Metallurgical companies increasingly rely on informal agreements to overcome freight crisis | LME week 2021

By Davide Ghilotti

A global logistics crisis lingered throughout the summer and into the fall of 2021, evidenced by a continuing shortage of ships and containers, as well as port congestion around the world.

Quarantines linked to Covid-19 in Asia further increased freight costs in the second half of 2021, while natural disasters such as Typhoon Chanthu caused further delays. Shipping giant Maersk said in late September that bottlenecks in global ports were unlikely to ease this year.

Fastmarkets reached out to metals market players ahead of LME week, to understand the challenges they face and how they are dealing with them.

Increased delays
Shipping issues are causing two sets of problems: delays in loading times and delivery schedules, and low inventory levels in destination markets, sources said.

Long shipping times are a big concern for sellers and buyers. A refractory minerals trader said new shipments of materials from China were “stopped”.

A source that imports bauxite and alumina noted that “ports in China are now 4 to 5 weeks late for loading, and there is now a three week delay for unloading at Rotterdam. [The] the total delivery time has been reduced to four months to the warehouse. “

The shipping crisis came at a time of rapid recovery in demand for certain commodities, adding further pressure on the inventory side.

The supply chains of many commodity consuming markets have sharply destocked in 2020 at the height of the Covid-19 pandemic and entered this year with historically low inventory levels.

But as demand increased in 2021, sellers of many commodities struggled to replenish their stocks.

“I tried to purchase additional quantities to increase the load on my warehouse and serve orders quickly. But the cargo ends up being sold while it is still on the ship. By the time it arrives in Rotterdam, everything is taken, ”said a refractory minerals trader.

A Singapore-based steel scrap trader said he saw three-month delays between North America and Vietnam for containerized steel scrap.

“It’s hard to do anything to speed up shipping lines and unless you’re a top customer anything you say will be negligible. Traders cannot get long term deals because we change the routes depending on where we can do business, ”he added.

Overcome the obstacles
Some market players who have succeeded in this climate have used informal or unorthodox methods to overcome the obstacles that have emerged from the freight crisis.

A group of scrap metal traders – usually fierce competitors in the market – succeeded by banding together to make reservations on containers.

“We can reserve 120 to 180 boxes between us and get a better rate while as an individual trader I can only reserve 30 boxes,” said an Indian ferrous and non-ferrous scrap trader.

“When you make a group booking, you can go to the shipping company the first week of the month, [make your order] and negotiate lower prices. The container line is happy with it too, so everyone is a happy camper, ”he said.

A chalk seller source told Fastmarkets he was able to use his personal contacts at the shipping company – to make sure he was at the front of the line when arranging the space containers.

A large buyer of iodine, which is affected by the logistics crisis as well as metals, told Fastmarkets it uses its own logistics to make deliveries without relying on third parties.

And a United States-based antimony buyer said it is rearranging delivery ports based on availability. “We are using all the space we can get,” he added.

Some market players who are not dependent on ocean freight also had an advantage this year.

A lithium-producing source in Russia told Fastmarkets the company was not affected by the freight crisis because it could primarily use the railways for its shipments and was not beholden to ocean shipments.

Container rail freight is increasingly receiving orders in Russia. From January to September 2021, container volumes increased by 31% compared to the same period before the 2019 pandemic, according to state-owned railway company RZD.

In many other cases, participants had no choice but to pay higher rates to the shipping lines.

The rates for shipping a 20-foot container from China to the United States can be as high as $ 20,000 and up to $ 8,000 from China to Europe, buyers and sources told Fastmarkets. of sellers.

“If you want to ship, you have to pay,” said the source of the antimony buyer.

Ultimately, the increased shipping costs were passed on to consumers in the form of higher prices, several market players conclude.

Fastmarkets’ price estimate for steel scrap, HMS 1 & 2 (80:20), containerized, import, cfr Bangladesh was $ 492-500 per tonne on September 30. At an average rate of $ 3,000 per container from the UK to Bangladesh, freight made up 23% of the price, up from 21% a year earlier.

Rising shipping prices are also contributing to higher inflation in major Western economies. Although the prices of metals and minerals are not included in these estimates, the costs of energy and transportation are.

The Bank of England (BOE) recorded a UK inflation rate of 3.2% in August, while inflation in the Eurozone hit a 13-year high of 3.4% in September.

BOE Governor Andrew Bailey noted that “supply bottlenecks have arisen which have increased global shipping costs.”
European Central Bank Vice President Luis de Guindos said on Monday (October 4) that the supply disruptions had caused inflation to rise in the euro area.

London Metals Week remains a key milestone in the commodities calendar. Find out why it’s still a big draw to the global commodities trading community and check out our special LME 2021 week coverage on key commodities such as nickel, lead, tin and lithium.

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