Soaring freight rates force Brazil soybean sellers to lower offers

16 Jul 2019 | Andy Allan

Declining supply of iron ore from Australia and rampant Chinese steel production has seen demand for freight from Brazil to China rise again over the past week, market sources said Tuesday, a dynamic that is forcing soybean sellers to offer more aggressively in the marketplace.

Offers for soybeans for August shipment out of Paranagua fell from 95 c/bu on Friday to 85 c/bu over August futures on Tuesday at time of press.

With August futures falling 23 c/bu over the same period, soybeans loading out of Paranagua next month have fallen a chunky $12/mt on a flat price basis to $359/mt.

“The fact that freight prices rose and demand is not so aggressive means that though sellers are reluctant to let go of their beans, buyers are not in a position to offer better prices," Steve Cachia, an analyst with Brazil brokerage Cerealpar told Agricensus.

Freight from Santos to North China has risen $7/mt to almost $40/mt in August in just two weeks, a rise of more than 20%, several sources said Tuesday, quoting $39.50/mt and $39.75/mt on the route.

The dynamic is being driven by a huge year-on-year jump in steel production in China that has dovetailed with shrinking supply from Australia – the number one iron ore exporter ahead of Brazil.

Rio Tinto – the world’s largest iron ore exporting company – shipped 156 million mt of ore from Western Australia in the first half of the year, down 8% on the year and the lowest volume since 2017.

Meanwhile, China’s national bureau of statistics reported this week that steel production was up 10% in the past six months, despite a slowing economy.

With iron ore, grains and soybeans all being shipped in the same type of vessels, a shortage of capesize vessels (150,000 mt) has led to iron ore sellers sourcing panamax size vessels instead.

In turn, that has forced freight rates up on the popular East Coast South America to North China route and forced wheat sellers in the Black Sea to source vessels from as far as the Arabian Gulf.

“There is a huge increase in freight rates in the whole Atlantic. For some supramax/ultra grain trades to Far East routes rates have increased by $9-10/mt in the last month,” said one freight broker who declined to be named.

“The market is super-hot in the Atlantic and that's true. After Vale alleviated some issues they had with their tailings dams, iron ore exports from Brazil increased considerably,” said a second source in the freight market.

Yet while the soybean market is feeling the pinch, offers out of Brazil have largely been unchanged at around 30 c/bu over September and December futures for shipment in the next three months.

“Brazilian books are well-covered until September, so I think there shouldn’t be a reason for premiums to come off hard in Brazil,” said one market source in Brazil.

The Baltic Dry Index, which tracks the cost of shipping bulk commodities across a variety of vessels and routes, hit 2,011 points Tuesday, up 83 points on the day to reach the highest level since January 2014.