China's ports congestion worsens on COVID-19

With many Asian countries reports thousands of cases a day, it is hard to imagine that China, with 20-30 new COVID-19 cases/day, has also been on high alert and has locked logistics across the provinces in some regions such as East China's Jiangsu.

Congestion at many ports in East China has worsened with more stringent COVID-19 testing among vessel crews, port employees and truck drivers since July with the resurgence of COVID-19 cases such as in Jiangsu province, and Customs clearance of foreign vessels loaded with iron ore and coal, thus, has been lengthened, their prices reacted differently with the variation in fundamentals.

"Port congestion is serious at present, as many foreign vessels including dry bulk ships will have to have their crew members quarantined for 14-21 days first," observed a Jiangsu-based market watcher familiar with ports along the Yangtze River, and "Customs clearance and unloading, thus, have been delayed, and besides, accumulative arrivals of vessels recently have led to extremely long queues at some ports," she added.

The rather tight pandemic control measures at these ports are unlikely to be loosened in the near term, so the congestion will continue for a while, according to her.

An e-shop owner selling consumer goods in Jiangsu shared the same struggle. "I have orders from overseas, but I have no idea when I can arrangement shipments, as all have been stopped," she said.

A Shanghai-based freight market analyst added that congestion at the coastal ports has bee exacerbated recently not only in Jiangsu but also in its neighbouring province - Zhejiang, also in East China - since the resurgence of the pandemic in Nanjing of Jiangsu on July 20.

Mysteel's latest data showed that as of August 26, 182 iron ore vessels were queuing at China's 45 ports for unloading, still at a rather high level though down by another 3 on week. In the first half-year, the average number is around 126.

A Shanghai-based coal trader also noted that over 100 vessels laden with imported goods including coal were queuing in the waters of Jiangsu to enter the Yangtze River waterway.

Impact on prices of steelmaking raw materials varies

The congestion at these Chinese ports, however, has led to varied reaction in iron ore and coal prices, according to market sources, in that it has failed to lend much support to imported iron ore prices while it has added fuel to the already surging coal prices.

"Iron ore demand from Chinese steelmakers has been shrinking markedly since July as many of them are trimming their steel production in response to Beijing's call for lower steel output this year, and this has offset any support from Congestion," a Shandong-based iron ore trader in East China said.

On the contrary, "market is concerned that the serious congestion of iron ore vessels at the ports will only lead to sudden increases in supplies once they are unloaded one by one, and that may dampen prices as weak ore demand may be the theme for the remainder of this year with anticipated lower steel output," he added.

As of August 26, imported iron ore inventories at China's 45 major ports have been hovering at a relatively high level of 129.2 million tonnes, or up for the second-week by 1.25 million tonnes or 1% on week after three weeks of declines despite the ongoing congestion.

Though there may be some silver linings, he added, as September is with some long holidays, and steel mills may replenish their in-house iron ore stocks before these holidays.

China will be having a three-day Mid-Autumn break over September 19-21 and then a seven-day National Day holiday over October 1-7 when usually ore trading and logistics will be halted or disrupted especially for the latter.

As of August 26, Mysteel PORDEX 62% Fe Australian Fines in Qingdao of Shandong declined by Yuan 451/wmt ($69.5/wmt) since the end of June to Yuan 1,056/wmt FOT and including 13% VAT, or way below the record high at Yuan 1,684/wmt on May 10.

Congestion, however, has seen freight rate for coal shipments via Handysize bulk carrier from Indonesia to some ports at the Yangtze River have increased by around $7/t recently," the Shanghai-based coal trader said, as dry bulk carriers are harder to chart partly due to the congestion at the ports in East China.

"Some traders have even shunned the imported (thermal) coal market recently, as imported (thermal) coal is not as attractive with higher freight costs and the port congestion," he observed, adding some end-users in East China, have, thus, sourced more thermal coal domestically to substitute the imported tonnage.

What is in store for September then?

The congestion, if not eased or solved in September, may push global freight charges even higher, foreign market sources said.

"The global market is already short of container vessels, and any delays will only further sour the market situation," a Singapore-based analyst said, "and it does not help that September is the start of the month for China to ship many Christmas goods to overseas countries, and global freight charges will rise, regardless of container or dry bulk carriers," she predicted.

Container vessels are charging $20,000-25,000/FEU China to East Coast North America, she shared.

A U.S.-based iron ore analyst agreed, noting that freight costs have doubled to $150/t from $80/t nowadays for break bulk, and "shipping capacity is tight as many vessels are stuck trying to get into ports but getting delayed due to additional COVID screening. Especially in China," he commented.

Written by Sean Xie, xiepy@mysteel.com, Victoria Zou, zyongjia@mysteel.com, and Lindsey Liu, liulingxian@mysteel.com

This article has been published under an article exchange agreement between Mysteel Global and SteelMint.