Home Commodities Impact on commodities due to chaos in the Red Sea -January 29,...

Impact on commodities due to chaos in the Red Sea -January 29, 2024 at 11:54 am EST

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Jan 29 (Reuters) – Attacks on shipping vessels by
Iranian-backed Houthi rebels in the crucial Red Sea shipping
lane have disrupted shipping in the Suez Canal, the fastest sea
route between Asia and Europe.

Data from S&P Global showed the Suez Canal route accounts
for 14.8% of all Europe and Middle East and North Africa (MENA)
imports. In response, some shipping companies have instructed
vessels to instead sail around southern Africa, a slower and
therefore more expensive route.

According to shipping data provider AXSMarine, the number of
tankers in the Suez canal fell over 50% in the week starting
Jan. 15 compared to the previous week.

Early indications suggest ocean freight shipping rates are
set to increase further in early February amid the ongoing
crisis, according to data released by freight platform Xeneta.

It further showed that rates from the Far East to North
Europe are set to rise by 8% by Feb. 2, with a market average of
$5,106 per Forty foot equivalent unit (FEU), which is an
increase of 235% since mid-December.

Below are likely impacts on different commodities:

OIL AND GAS

Energy markets remain the most vulnerable to the ongoing
attacks as almost 12% of the total oil trade via sea goes
through the Red Sea, sending oil prices above $80 per barrel.

As much as 8.2 million barrels per day (bpd) of crude oil
and oil products traversed the Red Sea in the January-November
period of 2023, according to analytics firm Vortexa.

“Heightened geopolitical risk, including the recent shipping
disruptions, will maintain the oil price premium,” Fitch Ratings
said in a note.

“However, without material disruptions to actual oil
production, or a wider escalation of attacks to more vital oil
transport routes in the region, we do not expect a strong upside
to our $80/bbl Brent price assumption for 2024.”

Oil majors BP and Shell paused all transits
through the Red Sea while Norwegian oil and gas firm Equinor
had rerouted vessels that had been heading towards the
Red Sea.

Around 16.2 million metric tons (MMt), or 51% of LNG trade,
flowed from the Atlantic Basin east through the Suez Canal last
year, while 15.7 MMt went through the canal from the Pacific
Basin west, according to S&P Global Commodity Insights.

Qatar, one of the world’s biggest liquefied natural gas
(LNG) exporters, hasn’t shipped any LNG cargoes to Europe via
the Red Sea since Jan. 14 and at least five Qatar cargoes
heading to Europe are currently taking the long-way route
through the Cape of Good Hope, as per LSEG data.

Asia’s naphtha markets gained further after a naphtha tanker
owned by Trafigura was hit by attacks in the Red Sea over the
weekend, adding to supply disruption fears in the region,
traders said. The crack jumped by about $16 to $118.63 per
metric ton over Brent crude, after rising about 19% last week on
Russian supply disruption worries.

AGRICULTURE

Grain cargoes are also being diverted due to the conflict.

Wheat shipments via the Suez Canal fell by almost 40% in the
first half of January to 0.5 million metric tons due to attack,
the World Trade Organization said on social media platform X.

Robusta coffee futures on the ICE exchange have
risen 9% so far this year and hit their highest price in at
least 16 years last week as traders in top producer Vietnam
scramble for supplies amid an escalating crisis in the Red Sea.

Attacks on commercial vessels in the Red Sea have delayed
robusta shipments to Europe from not only Vietnam, but also key
suppliers like Indonesia and India.

MINOR METALS

China and other Asian countries are critical minor metals
exporters to Western countries.

Antimony prices have hit their highest since September 2022
as European and U.S. buyers grapple with delayed Asian shipments
of the metal used in batteries and semiconductors owing to
disruptions on the Red Sea route.

Traders noted further escalation could disrupt supplies of
other minor metals, such as bismuth , manganese elect
99.7 and ferrochrome , from
Asia to Western countries.

SUNFLOWER OIL

India’s sunflower oil imports are set to decline in coming
months as a rally in prices, driven by a surge in freight rates,
is prompting buyers to shift to rival vegetable oils available
at a discount, traders told Reuters.

India, the world’s biggest sunflower oil buyer, procures
most of its imports from the Black Sea region via the Red Sea.

DRY BULK

Australian mining giant BHP Group said that the
disruptions are forcing some of its freight service providers to
take alternative routes, but noted that majority of it shipments
do not go through this route.

Some 320 million tons of bulk commodities sail through the
Suez Canal and through the Red Sea, accounting for 7% of global
dry bulk trade, Gerard Ang, BHP’s head of maritime iron ore,
said at an industry conference.
Source: Company statements, Reuters articles, Research notes
(Reporting by Ashitha Shivaprasad and Brijesh Patel in
Bengaluru)

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