Rates softened to $40.10 per tonne from $40.90 per tonne for the Brazil-Northeast Asia route, while USG rates were flatter at $55.10 per tonne from $55.50 per tonne for the US Gulf-Northeast Asia route.

Many shipbrokers noted that demand for shipping was slowing, putting downward pressure on rates.

“In the South Atlantic, a scarcity of fresh enquiry prevailed, putting pressure on rates, while in the North there was an improvement in cargo availability,” Allied shipbrokers noted in a report on Monday.

Some of the softening is also likely to be a seasonal effect.

For example, in the South Atlantic, record Brazilian exports have begun to tail off.

ANEC projected that in November Brazil would export 5.1 million tonnes of soybeans and 8.3 million tonnes of corn.

While both are still record numbers for the month, they are still a decrease from the 5.5 million tonnes and 8.5 million tonnes that were exported in October.

However, there remains some potential for freight rates to move higher.

Impact of restrictions on the Panama Canal

One obvious factor is the renewed restrictions on the Panama Canal.

There has been no improvement on the Lake Gatun reservoir, which remains at a level of about 80.5 feet after a prolonged drought in Central America, where rainfall has been down 41%.

Vessel limits of 24 per day took effect from November 8, down a third from normal levels, and will be cut further to 18 by February.

The extended period of restrictions could act to support rates as vessels are forced to seek alternative routes.

“We don’t see many ships choosing Suez with regards to bulk carriers so far,” one source said, “but if the situation gets worse with fewer shipments through the canal we should see more charterers choosing Suez and [it] will affect positively rates.”

Another source suggested there was already increased tightness in the North Atlantic as a result.

Droughts have played havoc with logistics globally, with continued concern about low water levels in northern Brazil driving exports south along already crammed export routes.

Logistics in Brazil were not helped by a fire at the Parangua port which knocked one berth out for a week, but Berth 201 is now heard to have resumed operations from the 5th.

One bright spot for logistics has been a recovery in the level of the Mississippi, which should ease the problems barges face from low water levels.

Intermodal shipbrokers noted that US-China soybean trade was one factor that could help to support rates.

US soybean exports have remained strong, with inspections up 2% on the week to 2.09 million tonnes in the most recent release, with 74% headed to China.

Soybean buying in China also sharply picked up this week, with nine to 20 cargoes of US soybeans booked from Monday to Wednesday, with shipment expected between November and March.

In the Black Sea, rates at the Danube ports have seen a significant decrease of about $10 per short tonne to $31 per short tonne.

Increased government inspections have led to fewer cargoes being loaded.

As a result, there are more open vessels seeking cargoes, which has put pressure on the freight rates.

At the Russian ports, prices were relatively stable week-on-week.

Prices from Ukrainian ports had started to fall by Wednesday afternoon.

However, a reported Russian attack on a Ukrainian vessel at port in the Black Sea late on Wednesday has caused significant concern in the market and this has left the situation uncertain.

Freight rates for vessels transporting palm oil to India and China from Southeast Asia have firmed slightly this week although in limited tonnages.

The rate on 18,000-20,000 tonne vessels from Southeast Asia to West Coast India and Pakistan increased by $1-2 per tonne to $45 per tonne on Wednesday, November 3 from a week ago while rates for 10,000-12,000 tonne vessels to East Coast India were flat at $37 per tonne.

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Rates rose on the week to $39.80 per tonne from $38.50 per tonne for the Brazil-Northeast Asia route and $53 per tonne for the US Gulf-Northeast Asia route from $50.50 per tonne.

South America

The biggest factor supporting rates was still strong demand for shipping in South America due to strong exports from Brazil.

“The rise in Panamax rates can be attributed to a combination of factors, including a notable influx of grain cargoes from ECSA”, Intermodal shipbrokers noted in their weekly report, while Banchero Costa said that “the tonnage list for the first half of September was shortening remarkably.”

