supplier to Turkey said.
In the ex-Russia raw materials market, rising risks for shipments from the Black Sea have also been discussed. Over the past two weeks, the freight rates for large vessels with 30,000 mt of basic pig iron from the Black Sea to Italy have fallen to as low at $25-30/mt from $40/mt two weeks back and from $50/mt a month ago. To Turkey, the freight for medium lots has been reported at $20/mt or even lower for large lots, while it was up to $30/mt two weeks ago. “This is something serious [Russia stepped out from the grain deal], and I expect freight will start to rise from next week already. We saw the lowest rates over the past weeks. They will be gone,” a source involved in BPI trading said. There has been information in the market that a cargo of ex-Donbass BPI, shipments of which are usually from Novorossiysk, has been traded at $330/mt FOB and it supposed to go to Turkey. This information could not be confirmed by the time of publication and there have been uncertainties regarding what the CFR price level will be and how the risks connected with insurance will be overcome. “As usual, it may be that that the trader will be stuck with the material,” a market source commented.