Black Sea Watch: Markets on tenterhooks ahead of safe-passage deadline

With grain shipments out of Ukraine disrupted once again, weekly flows have returned to the lowest levels since May, with market participants expressing concern about a potential no-deal for the upcoming Black Sea Grain Initiative safe-passage extension deadline.

"The current state of the market is rather disheartening, as there have been no inward inspections conducted since June 26," a Ukraine-based shipbroker said. "The Joint Coordination Centre of the Black Sea Grain Initiative has ceased accepting any additional vessels for transit through Ukraine -- at present, we have two ships in the queue, comprising a Handysized vessel and a Supramax, anxiously awaiting the outcome of political deliberations."

The UN-brokered Black Sea Grain Initiative signed in July 2022 by Russia, Ukraine, and Turkey, and renewed for a third time in May for another two months, enabled the resumption of exports of grains from the key Ukrainian ports of Chornomorsk and Odesa on the Black Sea, with cumulative grain shipments under the safe passage deal crossing above 32.8 million mt as of July 13, data from the Initiative's Joint Coordination Centre showed.

"The UN is in constant contact with all parties to the initiative," a JCC official said. "We cannot speculate on what will happen past the 18th. Hopefully, the situation will be clear by then."

UN Secretary-General Antonio Guterres reached out to Russia earlier this week proposing ways to facilitate Russia's food and fertilizer exports with an aim to continue the Black Sea grain deal beyond July 17, a statement from the UN showed July 12.

Overall, freight market participants remain unconvinced that lifting the SWIFT sanctions could be easy.

"Sanctions are easier imposed than lifted. Even if they were lifted tomorrow, when could the SWIFT connection realistically restart?" asked a Supramax shipbroking source. "We'll have to see what the impact and the success of the UN proposal will be."

"The safe passage agreement will have to be extended as nobody benefits if the corridor is shut down...Although the deal extension negotiations might take weeks," said a Piraeus-based shipbroker. "For freight, premiums for Russian business have narrowed, cargo availability is lower, and some vessels are trying to avoid Russian ports to become more attractive to charterers concerned with port call history."

Still, without a clear indication that a series of demands made earlier by Russia will be met, including removing obstacles to Russian grain and fertilizer exports, the future of the safe-passage deal remains uncertain.

"Russian business premiums might be narrowing but they still exist," said a Geneva-based Panamax shipbroker. "As long as the vessel does not lift coal or bunkers from Russian ports, most charterers are OK with hiring it afterward."

Meanwhile the port of Pivdennyi, initially included in the safe-passage deal, remains inactive with the latest shipment observed on May 11.

"There are still more than enough vessels willing to do Black Sea and Baltic business, cargo demand is still decent," said an Italy-based shipbroker. "Still, I remain very pessimistic about a potential extension of the safe-passage agreement, the outlook is quite bleak."

According to the initial wording of the agreement, the Black Sea Grain Initiative text states that the safe passage will be extended automatically, unless one of the parties notifies the other of the intent to terminate the initiative or to modify it.

Russian crop quality deteriorates

Black Sea wheat market prices were relatively stable at the start of the new marketing year (July 2023-June 2024). As of July 12, export prices from Russia were seen at $230/mt from the port of Novorossiisk, with bidding interest steady at around the mid-to-high $220s/mt range.

Traders said the Russian government has tried to set a new unofficial price floor at $240/mt for August shipments, although offers on the market were $10/mt below that level.

Meanwhile, on the ground, traders expressed concerns about the quality of the new crop as heavy rains poured down in the south. "There are serious concerns for Russian crops because of heavy rains in the south of Russia and in the Rostov region," a wheat trader said.

Russia's exports are still priced far below France and Romania. In Romania and Bulgaria, the highest bid for the FOB Constanta 11.5% protein wheat August shipments was heard at a discount of Eur11/mt to MATIF September on July 12. In France, CPT Rouen was priced at $250/mt on July 12, Platts data showed.

Corn exporters turn to the Danube

The FOB POC Black Sea corn market stayed quiet as traders monitored grain deal developments and looked with more interest at the active coasters market via the Ukrainian stretch of the Danube River, Reni, and Izmail ports.

This comes as the Ukrainian government said that the country should get ready to export a large quantity of its grains from the new harvest through the Danube ports instead of the three ports covered under the grain deal, namely Chornomorsk, Odesa and Yuzhny/Pivdennyi.

"The stress of the grain corridor makes the Reni and Izmail stretch of the Danube River a better alternative option," a trader of Ukraine grain said.

"It's difficult to find demand on the FOB POC market," a Ukraine-based trader said.

One market participant said that CPT Izmail was trading in the high-$170s on July 11 and FOB values would be expected above $200/mt.

Meanwhile, on the FOB CVB market, export prices have slowed in recent weeks, as sellers struggled to compete with rivals from Brazil.

"Brazil is way cheaper and it's putting pressure on sellers from the Black Sea," another trader said.

Platts assessed POC FOB CVB corn at $225/mt for August shipment, down $9/mt in July 3-11.