Corn exports from Brazil have continued to grow, with customs data showing that last week’s average exports per working day increased again to 373,204 per tonne, with 5.2 million per tonne exported in August so far.

With ANEC expecting 9.4 million tonnes of corn exports in August, corn shipments should continue to provide a supporting factor for rates.

Rates have also been boosted by ongoing problems at the Panama Canal.

Prolonged dry weather in Central America has cut water levels on the Canal, meaning fewer ships can transit.

Delays have lengthened, with waiting times now heard to exceed 20 days on the canal, and around 80 bulk carriers heard to be waiting to pass.

On the other hand, a weakening Chinese economy could weigh on freight rates in the months to come.

The economic picture has become increasingly gloomy, with the Central Bank unexpectedly slashing interest rates last week amid a weakening property market, falling confidence, and rising unemployment.

One broker told Fastmarkets Agriculture that pressure on rates was already evident for coal shipments from Indonesia to China, and effects would likely spread in coming months.

Seaborne iron ore prices, a key indicator, have so far not followed coal, but have fluctuated in recent months between bearish economic data and bullish expectations of government stimulus.

A sustained weakening of the economy, especially the property sector, would weigh on shipments of these key commodities and thus on rates.

Find out more about corn market trends by visiting our dedicated page for corn prices.

Black Sea region

In the Black Sea region freight rates were slightly up, with handy-size vessels on the Romania to Spain route indicated $1 per tonne higher at $18 per tonne, while indications for the same cargoes loaded into Egypt were assessed at $16 per tonne.

Meanwhile, indications for Russian cargoes into Egypt were $16-21 per tonne, corresponding to levels seen in recent Egypt state buyer tender.

In the coaster-size market, the levels in the Danube have stabilized, with freight indications for 5,000-6,000 tonne vessels to Egypt said to be at $57-58 per tonne, while same-sized cargoes were discussed at up to $65 per tonne into Spain.

Russian coaster market rates were seen higher week on week amid continued delays at the Kerch strait, adding another $1-3 per tonne per week to the current $50-52 per tonne trade ideas heard for the Marmara route.

South East Asia

Freight rates for vessels carrying palm oil to India and China from Southeast Asia were stable this week as export demand remained healthy on restocking from destination buyers.

Freight for 18,000-20,000 tonnes vessels from Southeast Asia to West Coast India stayed at $46 per tonne from a week earlier, while rates for 10,000-12,000 tonnes vessels to East Coast India were unchanged at $38 per tonne.

Freight rates to China were unchanged at $38-48 per tonne for 12,000-15,000 tonne vessels compared with a week earlier, as restocking kept sentiment firm and freight rates unchanged.

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Rates rose on the week to $35.10 per tonne from $33.90 per tonne for the Brazil-Northeast Asia route and to $46.20 per tonne for the US Gulf-Northeast Asia route from $45.10 per tonne.

What is driving demand

Demand was partly stimulated by lower expectations for US soybean production, as the USDA unexpectedly reported planted area 5% down on the year, with market participants now expecting Wasde estimates to also be cut.

Another factor was a reported improvement in crush margins in China, fuelling greater interest in importing beans after several months in which lower downstream demand in China had weighed on margins.

Seaborne iron ore prices also strengthened as Chinese authorities signalled further support for the country’s property market, a key source of downstream demand for imported iron ore.

Brazilian soybean exports have strengthened, with ANEC data showing 3.6 million tonnes was shipped in the first week of July at an average pace of 720,811 tonnes per working day, up from the previous week’s 660,522 tonnes.

Stronger exports from South America may help to reduce excess shipping in the Atlantic, relieving pressure on rates.

In the US, crop conditions have improved after rain but remain worse than the previous year.

The latest USDA report assessed that 51% of the soybean crop was in good to excellent condition compared to 62% at the same time last year, while 55% of corn was in that condition compared to 64% rated good-to-excellent last year.

Global freight rates

If fewer crops are exported from the US to China than usual, this may begin to have an impact on US rates.

