Soaring freight costs disrupting metals, minerals trade

The combination of fewer vessels on the water, an imbalance in trade flows to and from China and competition between cargoes has kickstarted a rapid increase in shipping costs, making it harder for sellers to offer and for buyers to assess final prices.

One of the main routes affected by the disruption is the China to Europe sea route for container freight.

Sources told Fastmarkets that there have also been rapid increases in freight costs for destinations closer to China, such as India and Southeast Asia.

“We have seen a significant [increase] in freight rates from China to many seaborne markets. The latest freight to India was [quoted] at $2,000 per 20-foot [(6.1-meter)] container, while for the United States it was $4,000-5,000 per container,” a graphite producer said, adding that these prices were more than double previous costs.

Market participants, both in China and Europe, active in the bauxite, fused alumina and manganese flake markets painted a similar picture.

“Freight rates are changing on a weekly basis, and sometimes faster. Even carriers don’t know what to quote,” a bauxite trader in China said.

And in the ferrous scrap market, rising freight costs caused by a lack of containers have been pushing up scrap costs in Bangladesh.

At the heart of the disruption is a lack of shipping and the availability of container space at Chinese ports, which are leading to delays in shipments, longer lead times and soaring freight costs.

Since the start of the Covid-19 pandemic, ship owners have reduced the number of vessels deployed at sea, along with the frequency of sailings, in response to the global slowdown in trade flows and to reduce costs to counter losses from leaving ships idle.

While trade flows have improved since the end of the summer, once economies resumed operations after months of lockdowns, the previous vessel capacity has not yet been restored, leading to ship shortages.

This situation has been exacerbated in the past few weeks by a differing pace between fast-increasing Chinese exports and a comparatively slower rate of imports.

China’s exports grew 11.4% in October, marking their quickest monthly increase in more than a year, with the country’s economy continuing to recover from the pandemic-induced weakness. In comparison, imports into China are growing at a slower rate – less than 5% in October.

This is creating is a imbalance in the distribution of containers, with many more container ships leaving China than are returning. As a result, over the past two-three weeks the availability of empty containers at Chinese ports has tightened, sending costs and lead times soaring.

A bauxite trader in China said: “For our shipments, the freight rates seem to change about three times in the same day. And even when the container is all set for shipping, there could be the risk of container being rolled over because of the heavy weight. We have never seen such a crazy shipping market.”

Since the start of the week, Fastmarkets’ sources have had freight costs quoted to them by carriers at between $1,600 per 20 ft container to almost $2,000 per container, for the China to Europe (main northern ports) route. This, sources said, was an increase of close to 100% compared with the second-quarter rates. Some carrier estimates were more than $2,000 per container.

An importer of white fused alumina (WFA) based in Europe told Fastmarkets its freight cost from China to Rotterdam had gone from $800-900 per container (which equates to $42-43 per tonne for a 20-tonne load) in April, to $1,800 this week (or $90 per tonne) – that is a hike of 112%. A Chinese seller of the same commodity was quoted $1,950 per container ($97.5/tonne).

“Freight is horrid [at the moment]. We were offered $1,570 [per container] for end December release on Monday and now the same supplier is offering $1,660 today. It’s mad,” one manganese flake trader said.

Heavy cargo issues and bulk shipments
Adding to the uncertainties for minerals and metals sellers is the competition between types of cargoes, which can lead ship operators to favor lighter products over heavy minerals or metals.

“It’s something that happens all the time when you have high demand for ships – your cargo, because it’s heavy, goes down in the priority queue,” one mineral trader said.

Another distributor added: “The ship operator will prefer to load a container full of TVs than one full of heavy raw materials. We have to deal with that too, which causes further delays.”

In some instances, sellers have opted to ship their material in bulk carriers which, according to sources, have not experienced the same degree of disruption as container ships.

One trader said its bulk rate was fixed until Chinese New Year (the year of the Ox starts on February 12, 2021), so that gives them some clarity on short-term costs.

Another importer of refractory raw materials said: “Luckily, I have loaded a bulk vessel and it will be here in December. Containers are impossible, it is not even just a question of price. We have severe problems in supplies of everything for the rest of November and the first three weeks of December.”

Moving over to bulk vessels is, however, not an option viable to everyone. Small Handysize carriers – among the smallest dry bulk ships available – take 15,000-20,000 tonnes, which means the seller must have sufficient volumes to spread the cost.

“The problem is that you need a minimum of 8,000-10,000 tonnes just to fill a single hold. Not everyone has that,” the importer said.

Cristina Belda in London and Sybil Pan in Shanghai contributed to this article.