Gulf Cooperation Council (GCC) region prices for recycled fiber-based containerboard (RCCM) were mostly stable to down in June, according to data reported for Fastmarkets’ PIX indices published on Tuesday July 1. The indices covering locally produced brown testliner and fluting dipped.
Fastmarkets calculated its PIX Testliner GCC index down by $2.76 per tonne, or 0.58%, to close at $475.20 per tonne. The PIX Fluting GCC index fell by $3.14 per tonne, or 0.69%, to $451.83 per tonne.
Demand in Saudi Arabia up in June
Market participants in Saudi Arabia said that, compared with May, containerboard demand had improved slightly during June. They noted this was due to the start of the hot summer period and preparations for the upcoming date season.
“We have started the preparation for date season and the consumption of water has increased [due to the hot weather], with water bottling companies starting to order more [corrugated] boxes,” a buyer from Saudi Arabia told Fastmarkets. “This is the main market driver in Saudi Arabia,” the buyer added.
However, in the United Arab Emirates (UAE) sources said that demand was flattish to slightly down month on month. They also said there was a distinct lack of enthusiasm and positivity due to the summer vacations.
“Locally, [demand] is not that great – a bit lower due to summer vacations in the UAE,” a UAE-based source told Fastmarkets. “In the last week of June, people will start leaving the country and I can already see the impact [that will have]. There is slowness in the market.”
But one source from the region told Fastmarkets there had been no sign of the usual, seasonal uptick in demand. This is despite the onset of summer and date harvesting preparations in the GCC region.
“We still do not see the strong uptick in demand associated with seasonality,” the source said. “The heat [in June] is not as strong and I find it this year to be milder. But from July onwards temperatures will definitely increase.”
Recovered paper (RCP) prices continued to be stable in Saudi Arabia, sources there told Fastmarkets.
However, in the UAE, both producers and buyers reported mixed movements in local RCP prices. In June, some observed increases and others declines. The reasons behind fluctuations remained unclear, sources said. However, one containerboard buyer told Fastmarkets that the rising import costs, driven up by limited supplies, could be pushing up prices.
International freight rates fall in June
In terms of international freight rates, Drewry’s World Container Index has been declining for the last couple of weeks. This decline follows a price surge in May and early June.
It dropped by about 15% from June 5 to $2,983 per 40-foot container on June 26. However, the index remained about 19% higher compared to that on May 29.
As for inland shipments in Saudi Arabia, transportation costs continue to be stable. The transportation quotations only reflect the increased fuel prices announced at the beginning of the year by the government. However, market participants told Fastmarkets there had been some problems with the availability of trucks after the Hajj and Eid Al-Adha holidays in early June.
“Since last week, after the Hajj holidays, we have noticed some shortages of trucks, especially for routes around the GCC and Jordan. But there has not been any impact on truck prices yet,” a producer source told Fastmarkets.
Impact of Israel-Iran conflict
The escalating geopolitical situation in the Middle East has been a major concern for market participants in the GCC region since Israel’s attack on nuclear and military facilities in Iran on June 13, as reported by the BBC. And Iran’s retaliation shortly after has led to fears of broader regional instability, especially after Iranian lawmakers voted in favor of closing the Strait of Hormuz on June 22 – although no official closure had been implemented by the time of publication.
The Strait of Hormuz is one of the world’s most important shipping routes, with about 20% of global oil and gas shipments taking this route through the GCC region, according to multiple media reports.
The closure of the strait would have direct consequences for the global economy by disrupting international trade and increasing the cost of oil and freight rates.
Any blockade of the strait would, therefore, hurt the GCC countries, whose economies are heavily dependent on energy exports.
“Our main port in Dammam is not working well due to the clashes in the [Persian] Gulf. When we ask [customers] to deliver orders to Dammam port [in Saudi Arabia], they refuse and want to deliver to Jeddah port [on the Red Sea] instead,” a buyer source from Saudi Arabia told Fastmarkets.
“Many shipping lines have [told] us that insurance for shipping will increase by around 25%,” the buyer source added.
And a UAE market participant said: “Obviously, there will be an impact, which will not be seen now but rather in the July-September period. But it will directly hit oil prices and affect shipping routes.
“We are waiting and hoping [the conflict will] stop,” the market participant added.
After 12 days of conflict, a ceasefire was announced on June 24, but market participants in the region remain wary.
“I cannot be 100% sure [about the ceasefire]; at any point in time, things could go wrong,” a producer source said.
Local RCCM remain most competitive
Discussing the competition in the GCC region during June, sources told Fastmarkets that the main competition was among regional market participants. But, the source said there were still some offers in Saudi Arabia from mills in Vietnam, Indonesia and Malaysia.
In the UAE, meanwhile, there were also the usual offers from mills in India.
European suppliers have had a minimal presence in the GCC market recently.
But many GCC-based containerboard buyers do not consider offers from outside the region to be competitive. This is because they only match regional prices.
“If there is only a $5-10 [per tonne] difference, there is no reason for importing and keeping it in stock,” one buyer said.
UAE summer holidays gearing up
Looking ahead, buyers and producers in the UAE are expecting the slowdown in containerboard demand to continue from June during the summer period, with the schools closed and many people travelling outside of the country.
“Due to many people leaving the UAE for summer holidays, the demand will be on the lower side,” one source said.
Meanwhile, in Saudi Arabia, sources were more positive and looking forward to seeing an increase in demand due to the date harvesting season and increased beverage production.
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