The Black Sea market in Ukraine was thin, as since June 26 Russian inspection teams refused to inspect new inbound vessels.

Negotiations were continuing ahead of the deadline of July 17 for the Black Sea grain initiative, but it remained unclear if a renewal could be agreed upon.

Indications for handy-sized vessels from Romanian ports to Spain were heard at around $16 per tonne and at up to $18-19 per tonne into ARAG ports.

Meanwhile, in Russia, indications were broadly stable for the Egypt route, with handy vessels indicated at 16 per tonne, while for Panamaxes loading into the Persian Gulf, trade sources put indications at around $31-32 per tonne and at around $35 per tonne for Iran.

Azov rates declined somewhat through the week to $30-31 per tonne, and around $35 per tonne on the offer side.

Freight rates for vessels carrying palm oil to India and China from Southeast Asia firmed because of destination buyers replenishing inventories, leading to healthy interest in August shipments.

View our palm oil price trends data charts

Freight for 18,000-20,000 per tonne vessels from Southeast Asia to West Coast India rose to $47-49 from $46-48 per tonne a week ago, while rates for 10,000-12,000 tonnes vessels to East Coast India also held firm at $39-41 per tonne.

Freight rates to China were also up by $1 per tonne at $39-47 per tonne for 12,000-15,000 tonnes vessels, with shipbrokers citing limited vessel spaces for the second half of July.

The post Freight rates rebound on stronger Chinese soybean demand appeared first on Fastmarkets.

Freight for 18,000-20,000 tonnes vessels from Southeast Asia to West Coast India was holding steady at $40-42 per tonne, unchanged from a week ago, while freight rates to East Coast India for 10,000-12,000 tonnes shipments were around $34-36 per tonne.

“There have been a number of inquiries for vessels to India for the second half of June, but availability of full ships is tight now as there was a glut of end-May cargoes and prompt space was taken up,” a regional shipbroker told Fastmarkets Agriculture.

“Those vessels are still on the way to India and are unable to make it back for the second half of June,” the shipbroker added.

Buying interest from India for June and July-September volumes has picked up more in the last few weeks, with palm’s discount against other rival soft oils widening compared to the spread seen in March-April.

Chinese freight rates

Meanwhile, freight to China rose on the back of increased inquiries for June shipments, with rates for 12,000-15,000 tonnes shipments from Southeast Asia to China at $35-45 per tonne, higher from $32-42 per tonne a week ago.

Similar to India, buying interest for June cargoes from the second largest palm oil importer has also picked up in recent weeks, with approximately 14-15 cargoes heard traded in the last two weeks for June shipment.

“We’re still looking for vessels at the moment for June; the challenge is because there are also fewer vessels available which meet China’s strict requirements for shipping olein,” one trader with dealings to China said.

For vessels carrying edible oil into China, the ship’s last three cargoes are also required to be of edible grade to reduce any risk of contamination.

This is on top of additional specifications and standards imposed by the Inspection and Quarantine authority (CIQ) for edible oil imports into the country.

Buying has also been more active for June shipments following earlier expectations that Indonesia will lower its reference price and effectively its export taxes for CPO for the June 1-15 period from the previous $169 per tonne to $118 per tonne, with taxes for other palm oil products also lowered, thereby making Indonesian products cheaper.

The official circular denoting the change was issued on May 30.

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The draft of Ukraine’s Bystre canal has been increased by 2.5 meters to 6.5 meters from the start through to kilometer 77 and to seven meters from kilometer 77 through to kilometer 166, where the canal meets the Kiliysky estuary, an official note from the Ukrainian Infrastructure Ministry said Friday, February 17.

“We managed to increase the permissible draft of ships for the first time during the time of independent Ukraine,”

The changes could allow part of the cargo fleet to go directly to the Black Sea through the Bystre canal on the Ukrainian side and relieve pressure on the Sulina canal, which is controlled by Romanian authorities.

