ECSA Freight Watch: Market weakens as fundamentals challenge Sep deliveries

Amid the usual summer downturn, the South Atlantic grain freight market is facing an anticipated decline rather than a rebound.

Intensified tonnage concerns and weak rates in the South Atlantic, combined with ongoing Pacific market weakness, are putting increasing pressure on early-September arrivals. With a rebound during this period increasingly unlikely, the end of seasonality in the East Coast South America suggests a cautious outlook.

However, the upcoming US Gulf season may bring steady gains for the Atlantic Panamax market at the start of Q3, though these gains could be moderated by factors such as the US elections, US dollar volatility, and China's stockpiling activities.

Soybeans dominated, but the season has now come to an end

According to S&P Global Commodities at Sea, 44 soybean shipments were transported from ECSA to the Far East via Kamsarmax and Panamax carriers during the week of July 22nd, maintaining a steady weekly average of 40 shipments since June 24.

Although a 48-hour strike at major agribulk ports in Brazil began on July 31 -- raising concerns about potential loading delays -- the short-term freight market remained largely stable.

"We closely monitored the situation, but there were no disruptions that immediately impacted freight," a shipbroker said.

"There are a few cargo requirements for September, but overall sentiment has been negative. With current Pacific levels trending downward, I expect even more ships positioned in Southeast Asia to ballast towards ECSA, increasing the supply of available vessels," a ship owner said.

Another shipbroker mentioned that "there isn't a lot of cargo demand for September to drive the market up, and with the Pacific underperforming, I expect a wave of ships will start heading to ECSA."

In the week beginning July 29, there were 133 laden Kamsarmax vessels versus 150 ballast vessels in the ECSA region, according to the CAS data.

Fixing undercurrent

Regarding September deliveries, a third broker said: "There's not much happening 30 days out. There are a few flat bids around $16,500 for late August, but most are holding off. September offers are in the mid-$17,000s, with some even in the high $16,000s, but they're receiving no interest."

"With tonnage counts rising for the next 30 days and paper trade activity, I don't see what would prompt charterers to bid early for September unless there's movement elsewhere to drive them to act," he added.

Bleak grain freight outlook

"There's a lot at play at the moment- US elections, currency fluctuations and whether or not China will continue buying from America," said one dry bulk analyst.

"There are commitments to sell to China for the next marketing year, but their fulfillment remains uncertain. China has significantly stockpiled in the first half of the year, holding around 60% of the world's soybeans, corn, and wheat. Consequently, it's unlikely that import volumes in the latter half of the year will be robust enough to support freight rates. I'm cautious about sustaining cargo volumes at the levels seen earlier this year."

From October-May 2023 to 2024, China imported a record 37.8 million tons of corn, sorghum, and barley, nearly doubling the previous year's total.

Despite competitive US prices, USDA's July 2024 report shows US corn exports at their lowest since 2019-20. For 2024-25, China's feed grain imports are expected to decline due to reduced barley supplies from the EU, Canada, and Australia, lower US sorghum acreage, and ample corn supplies from increased domestic production and imports.

Looking ahead, rising tonnage pressure for early-September will require increased cargo demand to maintain freight rates in the Atlantic Panamax market, which has seen recent strength from South Atlantic activity.

As the summer downturn persists and ECSA faces ongoing tonnage pressures, commodity demand is expected to shift toward the US, which is entering its grain season in Q3. This shift may lead to a modest increase in freight rates.

However, uncertainties surrounding the US elections and volatility in the US dollar could affect export tariffs, policies, and price competitiveness.

Additionally, China's front-loaded import year is likely to dampen expectations for strong cereal demand in the latter half of the year, making the outlook for the Atlantic Panamax market appear bleak.