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Analysis: Surging container freight emerges as key in driving aluminum, alloy prices higher


New York —
Surging container freight costs are spurring significant price gains in aluminum and aluminum alloy markets in December, despite having rarely featured strongly in price discussions, as rapid changes in demand and supply prompted by the pandemic result in an acute container shortage in Asia.

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Container freight costs typically do not feature strongly in seaborne primary aluminum or ADC12 alloy price discussions, which are mainly CIF markets in which producers manage shipping costs. However, the recent bullishness in container freight demand, and the challenges in finding both empty containers and space on ships, has pushed the cost of freight to the fore of price considerations for both products.

The Platts Container Index, which is based on a weighted average of all Platts container assessments, was assessed at $2,756.35/FEU Dec. 2, the highest since the index was launched on July 3, 2017.

While prices have been on an uptrend since the second quarter, the Platts Container Index has surged 57% since the start of November, and is up 143% since the start of the year.


PRIMARY ALUMINUM PREMIUMS BULLISH

Aluminum prices have also seen a steady recovery since April. The official London Metals Exchange cash settlement closed at 3-year high at $2,045.5/mt Dec. 1, rebounding 44% from a record low at $1,421.5/mt on April. 8, amid logistics disruptions in the Asia-Pacific, including delayed shipments from major exporter Australia and cancelled term contract volumes causing tightness in Japan, Asia’s biggest importer after China.

Japanese imported primary aluminum premiums or the MJP, the regional benchmark, surged 57% to $105-$115/mt plus LME cash, CIF Japan between April 15 and Dec. 1.


Higher container rates underpinned the price rally as aluminum producers factor freight costs into premium sales, an Asian producer source said.

“Freight has at least doubled – I see some routes that have more than tripled,” an international trader said.

Although imported aluminum ingots are usually shipped in bulk from Australia and in containers from Middle East and South Africa, sources said containers are preferred for shipments below 5,000 mt, and typical traded volumes for each deal are in multiples of 500 mt.

As such, market participants expected the bull run to continue into the first quarter of 2021. The first quarterly MJP deal under a 2021 annual term contract was reported at $125/mt CIF Japan for 2,000-3,000/mt per month over January-March, up 42% from the Q4 assessment at $88/mt.

ADC12 PRICES AT 6-YEAR HIGH

Freight costs were also driving prices higher in the downstream aluminum alloy ADC12 CIF Japan spot market, along with a global shortage of scrap that has led to higher production costs, and strong demand from key buyer Japan. The FOB China market was assessed at $2,115-$2,135/mt in the week to Dec. 1, up $150/mt or nearly 8% from the week before and at the highest level since 2014.

A source at an international producer noted that freight costs have risen significantly, depending on the ports.

A source in Japan said freight rates that used to be stable around $15/mt have more than tripled to more than $45/mt. A source in China agreed that shipping costs had surged, but declined to elaborate.

Shipping delays have also resulted in Japanese traders turning to Chinese material at current prices rather than European origin alternatives that are typically cheaper.

ACUTE CONTAINER SHORTAGE IN ASIA

Spot container rates have been on an uptrend since Q2 following aggressive fleet management by carriers through blank sailings in response to an initial period of weakness in traded volumes due to the pandemic. In addition, prompt requirements for personal protective equipment and home office supplies have buoyed demand amid a tight shipping market, adding further pressure on spot rates.

Changing demand patterns and the pandemic also created logistical challenges that could see freight rates remain firm going into 2021, market sources said.

Tightness was evident in Asia due to an imbalance in capacity caused by the unexpected surge in demand on the trans-Pacific route, a Hapag-Lloyd source said. “Our container fleet has reached its productivity limit: Leasing availability and production capacity are fully booked until end January. However, we have established guiding principles to ensure we can serve our customers,” the source added.

A skewed export-import ratio in China has left shippers scrambling for empty containers and other Asian countries are also grappling with shortfalls.

“There is an acute container shortage across Asia. Spot bookings now need to be made at least 21 to 25 days in advance to ensure availability of containers as well as to get space on ships,” an India-based freight forwarder said.

A freight-forwarder in Thailand said: “We have to reject many bookings as there are no empties; most of my time now just goes in arranging for an empty container.”

Shippers looking to manage the container shortage by buying or leasing containers face the risk of surging overheads.

“Container prices are at an all-time high; now buying a container will cost you $2,700 compared to $1,500 six months back, and the leasing market also remains under tremendous pressure,” an India-based freight forwarder said. “The market knows that this rally is going to be short-lived, so everyone across the logistics value chain is trying to make the best of the situation.”

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