Prior to the change, the low draft did not allow the passage of fully loaded cargoes, only the return of empty vessels, according to the trade sources – creating bottlenecks and delays for laden vessels trying to carry grains for export.

Also, it is expected that vessels with up to 10,000 tonnes of deadweights will now be able to pass the canal. Still, in the case of such an option, the vessel would likely be only partly loaded to around 6,000-7,000 tonnes, according to Pavel Sosnovsky, head of independent freight analysis agency ISM.

This would be considered a normal volume for cargoes like meal, corn, and soybeans, which usually require undercharge amid higher stowage factor, while wheat amounts shipped now might be limited to lower amounts.

A deeper draft will also allow sea vessels to use the canal alongside river vessels, thus increasing the potential fleet available.

However, as the canal flows through Ukrainian territory, insurance companies may refuse to provide cover to such shipments, so part of that fleet will likely stay in the Sulina canal.

This channel was used prior to the war as an entrance to the port of Reni – a small port that has taken on much greater significance since the Russian invasion began, as it is now one of the few ports that are able to manage seaborne exports without the use of the Istanbul checks that have caused major delays for exports from Pivdennyi, Odesa and Chornomorsk.

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Initially, after the agreement to extend the corridor deal was confirmed on November 17, sources reported still relatively high freight prices, but as the delays cleared, price levels started to soften.

That comes as the grain market trade remained slow. A catalog of issues continues to cloud outlooks and complicate trade, including the fact that many buyers are thought to be fully covered for nearby loading dates.

Freight rate levels for a panamax cargo of corn to China have now dropped to around $52-57 per tonne, down from a high of $80 per tonne circulated by traders just after the corridor was re-confirmed.

The shipping rate for a 50,000 tonnes cargo from Ukraine to Spain was said to be possible to fix at $30 per tonne compared to ideas heard at around $48-50 per tonne in late November.

But as the slow inspection pace at Istanbul continues to cause delays, traders have been forced to factor in additional costs for possible delays and demurrage, as only the first seven to ten days’ waits are usually included in freight costs.

Currently, delays are approaching up to three weeks for inbound vessels – ships arriving at Istanbul en route to Ukraine’s ports – with some reporting even longer delays.

Delays for outbound vessels laden with Ukrainian product are said to extend for another week.

“You still have to build in demurrage risk that inbound vessels could wait 20-40 days,” a trader said.

Trade sources also said that inspections were still slow for several reasons, mainly as a result of bad storms in the region, but there were also allegations that Russian authorities could move more quickly to complete inspections.

Under the JCC corridor agreement, joint inspections are undertaken by a team of Russian, Ukrainian and Turkish inspectors – with sources suggesting that the Russian side has not increased the number of teams available to undertake the inspections.

For now, there are around 70 inbound vessels that are still waiting for inspection.

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Ocean shipping also is to “see a collapse.” These crashes follow downfalls for ocean shipping in May of this year, and for trucking in March of this year.

Fuller updated ICC attendees on navigating the trucking and shipping crisis in a panel discussion with Central National Gottesman VP for logistics Simon Preisler and KeyBanc Capital Markets managing director for equity research analyst Adam Josephson.

The three talked about how freight rates have fallen in recent months, coming off a year-plus of rate hikes that pushed up prices to dramatic levels.

Freight rates had skyrocketed, while the movement of material had slowed – from problems at the ports, such as a lack of equipment and workers, to vessels sailing empty in efforts to get back to China quicker.

“The worst is yet to come”, Fuller said.

Catastrophic collapse

“We’re looking at a catastrophic collapse in movement,” Fuller comments:

In May, when ocean shipping sunk, Fuller said there was a 90-day lag to ship from China ports to the New York/New Jersey ports, in what is a typical several-weeks trip.

Fuller even went as far to say that, “We’ve reached peak global trading over the past 12 months.”

Preisler disagreed. He shared a story of his years with mega shipping company Maersk, and how in 1998 he and others were tasked with envisioning the largest shipping container they could imagine. The 13,000 twenty-foot equivalent unit (TEU) was created.

