As freight rates rise ahead of IMO 2020, feed buyers and flour millers in Southeast Asia are weighing wheat competitiveness between the major origins.
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While IMO 2020 will give Australia an additional freight advantage due to its closer proximity, freight alone may not be enough to restore its competitive edge in Southeast Asia, where buyers have cultivated a taste for cheaper wheat from the Black Sea and Argentina. As a result, the FOB price spreads will be crucial in shaping overall wheat competitiveness in the region.
S&P Global Platts estimates that for Australia to regain its lost market share in the region, the Australian Premium White FOB prices can be at a maximum of $25/mt higher than Black Sea 12.5% protein FOB wheat prices, which is the equivalent of the anticipated freight differential in an IMO 2020 marine fuel compliant environment.
In the last one month, the FOB spread between APW wheat and Black Sea 12.5% protein wheat has narrowed by almost $20/mt to $34.25/mt on Thursday.
Prices from the Black Sea have surged by 12% since September 9 to $205.25/mt Thursday, as suppliers bid higher to cover for the Middle Eastern and Southeast Asian demand amid strong farmer retention to hold onto their wheat crop.
Unlike previous years, farmers in the Black Sea are expanding their sales this season and are keen to reap the maximum benefit out of the higher quality wheat that has been harvested.
While Australian wheat prices have also edged up, the extent of the price increase has been milder as they remain uncompetitive in the international market following a third consecutive year of drought.
The Yuzhny, Ukraine to Cigading, Indonesia 50,000 mt grains route was assessed down 50 cents on October 17 to $34.50/mt, S&P Global Platts data showed. However, market participants expect to see the freight rate rise significantly from November onward as cargo inquiry picks up from the Black Sea loading ports.
"The Mediterranean and Black Sea [markets] are softening right now, but that's because there are almost no October cargoes," said one ship operator source. "There are a few more first-half of November stems, and almost all of the offers thus far are for second-half of November."
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