ECSA Freight Watch: Market rebounds as fundamentals support mid-June deliveries

Despite a week marked by public holidays across Europe and Southeast Asia, activity in the South Atlantic grain freight market surged, culminating in a much-anticipated rebound. As the South Atlantic continues to be influenced by the push-and-pull of tonnage, late June arrivals are experiencing less pressure as most ballasters are set to arrive in early June. Concurrently, with Pacific activity picking up, South Atlantic freight is poised to capitalize on favorable fundamentals while market participants closely monitor how regional dynamics may affect the short-term freight market.

South Atlantic grain market gains dominance

According to S&P Global Commodities at Seas, during the week starting May 20, 1 million metric tons of agribulk were transported from ECSA to the Far East via Kamsarmax and Panamax carriers, compared with 373,000 metric tons from the US Gulf. Delays in soybean planting progress in the US are anticipated, with rain forecast across the US Midwest. Meanwhile, Brazilian state agency Emater reported that the soybean harvest in Rio Grande Do Sul state has advanced to 91%, up from 85% the previous week. Despite progress, the situation in the state remains precarious, with crop losses anticipated due to excessive moisture levels stemming from the floodings.

"The US harvest season isn't supported at the moment, compared with the East Coast South America, which exports soybeans during this time of the year," said one dry bulk analyst commenting on the seasonality of crops.

One shipbroker on cargo flows noted: "We are not seeing many cargoes on the US-China route, mostly out of ECSA."

Tonnage push-and-pull

"Tonnage is mostly ballasting for the first half June dates and there are still vessels in that laycan looking for their next employment" said a second shipbroker.

"The number of vessels open in the east of Suez to the ECSA business in the next 45 days has normalized to 160-170 ships now" said the dry bulk analyst.

According to CAS, in the week starting May 20, 2024, there were 191 laden kamsarmax vessels versus 161 ballast vessels in the ECSA region.

Fixing undercurrent

"ECSA has improved; $20,000/d fixture was reported in the market. The bid-offer spread has widened considerably, with second half June slots receiving bids at $19,500 and offers at $21,000. Today's fixing level places us at $20,000 in my opinion," said the second shipbroker.

Illustrating this trend, the 81,793 dwt, 2020--built, Princess A was heard fixed to open APS for an ECSA fronthaul from June 1 to 10 for $20,000/d and a ballast bonus of $1,000,0000. Commenting on this fixture, a shipowner remarked: "The strength of this rate suggests where the market is headed."

However, the first shipbroker said: "The bids are mixed, and I wouldn't be surprised to see some low fixtures. Charterers continue to put pressure, as the market will be at $23,000-24,000 in June and July".

"It's because of the better sentiment in the Pacific. I noticed more Indo orders and some vessels from South China. Indonesia's steady coal demand has resulted in a freight rise in the Aussie round voyage, which puts pressure on charterers for ECSA traders and in general Pacific mineral operators," added the second shipbroker, highlighting the trickle effect from the Pacific boom. "Richard Bay business is also picking up alongside the ECSA market. Owners are bidding over $22,000-23,000 for a Richards Bay round voyage because ECSA levels have improved. The Indian Ocean market follows this sentiment."

Regional dynamics at play

Regional dynamics are shaping the grain market landscape. Despite the soybean harvest in Rio Grande Do Sul advancing to 91% from 85% the previous week according to Emater, the state still faces critical conditions and anticipates crop losses due to high moisture levels stemming from floods. These challenges are compounded by spiroplasma disease and an indefinite strike by Argentina's oilseed workers' union SOEA, initiated on April 29 in protest against President Javier Milei's reforms. These factors pose a significant threat to operations at San Lorenzo port, crucial for Argentine oilseed exports.

The dry bulk analyst highlighted bearish trends in the grain market, citing disruptions caused by heavy rains in South Brazil, although Santos and Paranaguá remain unaffected. Additionally, delays in soybean and corn planting in the US and dry conditions in Russia have contributed to market instability.

Consequently, future prices for grain commodities have risen this month due to these disruptions. Moreover, with the Brazilian Real depreciating strongly against the US dollar and major ports like Santos and Paranaguá still operational, buyers feel an urgent need to procure grain. "These signals have compelled the buying hand of grain traders," he added.

Looking ahead, with anticipated disruptions in the grain supply chain across regions and growing uncertainty among traders facing adverse price movements in the mid-term, several cargoes are expected to enter the market in the coming weeks. Additionally, as tonnage pressure eases for second-half June dates, demand for commodities and South Atlantic freight is projected to increase further.