Fast-forward 24 years, and the world’s largest container vessel set sail this year. The “Ever A lot” is a 24,000 TEU capacity ship that first took to the waters in 2022.

“It’s hard to predict how big global trade will be,” Preisler said. “We’ve seen a medium-term peak in freight volumes.”

Freight rates coming down

For transatlantic routes, rates are expected to come down in the next five months, Preisler said.

Preisler provided an example of a lane from Asia to the US that was $14,000-$16,000 per container in September 2021 that one year later is $1,500.

“That’s how quickly it has gone down from September of last year to today,” Preisler said. “The decline in rates on the Pacific is still going to happen. In the transatlantic, rates will come down in four to five months. It’ll come down very, very quick.”

Fuller encouraged attendees to renegotiate ocean rates, sooner rather than later.

“If you haven’t started to renegotiate your freight rates, do it now,” Fuller said at the start of the session.

On the trucking front, Fuller said a request for proposal (RFP) is a must. He cited one large company that recently had a 40% reduction in freight rates after an RFP.

“If you haven’t done an RFP,” Fuller said, “you should be looking into it.”

Trucking woes are expected through the first half of next year. Fuller said in a conversation with a major software company that the first quarter in 2023 “…will be the worst first quarter since the Great Depression.”

“Because if you don’t have to move product, you’re not going to,” Fuller said. “We have a dramatic slowdown of volume during peak season, and excess capacity.”

Clogged warehouses

Warehouses across the US remain “clogged.” Goods purchased and transported at elevated costs are stacked across the country. And they will remain there, too.

The outlook is to keep these goods in storage until they sell, the speakers said. Companies with high-quality goods claim they will not discount the goods. About 75% of containerized freight is consumer goods, Fuller said.

“They bought and transported that product at very high costs,” Fuller said.

As goods sit in warehouses, rates will continue to fall, except for trade to Europe, where ocean rates out of the New York/New Jersey ports remain high.

“The market has really started to break and rates are decreasing rapidly in that trade (to Brazil),” Preisler said in response to a question about freight rates from North America to South America. “The biggest slump we’ll see is in Europe.”

Preisler continued, “Consumer demand is going to collapse. That will surely result in very dramatic decreases. As a general note, the export rates out of the US are one-tenth of what the import rates are.”

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Fastmarkets’ price assessment for graphite flake 94% C, -100 mesh, fob China, has increased by 38.33% since last November to $830 per tonne on Thursday March 24, the highest in the three-and-a-half years since Fastmarkets began to assess it.

The corresponding price assessment for graphite flake 94% C, -100 mesh, cif Europe, has moved up by 18.79% since last November to $885 per tonne on March 24, also the highest in three-and-a-half years.

“Producers were just coming out of their winter shutdowns and the Chinese holiday [for the lunar new year], and then faced an onslaught of orders that I don’t think they expected would be quite so large – and now [there is] the return of the [Covid-19] virus. All these [factors] combined to overwhelm some of the mines and cause the price increase,” a distributor source said.

“The insecurity [in global trade] caused by [Russia’s] invasion of Ukraine cannot be understated in its effect on this market, as well as many others,” the same source added.

Seasonal factors, anti-pollution efforts

In principle, the traditional winter stoppages in China might not cause supply concerns, given that downstream buyers would restock before the seasonal halt and suppliers sell their inventory during the winter season.

But limitations on power supplies and environmental checks during the second half of last year led to dwindling inventory and less buying appetite among downstream buyers, especially in the refractories sector, according to a second source.

Meanwhile, the widening use of flake fines in anode material over the past two years has sparked increasing concerns about a supply shortage.

“Yield rates of spherical graphite with flake fines from Luobei county could be higher than those from Jixi county,” a third source told Fastmarkets. “So operational stoppages in Luobei matter a lot to the spherical market.”

