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Suez Canal blockage may heighten price pressures in steel, metals: sources

Highlights

Canal used for various steel, steelmaking and metals products

Potential pressure seen on tradeflows, freight rates

London — The Suez Canal blockage by the grounded Ever Given container ship is not expected to immediately impact steel and metals supplies worldwide, market sources said March 25. However, it is fueling expectations of eventual rises in bunker and freight rates and inventory-squeezing that could exacerbate current upwards price pressure, particularly in steel and copper, they said.

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The waterway is used for shipments of steel and steelmaking raw materials including iron ore, pellets and hot-briquetted iron between the CIS and Asia, including China; aluminum semi-finished products from the Middle East to European nations and for copper shipments from Western nations to China.

"The commodity impact extends beyond oil and gas," said Derek Langston, head of research at shipbroker SSY. "An array of dry bulk cargoes use the Suez Canal to access key markets in Asia, including grain from the Black Sea and Europe, coal and iron ore from the Black Sea, plus fertilizers from the Baltic Sea. Even coal and petroleum coke shipments from the US into India use the canal.

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"Indeed, shipping schedules in the Black Sea are already being affected by the incident through delays to vessels arriving at port to load cargo, with the potential for further vessel shortages growing," Langston said.

Oil and gold prices were higher early March 25 after the impact of the March 23 blockage became apparent, before sliding later in the day. More than 150 ships were reportedly in a queue to pass the blockage.

Copper disruptions

Broker SP Angel noted "developments in the Suez Canal are also fueling uncertainty in commodities markets, with vessels unable to navigate one of the world's most important shipping routes."

Brokerage Marex Spectron cited comments from Mysteel that the blockage is likely to exacerbate copper disruptions in China. Even if the blockage is resolved in a few days, the backlog of vessels that needs to clear the canal could result in delays of a month in copper shipments from Western countries to China, it said.

Steel sector wary

For steel sources, the crucial factor will be how long the blockage lasts.

"At the moment it's hard to discern any noticeable impact on the European steel industry," said a spokesman for the European Steel Association Eurofer. "This blockage of the Suez Canal is, whilst newsworthy, likely short term and likely to soon be resolved."

If the issue is long-lasting it could have an effect on the European steel sector "as the market is already tight and deliveries slow," a trader said.

The trader nonetheless expressed greater concern over potential supply disruptions currently feared from steelmakers ArcelorMittal Italia, due to a pending court ruling on its operation, and Liberty Steel due to financing issues.

S&P Global Platts assessed North European hot rolled coil prices at an all-time high of Eur830/mt ex-works Ruhr on March 25, up Eur30/mt on-day, while Southern European HRC prices went up by Eur15/mt on the day to Eur825/mt ex-works Italy.

Removal expectations

According to Platts Analytics, the Suez Canal Authority initially forecast Ever Given could be cleared March 25, but revised port agents' estimates later put this at March 28 or 29 at the earliest.

"If traffic started again mid next week, it may take another 10 days to return to normal keeping in mind cargo cancellations and re-routing. Another issue is the work that will have to take place to repair damage caused to the canal structure, and whether it will add time to the transit throughout the canal," an analytics report said.

SSY said a high tide is expected March 27 and this may be the best chance to free the vessel from her current grounding.

"Until this time it is premature to suggest further impact to the market, however if this high tide comes and goes and the vessel is still aground, this may cause long-term impact," the broker said.

A spokesman for steelmaker Qatar Steel estimated the delays at anywhere up to three weeks.

"Tugboats work to free 400-meter, 20,000 container capacity MV Ever Given as vessels gather at either end of the key waterway between East and West. Estimations from unofficial channels are showing the expected impact of global delays between two days to three weeks," the spokesman said.

The blockage could potentially be impacting a total of 55,000 TEU of cargo from Asia to Europe daily, assuming that vessels are fully-laden due to current high market demand, he said.

"The current expectation is that it will take some 2 days to clear the canal which will cause the delay of 110,000 TEU of cargo – which will cause a spike of cargo into the main ports in Europe as this will now arrive at the same time as cargo arriving normally a few days later. In other words, this increases the risk we will see port congestion in European ports one week from now."

Global shipping could be impacted if the problem persists, as "the next best way to get between Asia and Europe is around the entire continent of Africa, almost 9000 km more and two weeks longer lead time," the Qatar Steel spokesman said.

Freight rates

Marine fuel prices had reached their highest levels since January 2020 at the time of the Ever Given incident, with the Suez Canal having seen comparatively higher traffic in recent weeks, Platts Analytics said.

Analytics sees that shipowners are not in a position yet to command a higher freight rate for new fixtures due to the uncertainty of when the vessel will be cleared to transit normally through the Suez Canal.

However, "we would expect to see over the next couple of weeks rates spiking before calming down again once the backlog is cleared. The owners will not want to miss out on these increased spot rates. Freight rates are low compared to prior years due to the ongoing COVID-19 situation. These Suez Canal delays could see rates in April and May remain higher than pre-incident freight levels," Platts Analytics said.