Ukraine grains exporters turn to Danube ports, heating competition with iron ore, steel shipments

The Ukrainian stretch of the Danube could increasingly become the principal outlet for grains exports that no longer would be able to leave Black Sea ports. The implications of this could be increased competition for river ports and adjacent infrastructure with other cargoes, including ferrous metals, market participants have told S&P Global Commodity Insights.

The UN-brokered Black Sea Grain Initiative -- signed a year ago by Russia, Ukraine and Turkey and renewed every four months with the next update due July 18 -- enabled the resumption of exports of grains and other foodstuff from the three key Ukrainian ports of Chornomorsk, Odesa and Yuzhny/Pivdennyi on the Black Sea.

However, the Ukraine Sea Ports Authority said in the week started June 25 that Russia's interference has lately made it impossible to use the approved ports and that Ukraine should get ready to ship the entire grains volume of the new harvest through the Danube ports.

"Over the past few months, there has been some fuss around the Danube ports; they are increasing shipments," GMK Center's CEO Stanislav Zinchenko said.

"The Danube export corridor has its specifics -- it is shallow, although dredging is being carried out, and so are repairs to infrastructure."

Several others said they are alert to the trend too.

"I see a lot of cargoes [arriving from Danube ports] now," said a Piraeus-based chartering source.

"It has a draft restriction though," the source added.

"The draft in Reni is 7 m maximum in fresh water, so for instance a Handysize ship of 28,000-28,500 mt can just take 16,400-16,600 mt with those restrictions," said an Odesa-based shipbroker.

"But there are a lot of charterers who need to ship 8,000-15,000 mt bulk grains, including barley, wheat and corn, to various destinations such as the Mediterranean or North Spain, Adriatic or west coast Italy, Cyprus and Crete."

Danube had come in handy for miners and steelmakers before farmers started making headway to these minor ports in southwestern Ukraine.

Ferrous metal producers have started using the Danube corridor more and more on the lack of other alternatives since Russia's invasion of Ukraine and blockade of its major commercial seaports.

Logistics in Ukraine has become an extremely competitive factor, said GMK Center, which monitors changes in logistics flows, noting that pig iron and steel producers have not been using the Danube route much for the last two months though.

"Since spring, they have mostly exported through western railway crossings due to them being more available and thanks to healthy demand in the EU," said Zinchenko.

Steel pipe and railway wheel manufacturer Interpipe said it uses Danube ports sporadically. To deliver products to the US, the Middle East and other distant markets, the company does ship them along the Danube by barges to the port of Constanta in Romania, but it says these are small volumes as the bulk of its output goes via road to the EU.

"We do not ship much in physical volumes, and also farmers and us, we use different barges to transport our cargos, so there is no competition for barges between us. [Danube ports becoming overcrowded] is more of a problem for miners and semi-finished steel producers," said an Interpipe spokesperson.

Ukraine's bulk iron ore shipper Ferrexpo that relies on a combination of rail and barge services to deliver its pellets to Europe did not respond to a request for comments.

A representative of Ukraine's largest standalone steelworks ArcelorMittal Kryvyi Rih confirmed the competition for the Danube passage is already high.

"Everyone is trying to use the cheapest routes for their goods. These currently lead to Izmail, Reni and further to Romania," said the spokesperson.

"Everyone is using the same ports of Izmail, Reni and then the Danube ports, but along these routes, we run into a few bottlenecks, including [limited] capacities of the bridge in the city of Belgorod-Dniester, of dockside infrastructure and ports themselves."

"These [Reni, Izmail, etc.] are historically small river ports, which are now intended to work like deepwater ports," the Odesa-based shipbroker said of the facilities that are now bracing for throughputs significantly above their designed capacities.

"They are not built to handle 5 million, 10 million or 15 million mt/year," he said, adding that ports like Reni processed amounts that exceed their annual capacity already in first-half 2023.

Competition is on for the Belgorod-Dniester bridge and for dock spaces. How tense it would get depends on how smooth the full process could be, including on the speed of loading and unloading, preparing barges and ships, according to the ArcelorMittal Kryvyi Rih's spokesperson.

Ferrous exports from Ukraine could decline 30% in 2023, particularly steel products by 40%-50%, GMK Center estimated, saying that the forecast is subject to a few risks as the war continues.