Spherical graphite is produced using flake fines as feedstock. Flake fines produced in Luobei county are of higher grades and easier to purify further when making spherical graphite, according to industry sources.

Operations in Luobei were halted last December due to the cold weather and environmental regulations, with an uncertain restart schedule.

The best scenario would be that some operations in Luobei would restart in the next month, although the chances of a total recovery could be low due to the absence of environmental qualifications, according to the second source.

“The market might be still affected by shortages given that the operational restarts might not add to the flake supply, since local flake graphite producers tend to save it for their [own] spherical graphite production,” the same source added.

Fastmarkets’ price assessment for graphite spherical 99.95% C, 15 microns, fob China, was $3,500-3,800 on March 24, up by 26.47% from last November.

Logistics

Tight supply and extremely high freight costs from China have led some consumers to switch to African sources of material.

While the global logistical problems that drove up prices in 2021 have eased recently for market participants in Europe, primarily buying from China, there have also been logistical problems on routes from Africa to Europe, according to some market participants.

“There are lots of issues developing in exports from Africa, which has become our biggest supplier,” a Europe-based consumer said. “Lead times have really jumped. It has become a real challenge to ship material [because of] delays – and shippers have been skipping ports.”

Logistical restrictions continued to limit the volumes of exports from several sources.

“Issues of container availability continue to plague the industry when it comes to moving material out of the major graphite-generating countries,” a graphite-sector source said.

Syrah Resources, which operates the Balama project in Mozambique, reported rising demand and sales prices over the fourth quarter of 2021. But its flake graphite output was 13,000 tonnes, down by 48% quarter on quarter, because of the limited availability of containers.

Ukraine war adds to pressure

There have been direct as well as indirect implications for the graphite industry arising from the war in Ukraine.

Production by Zavalievsky Graphite (ZG) in Ukraine has been halted since the Russian invasion on February 24, Volt Resources reported on March 17. Volt bought a 70% controlling interest in ZG in 2021.

Volt had planned to restore production at Zavalievsky to its nameplate capacity of 30,000 tonnes per year in 2022, Volt managing director Trevor Matthews told Fastmarkets last year.

Zavalievsky would like to restart activity from mid-April, a company representative told Fastmarkets, but this will depend on the situation in the country.

Other market participants in Europe reported that import volumes from Russian graphite producers, such as Ural Graphite, would probably fall.

“Because it has a good customer base in Russia, there would only be a problem for Ural Graphite if demand for its material within Russia falls, or its exports are halted,” a consumer in Europe said. “There will certainly be an effect, which will mean less material offered into an industry with increasing demand.”

The presence of Ural Graphite is limited in some parts of Europe, however, according to the same source.

“The effect [of the Russia-Ukraine war] on output might be around 20,000-30,000 tonnes. There could be a demand shift from Russia/Ukraine to Africa, with consumers reluctant to buy from related regions,” the second source told Fastmarkets.

Covid-19 outbreak

Furthermore, industry participants expressed concern about China’s current Covid-19 outbreak, which might interrupt operations and land transport.

Earlier this month, Laixi county in Qingdao city had a resurgence in the number of Covid-19 cases, affecting spherical graphite operations and land transport in the region.

While local Covid-19-related controls were easing with falling case numbers in Laixi county, the resurgence of Covid-19 in Liaoning province was adding to the interruptions to land transport for the graphite trade, given that Yingkou and Dalian, both in Liaoning, are major export outlets for graphite from Heilongjiang province, according to sources.

“Operations in Yingkou have been suspended… for about ten days so far. It’s difficult to ship any material out at the moment,” another graphite sector source said.

China reported 1,301 new locally transmitted Covid-19 cases on March 24, according to the country’s National Health Commission.

Demand amid availability issues

Concern about limited availability of material has had its own effect on demand, with consumers seeking to secure material, according to sources.

“Supply-side issues have caused a ripple effect outside of China, with people scrambling to fill their supply pipelines,” another source said.

