FEATURE: Negative margins on imported rice in West Africa concern traders

Rice traders for West African destination markets have warned that import prices could rise in response to freight rate increases and the resulting negative profit margins.

Local rice prices in the region -- including key destinations of Benin, Togo, Ghana, Senegal and Côte d'Ivoire -- have been depressed in recent weeks by a flurry of arrivals, primarily from India. One Singapore-based trader said the "market is overflowing" with rice, going on to say that "huge arrivals [are] lined up in the next few weeks."

At the same time, breakbulk freight rates from India and other Asian origins have been consistently increasing. Buyers have been shifting away from container shipments and toward breakbulk due to limited availability and steep costs. One major Indian exporter said, "containers are completely out of the question," and that traders have "no other option." Another exporter said the price of breakbulk freight from India's Kakinada Port to main West African ports was around $120/mt, compared with around $240-$250/mt for container freight.

Despite this, FOB prices in India have been stable in recent months and have not retreated to account for the rise in freight rates. The S&P Global Platts assessment of Indian Parboiled 5% STX has hovered within $350-$365/mt FOB since May 21. Indian 100% broken white rice has been assessed within $270-$285/mt FOB since April 6.

Market disconnect

These three factors of improving supplies, rising freight rates and relatively stable FOB prices have created a disconnect in the market. Two Europe-based traders said freight from India to Senegal currently costs around $125-$135/mt, whereas breakbulk ships in Dakar now were chartered on the basis of $95-$100/mt. As a result, one of these traders said, "the price [of broken rice] in Senegal has to increase by Eur30/mt [$35/mt]," expecting the increase to come in stages in the coming weeks.

However, traders have said that "prices at destination are not there" and returns are "heavily negative." One trader for Senegal said any sales being concluded were "betting on higher [destination] prices in the future." However, a Singapore-based trader for the region was doubtful local prices could increase, stating that "people don't have purchasing power to pay higher ... [so] normal laws of economics don't apply."

Kakinada Port congestion

Despite the variety of opinions, sources typically agreed that demand from West Africa is still there. A second Singapore-based trader said it "doesn't think there is a lot of cargo" in the region following logistical difficulties earlier in the year caused by India's COVID-19 situation.

This is reflected in current activity at the Kakinada Port, with sources saying that close to 20 ships for the region are either being loaded, are waiting to be loaded or are expected in port in the near future.

More than 500,000 mt of rice, primarily broken and parboiled rice, are set to be loaded onto breakbulk ships destined for West Africa in the coming weeks, according to data seen by Platts.

One Europe-based trader noted that slow load rates and congestion at the port are likely to add on further costs due to demurrage charges and time charter arrangements, creating further pressure on profit margins.

With no signs that breakbulk freight rates are set to decrease soon, another cog in the supply chain must accept the increased delivered costs. The main question now is which cog it would be.