How mass Covid-19 testing in China is slowing down logistics – a case study

Tianjin’s mass Covid-19 testing hammers commodity port ops, transport

The roll-out of mass Covid-19 testing in the major Chinese port city of Tianjin has created chaos for the area’s logistics, sources told Fastmarkets on Monday January 10.

Tianjin started city-wide mass Covid-19 testing on Sunday after local cases of the Omicron variant were detected in the area.

Testing the nearly 14 million citizens of the city led to delays and some suspended operations at the Port of Tianjin, which is the largest port in northern China and deals with a wide variety of commodity imports and exports.

The impact on metal markets from this dramatic development is still coming into focus, but market participants are keeping a close eye on whether more stringent Covid-19 measures may be implemented in the key port city over the coming weeks.

Container transport halted

From January 9, de-vanning and delivery for container cargoes at Port of Tianjin have both been suspended, sources said.

While bulk cargoes can still flow in and out of the port at the time of writing, bulk shipping has also been slowed down by inefficiencies caused by a lack of manpower and truck shortages, participants added.

All port staff are required to take a Covid-19 test, and the resumption of normal operations depends on testing results, which will take at least 48 hours, market participants told Fastmarkets.

“We have seen some impact on container trading, but no impact on bulk vessels right now. All transportation in land for containers from the port has stopped,” a Southern China-based steel importer said on Monday.

“But we still don’t know if the situation will get worse and we don’t know how long it will last,” he added.

Higher freight costs

The Port of Tianjin hosts the majority of the country’s chrome ore and manganese ore imports, with current stock levels for chrome and manganese ore estimated at around 1.55-1.72 million tonnes and 3.82-3.95 million tonnes respectively. These account for approximately 60% and 70% of total domestic chrome ore and manganese ore stock, according to market participants.

With concerns that the Covid-19 situation in the city could lead to extended restrictions on transport, ore users are eager to have their cargoes delivered.

But there has been a shortage of available trucks because drivers have to present a negative result from a nucleic acid Covid-19 test take within 48 hours, while many drivers have tried to avoid driving to Tianjin ahead of the approaching of the Lunar New Year beginning on January 31.

These two factors combined have pushed up transport costs.

For single route from the Port of Tianjin to Inner Mongolia, delivery costs have risen by around 20 yuan per tonne to 130-140 yuan ($20-22) per tonne, according to market participants. One supplier of fused alumina in Henan said that land transport costs have increased by 35-45 yuan per tonne in the past couple of days.

Suppliers of fused alumina and bauxite in Shanxi and Henan, as well as some areas of Shandong who ship out their material mostly via the Port of Tianjin to overseas countries, expressed concern for their export business.

“Costs to Tianjin port has increased and it’s getting more difficult to find drivers willing to ship cargoes to Tianjin.” a producer of fused alumina in Shandong said.

“The situation is unclear now. Everything has been on halt at the port for mass testing. People are waiting for the mass testing result in the following two days. Shipment could be affected if there were many positive infections,” a trader of bauxite in China said.

“Tianjin port is the major export port for magnesium. Given that nucleic acid testing is conducted throughout the city, trucks from other regions cannot enter the city. Trucks that are halfway to Tianjin have to wait with cargoes,” a magnesium trader said.

A second magnesium trader told Fastmarkets that all they could do is to wait for the testing results of Tianjin and the anti-epidemic measures thereafter, and then make their arrangements accordingly.

Some sources said magnesium that has already been stored at Tianjin Port warehouses could be sold at higher prices to overseas consumers who are in an urgent need of the materials.

Fastmarkets’ weekly price assessment for magnesium, 99.9% Mg min, fob China main ports was $8,300-8,500 per tonne Friday January 7, up by $200-300 per tonne (3.1%) from $8,000-8,300 per tonne a week earlier.

Outlook

Market participants agreed that the outlook was very unclear regarding the shipping situation out of Tianjin for the coming weeks and it will depend heavily on controlling the spread of Covid-19 in the city.

“It remained uncertain what the local government might do should more cases emerge. The worst case scenario would be a total lockdown, including logistics in general which will also impact port operations,” a Shanghai-based iron ore trader said.

“Currently, the impact on pricing from the Omicron variant emerging in Tianjin has dampened the earlier bullish sentiment in the iron ore market. [We] will probably have to keep a close eye on this to see if [the] provincial government will further increase restrictions,” a Xiamen-based analyst said.

“The impact will depend on if more new Covid-19 cases will be tested, and Tianjin is closer to Beijing, and with the approaching of 2022 Beijing Winter Olympic Games, more stricter measures are likely to be taken,” a northern China based copper scrap trader said.

(The 10th paragraph had erroneously stated chrome ore and manganese ore stock levels at the Port of Tianjin being 2.27-2.44 million tonnes and 5.11-5.27 million tonnes respectively when this report was first published. These were in fact stock levels for all major Chinese ports, and have been corrected to 1.55-1.72 million tonnes and 3.82-3.95 million tonnes respectively.)

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