Meanwhile, while the international markets gradually recover from the effects of Covid-19, demand for flake graphite was also increasing, another source said, especially in the new energy sector.

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Cobalt sulfate sellers in China succeeded in concluding business at higher levels this week on the back of downstream demand. Sentiment strengthened further on rising production costs driven by rising upstream raw materials costs.

“Downstream buyers booked large volumes of cobalt sulfate ahead of China’s Lunar New Year, and restocking continues this week as some buyers are fearing further increases, considering higher production costs,” a producer told Fastmarkets.

“Some small-sized producers have basically no availability for cobalt sulfate, and other bigger producers insist on higher prices above 110,000 yuan per tonne,” a buyer said. “I heard there are even offers at 115,000 yuan per tonne for cobalt sulfate, but I currently haven’t heard real deals at such a high level.”

Some market participants were still cautious, opting to keep a watchful attitude on the market. But others said they think the short-term market will keep strengthening, given that the upstream cobalt hydroxide tension has not yet fully released.

Raw materials supply tight, shipment delays not significantly eased

Cobalt hydroxide, which is mined and produced in the Democratic Republic of Congo (DRC) and often transported to and shipped out of South Africa, has continued to face slow land delivery, container supply issues and delayed shipments, all of which have tightened the raw material supply.

Fastmarkets’ cobalt hydroxide payable indicator, min 30% Co, cif China was at 88-90% against the standard-grade cobalt metal price (low end) on Wednesday February 16, unchanged since December 8, 2021. It lingered around this high level throughout most of 2021.

The continuous rally in the benchmark metal price has also affected China’s cobalt sulfate market, prompting sellers to keep increasing offers.

Fastmarkets’ price assessment for cobalt standard grade, in-whs Rotterdam was $34.75-35.10 per lb on Wednesday February 17, up by $0.05 per lb from $34.70-35.10 per lb a day earlier. The price has also risen to its highest level since August 2018, when prices stood at similar levels at $34.75-36.00 per Ib.

Under normal conditions, land delivery by truck from DRC to the Durban port in South Africa usually took less than 20 days, market sources told Fastmarkets. But now deliveries are taking 30 days or more. A scarcity of containers and delayed shipments have made the whole process even longer, they said.

“I don’t think the logistics issues from South Africa to China will ease in the first quarter or even the first half of 2022,” a cobalt hydroxide supplier said.

Moreover, some suppliers who were previously able to use general cargo through some shipping companies to deliver cobalt hydroxide have met with declarations problems when entering China during the Lunar New Year period. Some cargoes were being flagged for delivering dangerous materials and were required to book their cargoes as such.

Cobalt hydroxide belongs to category 9 in the International Maritime Dangerous Goods (IMDG) code, which categorizes it as a dangerous material for sea transportation, sources said.

“We heard that a batch of cobalt hydroxide met with declarations problems as some shipping companies, which could deliver it in general cargo before, were required to use dangerous material cargo from now on,” a second supplier said. “This will cause further tension on shipments as dangerous material cargos are very hard to book, and fees are much higher compared with general ones.”

Some market participants said this is not likely to have a major impact, given that there are suppliers who already deliver cobalt hydroxide as a dangerous material during sea transportation.

Others, however, said this will likely put pressure on an already tense shipping situation.

Keep up with what’s happening in the cobalt market throughout 2022, visit our dedicated cobalt market page.

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Market participants were pondering what may be driving the backwardation despite tightness and bullish fundamentals that have supported prices in the physical market.

One possible reason for the increased interest and backwardation of the futures contracts was the undervalued nature of some of the longer-term contracts, compared with strong fundamentals supporting the spot price, some said.

Fastmarkets assessed the price of cobalt, standard grade, in-whs Rotterdam at $34.40-34.80 per lb on Wednesday, narrowing upward slightly from $34.30-34.80 per lb a week earlier.

