Slumping freight rates struggle to entice more containerized metal trade

The global trade for metals shipped in containers is being constrained by weak demand despite lower freight costs and higher availability of boxes compared with earlier in the year, sources have told Fastmarkets.

Shipping markets throughout 2021 were characterized by stronger demand causing an acute shortage of boxes, leading to a sharp rise in freight costs for metal market participants.

But the tide has changed dramatically in the second half of 2022, with global shipping giant Maersk noting last week that rising inflation has led to consumers spending less on “non-discretionary items such as furniture and home appliances.”

Container head haul and regional export volumes fell by 9.3% year on year in September, according to Container Trade Statistics, as quoted by key shipping industry body BIMCO. Volumes into North America fell by 20.6% year on year in the same month.

The benchmark Shanghai Containerized Freight Index (SCFI) fell to 1,443.29 points on Friday November 11, down by 135.92 points from a week earlier. The index, which has fallen consistently since the start of the year, was at 4,643.79 points in September 2021.

The SCFI is a key indicator based on the freight rate and volume of 12 container freight routes around the world, reflecting changes in global freight rates.

Effect on scrap metal markets
Empty containers are now piling up in port depots, according to various media reports, and although metal market participants are experiencing far greater ease in obtaining boxes, they are being prevented from taking full advantage of the situation by the low demand for metals.

“Last year, if buyers in Europe asked for non-ferrous scrap from the Middle East, there was no point discussing it, but now it is possible again,” a United Arab Emirates-based scrap exporter source told Fastmarkets on Tuesday.

Freight costs for a 20ft container of scrap from Dammam in Saudi Arabia to main EU ports have fallen to around $2,500-3,000 per box in recent weeks after having hit $8,000-10,000 per container last year, the exporter source said.

But in spite of the lower freight costs, the situation has not resulted in many more sales to the region because of poor demand for aluminium scrap in Europe, he added.

November shipment containers from Los Angeles and Long Beach in the US state of California to the Taiwanese port of Kaohsiung were quoted at $750 per 20ft container and $835 per 40ft container on Thursday. The price had risen above $1,000 per container earlier in the year, according to market sources. But Taiwanese steel scrap demand remains tepid amid weak local steel consumption.

“Steel order books everywhere are the worst I’ve seen in a very long time. It’s not easier with container rates coming down – it’s still not enough compared to bulk. In India, container rates are still much higher than bulk,” a US scrap exporter source said on Wednesday.

A second US exporter source said on the same day that dealing with containers was still a “mess” and less efficient than selling scrap in bulk.

A Taiwanese steel scrap trader said that his US scrap suppliers no longer have any problems in obtaining containers but inland transport costs in the US remain expensive.

A major Japanese scrap exporter said that the lower container freight costs have made steel scrap sales from Australia to Southeast Asia possible again, but low demand in Asia was limiting trade on the route.

Effect on ore markets
The lower freight costs have also reduced prices for ores, which are priced by the tonne and therefore transportation costs pay a larger role in overall costs.

Freight rates for South African miners of ore – such as manganese or chrome – exporting to China have fallen by around 46.49% over the second half of 2022 according to Fastmarkets’ assessments.

Freight rates for the Port Elizabeth, South Africa, to Tianjin, China, route were assessed at $29 per tonne on November 11, which is the lowest since January 2021.

Lower freight rates for South African ore producers selling on a CIF basis removes cost support from the market, according to sources.

And this also lowers the offer price point at which it is profitable for manganese ore sellers to truck material to ports. Trucking is used in addition to the volumes moved at lower cost by rail.

In this way, lower costs encourage manganese ore producers to increase the volumes they offer in the market even at a time that demand is weak and inventories are high, sources told Fastmarkets.

Fastmarkets’ manganese ore index 37% Mn, cif Tianjin was calculated at $3.98 per dry metric tonne unit (dmtu) on November 11, down by 1 cent from $3.99 per dmtu a week earlier. This is the lowest price for this material since December 2020.

Ore exports from South Africa are still recovering from October’s strike by logistics workers, as well as a derailment and berthing delays in Maputo, Mozambique, while road transportation is being hampered by poor weather.

Outlook for freight rates
There are mixed views on how container freight rates could develop over the coming months.

“The remaining congestion that helped to prop up the supply/demand balance should dissipate quickly. Liner operators will then be left with lower volumes than in 2019; a fleet that has grown 11.8% since then; an orderbook set to add 9.9% to the fleet in 2023; and poor prospects for the global economy,” Niels Rasmussen, chief shipping analyst at BIMCO, said.

Regulations to reduce the carbon intensity of large-volume shipping may reduce as much as 10% of the global fleet in 2023, but barring any major surprises, BIMCO expects to see “numerous laid-up ships or freight rates that continue to move quickly downwards, or both”, Rasmussen said.

“Some analysts are forecasting a hard landing for container shipping with rates continuing to slide in the coming weeks, potentially going below 2019 levels, before a rebound kicks in,” shipbrokers Banchero Costa said on November 8.

“During the period of high container rates and shortage of equipment, a good portion of cargo shifted back to break bulk shipments. But if the rates continue to crumble, I guess also we will see some of that cargo go back in containers again and that also the rates for conventional shipping will come under pressure,” Gina Swenters, executive director of shipowners Conti-lines Group, said at the EUROMETAL International Steel Trade Day in Antwerp last week.

Published by: Jon Stibbs, Lee Allen, Claire Patel-Campbell, Holly Chant