S&P Global Commodity Insights editors are watching developments in the Red Sea, including the impact on shipping routes and freight rates. OPEC production is also in focus as supply from non-OPEC producers rise. Meanwhile, steelmakers in Europe are slowly resuming production in response to prices.
1. Red Sea attacks bolster European container freight rates in the near term
What’s happening? In just two months, Platts Container Rates witnessed a 425% increase in westbound Asia-Europe cargo as diversions from two major global shipping routes bolstered European container freight rates to highs not seen since the coronavirus pandemic. Houthi attacks in the Red Sea prompted most container liners to divert shipments away from the Suez Canal and go around the Cape of Good Hope instead. Passage through the Panama Canal is also restricted due to low water levels.
What’s next? If issues persist in the key shipping routes, container shipping into Europe and the US will continue to see increased voyage transit times, additional fuel costs and larger overheads. Market sources expect container rates will soften after the Lunar New Year but with political tensions still high, they do not expect the drop to be significant.
2. Food & Beverage Price Index inches up in December amid shipping concerns
What’s happening? S&P Global Commodity Insights’ Food & Beverage Price Index increased by 0.4% month on month in December to 114 points, the highest point since July 2022 of 115.8. While abnormal weather continues to be a concern, the focus has shifted to the knock-on impact on shipping, with water levels at the Panama Canal remaining abnormally low. Meanwhile, security issues are leading some ships to avoid the Red Sea and Suez Canal, resulting in longer and more expensive journeys.
What’s next? While a political or military solution is possible for the situation in the Red Sea, the Panama Canal is likely to remain problematic for several months — until the rainy season starts up again. Extreme weather conditions linked to El Nino are likely to persist until at least Q2, meaning that Southern Hemisphere crops are likely to be impacted during harvesting.
3. OPEC battles economic uncertainty, growing non-OPEC supply
What’s happening? OPEC crude production has fallen amid economic uncertainties and as the group battles with growing non-OPEC supply. Output remained below pre-pandemic levels in 2023, according to the latest Platts survey by S&P Global. On Nov. 30 some OPEC+ countries agreed a total of 2.2 million b/d of voluntary cuts in Q1 2024. Platts assessed Dated Brent at $80.60/b at the close on Nov. 30 after the meeting, down 2.04% on the day. Platts assessed Dated Brent at $79.55/b on Jan. 15
What’s next? OPEC+ plans to continue its production cut policy into Q1 2024. It could amend quotas either by calling an extraordinary ministerial meeting, or individual countries adjusting their voluntary cuts. Compliance is likely to be a key factor, with some producers struggling to meet their commitments in recent months. Most recently Angola decided to leave OPEC, after a disagreement over its quota. This will affect the group’s 2024 overall crude production volumes and global market share.
4. European steelmakers restart blast furnaces
What’s happening? Steelmakers across Europe have either already restarted or are planning to restart blast furnaces idled in 2023, when demand was low. Mills resumed production as steel coil prices started to rise in December 2023 and uptrend continued in January, although there has not been any substantial recovery in real demand. The lack of import alternatives caused by both the effects of safeguard measures and high freight costs for the well-known Suez channel supported the domestic prices. Platts assessed domestic prices for hot-rolled coil at Eur735/mt ex-works Ruhr on Jan.15, up by Eur135/mt from the Q4 minimum on Oct. 25. Europe produced 22.2 million mt of crude steel January-November 2023, down 6.3% from the year-ago period, according to a World Steel Association report issued in December 2023.
What’s next? S&P Global estimated that around 10.7 million mt/year of crude steel produced by temporary idled BFs will come back on stream by the end of Q1. The Northwest European mills have pushed offers to Eur800/mt ex-works Ruhr and the prices are expected to increase, but not to the mills’ target level as real demand would not allow it. Insufficient competitive import offers are unlikely to counteract the impact of rising domestic capacities, threatening the price recovery
5. China’s UCOME drops 42% to 17-month low amid EU scrutiny, policy uncertainty
What’s happening? Prices of Chinese used cooking oil methyl ester have plummeted to 17-month lows after being hit by a triple whammy of EU scrutiny, sluggish winter demand and uncertainties in China’s biodiesel policy. Platts assessed UCOME FOB China at $955/mt Jan.15, down 42.12% from its peak of $1,650/mt on Aug. 15, 2022, S&P Global data showed. Ongoing EU investigations into biodiesel fraud and anti-dumping issues have spooked buyers, slashing European market demand. UCOME solidification issues have dampened winter demand. Meanwhile, China’s efforts to boost domestic demand through biodiesel projects lack concrete financial incentives, leaving buyers hesitant to enter the market.
What’s next? With China losing Europe, one of its major export markets, Chinese UCOME producers are actively seeking alternative. This strategic shift has led them to focus on Singapore’s bio-bunker market. The surge in freight rates and increase in risk premiums are also fueling concerns for biodiesel producers.
Reporting and analysis from Mohammed Al-Ansare, Peter Storey, Rosemary Griffin, Maria Tanatar, Annalisa Villa, Chau Kit Boey