On the CME forwards, volume of 425 tonnes has been traded on a consecutive-day basis from January 28 to February 4, with a combined total of 245 tonnes on January 31 and February 1. These six trading days have had almost three times the volume of the 18 trading days from January 3 to January 27.

On January 27, the December 22 contract closed at $31.05 per lb, down by $0.70 per lb and at its lowest since November 23. Conversely, the midpoint of Fastmarkets’ cobalt standard grade price was $34.40 per lb on January 27. The premium of $3.35 per lb was the largest the spot market had held against the Dec-22 contract since its inception.

Logistics easing

Part of the thinking that could drive the backwardation in futures contracts later in the year may be related to expected improvements in the logistics bottlenecks that are currently limiting the flow of materials to market, according to Fastmarkets’ battery materials research team.

“Shipping delays and port disruptions are not affecting production but are affecting supply,” William Adams, head of Fastmarkets’ battery materials research, said. He added that “higher production and less congestion down the road” are likely to bring better availability in the coming months.

“A backwardated forward curve may indicate a pick-up in producer forward-selling,” he said.

While the physical market remains characterized by general tightness and limited spot availability, which have supported cobalt metal prices in January and February, some sources said the futures backwardation may be a factor leading buyers to limit their current restocking activity.

“Some consumers may look at that curve and think there may also be some easing in prices in the physical markets later on,” one trader said. “So if you are sitting on some stock and you can defer your purchasing, that curve may be one element you’re taking into account.”

“The market is fundamentally under-supplied,” a second trader said. “But the CME is showing backwardation, which is confusing. If you see that as a consumer, you may be tempted to short your position a bit, instead of replacing promptly.”

Narrowing gap

Market participants are questioning how long this backwardation will persist. There are signs that the spread between spot and forward prices is already starting to narrow.

The Dec-22 contract had risen to $33.08 per lb by the close of trading on February 8; the CME was indicating $33.08-33.18 per lb throughout the second half of 2022. The midpoint of the second-half 2022 indications compared with Fastmarkets’ cobalt standard grade, in-whs Rotterdam, midpoint on Tuesday at $34.60 per lb; the spot price was trading at a premium of $1.47 per lb.

Physical cobalt metal prices have traded at their highest since August 2018 in recent weeks, with this buying activity on the CME contracts giving clarity to some opinions on price levels next year.

“This large volume of activity underpins the cobalt market to an extent over the mid-term,” a third European trader said.

Price rises, reflecting a degree of tightness for spot supply and sustained demand from the electric vehicle (EV) sector, has coupled with a recovery in forecasts for other cobalt metal-consuming sectors, including aerospace and medical.

“We think the price is well supported this year with supply demand fundamentals and logistics issues,” a fourth trader in Europe said.

The sustained rally has coincided with a boom in EV interest, driven by ambitious targets for the phasing-out of cars with internal combustion engines. Annual global EV sales grew by 107% in 2021, according to Fastmarkets’ analysis.

“The long-term picture can only be bullish,” a distributor said. “There’s a lot of demand – and growing demand.”

And while logistics constraints may ease in future, some market participants expect demand to remain strong enough to keep prices well supported.

The Fastmarkets-settled cobalt futures contracts on the CME were launched in December 2020.

“As zero-emissions policies continue to grow [in adoption] globally, clients are looking for more effective ways to manage the price risk associated with electric transportation,” Young-Jin Chang, managing director and global head of metal products at CME Group, said at the announcement of the contracts.

Although some market sources noted that the cash-settled futures contract showed a slight separation from physical trading, the CME futures do hold up as a risk-management tool, enabling users to manage price risk by hedging.

“It serves as a good guidance tool for the market and adds an element of volatility which can be beneficial,” another trader said.

Risk management is a key component for the cobalt market, especially because demand is likely to continue to increase. In November 2021, annual contract negotiations were offered at a premium rather than a discount for some consumers for the first time.

And in another change from previous years, consumers have also sought to secure multi-year agreements to guarantee supply over the longer term.

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